83 FR 42719 - Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Options Regulatory Fee
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 164 (August 23, 2018)
Federal Register Volume 83, Issue 164 (August 23, 2018)
| Page Range | 42719-42722 | |
| FR Document | 2018-18165 |
[Federal Register Volume 83, Number 164 (Thursday, August 23, 2018)] [Notices] [Pages 42719-42722] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-18165] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83880; File No. SR-CboeEDGX-2018-033] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Options Regulatory Fee August 17, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on August 9, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposed rule change effective upon filing with the Commission. 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. \3\ 15 U.S.C. 78s(b)(3)(A)(ii). \4\ 17 CFR 240.19b-4(f)(2). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to amend its Fees Schedule relating to the Options Regulatory Fee. The text of the proposed rule change is available at the Exchange's website at www.markets.cboe.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 parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to implement proposed changes to its Fees Schedule for its equity options platform (``BZX [sic] Options'') to clarify how the Options Regulatory Fee (``ORF'') is assessed and collected. Background By way of background, the ORF is assessed by the Exchange to each Member for options transactions cleared by the Member that are cleared by The Options Clearing Corporation (``OCC'') in the customer range (i.e., transactions that clear in a customer account at OCC) regardless of the exchange on which the transaction occurs. The ORF is designed to recover a material portion of the costs to the Exchange of the supervision and regulation of Member customer options business, including performing routine surveillances, investigations, examinations, financial monitoring, as well as policy, rulemaking, interpretive and enforcement activities.\5\ The Exchange believes that revenue generated from the ORF, when combined with all of the Exchange's other regulatory fees and fines, will cover a material portion, but not all, of the Exchange's regulatory costs. --------------------------------------------------------------------------- \5\ The Exchange notes that its regulatory responsibilities with respect to Member compliance with options sales practice rules have largely been allocated to FINRA under a 17d-2 agreement. The ORF is not designed to cover the cost of that options sales practice regulation. See Securities Exchange Act Release No. 76309 (October 29, 2015), 80 FR 68361 (November 4, 2015). --------------------------------------------------------------------------- The Exchange monitors 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 monitors its regulatory costs and revenues at a minimum on a semi-annual basis. If the Exchange determines regulatory revenues exceed or are insufficient to cover a material portion of its regulatory costs, the Exchange will adjust the ORF by submitting a fee change filing to the Commission. The Exchange notifies Members of adjustments to the ORF via an exchange notice. The Exchange provides Members with such notice at least 30 calendar days prior to the effective date of the change. Under the Exchange's current process, the ORF is assessed to Members and collected indirectly from Members through their clearing firms by OCC on behalf of the Exchange. The following scenarios reflect how the ORF is assessed and collected (these apply regardless if the transaction is executed on the Exchange or on an away exchange): 1. If a Member is the executing clearing firm on a transaction (``Executing Clearing Firm''), the ORF is assessed to and collected from that Member by OCC on behalf of the Exchange. 2. If a Member is the Executing Clearing Firm and the transaction is ``given up'' to a different Member that clears the transaction (``Clearing Give-up''), the ORF is assessed to the Executing Clearing Firm (the ORF is the obligation of the Executing Clearing Firm). The ORF is collected from the Clearing Give-up. 3. If the Executing Clearing Firm is a non-Member and the Clearing Give-up is a Member, the ORF is assessed to and collected from the Clearing Give-up. [[Page 42720]] 4. As of August 1, 2018, if a Member is the Executing Clearing Firm and a non-Member is the Clearing Give-up, the ORF will be assessed to the Executing Clearing Firm. The ORF is the obligation of the Executing Clearing Firm but will be collected from the non-Member Clearing Give- up (for the reasons described below). The Exchange notes that this assessment is consistent with how ORF is assessed and collected on two of the Exchange's affiliated exchanges.\6\ --------------------------------------------------------------------------- \6\ See Securities Exchange Act Release No. 82164 (November 28, 2017), 82 FR 231 (December 4, 2017) (SR-CBOE-2017-074) and Securities Exchange Act Release No. 82163 (November 28, 2017), 82 FR 231 (December 4, 2017) (SR-C2-2017-031). --------------------------------------------------------------------------- 5. No ORF is assessed if neither the Executing Clearing Firm nor the Clearing Give-Up are Members. The Exchange currently uses an OCC file that summarizes total trades cleared in the customer range by OCC number to determine the Executing Clearing Firm and the Clearing Give-up. As of August 1, 2018, the Exchange will use a different and more detailed OCC cleared trades file to determine the Executing Clearing Firm and the Clearing Give- up.\7\ --------------------------------------------------------------------------- \7\ The Exchange notes that in the case where a non-self- clearing Member executes a transaction on the Exchange, the Member's guaranteeing Clearing Member is reflected as the Executing Clearing Firm in the OCC cleared trades file and the ORF is assessed to and collected from the Executing Clearing Firm. --------------------------------------------------------------------------- In each of scenarios 1 through 4 above, if the transaction is transferred pursuant to a Clearing Member Trade Assignment (``CMTA'') arrangement to another clearing firm who ultimately clears the transaction, the ORF is collected from the clearing firm that ultimately clears the transaction (which firm may be a non-Member), by OCC on behalf of the Exchange. No ORF is assessed if neither the Executing Clearing Firm nor the Clearing Give-Up are Members. Using CMTA transfer information provided by the OCC, the Exchange subtracts the ORF charge from the monthly ORF bill of the clearing firm that transfers the position and adds the charge to the monthly ORF bill of the clearing firm that receives the CMTA transfer (i.e., the ultimate clearing firm). This process is performed at the end of each month on each transfer in the OCC CMTA transfer file for that month.\8\ --------------------------------------------------------------------------- \8\ The Exchange notes that OCC provides the Exchange and other exchanges with information to assist in excluding CMTA transfers done to correct bona fide errors from the ORF calculation. Specifically, if a clearing firm gives up or CMTA transfers a position to the wrong clearing firm, the firm that caused the error will send an offsetting CMTA transfer to that firm and send a new CMTA transfer to the correct firm. The offsetting CMTA transfer is marked with a CMTA Transfer ORF Indicator which results in the original erroneous transfer being excluded from the ORF calculation. --------------------------------------------------------------------------- Proposed Amendments to the Fees Schedule The Exchange proposes to amend its Fees Schedule in the following respects to clarify how the ORF is assessed and collected. First, the Exchange proposes to amend its Fees Schedule to clarify that the ORF is assessed by the Exchange to each Member for options transactions cleared by the Member (as opposed to ``all'' options transaction ``executed and cleared'' by the Member) that are cleared by OCC in the customer range regardless of the exchange on which the transaction occurs. Because the ORF is always assessed to a Clearing Member, the Exchange proposes to remove the words ``executed and, or simply'' from the Fee Schedule description of the ORF to clarify that the ORF is assessed for options transactions cleared by a Member. Second, the Exchange proposes to make explicit that the Exchange uses reports from OCC when assessing and collecting the ORF, as noted above. Third, the Exchange proposes to make clear in the Fees Schedule, that as of August 1, 2018, the ORF will be collected by OCC on behalf of the Exchange from the Clearing Member or non-Clearing Member that ultimately clears the transaction. While the ORF is an obligation of Members, due to industry request the ORF is collected from the clearing firm that ultimately clears the eligible trade, even if such firm is a not a Member. The Exchange, OCC and the industry agreed to this collection method in response to comments that by collecting the ORF in this manner Members and non-Members could more easily pass-through the ORF to their customers. As such, in scenario 4 above the ORF is collected from the non-Clearing Member that clears the transaction in order to facilitate the pass-through of the ORF to the end-customer. Likewise, collection of the ORF from the ultimate (CMTA) clearing firm facilitates the passing of the fee to the end-customer. In those cases where the ORF is collected from a non-Clearing Member, the Exchange (through OCC) collects the ORF as a convenience for the Member whose obligation it is to pay the fee to the Exchange. Fourth, the Exchange proposes to clarify its process for assessing the ORF on linkage transactions. An options order entered on the Exchange may be routed to and executed on another exchange pursuant to the Options Order Protection and Locked/Crossed Market Plan. The Exchange may engage a routing broker to provide routing services (``Routing Services'') to facilitate linkage transactions. A customer order routed by a routing broker for execution at another exchange results in a transaction on that exchange and an obligation of the routing broker to pay the options regulatory fee, if any, of that exchange. After receiving a fill on the away exchange, the routing broker trades against the original order entered on the Exchange and incurs the BZX [sic] Options ORF. Pursuant to its agreement with the routing broker, the Exchange reimburses the routing broker for any options regulatory fee assessed by the Exchange and by the away market on which the customer order was executed. As a result, only the original customer order executed on the Exchange is assessed the ORF. The Exchange proposes to amend its Fees Schedule to clarify that, with respect to linkage transactions, the Exchange reimburses its routing broker providing Routing Services for options regulatory fees it incurs in connection with the Routing Services it provides. Fifth, the Exchange proposes to change the method it uses to assess the ORF to better align with the Exchange's Fees Schedule. Currently, the Exchange assesses the ORF to a Member based on the OCC clearing number(s) that the Member registers with the Exchange. A Member may have additional OCC clearing numbers that are not registered with the Exchange because they are used by the Member to clear activity on other exchanges. If a Member uses a non-BZX [sic] Options registered OCC clearing number on a transaction and that clearing number is denoted as the Executing Clearing Firm or the Clearing Give-up, the ORF is not assessed to that transaction because the clearing number is not known to the Exchange. Such transactions are subject to the ORF under the Exchange's Fees Schedule because the Executing Clearing Firm or the Clearing Give-up was a Member. The ORF is assessed at the Member entity level, not at the OCC clearing number level. In order to conform its ORF billing practice to its Fees Schedule, the Exchange proposes to amend the Fees Schedule to require Members, pursuant to BZX [sic] Options Rule 24.1,\9\ to provide the Exchange with a complete list of its OCC clearing numbers. The Exchange would use the [[Page 42721]] list provided solely for ORF billing purposes. Members would be required to keep such information up to date with the Exchange. The Exchange will issue an Exchange Notice to provide Members with notice of this change and a deadline for initial submission of its OCC clearing numbers list. The Exchange expects to implement this change for August 2018 ORF billing in order for the Exchange to provide Members with notice of this new requirement and time to comply. --------------------------------------------------------------------------- \9\ BZX [sic] Options Rule 24.1 provides that no Member shall refuse to make available to the Exchange such books, records or other information as may be called for under the Rules or as may be requested in connection with an investigation by the Exchange. --------------------------------------------------------------------------- The Exchange lastly proposes a couple of minor clean up changes to the Fees Schedule such as defining the ``OCC'' as ``The Options Clearing Corporation''. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ``Act'') and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.\10\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \11\ requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with Section 6(b)(4) of the Act,\12\ which requires that Exchange rules provide for the equitable allocation of reasonable dues, fees, and other charges among its Members and other persons using its facilities. --------------------------------------------------------------------------- \10\ 15 U.S.C. 78f(b). \11\ 15 U.S.C. 78f(b)(5). \12\ 15 U.S.C. 78f(b)(4). --------------------------------------------------------------------------- The Exchange believes the proposed clarifications to the Fees Schedule with respect to how ORF is assessed and collected provides further transparency in the Fees Schedule and alleviates potential confusion. The alleviation of confusion removes impediments to and perfects the mechanism of a free and open market and a national market system, and, in general, protects investors and the public interest. Additionally, the Exchange notes that the proposal to clarify that the ORF is assessed to Members for options transactions cleared by the Member (as opposed to executed and cleared) is appropriate and equitable because it adds clarity to the Fee Schedule by better and more accurately describing the application of the ORF. The Exchange believes it is appropriate to charge the ORF only to transactions that clear as customer at the OCC. The Exchange believes that its broad regulatory responsibilities with respect to its Members' activities supports applying the ORF to transactions cleared by a Member. The Exchange's regulatory responsibilities are the same regardless of whether a Member executes a transaction or clears a transaction executed on its behalf. The Exchange regularly reviews all such activity, including performing surveillance for position limit violations, manipulation, insider trading, front-running and contrary exercise advice violations. The Exchange believes the proposal is equitable and not unfairly discriminatory because it applies in the same manner to Members subject to the ORF. The ORF is only assessed to a Member with respect to a particular transaction in which it is either the Executing Clearing Firm or the Clearing Give-up. The Exchange believes the proposal to collect the ORF from non- Members that ultimately clear the transaction is an equitable allocation of reasonable dues, fees, and other charges among its Members and other persons using its facilities. The Exchange notes that there is a material distinction between ``assessing'' the ORF and ``collecting'' the ORF. The Exchange does not assess the ORF to non- Members. The ORF is an obligation of Members. Once, however, the ORF is assessed to a Member for a particular transaction, the ORF may be collected from a Member or a non-Member, depending on how the transaction is cleared at OCC. If there was no change to the clearing number of the original transaction, the ORF would be collected from the Member. If there was a change to the clearing number of the original transaction and a non-Member becomes the ultimate clearing firm for that transaction, then the ORF will be collected from that non-Member. The Exchange believes that this collection practice is reasonable and appropriate, and was originally instituted at the request of the industry for the ORF be collected from the clearing firm that ultimately clears the transaction in order to facilitate the passing of the fee to the end-customer. The Exchange believes that the proposal to clarify that the ORF is collected by OCC on behalf of the Exchange from the Clearing Member that ultimately clears the transaction also provides clarity in the Fee Schedule and is reasonable. As discussed, if the ORF is assessed to a Member for a particular transaction and there was no change to the clearing number of the original transaction, the ORF would be collected from the Member. If there was a change to the clearing number of the original transaction and another Member becomes the ultimate clearing firm for that transaction, then the ORF will be collected from the Member that ultimately cleared the transaction. Similarly, as noted above, if there is a change to the clearing number of the original transaction and a non-Member becomes the ultimate clearing firm for that transaction, then the ORF will be collected from that non-Member. The Exchange believes it is reasonable, equitable and nondiscriminatory not to pass the ORF to a CMTA transferee when neither the CMTA transferor, transferee nor Executing Clearing Firm is a Member because this would help ensure the ORF is not collected on any transactions that may not be subject to the ORF. The Exchange also believes it is reasonable, equitable and nondiscriminatory to reimburse its routing broker for any options regulatory fees the broker incurs in connection with Routing Services because this helps ensure the Exchange does not charge the ORF more than once to a single customer order. Lastly, the Exchange believes the minor clean-up change to define ``OCC reduces confusion, thereby removing impediments to and perfecting the mechanism of a free and open market and a national market system, and, in general, protecting investors and the public interest. 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. This proposal does not create an unnecessary or inappropriate intra-market burden on competition because the ORF applies to all customer activity, thereby raising regulatory revenue to offset regulatory expenses. It also supplements the regulatory revenue derived from non-customer activity. This proposal does not create an unnecessary or inappropriate inter-market burden on competition because it is a regulatory fee that supports regulation in furtherance of the purposes of the Act. [[Page 42722]] 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 The Exchange neither solicited nor received comments on the proposed rule change. 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) of the Act \13\ and paragraph (f) of Rule 19b-4 thereunder.\14\ 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 necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. --------------------------------------------------------------------------- \13\ 15 U.S.C. 78s(b)(3)(A). \14\ 17 CFR 240.19b-4(f). --------------------------------------------------------------------------- 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-CboeEDGX-2018-033 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-CboeEDGX-2018-033. 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 only one method. The Commission will post all comments on the Commission's internet website (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 website 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-CboeEDGX-2018-033, and should be submitted on or before September 13, 2018. --------------------------------------------------------------------------- \15\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\15\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-18165 Filed 8-22-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 42719
only one method. The Commission will below, which Items have been prepared to the Exchange of the supervision and
post all comments on the Commission’s by the Exchange. The Exchange has regulation of Member customer options
internet website (http://www.sec.gov/ designated the proposed rule change as business, including performing routine
rules/sro.shtml). Copies of the one establishing or changing a member surveillances, investigations,
submission, all subsequent due, fee, or other charge imposed by the examinations, financial monitoring, as
amendments, all written statements Exchange under Section 19(b)(3)(A)(ii) well as policy, rulemaking, interpretive
with respect to the proposed rule of the Act 3 and Rule 19b–4(f)(2) and enforcement activities.5 The
change that are filed with the thereunder,4 which renders the Exchange believes that revenue
Commission, and all written proposed rule change effective upon generated from the ORF, when
communications relating to the filing with the Commission. The combined with all of the Exchange’s
proposed rule change between the Commission is publishing this notice to other regulatory fees and fines, will
Commission and any person, other than solicit comments on the proposed rule cover a material portion, but not all, of
those that may be withheld from the change from interested persons. the Exchange’s regulatory costs.
public in accordance with the The Exchange monitors the amount of
I. Self-Regulatory Organization’s
provisions of 5 U.S.C. 552, will be revenue collected from the ORF to
Statement of the Terms of Substance of
available for website viewing and ensure that it, in combination with its
the Proposed Rule Change
printing in the Commission’s Public other regulatory fees and fines, does not
Reference Room, 100 F Street NE, The Exchange filed a proposal to exceed the Exchange’s total regulatory
Washington, DC 20549, on official amend its Fees Schedule relating to the costs. The Exchange monitors its
business days between the hours of Options Regulatory Fee. regulatory costs and revenues at a
10:00 a.m. and 3:00 p.m. Copies of the The text of the proposed rule change minimum on a semi-annual basis. If the
filing also will be available for is available at the Exchange’s website at Exchange determines regulatory
inspection and copying at the principal www.markets.cboe.com, at the principal revenues exceed or are insufficient to
office of the Exchange. All comments office of the Exchange, and at the cover a material portion of its regulatory
received will be posted without change. Commission’s Public Reference Room. costs, the Exchange will adjust the ORF
Persons submitting comments are II. Self-Regulatory Organization’s by submitting a fee change filing to the
cautioned that we do not redact or edit Statement of the Purpose of, and Commission. The Exchange notifies
personal identifying information from Statutory Basis for, the Proposed Rule Members of adjustments to the ORF via
comment submissions. You should Change an exchange notice. The Exchange
submit only information that you wish provides Members with such notice at
to make available publicly. All In its filing with the Commission, the
Exchange included statements least 30 calendar days prior to the
submissions should refer to File No. effective date of the change.
SR–CboeBZX–2018–061, and should be concerning the purpose of and basis for
the proposed rule change and discussed Under the Exchange’s current process,
submitted on or before September 13, the ORF is assessed to Members and
2018. any comments it received on the
proposed rule change. The text of these collected indirectly from Members
For the Commission, by the Division of statements may be examined at the through their clearing firms by OCC on
Trading and Markets, pursuant to delegated
places specified in Item IV below. The behalf of the Exchange. The following
authority.15 scenarios reflect how the ORF is
Exchange has prepared summaries, set
Eduardo A. Aleman, assessed and collected (these apply
forth in Sections A, B, and C below, of
Assistant Secretary.
the most significant parts of such regardless if the transaction is executed
[FR Doc. 2018–18163 Filed 8–22–18; 8:45 am] statements. on the Exchange or on an away
BILLING CODE 8011–01–P exchange):
A. Self-Regulatory Organization’s 1. If a Member is the executing
Statement of the Purpose of, and the clearing firm on a transaction
SECURITIES AND EXCHANGE Statutory Basis for, the Proposed Rule (‘‘Executing Clearing Firm’’), the ORF is
COMMISSION Change assessed to and collected from that
1. Purpose Member by OCC on behalf of the
[Release No. 34–83880; File No. SR–
CboeEDGX–2018–033] Exchange.
The Exchange proposes to implement 2. If a Member is the Executing
Self-Regulatory Organizations; Cboe proposed changes to its Fees Schedule Clearing Firm and the transaction is
EDGX Exchange, Inc.; Notice of Filing for its equity options platform (‘‘BZX ‘‘given up’’ to a different Member that
and Immediate Effectiveness of a [sic] Options’’) to clarify how the clears the transaction (‘‘Clearing Give-
Proposed Rule Change To Amend the Options Regulatory Fee (‘‘ORF’’) is up’’), the ORF is assessed to the
Options Regulatory Fee assessed and collected. Executing Clearing Firm (the ORF is the
Background obligation of the Executing Clearing
August 17, 2018. Firm). The ORF is collected from the
Pursuant to Section 19(b)(1) of the By way of background, the ORF is Clearing Give-up.
Securities Exchange Act of 1934 (the assessed by the Exchange to each 3. If the Executing Clearing Firm is a
‘‘Act’’),1 and Rule 19b–4 thereunder,2 Member for options transactions cleared non-Member and the Clearing Give-up
notice is hereby given that on August 9, by the Member that are cleared by The is a Member, the ORF is assessed to and
2018, Cboe EDGX Exchange, Inc. (the Options Clearing Corporation (‘‘OCC’’) collected from the Clearing Give-up.
‘‘Exchange’’ or ‘‘EDGX’’) filed with the in the customer range (i.e., transactions
daltland on DSKBBV9HB2PROD with NOTICES
Securities and Exchange Commission that clear in a customer account at OCC) 5 The Exchange notes that its regulatory
(‘‘Commission’’) the proposed rule regardless of the exchange on which the responsibilities with respect to Member compliance
change as described in Items I, II and III transaction occurs. The ORF is designed with options sales practice rules have largely been
allocated to FINRA under a 17d–2 agreement. The
to recover a material portion of the costs ORF is not designed to cover the cost of that options
15 17 CFR 200.30–3(a)(12). sales practice regulation. See Securities Exchange
1 15 U.S.C. 78s(b)(1). 3 15 U.S.C. 78s(b)(3)(A)(ii). Act Release No. 76309 (October 29, 2015), 80 FR
2 17 CFR 240.19b–4. 4 17 CFR 240.19b–4(f)(2). 68361 (November 4, 2015).
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![42720 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices
4. As of August 1, 2018, if a Member Proposed Amendments to the Fees Plan. The Exchange may engage a
is the Executing Clearing Firm and a Schedule routing broker to provide routing
non-Member is the Clearing Give-up, The Exchange proposes to amend its services (‘‘Routing Services’’) to
the ORF will be assessed to the Fees Schedule in the following respects facilitate linkage transactions. A
Executing Clearing Firm. The ORF is the to clarify how the ORF is assessed and customer order routed by a routing
obligation of the Executing Clearing collected. broker for execution at another
Firm but will be collected from the non- First, the Exchange proposes to exchange results in a transaction on that
Member Clearing Give-up (for the amend its Fees Schedule to clarify that exchange and an obligation of the
reasons described below). The Exchange the ORF is assessed by the Exchange to routing broker to pay the options
notes that this assessment is consistent each Member for options transactions regulatory fee, if any, of that exchange.
with how ORF is assessed and collected cleared by the Member (as opposed to After receiving a fill on the away
on two of the Exchange’s affiliated ‘‘all’’ options transaction ‘‘executed and exchange, the routing broker trades
exchanges.6 cleared’’ by the Member) that are against the original order entered on the
5. No ORF is assessed if neither the cleared by OCC in the customer range Exchange and incurs the BZX [sic]
Executing Clearing Firm nor the regardless of the exchange on which the Options ORF. Pursuant to its agreement
Clearing Give-Up are Members. transaction occurs. Because the ORF is with the routing broker, the Exchange
The Exchange currently uses an OCC always assessed to a Clearing Member, reimburses the routing broker for any
file that summarizes total trades cleared the Exchange proposes to remove the options regulatory fee assessed by the
in the customer range by OCC number words ‘‘executed and, or simply’’ from Exchange and by the away market on
to determine the Executing Clearing the Fee Schedule description of the ORF which the customer order was executed.
Firm and the Clearing Give-up. As of to clarify that the ORF is assessed for As a result, only the original customer
August 1, 2018, the Exchange will use options transactions cleared by a order executed on the Exchange is
a different and more detailed OCC Member. assessed the ORF. The Exchange
cleared trades file to determine the Second, the Exchange proposes to proposes to amend its Fees Schedule to
Executing Clearing Firm and the make explicit that the Exchange uses clarify that, with respect to linkage
Clearing Give-up.7 reports from OCC when assessing and transactions, the Exchange reimburses
In each of scenarios 1 through 4 collecting the ORF, as noted above. its routing broker providing Routing
above, if the transaction is transferred Third, the Exchange proposes to make Services for options regulatory fees it
pursuant to a Clearing Member Trade clear in the Fees Schedule, that as of incurs in connection with the Routing
Assignment (‘‘CMTA’’) arrangement to August 1, 2018, the ORF will be Services it provides.
another clearing firm who ultimately collected by OCC on behalf of the Fifth, the Exchange proposes to
clears the transaction, the ORF is Exchange from the Clearing Member or change the method it uses to assess the
collected from the clearing firm that non-Clearing Member that ultimately ORF to better align with the Exchange’s
ultimately clears the transaction (which clears the transaction. While the ORF is Fees Schedule. Currently, the Exchange
firm may be a non-Member), by OCC on an obligation of Members, due to assesses the ORF to a Member based on
behalf of the Exchange. No ORF is industry request the ORF is collected the OCC clearing number(s) that the
assessed if neither the Executing from the clearing firm that ultimately Member registers with the Exchange. A
Clearing Firm nor the Clearing Give-Up clears the eligible trade, even if such Member may have additional OCC
are Members. Using CMTA transfer firm is a not a Member. The Exchange, clearing numbers that are not registered
information provided by the OCC, the OCC and the industry agreed to this with the Exchange because they are
Exchange subtracts the ORF charge from collection method in response to used by the Member to clear activity on
the monthly ORF bill of the clearing comments that by collecting the ORF in other exchanges. If a Member uses a
firm that transfers the position and adds this manner Members and non-Members non-BZX [sic] Options registered OCC
the charge to the monthly ORF bill of could more easily pass-through the ORF clearing number on a transaction and
the clearing firm that receives the to their customers. As such, in scenario that clearing number is denoted as the
CMTA transfer (i.e., the ultimate 4 above the ORF is collected from the Executing Clearing Firm or the Clearing
clearing firm). This process is performed non-Clearing Member that clears the Give-up, the ORF is not assessed to that
at the end of each month on each transaction in order to facilitate the transaction because the clearing number
transfer in the OCC CMTA transfer file pass-through of the ORF to the end- is not known to the Exchange. Such
for that month.8 customer. Likewise, collection of the transactions are subject to the ORF
ORF from the ultimate (CMTA) clearing under the Exchange’s Fees Schedule
6 See Securities Exchange Act Release No. 82164
firm facilitates the passing of the fee to because the Executing Clearing Firm or
(November 28, 2017), 82 FR 231 (December 4, 2017)
(SR–CBOE–2017–074) and Securities Exchange Act the end-customer. In those cases where the Clearing Give-up was a Member.
Release No. 82163 (November 28, 2017), 82 FR 231 the ORF is collected from a non- The ORF is assessed at the Member
(December 4, 2017) (SR–C2–2017–031). Clearing Member, the Exchange entity level, not at the OCC clearing
7 The Exchange notes that in the case where a
(through OCC) collects the ORF as a number level. In order to conform its
non-self-clearing Member executes a transaction on ORF billing practice to its Fees
the Exchange, the Member’s guaranteeing Clearing convenience for the Member whose
Member is reflected as the Executing Clearing Firm obligation it is to pay the fee to the Schedule, the Exchange proposes to
in the OCC cleared trades file and the ORF is Exchange. amend the Fees Schedule to require
assessed to and collected from the Executing Fourth, the Exchange proposes to Members, pursuant to BZX [sic] Options
Clearing Firm. Rule 24.1,9 to provide the Exchange
8 The Exchange notes that OCC provides the
clarify its process for assessing the ORF
on linkage transactions. An options with a complete list of its OCC clearing
daltland on DSKBBV9HB2PROD with NOTICES
Exchange and other exchanges with information to
assist in excluding CMTA transfers done to correct order entered on the Exchange may be numbers. The Exchange would use the
bona fide errors from the ORF calculation. routed to and executed on another
Specifically, if a clearing firm gives up or CMTA exchange pursuant to the Options Order 9 BZX [sic] Options Rule 24.1 provides that no
transfers a position to the wrong clearing firm, the Member shall refuse to make available to the
firm that caused the error will send an offsetting Protection and Locked/Crossed Market Exchange such books, records or other information
CMTA transfer to that firm and send a new CMTA as may be called for under the Rules or as may be
transfer to the correct firm. The offsetting CMTA Indicator which results in the original erroneous requested in connection with an investigation by
transfer is marked with a CMTA Transfer ORF transfer being excluded from the ORF calculation. the Exchange.
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![42722 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices
The Exchange is obligated to ensure that change that are filed with the Nasdaq Exchanges, that the Nasdaq
the amount of regulatory revenue Commission, and all written Exchanges seek to incorporate by
collected from the ORF, in combination communications relating to the reference.3 Section 36 of the Exchange
with its other regulatory fees and fines, proposed rule change between the Act authorizes the Commission to
does not exceed regulatory costs. Commission and any person, other than conditionally or unconditionally
those that may be withheld from the exempt any person, security, or
C. Self-Regulatory Organization’s public in accordance with the transaction, or any class thereof, from
Statement on Comments on the provisions of 5 U.S.C. 552, will be any provision of the Exchange Act or
Proposed Rule Change Received From available for website viewing and rule thereunder, if necessary or
Members, Participants, or Others printing in the Commission’s Public appropriate in the public interest and
The Exchange neither solicited nor Reference Room, 100 F Street NE, consistent with the protection of
received comments on the proposed Washington, DC 20549, on official investors.
rule change. business days between the hours of Recently, the Nasdaq Exchanges each
10:00 a.m. and 3:00 p.m. Copies of the filed a proposed rule change 4 under
III. Date of Effectiveness of the
filing also will be available for Section 19(b) of the Exchange Act to
Proposed Rule Change and Timing for
inspection and copying at the principal
Commission Action largely replace their existing
office of the Exchange. All comments
The foregoing rule change has become investigatory, disciplinary, and
received will be posted without change.
effective pursuant to Section 19(b)(3)(A) adjudicatory rules with those contained
Persons submitting comments are
of the Act 13 and paragraph (f) of Rule in the BX Rule 8000 and 9000 Series, as
cautioned that we do not redact or edit
19b–4 thereunder.14 At any time within such rules may be in effect from time to
personal identifying information from
60 days of the filing of the proposed rule time. In the proposed rule changes, the
comment submissions. You should
change, the Commission summarily may Nasdaq Exchanges proposed to
submit only information that you wish
temporarily suspend such rule change if incorporate by reference the BX Rule
to make available publicly. All
it appears to the Commission that such 8000 and 9000 Series into new Chapters
submissions should refer to File No.
action is necessary or appropriate in the SR–CboeEDGX–2018–033, and should 80 and 90 of their respective rulebooks,
public interest, for the protection of be submitted on or before September 13, and thus make these BX Rules
investors, or otherwise in furtherance of 2018. applicable to their members, associated
the purposes of the Act. persons, and other persons subject to
For the Commission, by the Division of their jurisdiction. When the proposed
IV. Solicitation of Comments Trading and Markets, pursuant to delegated
rule changes become operative, Nasdaq
authority.15
Interested persons are invited to Exchange members, associated persons,
Eduardo A. Aleman,
submit written data, views, and and other persons subject to the
Assistant Secretary. jurisdiction of the Nasdaq Exchanges
arguments concerning the foregoing,
[FR Doc. 2018–18165 Filed 8–22–18; 8:45 am] will be required to comply with the BX
including whether the proposed rule
change is consistent with the Act. BILLING CODE 8011–01–P Rule 8000 and 9000 Series as though
Comments may be submitted by any of such rules are fully set forth within each
the following methods: of the Nasdaq Exchange’s rulebooks.
SECURITIES AND EXCHANGE
COMMISSION The Nasdaq Exchanges have
Electronic Comments
requested, pursuant to Rule 0–12 under
• Use the Commission’s internet [Release No. 34–83887] the Exchange Act,5 that the Commission
comment form (http://www.sec.gov/ grant the Nasdaq Exchanges an
rules/sro.shtml); or Order Granting Applications by
exemption from the rule filing
• Send an email to rule-comments@ Nasdaq ISE, LLC, Nasdaq GEMX, LLC,
requirements of Section 19(b) of the
sec.gov. Please include File No. SR– and Nasdaq MRX, LLC for Exemption
Exchange Act for changes to each of the
CboeEDGX–2018–033 on the subject Pursuant to Section 36(a) of the
Nasdaq Exchange’s rules that are
line. Exchange Act From the Rule Filing
effected solely by virtue of a change to
Requirements of Section 19(b) of the
Paper Comments the BX Rule 8000 and 9000 Series that
Exchange Act With Respect to Certain
are incorporated by reference.
• Send paper comments in triplicate Rules Incorporated by Reference
Specifically, the Nasdaq Exchanges
to Secretary, Securities and Exchange August 20, 2018. request that they be permitted to
Commission, 100 F Street NE, incorporate by reference changes made
Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq
Washington, DC 20549–1090. to the BX Rule 8000 and 9000 Series
GEMX, LLC (‘‘GEMX’’), and Nasdaq
All submissions should refer to File No. MRX, LLC (‘‘MRX’’) (each, a ‘‘Nasdaq that are cross-referenced in each of the
SR–CboeEDGX–2018–033. This file Exchange,’’ and collectively, the Nasdaq Exchange’s rules, without the
number should be included on the ‘‘Nasdaq Exchanges’’) have filed with need for each Nasdaq Exchange to file
subject line if email is used. To help the the Securities and Exchange separately the same proposed rule
Commission process and review your Commission (‘‘Commission’’) an changes pursuant to Section 19(b) of the
comments more efficiently, please use application for an exemption under Exchange Act.6
only one method. The Commission will Section 36(a)(1) of the Securities
post all comments on the Commission’s Exchange Act of 1934 (‘‘Exchange 3 See Letter from Brett M. Kitt, Senior Associate
internet website (http://www.sec.gov/ Act’’) 1 from the rule filing requirements General Counsel, Nasdaq Inc., to Brent Fields,
daltland on DSKBBV9HB2PROD with NOTICES
rules/sro.shtml). Copies of the of Section 19(b) of the Exchange Act 2 Secretary, Commission, dated July 16, 2018
submission, all subsequent (‘‘Exemptive Request’’).
with respect to certain rules of Nasdaq 4 See Securities Exchange Act Release Nos. 83703
amendments, all written statements BX, Inc. (‘‘BX’’), an affiliate of the (July 25, 2018) (SR–ISE–2018–59); 83704 (July 25,
with respect to the proposed rule 2018) (SR–GEMX–2018–24); and 83705 (July 25,
15 17 CFR 200.30–3(a)(12). 2018) (SR–MRX–2018–23).
13 15 U.S.C. 78s(b)(3)(A). 1 15 U.S.C. 78mm(a)(1). 5 17 CFR 240.0–12.
14 17 CFR 240.19b–4(f). 2 15 U.S.C. 78s(b). 6 See Exemptive Request, supra note 3, at 2.
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Document Created: 2018-08-23 00:32:44
Document Modified: 2018-08-23 00:32:44
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 83 FR 42719 |
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