82 FR 37955 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Revise the NASDAQ Options Market LLC Rules Regarding the Options Regulatory Fee
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 155 (August 14, 2017)
Federal Register Volume 82, Issue 155 (August 14, 2017)
| Page Range | 37955-37958 | |
| FR Document | 2017-17049 |
[Federal Register Volume 82, Number 155 (Monday, August 14, 2017)] [Notices] [Pages 37955-37958] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-17049] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81344; File No. SR-NASDAQ-2017-068] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Revise the NASDAQ Options Market LLC Rules Regarding the Options Regulatory Fee August 8, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''), \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on July 26, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to revise The NASDAQ Options Market LLC (``NOM'') Rules at Chapter XV, Section 5 to: (i) Make adjustments to the amount of its Options Regulatory Fee (``ORF''); and (ii) more closely reflect the manner in which NOM assesses and collects its ORF. While the changes proposed herein are effective upon filing, the Exchange has designated the amendments [sic] become operative on August 1, 2017. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose NOM initially filed to establish its ORF in 2011.\3\ The Exchange has amended its ORF several times since the inception of this fee.\4\ At this time, the Exchange proposes to: (i) Amend the amount of its ORF; and (ii) revise NOM's Rules at Chapter XV, Section 5 to more closely reflect the manner in which NOM assesses and collects its ORF. --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release No. 65913 (December 8, 2011), 76 FR 77883 (December 14, 2011) (SR-NASDAQ-2011-163) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Options Regulatory Fee). \4\ See Securities Exchange Act Release Nos. 76950 (January 21, 2016), 81 FR 4687 January 27, 2016)(SR-NASDAQ-2016-003); and 78360 (July 19, 2016), 81 FR 48475 (July 25, 2016) (SR-NASDAQ-2016-096). --------------------------------------------------------------------------- The Exchange supports a common approach for the assessment and collection of ORF among the various options exchanges that assess such a fee. Furthermore, the Exchange supports guidance from the Commission regarding regulatory cost structures to ensure equal knowledge and treatment among options markets assessing ORF. Proposal 1--Amend the Amount of the ORF The Exchange assesses an ORF of $0.0021 per contract side. The Exchange proposes to increase the ORF from $0.0021 per contract side to $0.0027 per contract side as of August 1, 2017 to account for a reduction in market volume. The Exchange's proposed change to the ORF should balance the Exchange's regulatory cost [sic] against the anticipated revenue. The Exchange regularly reviews its ORF to ensure that the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs. The Exchange believes this adjustment will permit the Exchange to cover a material portion of its regulatory costs, while not exceeding regulatory costs. The Exchange notified its Participants of this ORF adjustment thirty (30) calendar days prior to the proposed operative date.\5\ --------------------------------------------------------------------------- \5\ See Options Trader Alert #2017-54. --------------------------------------------------------------------------- Proposal 2--Reflect the Manner in Which NOM Assesses and Collects Its ORF Currently, NOM assesses its ORF for each Customer option transaction that is either: (1) Executed by a Participant on NOM; or (2) cleared by a NOM Participant at The Options Clearing Corporation (``OCC'') in the Customer range,\6\ even if the transaction was executed by a non-member of NOM, regardless of the exchange on which the transaction occurs.\7\ If the OCC clearing member is a NOM Participant, ORF is assessed and collected on all cleared Customer contracts (after adjustment for CMTA \8\); and (2) if the OCC clearing member is not a NOM Participant, ORF is collected only on the cleared Customer contracts executed at NOM, taking into account any CMTA instructions which may result in collecting the ORF from a non-member. --------------------------------------------------------------------------- \6\ Exchange Rules require each member to record the appropriate account origin code on all orders at the time of entry in order to allow the Exchange to properly prioritize and route orders and assess transaction fees pursuant to the Rules of the Exchange and report resulting transactions to OCC. \7\ The Exchange uses reports from OCC when assessing and collecting the ORF. \8\ CMTA or Clearing Member Trade Assignment is a form of ``give-up'' whereby the position will be assigned to a specific clearing firm at OCC. --------------------------------------------------------------------------- By way of example, if Broker A, a NOM Participant, routes a Customer [[Page 37956]] order to CBOE and the transaction executes on CBOE and clears in Broker A's OCC Clearing account, ORF will be collected by NOM from Broker A's clearing account at OCC via direct debit. While this transaction was executed on a market other than NOM, it was cleared by a NOM Participant in the Participant's OCC clearing account in the Customer range, therefore there is a regulatory nexus between NOM and the transaction. If Broker A was not a NOM Participant, then no ORF should be assessed and collected because there is no nexus; the transaction did not execute on NOM nor was it cleared by a NOM Participant. In the case where a Participant both executes a transaction and clears the transaction, the ORF is assessed to and collected from the Participant only once. In the case where a Participant executes a transaction and a different Participant clears the transaction, the ORF is assessed to and collected from the Participant who clears the transaction and not the Participant who executes the transaction. In the case where a non-member executes a transaction at an away market and a Participant clears the transaction, the ORF is assessed to and collected from the Participant who clears the transaction. In the case where a Participant executes a transaction on NOM and a non-member clears the transaction, the ORF is assessed to the Participant that executed the transaction and collected from the non-member who cleared the transaction. In the case where a Participant executes a transaction at an away market and a non-member clears the transaction, the ORF is not assessed to the Participant who executed the transaction or collected from the non-member who cleared the transaction because the Exchange does not have access to the data to make absolutely certain that ORF should apply. Further, the data does not allow the Exchange to identify the Participant executing the trade at an away market. ORF Revenue and Monitoring of ORF The Exchange monitors the amount of revenue collected from the ORF to ensure that it, in combination with other regulatory fees and fines, does not exceed regulatory costs. In determining whether an expense is considered a regulatory cost, the Exchange reviews all costs and makes determinations if there is a nexus between the expense and a regulatory function. For example, a cost related to Nasdaq's equity platform, would not be considered an expense that is compared to ORF revenue. An options surveillance employee's cost, however would be an expense that is compared to ORF revenue. The Exchange notes that fines collected by the Exchange in connection with a disciplinary manner offset ORF. The ORF is designed to recover a material portion of the costs to the Exchange of the supervision and regulation of its Participants, including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. The Exchange believes that revenue generated from the ORF, when combined with all of the Exchange's other regulatory fees, will cover a material portion, but not all, of the Exchange's regulatory costs. The Exchange will continue to monitor the amount of revenue collected from the ORF to ensure that it, in combination with its other regulatory fees and fines, does not exceed regulatory costs. If the Exchange determines regulatory revenues exceed regulatory costs, the Exchange will adjust the ORF by submitting a fee change filing to the Commission. Finally, the Exchange notes that it is amending its rule text at Chapter XV, Section 5 to remove certain rule text and include new text to make clear the manner in which ORF is assessed and collected on NOM. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \9\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act \10\ in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using its facility and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78f(b). \10\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- The Exchange believes the proposed clarifications in the Fee Schedule to the ORF further the objectives of Section 6(b)(4) of the Act and are equitable and reasonable since they expressly describe the Exchange's existing practices regarding the manner in which the Exchange assesses and collects its ORF. Proposal 1--Amend the Amount of the ORF The Exchange believes that increasing the ORF from $0.0021 per contract side to $0.0027 per contract side as of August 1, 2017 is reasonable because the Exchange's collection of ORF needs to be balanced against the amount of regulatory cost collected [sic] by the Exchange. The Exchange believes that the proposed adjustments noted herein will serve to balance the Exchange's regulatory cost against the anticipated regulatory revenue. The Exchange regularly reviews its ORF to ensure that the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs. The Exchange believes that increasing the ORF from $0.0021 per contract side to $0.0027 per contract side as of August 1, 2017 is equitable and not unfairly discriminatory because this modest increase will serve to balance the Exchange's regulatory revenue against the anticipated regulatory costs. The ORF seeks to recover the costs of supervising and regulating members, including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. Moreover, the Exchange believes the ORF ensures fairness by assessing fees to those Participants that are directly based on the amount of Customer options business they conduct. Regulating Customer trading activity is much more labor intensive and requires greater expenditure of human and technical resources than regulating non- customer trading activity, which tends to be more automated and less labor-intensive. As a result, the costs associated with administering the Customer component of the Exchange's overall regulatory program are materially higher than the costs associated with administering the non- Customer component (e.g. Participant proprietary transactions) of its regulatory program. The ORF is designed to recover a material portion of the costs of supervising and regulating Participants' Customer options business including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. The Exchange will monitor the amount of revenue collected from the ORF to ensure that it, in combination with its other regulatory fees and fines, does not exceed the Exchange's total regulatory costs. The Exchange has designed the ORF to generate revenues that, when combined with all of the Exchange's other regulatory fees, will be less than or equal to the Exchange's regulatory costs, which is consistent with the Commission's view that regulatory fees be used for regulatory purposes and not to support the Exchange's business side. In this regard, the Exchange believes [[Page 37957]] that the proposed amount of the fee is reasonable. Proposal 2--Reflect the Manner in Which NOM Assesses and Collects Its ORF The Exchange believes it is reasonable and appropriate for the Exchange to charge the ORF for options transactions regardless of the exchange on which the transactions occur. The Exchange has a statutory obligation to enforce compliance by Participants and their associated persons under the Act and the rules of the Exchange and to surveil for other manipulative conduct by market participants (including non- members) trading on the Exchange. The Exchange cannot effectively surveil for such conduct without looking at and evaluating activity across all options markets. Many of the Exchange's market surveillance programs require the Exchange to look at and evaluate activity across all options markets, such as surveillance for position limit violations, manipulation, front-running and contrary exercise advice violations/expiring exercise declarations. The Exchange, because it lacks access to information on the identity of the entering firm for executions that occur on away markets, believes it is appropriate to assess the ORF on its Participant's clearing activity, based on information the Exchange receives from OCC, including for away market activity. Among other reasons, doing so better and more accurately captures activity that occurs away from the Exchange over which the Exchange has a degree of regulatory responsibility. In so doing, the Exchange believes that assessing ORF on Participant clearing firms in certain instances equitably distributes the collection of ORF in a fair and reasonable manner. Also, the Exchange and the other options exchanges are required to populate a consolidated options audit trail (``COATS'') \11\ system in order to surveil a Participant's activities across markets.\12\ --------------------------------------------------------------------------- \11\ COATS effectively enhances intermarket options surveillance by enabling the options exchanges to reconstruct the market promptly to effectively surveil certain rules. \12\ In addition to its own surveillance programs, the Exchange works with other SROs and exchanges on intermarket surveillance related issues. Through its participation in the Intermarket Surveillance Group (``ISG''), the Exchange shares information and coordinates inquiries and investigations with other exchanges designed to address potential intermarket manipulation and trading abuses. The Exchange's participation in ISG helps it to satisfy the requirement that it has coordinated surveillance with markets on which security futures are traded and markets on which any security underlying security futures are traded to detect manipulation and insider trading. See Section 6(h)(3)(I) of the Act. ISG is an industry organization formed in 1983 to coordinate intermarket surveillance among the SROs by co-operatively sharing regulatory information pursuant to a written agreement between the parties. The goal of the ISG's information sharing is to coordinate regulatory efforts to address potential intermarket trading abuses and manipulations. --------------------------------------------------------------------------- The Exchange believes that assessing the ORF to each Exchange member for options transactions cleared by OCC in the Customer range where the execution occurs on another exchange and is cleared by a NOM member is an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. The ORF is collected by OCC on behalf of NOM from Exchange clearing members for all Customer transactions they clear or from non- members for all Customer transactions they clear that were executed on NOM. The Exchange believes that this collection practice is reasonable and appropriate because higher fees are assessed to those members that require more Exchange regulatory services based on the amount of Customer options business they conduct. Regulating Customer trading activity is more labor intensive and requires greater expenditure of human and technical resources than regulating non-Customer trading activity. Surveillance, regulation and examination of non-Customer trading activity generally tends to be more automated and less labor intensive. As a result, the costs associated with administering the Customer component of the Exchange's overall regulatory program are anticipated to be typically higher than the costs associated with administering the non-Customer component of its regulatory program. The Exchange proposes assessing higher fees to those members that will require more Exchange regulatory services based on the amount of Customer options business they conduct. Additionally, the dues and fees paid by members go into the general funds of the Exchange, a portion of which is used to help pay the costs of regulation. The Exchange has in place a regulatory structure to surveil, conduct examinations and monitor the marketplace for violations of Exchange Rules. The ORF assists the Exchange to fund the cost of this regulation of the marketplace. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The ORF is not intended to have any impact on competition. Rather, it is designed to enable the Exchange to recover a material portion of the Exchange's cost related to its regulatory activities. The Exchange is obligated to ensure that the amount of regulatory revenue collected from the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.\13\ --------------------------------------------------------------------------- \13\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File No. SR-NASDAQ-2017-068 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File No. SR-NASDAQ-2017-068. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use [[Page 37958]] only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-NASDAQ-2017-068, and should be submitted on or before September 5, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\ --------------------------------------------------------------------------- \14\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-17049 Filed 8-11-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37955
rules/sro.shtml). Copies of the solicit comments on the proposed rule collection of ORF among the various
submission, all subsequent change from interested persons. options exchanges that assess such a fee.
amendments, all written statements Furthermore, the Exchange supports
I. Self-Regulatory Organization’s
with respect to the proposed rule guidance from the Commission
Statement of the Terms of Substance of
change that are filed with the regarding regulatory cost structures to
the Proposed Rule Change
Commission, and all written ensure equal knowledge and treatment
communications relating to the The Exchange proposes to revise The among options markets assessing ORF.
proposed rule change between the NASDAQ Options Market LLC (‘‘NOM’’)
Rules at Chapter XV, Section 5 to: (i) Proposal 1—Amend the Amount of the
Commission and any person, other than ORF
those that may be withheld from the Make adjustments to the amount of its
public in accordance with the Options Regulatory Fee (‘‘ORF’’); and The Exchange assesses an ORF of
provisions of 5 U.S.C. 552, will be (ii) more closely reflect the manner in $0.0021 per contract side. The Exchange
available for Web site viewing and which NOM assesses and collects its proposes to increase the ORF from
printing in the Commission’s Public ORF. $0.0021 per contract side to $0.0027 per
Reference Room, 100 F Street NE., While the changes proposed herein contract side as of August 1, 2017 to
Washington, DC 20549 on official are effective upon filing, the Exchange account for a reduction in market
business days between the hours of has designated the amendments [sic] volume. The Exchange’s proposed
10:00 a.m. and 3:00 p.m. Copies of such become operative on August 1, 2017. change to the ORF should balance the
filing also will be available for The text of the proposed rule change Exchange’s regulatory cost [sic] against
inspection and copying at the principal is available on the Exchange’s Web site the anticipated revenue. The Exchange
office of the Exchange. All comments at http://nasdaq.cchwallstreet.com, at regularly reviews its ORF to ensure that
received will be posted without change; the principal office of the Exchange, and the ORF, in combination with its other
the Commission does not edit personal at the Commission’s Public Reference regulatory fees and fines, does not
identifying information from Room. exceed regulatory costs. The Exchange
submissions. You should submit only believes this adjustment will permit the
II. Self-Regulatory Organization’s Exchange to cover a material portion of
information that you wish to make Statement of the Purpose of, and
available publicly. All submissions its regulatory costs, while not exceeding
Statutory Basis for, the Proposed Rule regulatory costs.
should refer to File Number SR–Phlx– Change The Exchange notified its Participants
2017–66, and should be submitted on or
In its filing with the Commission, the of this ORF adjustment thirty (30)
before September 5, 2017.
Exchange included statements calendar days prior to the proposed
For the Commission, by the Division of concerning the purpose of and basis for operative date.5
Trading and Markets, pursuant to delegated
the proposed rule change and discussed Proposal 2—Reflect the Manner in
authority.27
any comments it received on the Which NOM Assesses and Collects Its
Eduardo A. Aleman,
proposed rule change. The text of these ORF
Assistant Secretary. statements may be examined at the
[FR Doc. 2017–17067 Filed 8–11–17; 8:45 am] places specified in Item IV below. The Currently, NOM assesses its ORF for
BILLING CODE 8011–01–P Exchange has prepared summaries, set each Customer option transaction that is
forth in sections A, B, and C below, of either: (1) Executed by a Participant on
the most significant aspects of such NOM; or (2) cleared by a NOM
SECURITIES AND EXCHANGE statements. Participant at The Options Clearing
COMMISSION Corporation (‘‘OCC’’) in the Customer
A. Self-Regulatory Organization’s range,6 even if the transaction was
[Release No. 34–81344; File No. SR– Statement of the Purpose of, and the executed by a non-member of NOM,
NASDAQ–2017–068] Statutory Basis for, the Proposed Rule regardless of the exchange on which the
Change transaction occurs.7 If the OCC clearing
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of 1. Purpose member is a NOM Participant, ORF is
Filing and Immediate Effectiveness of assessed and collected on all cleared
NOM initially filed to establish its Customer contracts (after adjustment for
Proposed Rule Change To Revise the ORF in 2011.3 The Exchange has
NASDAQ Options Market LLC Rules CMTA 8); and (2) if the OCC clearing
amended its ORF several times since the member is not a NOM Participant, ORF
Regarding the Options Regulatory Fee inception of this fee.4 At this time, the is collected only on the cleared
August 8, 2017. Exchange proposes to: (i) Amend the Customer contracts executed at NOM,
Pursuant to Section 19(b)(1) of the amount of its ORF; and (ii) revise taking into account any CMTA
Securities Exchange Act of 1934 NOM’s Rules at Chapter XV, Section 5 instructions which may result in
(‘‘Act’’), 1 and Rule 19b–4 thereunder,2 to more closely reflect the manner in collecting the ORF from a non-member.
notice is hereby given that on July 26, which NOM assesses and collects its By way of example, if Broker A, a
2017, The NASDAQ Stock Market LLC ORF. NOM Participant, routes a Customer
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the The Exchange supports a common
Securities and Exchange Commission approach for the assessment and 5 See Options Trader Alert #2017–54.
6 Exchange Rules require each member to record
(‘‘SEC’’ or ‘‘Commission’’) the proposed 3 See Securities Exchange Act Release No. 65913 the appropriate account origin code on all orders at
sradovich on DSK3GMQ082PROD with NOTICES
rule change as described in Items I, II, (December 8, 2011), 76 FR 77883 (December 14, the time of entry in order to allow the Exchange to
and III, below, which Items have been 2011) (SR–NASDAQ–2011–163) (Notice of Filing properly prioritize and route orders and assess
prepared by the Exchange. The and Immediate Effectiveness of Proposed Rule transaction fees pursuant to the Rules of the
Commission is publishing this notice to Change Relating to the Options Regulatory Fee). Exchange and report resulting transactions to OCC.
4 See Securities Exchange Act Release Nos. 76950 7 The Exchange uses reports from OCC when
(January 21, 2016), 81 FR 4687 January 27, assessing and collecting the ORF.
27 17 CFR 200.30–3(a)(12). 2016)(SR–NASDAQ–2016–003); and 78360 (July 19, 8 CMTA or Clearing Member Trade Assignment is
1 15 U.S.C. 78s(b)(1). 2016), 81 FR 48475 (July 25, 2016) (SR–NASDAQ– a form of ‘‘give-up’’ whereby the position will be
2 17 CFR 240.19b–4. 2016–096). assigned to a specific clearing firm at OCC.
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![37956 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices
order to CBOE and the transaction employee’s cost, however would be an regulatory cost collected [sic] by the
executes on CBOE and clears in Broker expense that is compared to ORF Exchange. The Exchange believes that
A’s OCC Clearing account, ORF will be revenue. The Exchange notes that fines the proposed adjustments noted herein
collected by NOM from Broker A’s collected by the Exchange in connection will serve to balance the Exchange’s
clearing account at OCC via direct debit. with a disciplinary manner offset ORF. regulatory cost against the anticipated
While this transaction was executed on The ORF is designed to recover a regulatory revenue. The Exchange
a market other than NOM, it was cleared material portion of the costs to the regularly reviews its ORF to ensure that
by a NOM Participant in the Exchange of the supervision and the ORF, in combination with its other
Participant’s OCC clearing account in regulation of its Participants, including regulatory fees and fines, does not
the Customer range, therefore there is a performing routine surveillances, exceed regulatory costs.
regulatory nexus between NOM and the investigations, examinations, financial The Exchange believes that increasing
transaction. If Broker A was not a NOM monitoring, and policy, rulemaking, the ORF from $0.0021 per contract side
Participant, then no ORF should be interpretive, and enforcement activities. to $0.0027 per contract side as of August
assessed and collected because there is The Exchange believes that revenue 1, 2017 is equitable and not unfairly
no nexus; the transaction did not generated from the ORF, when discriminatory because this modest
execute on NOM nor was it cleared by combined with all of the Exchange’s increase will serve to balance the
a NOM Participant. other regulatory fees, will cover a Exchange’s regulatory revenue against
In the case where a Participant both material portion, but not all, of the the anticipated regulatory costs. The
executes a transaction and clears the Exchange’s regulatory costs. The ORF seeks to recover the costs of
transaction, the ORF is assessed to and Exchange will continue to monitor the supervising and regulating members,
collected from the Participant only amount of revenue collected from the including performing routine
once. In the case where a Participant ORF to ensure that it, in combination surveillances, investigations,
executes a transaction and a different with its other regulatory fees and fines, examinations, financial monitoring, and
Participant clears the transaction, the does not exceed regulatory costs. If the policy, rulemaking, interpretive, and
ORF is assessed to and collected from Exchange determines regulatory enforcement activities.
the Participant who clears the revenues exceed regulatory costs, the Moreover, the Exchange believes the
transaction and not the Participant who Exchange will adjust the ORF by ORF ensures fairness by assessing fees
executes the transaction. In the case submitting a fee change filing to the to those Participants that are directly
where a non-member executes a Commission. based on the amount of Customer
transaction at an away market and a Finally, the Exchange notes that it is options business they conduct.
Participant clears the transaction, the amending its rule text at Chapter XV, Regulating Customer trading activity is
ORF is assessed to and collected from Section 5 to remove certain rule text and much more labor intensive and requires
the Participant who clears the include new text to make clear the greater expenditure of human and
transaction. In the case where a manner in which ORF is assessed and technical resources than regulating non-
Participant executes a transaction on collected on NOM.
NOM and a non-member clears the customer trading activity, which tends
transaction, the ORF is assessed to the 2. Statutory Basis to be more automated and less labor-
Participant that executed the transaction intensive. As a result, the costs
The Exchange believes that its
and collected from the non-member associated with administering the
proposal is consistent with Section 6(b)
who cleared the transaction. In the case Customer component of the Exchange’s
of the Act 9 in general, and furthers the
where a Participant executes a overall regulatory program are
objectives of Sections 6(b)(4) and 6(b)(5)
transaction at an away market and a materially higher than the costs
of the Act 10 in particular, in that it
non-member clears the transaction, the associated with administering the non-
provides for the equitable allocation of
ORF is not assessed to the Participant Customer component (e.g. Participant
reasonable dues, fees and other charges
who executed the transaction or proprietary transactions) of its
among members and issuers and other
collected from the non-member who regulatory program.
persons using its facility and is not
cleared the transaction because the designed to permit unfair The ORF is designed to recover a
Exchange does not have access to the discrimination between customers, material portion of the costs of
data to make absolutely certain that ORF issuers, brokers, or dealers. supervising and regulating Participants’
should apply. Further, the data does not The Exchange believes the proposed Customer options business including
allow the Exchange to identify the clarifications in the Fee Schedule to the performing routine surveillances,
Participant executing the trade at an ORF further the objectives of Section investigations, examinations, financial
away market. 6(b)(4) of the Act and are equitable and monitoring, and policy, rulemaking,
reasonable since they expressly describe interpretive, and enforcement activities.
ORF Revenue and Monitoring of ORF The Exchange will monitor the amount
the Exchange’s existing practices
The Exchange monitors the amount of regarding the manner in which the of revenue collected from the ORF to
revenue collected from the ORF to Exchange assesses and collects its ORF. ensure that it, in combination with its
ensure that it, in combination with other other regulatory fees and fines, does not
regulatory fees and fines, does not Proposal 1—Amend the Amount of the exceed the Exchange’s total regulatory
exceed regulatory costs. In determining ORF costs. The Exchange has designed the
whether an expense is considered a The Exchange believes that increasing ORF to generate revenues that, when
regulatory cost, the Exchange reviews combined with all of the Exchange’s
sradovich on DSK3GMQ082PROD with NOTICES
the ORF from $0.0021 per contract side
all costs and makes determinations if to $0.0027 per contract side as of August other regulatory fees, will be less than
there is a nexus between the expense 1, 2017 is reasonable because the or equal to the Exchange’s regulatory
and a regulatory function. For example, Exchange’s collection of ORF needs to costs, which is consistent with the
a cost related to Nasdaq’s equity be balanced against the amount of Commission’s view that regulatory fees
platform, would not be considered an be used for regulatory purposes and not
expense that is compared to ORF 9 15 U.S.C. 78f(b). to support the Exchange’s business side.
revenue. An options surveillance 10 15 U.S.C. 78f(b)(4) and (5). In this regard, the Exchange believes
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![37958 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices
only one method. The Commission will below, which Items have been prepared exchanges deferred a few specific
post all comments on the Commission’s by the Exchange. The Commission is matters for further discussion.
Internet Web site (http://www.sec.gov/ publishing this notice to solicit Specifically, as described in the Initial
rules/sro.shtml). Copies of the comments on the proposed rule change Filing, the Exchange and all other
submission, all subsequent from interested persons. options exchanges have been working to
amendments, all written statements further improve the review of
I. Self-Regulatory Organization’s
with respect to the proposed rule potentially erroneous transactions as
Statement of the Terms of Substance of
change that are filed with the well as their subsequent adjustment by
the Proposed Rule Change
Commission, and all written creating an objective and universal way
communications relating to the The Exchange proposes to amend to determine Theoretical Price in the
proposed rule change between the Rule 720, Nullification and Adjustment event a reliable NBBO is not available.
Commission and any person, other than of Options Transactions including Because this initiative required
those that may be withheld from the Obvious Errors. additional exchange and industry
public in accordance with the While these amendments are effective discussion as well as additional time for
provisions of 5 U.S.C. 552, will be upon filing, the Exchange has development and implementation, the
available for Web site viewing and designated the proposed amendments to Exchange and the other options
printing in the Commission’s Public be operative on a date that is within exchanges determined to proceed with
Reference Room, 100 F Street NE., ninety (90) days after the Commission the Initial Filing and to undergo a
Washington, DC 20549, on official approved a similar proposal filed by secondary initiative to complete any
business days between the hours of Bats BZX on July 6, 2017. additional improvements to the
10:00 a.m. and 3:00 p.m. Copies of the The text of the proposed rule change applicable rule. In this filing, the
filing also will be available for is available on the Exchange’s Web site Exchange proposes to adopt procedures
inspection and copying at the principal at www.ise.com, at the principal office that will lead to a more objective and
office of the Exchange. All comments of the Exchange, and at the uniform way to determine Theoretical
received will be posted without change; Commission’s Public Reference Room. Price in the event a reliable NBBO is not
the Commission does not edit personal II. Self-Regulatory Organization’s available. In addition to this change, the
identifying information from Statement of the Purpose of, and Exchange has proposed two additional
submissions. You should submit only Statutory Basis for, the Proposed Rule minor changes to its rules. The
information that you wish to make Change Exchange’s proposal mirrors that of Bats
available publicly. All submissions BZX, which the Exchange [sic]
should refer to File No. SR–NASDAQ– In its filing with the Commission, the
Exchange included statements approved on July 6, 2017,4 and those
2017–068, and should be submitted on that the other options exchanges intend
or before September 5, 2017. concerning the purpose of and basis for
the proposed rule change and discussed to file, except that it omits the section
For the Commission, by the Division of
any comments it received on the of the proposal that pertains to trading
Trading and Markets, pursuant to delegated halts due to the fact that the
authority.14 proposed rule change. The text of these
statements may be examined at the Supplementary Material to Exchange
Eduardo A. Aleman, Rule 702 already includes the
places specified in Item IV below. The
Assistant Secretary. applicable language.
Exchange has prepared summaries, set
[FR Doc. 2017–17049 Filed 8–11–17; 8:45 am]
forth in sections A, B, and C below, of Calculation of Theoretical Price Using a
BILLING CODE 8011–01–P
the most significant aspects of such Third Party Provider
statements.
Under the harmonized rule, when
SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s reviewing a transaction as potentially
COMMISSION Statement of the Purpose of, and erroneous, the Exchange needs to first
Statutory Basis for, the Proposed Rule determine the ‘‘Theoretical Price’’ of the
[Release No. 34–81354; File No. SR–GEMX–
2017–36] Change option, i.e., the Exchange’s estimate of
1. Purpose the correct market price for the option.
Self-Regulatory Organizations; Nasdaq Pursuant to Rule 720, if the applicable
GEMX, LLC; Notice of Filing and The Exchange and other options option series is traded on at least one
Immediate Effectiveness of Proposed exchanges recently adopted a new, other options exchange, then the
Rule Change To Amend Rule 720, harmonized rule related to the Theoretical Price of an option series is
Nullification and Adjustment of adjustment and nullification of the last national best bid (‘‘NBB’’) just
Options Transactions Including erroneous options transactions, prior to the trade in question with
Obvious Errors including a specific provision related to respect to an erroneous sell transaction
coordination in connection with large- or the last national best offer (‘‘NBO’’)
August 8, 2017. scale events involving erroneous just prior to the trade in question with
Pursuant to Section 19(b)(1) of the options transactions.3 The Exchange respect to an erroneous buy transaction
Securities Exchange Act of 1934 (the believes that the changes the options unless one of the exceptions described
‘‘Act’’),1 and Rule 19b–4 thereunder,2 exchanges implemented with the new, below exists. Thus, whenever the
notice is hereby given that on August 3, harmonized rule have led to increased Exchange has a reliable NBB or NBO, as
2017, Nasdaq GEMX, LLC (‘‘GEMX’’ or transparency and finality with respect to applicable, just prior to the transaction,
sradovich on DSK3GMQ082PROD with NOTICES
‘‘Exchange’’) filed with the Securities the adjustment and nullification of then the Exchange uses this NBB or
and Exchange Commission erroneous options transactions. NBO as the Theoretical Price.
(‘‘Commission’’) the proposed rule However, as part of the initial initiative,
change as described in Items I and II the Exchange and other options 4 See Securities Exchange Act Release No. 34–
81084 (July 6, 2017) (granting approval of Bats BZX
14 17 CFR 200.30–3(a)(12). 3 See Securities Exchange Act Release No. 74897 proposal), 82 FR 32216 (July 12, 2017); 82 FR 23684
1 15 U.S.C. 78s(b)(1). (May 7, 2015); 80 FR 27415 (May 13, 2015) (SR– (May 23, 2017) (SR–BatsBZX–2017–035) (notice of
2 17 CFR 240.19b–4. ISE–Gemini–2015–11) (the ‘‘Initial Filing’’). filing of Bats BZX proposal).
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Document Created: 2018-10-24 11:50:32
Document Modified: 2018-10-24 11:50:32
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 37955 |
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