68692 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

38 17 CFR 200.30–3(a)(12), (59). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Exchange Rule 1.5(p). 

4On August 8, 2022, the Commission approved 

SR–MEMX–2022–10, which proposed rules for the 

trading of options on the Exchange. See Securities 

Exchange Act Release No. 95445 (August 8, 2022), 

87 FR 49894 (August 12, 2022) (SR–MEMX–2022– 

010). The Exchange plans to launch MEMX Options 

in September of 2023. 

5The Exchange takes into account any CMTA 

transfers when determining the ultimate clearing 

firm for a transaction. CMTA or Clearing Member 

Trade Assignment is a form of ‘‘give up’’ whereby 

the position will be assigned to a specific clearing 

firm at the OCC. 

6Throughout this filing, ‘‘executing clearing 

firm’’ means the clearing firm through which the 

entering broker indicated that the transaction would 

be cleared at the time it entered the original order 

which executed, and that clearing firm could be a 

designated ‘‘give up’’, if applicable. The executing 

clearing firm may be the ultimate clearing firm if 

no CMTA transfer occurs. If a CMTA transfer 

occurs, however, the ultimate clearing firm would 

be the clearing firm that the position was 

transferred to for clearing via CMTA. 

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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NYSEARCA–2023–67 and should be 

submitted on or before October 25, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.38

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–22039 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98585; File No. SR–MEMX– 

2023–25] 

Self-Regulatory Organizations; MEMX 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend the Exchange’s Fee 

Schedule To Establish an Options 

Regulatory Fee 

September 28, 2023. 

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 

September 27, 2023, MEMX LLC 

(‘‘MEMX’’ or the ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (the ‘‘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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing with the 

Commission a proposed rule change to 

amend the Exchange’s fee schedule 

applicable to Members 3 (the ‘‘Fee 

Schedule’’) pursuant to Exchange Rules 

15.1(a) and (c) to adopt an Options 

Regulatory Fee (‘‘ORF’’) that would 

automatically sunset on September 30, 

2024. The Exchange proposes to 

implement the changes to the Fee 

Schedule pursuant to this proposal on 

September 27, 2023. The text of the 

proposed rule change is provided in 

Exhibit 5. 

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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

In preparation for the launch of the 

Exchange’s options market (‘‘MEMX 

Options’’),4 the Exchange proposes to 

establish an ORF in the amount of 

$0.0015 per contract side. The amount 

of the proposed fee is based on 

historical industry volume, projected 

volumes on the Exchange, and projected 

Exchange regulatory costs. The 

Exchange’s proposed ORF should 

balance the Exchange’s regulatory 

revenue against the anticipated 

regulatory costs. As discussed more 

fully below, the Exchange proposes that 

the ORF will automatically sunset on 

September 30, 2024. 

The per-contract ORF will be 

collected by the Options Clearing 

Corporation (‘‘OCC’’) on behalf of the 

Exchange for each options transaction, 

cleared or ultimately cleared by an 

Exchange member in the ‘‘customer’’ 

range, regardless of the exchange on 

which the transaction occurs. The ORF 

is collected from either: (1) a Member 

that was the ultimate clearing firm 5 for 

the transaction; or (2) a non-Member 

that was the ultimate clearing firm 

where a Member was the executing 

clearing firm 6 for the transaction. 

To illustrate how the ORF will be 

assessed and collected, the Exchange 

provides the following set of examples. 

1. For all transactions executed on the 

Exchange, if the ultimate clearing firm 

is a Member of the Exchange, the ORF 

is assessed to and collected from that 

Member. If the ultimate clearing firm is 

not a Member of the Exchange, the ORF 

is collected from that non-Member 

clearing firm but assessed to the 

executing clearing firm. 

2. If the transaction is executed on an 

away exchange, the ORF is only 

assessed and collected if either the 

executing clearing firm or ultimate 

clearing firm are Members of the 

Exchange. If the ultimate clearing firm 

is a Member of the Exchange, the ORF 

is assessed to and collected from that 

ultimate clearing firm. If the ultimate 

clearing firm is not a Member of the 

Exchange, the ORF is assessed to the 

executing clearing firm (again, only if 

that executing clearing firm is a Member 

of the Exchange), and collected from the 

ultimate clearing firm. Thus, to reiterate, 

if neither the executing clearing firm nor 

the ultimate clearing firm are members 

of the Exchange, no ORF is assessed or 

collected. 

Finally, the Exchange will not assess 

the ORF on outbound linkage trades. 

‘‘Linkage trades’’ are tagged in the 

Exchange’s system, so the Exchange can 

distinguish them from other trades. A 

customer order routed to another 

exchange results in the appearance of 

two customer trades, one from the 

originating exchange and one from the 

recipient exchange. Charging ORF on 

both trades could result in doubleVerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 E:\FR\FM\04OCN1.SGM 04OCN1

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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68693 

7To clarify, as stated previously, the Exchange 

will assess and collect the ORF for each customer 

options transaction that is cleared by a Member of 

the Exchange, regardless of where the transaction 

occurs. As such, transactions may fall into this 

category that originated from customer orders 

entered on the Exchange that were routed to and 

executed on an away market pursuant to the 

Options Linkage Plan. However, the Exchange will 

not assess the ORF in this instance on the original 

entering broker on MEMX Options, which would 

result in a potential double billing. Instead, the 

Exchange will only assess and collect from the 

ultimate clearing firm, and only if the ultimate 

clearing firm or the executing clearing firm is a 

MEMX Options Member (because the transaction 

ultimately occurs on an away market). 

billing of ORF for a single customer 

order, thus the Exchange will not assess 

ORF on outbound linkage trades in a 

linkage scenario.7

As a practical matter, when a 

transaction that is subject to the ORF is 

not executed on the Exchange, the 

Exchange lacks the information 

necessary to identify the order entering 

member for that transaction. There are 

countless order entering market 

participants, and each day such 

participants can drop their connection 

to one market center and establish 

themselves as participants on another. 

For these reasons, it is not possible for 

the Exchange to identify, and thus 

assess fees such as an ORF, on order 

entering participants on away markets 

on a given trading day. 

Clearing members, however, are 

distinguished from order entering 

participants because they remain 

identified to the Exchange on 

information the Exchange receives from 

the OCC regardless of the identity of the 

order entering participant, their 

location, and the market center on 

which they execute transactions. 

Therefore, the Exchange believes it is 

more efficient for the operation of the 

Exchange and for the marketplace as a 

whole to collect the ORF from clearing 

members. Additionally, this collection 

method was originally instituted for the 

benefit of clearing firms that desired to 

have the ORF be collected from the 

clearing firm that ultimately clears the 

transaction. 

As discussed below, 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 a 

Member’s activities support applying 

the ORF to transactions cleared but not 

executed by a Member. The Exchange’s 

regulatory responsibilities are the same 

regardless of whether a Member enters 

an order that executes or clears a 

transaction executed on its behalf. The 

Exchange will regularly review all such 

activities, including performing 

surveillance for position limit 

violations, end of day and intra-day 

manipulation, front-running, contrary 

exercise advice violations and insider 

trading. These activities span across 

multiple exchanges. 

The ORF is designed to recover a 

material portion of the costs to the 

Exchange of the supervision and 

regulation of Members’ customer 

options business, including performing 

routine surveillances and investigations, 

as well as 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 and fines, will 

cover a material portion, but not all, of 

the Exchange’s regulatory costs. 

Regulatory costs include direct 

regulatory expenses and certain indirect 

expenses for work allocated in support 

of the regulatory function. The direct 

expenses include in-house and thirdparty service provider costs to support 

the day-to-day regulatory work such as 

surveillance, investigations and 

examinations. The indirect expenses 

include support from personnel in such 

areas as human resources, legal, 

information technology, facilities and 

accounting as well as shared costs 

necessary to operate the Exchange and 

to carry out its regulatory function, such 

as hardware, data center costs and 

connectivity. The Exchange 

acknowledges that these indirect 

expenses are also allocated towards 

other business operations, such as 

providing connectivity and market data 

services, for which the Exchange has 

also conducted a cost-based analysis. As 

such, when analyzing the indirect 

expenses associated with its regulatory 

program, the Exchange did not doublecount any expenses, but instead, 

allocated a portion of the cost not 

already allocated to other fees imposed 

by the Exchange. Indirect expenses are 

anticipated to be approximately 24% of 

the total regulatory costs for 2023 and 

2024. Thus, direct expenses are 

anticipated to be approximately 76% of 

the total regulatory costs for 2023 and 

2024. The Exchange notes that its 

regulatory responsibilities with respect 

to Member compliance with options 

sales practice rules have been allocated 

to the Financial Industry Regulatory 

Authority (‘‘FINRA’’) under a 17d–2 

Agreement. The ORF is not designed to 

cover the cost of options sales practice 

regulation. Finally, the Exchange notes 

that it takes into account all regulatory 

sources of funding, including fines 

collected by the Exchange in connection 

with disciplinary matters, when 

determining the appropriate ORF rate. 

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. More specifically, the 

Exchange will ensure that revenue 

generated from ORF not exceed more 

than 75% of total annual regulatory 

costs. The Exchange will monitor 

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. Going forward, the 

Exchange will notify Members of 

adjustments to the ORF via regulatory 

circular at least 30 calendar days prior 

to the effective date of the change. 

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 Members and their 

associated persons under the Act and 

the rules of the Exchange and to surveil 

for other manipulative conduct by 

market participants trading on the 

Exchange. The Exchange will not be 

able to 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, end of day and intra-day 

manipulation, front-running and 

contrary exercise advice violations/ 

expiring exercise declarations. While 

much of this activity relates to the 

execution of orders, the ORF is assessed 

on and collected from clearing firms. 

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 

Members’ clearing activity, based on 

information the Exchange receives from 

the OCC, including for away market 

activity. Among other reasons, doing so 

better and more accurately captures 

activity that occurs away from the 

Exchange but which may relate to 

activity occurring on the Exchange. 

Without reviewing activity on a marketwide basis, the Exchange would not be 

able to effectively identify potentially 

problematic cross-market activity, with 

a portion occurring on other options 


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68694 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

8To reiterate, in this instance, the ORF would be 

collected from the non-Member ultimate CMTA 

clearing firm but assessed to the Member executing 

clearing firm. 

9COATS effectively enhances intermarket 

options surveillance by enabling the options 

exchanges to reconstruct the market promptly to 

effectively surveil certain rules. 

10 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. 

11See Section 6(h)(3)(I) of the Act. 

12See Securities Exchange Act Release Nos. 

58817 (October 20, 2008), 73 FR 63744 (October 27, 

2008) (SR–CBOE–2008–05) (notice of filing and 

immediate effectiveness of Cboe Exchange, Inc. 

(‘‘CBOE’’) adopting an ORF applicable to 

transactions across all options exchanges); 61133 

(December 9, 2009), 74 FR 66715 (December 16, 

2009) (SR–Phlx–2009–100) (notice of filing and 

immediate effectiveness of Nasdaq PHLX LLC 

(‘‘Phlx’’) adopting an ORF applicable to transactions 

across all options exchanges); 61154 (December 11, 

2009), 74 FR 67278 (December 18, 2009) (SR–ISE– 

2009–105) (notice of filing and immediate 

effectiveness of Nasdaq ISE, LLC (‘‘ISE’’) adopting 

an ORF applicable to transactions across all options 

exchanges); 61388 (January 20, 2010), 75 FR 4431 

(January 27, 2010) (SR–BX–2010–001) (notice of 

filing and immediate effectiveness of Nasdaq OMX 

BX, Inc. (‘‘BX’’) adopting an ORF applicable to 

transactions across all options exchanges); 70200 

(August 14, 2013) 78 FR 51242 (August 20, 2013) 

(SR–Topaz–2013–01)) (notice of filing and 

immediate effectiveness of Nasdaq GEMX, LLC 

(‘‘GEMX’’), formerly known as ISE Gemini and 

Topaz Exchange, adopting an ORF applicable to 

transactions across all options exchanges); 64400 

(May 4, 2011), 76 FR 27118 (May 10, 2011) (SR– 

NYSEAmex–2011–27) (notice of filing and 

immediate effectiveness of NYSE Amex LLC 

(‘‘NYSE AMEX’’) adopting an ORF applicable to 

transactions across all options exchanges); 64399 

(May 4, 2011), 76 FR 27114 (May 10, 2011) (SR– 

NYSEArca–2011–20) (notice of filing and 

immediate effectiveness of NYSE Arca, Inc. (‘‘NYSE 

Arca’’) adopting an ORF applicable to transactions 

across all options exchanges); 65913 (December 8, 

2011), 76 FR 77883 (December 14, 2011) (SR– 

NASDAQ–2011–163) (notice of filing and 

immediate effectiveness of Nasdaq Options Market 

(‘‘NOM’’) adopting an ORF applicable to 

transactions across all options exchanges); 66979 

(May 14, 2012), 77 FR 29740 (May 18, 2012) (SR– 

BOX–2012–002) (notice of filing and immediate 

effectiveness of BOX Options Exchange LLC 

(‘‘BOX’’) adopting an ORF applicable to 

transactions across all options exchanges); 67596 

(August 6, 2012), 77 FR 47902 (August 10, 2012) 

(SR–C2–2012–023) (notice of filing and immediate 

effectiveness of C2 Options Exchange, Inc. (‘‘C2’’) 

adopting an ORF applicable to transactions across 

all options exchanges); 68711 (January 23, 2013) 78 

FR 6155 (January 29, 2013) (SR–MIAX–2013–01) 

(notice of filing and immediate effectiveness of 

Miami International Securities Exchange LLC 

(‘‘MIAX’’) adopting an ORF applicable to 

transactions across all options exchanges); 74214 

(February 5, 2015), 80 FR 7665 (February 11, 2015) 

(SR–BATS–2015–08) (notice of filing and 

immediate effectiveness of Cboe BZX Exchange, 

Inc. (‘‘BZX’’) formerly known as BATS, adopting an 

ORF applicable to transactions across all options 

exchanges); 80025 (February 13, 2017) 82 FR 11081 

(February 17, 2017) (SR–BatsEDGX–2017–04) 

(notice of filing and immediate effectiveness of 

Cboe EDGX Exchange, Inc. (‘‘EDGX’’) formerly 

known as Bats EDGX Exchange, Inc., adopting an 

ORF applicable to transactions across all options 

exchanges); 80875 (June 7, 2017) 82 FR 27096 (June 

13, 2017) (SR–PEARL–2017–26) (notice of filing 

and immediate effectiveness of MIAX Pearl, LLC 

(‘‘MIAX Pearl’’) adopting an ORF applicable to 

transactions across all options exchanges); 85127 

(February 13, 2019) 84 FR 5173 (February 20, 2019) 

(SR–MRX–2019–03) (notice of filing and immediate 

effectiveness of Nasdaq MRX, LLC (‘‘MRX’’) 

adopting an ORF applicable to transactions across 

all options exchanges); 85251 (March 6, 2019) 84 FR 

8931 (March 12, 2019) (SR–EMERALD–2019–01) 

(notice of filing and immediate effectiveness of 

MIAX Emerald LLC (‘‘MIAX Emerald’’) adopting an 

ORF applicable to transactions across all options 

exchanges). 

13MIAX Options—effective 1/2/13, launch 12/7/ 

12; ISE Topaz—effective 8/5/13, launch same; 

MIAX Pearl—effective 2/6/17, launch same; MIAX 

Emerald—effective 3/1/19, launch same. 

14See Securities Exchange Act Release No. 47946 

(May 30, 2003), 68 FR 34021 (June 6, 2003) (SR– 

NASD–2002–148). 

15See supra note 13. 

exchanges and a portion on the 

Exchange. Again, the Exchange 

reiterates that it will not collect the ORF 

on executions that occur on away 

markets that are cleared by nonMembers, except for the limited 

scenario where a Member clears a 

transaction and ultimately ‘‘gives-up’’ 

the trade to a non-Member via CMTA.8

The Exchange believes that assessing 

the ORF on Member clearing firms 

equitably distributes the collection of 

the ORF in a fair and reasonable 

manner. 

In addition to its own surveillance 

programs, the Exchange will work with 

other SROs and exchanges on 

intermarket surveillance related issues 

in connection with its regulatory 

program for options. Specifically, the 

Exchange and other options exchanges 

are required to populate a consolidated 

options audit trail (‘‘COATS’’) 9 system 

in order to surveil a Member’s activities 

across markets. Further, through its 

participation in the Intermarket 

Surveillance Group (‘‘ISG’’),10 the 

Exchange will share information and 

coordinate 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.11

The Exchange believes that charging 

the ORF across markets will avoid 

having Members direct their trades to 

other markets in order to avoid the fee 

and to thereby avoid paying for their fair 

share for regulation. If the ORF did not 

apply to activity across markets then a 

Member would send their orders to the 

least cost, least regulated exchange (to 

the extent permissible under the 

Options Linkage plan, which, among 

other requirements, prohibits trading 

through of better priced quotations). 

Other exchanges do impose a similar fee 

on their member’s [sic] activity, and 

their fees will extend to include the 

activities of their own members on the 

Exchange. In other words, upon launch 

of the Exchange, other exchanges will 

charge the ORF for executions occurring 

on MEMX Options cleared by their 

customers.12 In fact, all sixteen (16) 

registered options exchanges currently 

impose ORF on their members, and, 

similar to the Exchange, the majority of 

the options exchanges launched over 

the last decade have implemented an 

ORF on the day of launch or shortly 

thereafter in order to properly fund their 

regulatory programs.13

The Exchange notes that there is 

established precedent for an SRO 

charging a fee across markets, namely, 

FINRA’s Trading Activity Fee 14 and the 

ORF assessed by other options 

exchanges including, but not limited to, 

NYSE Amex, NYSE Arca, Cboe, BZX, 

EDGX, Phlx, Nasdaq ISE, Nasdaq 

GEMX, MIAX and BOX.15 While the 

Exchange does not have all the same 

regulatory responsibilities as FINRA, the 

Exchange believes that, like other 

exchanges that have adopted an ORF, its 

broad regulatory responsibilities with 

respect to a Member’s activities, 

irrespective of where their transactions 

take place, supports a regulatory fee 

applicable to transactions on other 

markets. Unlike FINRA’s Trading 

Activity Fee, the ORF would apply only 

to a Member’s customer options 

transactions. 

Additionally, the Exchange proposes 

to specify in the Fee Schedule that the 

Exchange may only increase or decrease 

the ORF semi-annually. In addition to 

submitting a proposed rule change to 

the Commission as required by the Act 

to increase or decrease the ORF, the 

Exchange will notify participants via a 

Regulatory Circular of any anticipated 

change in the amount of the fee at least 

30 calendar days prior to the effective 

date of the change. The Exchange 

believes that by providing guidance on 

the timing of any changes to the ORF, 

the Exchange would make it easier for 

participants to ensure their systems are 

configured to properly account for the 

ORF. 

Lastly, the Exchange recognizes that 

in 2019, the Commission issued 

suspensions of and orders instituting 

proceedings to determine whether to 

approve or disapprove a proposed rule 

change to modify the Options 


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16See Securities Exchange Act Release No. 87168 

(September 30, 2019), 84 FR 53210 (October 4, 

2019) (SR–Emerald–2019–29); Securities Exchange 

Act Release No. 87167 (September 30, 2019), 84 FR 

53189 (October 4, 2019) (SR–PEARL–2019–23); 

Securities Exchange Act Release No. 87169 

(September 30, 2019), 84 FR 53195 (October 4, 

2019) (SR–MIAX–2019–35); Securities Exchange 

Act Release No. 87170 (September 30, 2019), 84 FR 

53213 (October 4, 2019) (SR–CBOE–2019–040); 

Securities Exchange Act Release No. 87172 

(September 30, 2019) 84 FR 53192 (October 4, 2019) 

(SR–CboeEDGX–2019–051); Securities Exchange 

Act Release No 87171 (September 30, 2019), 84 FR 

53200 (October 4, 2019) (SR–C2–2019–018); 

Securities Exchange Act Release No. 86832 (August 

30, 2019), 84 FR 46980 (September 6, 2019) (SR– 

NYSEArca–2019–49); Securities Exchange Act 

Release No. 86833 (August 30, 2019) 84 FR 47029 

(September 6, 2019) (SR–NYSEAMER–2019–27). 17See id. 

18See MEMX Options Regulatory Notice 23–07, 

https://info.memxtrading.com/regulatory-notice-23- 

07-memx-options-options-regulatory-fee/, MEMX 

Options Regulatory Notice 23–10, https:// 

info.memxtrading.com/regulatory-notice-23-10- 

options-regulatory-fee-effective-date/, and MEMX 

Options Regulatory Notice 23–15, https:// 

info.memxtrading.com/regulatory-notice-23-15- 

options-regulatory-fee-effective-date/. 

19 15 U.S.C. 78f(b). 

20 15 U.S.C. 78f(b)(4). 

21 15 U.S.C. 78f(b)(5). 

Regulatory Fee of NYSE American, 

NYSE Arca, MIAX, MIAX Pearl, MIAX 

Emerald, Cboe, Cboe EDGX Options, 

and C2.16 Each of those exchanges had 

filed to increase their ORF, and the 

Commission indicated that each of those 

filings lacked detail and specificity, 

signaling that more information was 

needed to speak to whether the 

proposed increased ORFs were 

reasonable, equitably allocated and not 

unfairly discriminatory, particularly 

given that the ORF is assessed on 

transactions that clear in the ‘‘customer’’ 

range and regardless of the exchange on 

which the transaction occurs. The 

Commission also noted that the filings 

provided only broad general statements 

regarding options transaction volume 

and did not provide any information on 

those exchanges’ historic or projected 

options regulatory costs (including the 

costs of regulating activity that cleared 

in the ‘‘customer’’ range and the costs of 

regulating activity that occurred off 

exchange), the amount of regulatory 

revenue they had generated and 

expected to generate from the ORF as 

well as other sources, or the ‘‘material 

portion’’ of options regulatory expenses 

that they sought to recover from the 

ORF. Each of those exchanges withdrew 

their filings, but continue charging ORF 

today as discussed above. Since that 

time, MEMX Options is the first new 

options exchange to launch, and as 

such, would be at an unfair competitive 

disadvantage if it were not allowed to 

charge the ORF to recover a material 

portion, but not all, of the Exchange’s 

regulatory costs for the supervision and 

regulation of activity of its Members 

which as noted above, is charged by all 

16 currently operating options 

exchanges. Given that the Exchange is 

not in possession of the data it would 

require in order to provide the 

information the SEC requested in its 

orders instituting proceedings to 

determine whether to approve or 

disapprove proposed rule changes to 

modify the Options Regulatory Fee of 

other options exchanges,17 the Exchange 

believes it appropriate to revisit its ORF 

once it has the actual data and 

experience that will be available upon 

operating the Exchange and its 

regulatory program. 

As such, the Exchange proposes that 

the ORF proposed herein will 

automatically sunset on September 30, 

2024, approximately one year after the 

operative date. The Exchange believes 

this will allow it the time to gather the 

necessary data, including its actual 

regulatory costs and revenues, as well as 

the cost of regulating executions that 

clear in a customer capacity and 

executions that occur on away markets, 

while also allowing it to adequately 

cover a portion of the projected costs 

associated with the regulation of its 

Members. Such a process will inform 

the Exchange’s approach to the ORF 

after the sunset date. To reiterate, as a 

new exchange, not having the 

opportunity to fund its regulatory 

program through the same regulatory fee 

charged by every other options 

exchange would place an undue 

competitive disadvantage upon the 

Exchange’s regulatory program and 

options business as a whole. Further, 

the Exchange emphasizes that other 

exchanges will be charging ORF for 

transactions occurring on MEMX 

Options, and as such, it follows that the 

Exchange that is primarily responsible 

for monitoring those transactions should 

also be able to charge the ORF for 

activity occurring on its own market, as 

well as transactions it surveils on away 

markets. In particular, by adopting a 

one-year sunset to its proposed ORF, the 

Exchange will be the only options 

exchange (of seventeen) that will be 

required to demonstrate to the 

Commission that the existing fee is 

reasonable, equitably allocated and not 

unfairly discriminatory in the next year. 

Absent rulemaking by the Commission, 

all other sixteen (16) options exchanges 

will be able to continue charging ORF 

as they do today, and as they have for 

years. 

The Exchange is proposing to 

establish an ORF in the amount of 

$0.0015 per contract side, to be 

operative on September 27, 2023, which 

is the date the Exchange’s options 

platforms is scheduled to launch, and 

that will automatically sunset on 

September 30, 2024. The amount of the 

proposed fee is based on historical 

industry volume, projected volumes on 

the Exchange, and projected Exchange 

regulatory costs. As noted above, the 

Exchange will continually gather 

relevant data throughout the sunset 

period and review 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 this proposal will permit 

the Exchange to cover a material portion 

of its regulatory costs, while not 

exceeding regulatory costs, and gather 

the necessary data to provide the 

Commission evidence to inform its 

approach to the ORF after the sunset 

period. 

The Exchange notified current and 

future Members via a Regulatory 

Circular of the proposed ORF at least 30 

calendar days prior to the proposed 

operative date, on August 1, 2023.18 The 

Exchange believes that the prior 

notification to future market 

participants will ensure that the future 

market participants are prepared to 

configure their systems to properly 

account for the proposed ORF. 

2. Statutory Basis 

The Exchange believes that its 

proposal to amend its Fee Schedule is 

consistent with Section 6(b) of the Act 19

in general, and furthers the objectives of 

Section 6(b)(4) of the Act 20 in 

particular, in that it is an equitable 

allocation of reasonable dues, fees, and 

other charges among its members and 

issuers and other persons using its 

facilities. The Exchange also believes 

the proposal furthers the objectives of 

Section 6(b)(5) of the Act 21 in that it is 

designed to promote just and equitable 

principles of trade, 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 and is not designed to 

permit unfair discrimination between 

customers, issuers, brokers and dealers. 

The Exchange believes that 

establishing an ORF in the amount of 

$0.0015 is reasonable because the 

Exchange’s collection of ORF needs to 

be balanced against the amount of 

projected regulatory costs incurred by 

the Exchange. The Exchange believes 

that the amount proposed herein will 

serve to balance the Exchange’s 

regulatory revenue against the 

anticipated regulatory costs. Moreover, 

the proposed amount is lower than the 


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68696 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

22See, e.g., NYSE Arca Options Fees and Charges, 

Options Regulatory Fee (‘‘ORF’’) and NYSE 

American Options Fees Schedule, Section VII(A), 

which provide that ORF is assessed at a rate of 

$0.0055 per contract for each respective exchange. 

See also Nasdaq PHLX, Options 7 Pricing Schedule, 

Section 6(D), which provides for an ORF rate of 

$0.0034 per contract, Cboe Options Fee Schedule, 

which provides an ORF rate of $0.0030 per contract, 

Nasdaq Options Market, Options 7 Pricing 

Schedule, Section 5, which provides an ORF rate 

of $0.0016 per contract, BOX Options Fee Schedule 

Section II(C), which provides an ORF rate of 

$0.00295 per contract, MIAX Options Fee Schedule, 

Section 2(b), which provides an ORF rate of $0.0019 

per contract, MIAX Pearl Fee Schedule, Section 

2(b), which provides an ORF rate of $0.0018 per 

contract. 

23Each of MIAX Emerald, Cboe BZX Options, 

Cboe C2 Options, Cboe EDGX Options, Nasdaq ISE 

Gemini, Nasdaq ISE and Nasdaq BX Options 

charges a lower rate than $0.0015 per contract, 

which is the rate proposed by the Exchange. 

However, the Cboe exchanges, comprised of four 

options exchanges, charges an aggregate ORF rate of 

$0.0034 per contract (over 2 times the Exchange’s 

proposed rate), the MIAX exchanges, comprised of 

three options exchanges, charges an aggregate ORF 

rate of $0.0043 per contract (nearly 3 times the 

Exchange’s proposed rate); and the Nasdaq 

exchanges, comprised of six options exchanges, 

charges an aggregate ORF rate of $0.0084 per 

contract (nearly 6 times the Exchange’s proposed 

rate). The Exchange notes that the NYSE exchanges, 

comprised of two options exchanges, charges an 

aggregate ORF rate of $0.011 per contract (over 7 

times the Exchange’s proposed rate). 

24See MEMX LLC—LLC Agreement at https://

info.memxtrading.com/regulation/governance/. 

amount of ORF assessed on other 

exchanges.22 The Exchange notes that 

while certain options exchanges do 

charge a lower ORF than that proposed 

by the Exchange, each of these options 

exchanges is part of an exchange 

‘‘group’’ (i.e., affiliated with other 

options exchanges). In turn, each of 

these exchange groups charges more 

than two (2) to five (5) times the amount 

of ORF as a group when compared to 

the Exchange’s proposed ORF rate.23

While the Exchange understands and 

agrees that each additional options 

exchange is its own legal entity with 

regulatory obligations under the Act to 

regulate its members, the Exchange also 

believes that there is significant scale 

that can be achieved for an exchange 

group that operates multiple exchanges, 

including with respect to regulation, 

and that it is this scale that allows such 

options exchanges to operate with such 

a low assessment of ORF. In other 

words, the initial fixed costs associated 

with implementing an exchange group’s 

options regulatory program are scalable 

as additional options exchanges are 

launched by that exchange group. 

The Exchange believes the proposed 

ORF is equitable and not unfairly 

discriminatory because it is objectively 

allocated to Members in that it is 

charged to all Members on all their 

transactions that clear as customer at the 

OCC. Moreover, the Exchange believes 

the ORF ensures fairness by assessing 

fees to those Members 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 noncustomer trading activity, which tends 

to be more automated and less laborintensive. 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 noncustomer component (e.g., Member 

proprietary transactions) of its 

regulatory program. Again, the 

Exchange intends to quantify the 

amount of time and resources spent on 

customer trading activity during the 

sunset period. 

The ORF is designed to recover a 

material portion of the costs of 

supervising and regulating Members’ 

customer options business including 

performing routine surveillances and 

investigations, as well as 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 75% of 

the Exchange’s regulatory costs, which 

is consistent with the Exchange’s bylaws that state in Section 17.4(b): ‘‘[a]ny 

Regulatory Funds shall not be used for 

non-regulatory purposes or distributed, 

advanced or allocated to any Company 

Member, but rather, shall be applied to 

fund regulatory operations of the 

Company (including surveillance and 

enforcement activities). . .’’ 24. In this 

regard, the Exchange believes that the 

amount of the fee is reasonable. 

The Exchange believes that the 

proposal to limit changes to the ORF to 

twice a year with advance notice is 

reasonable because it will give 

participants certainty on the timing of 

changes, if any, and better enable them 

to properly account for ORF charges 

among their customers. The Exchange 

believes that limiting changes to the 

ORF to twice a year is equitable and not 

unfairly discriminatory because it will 

apply in the same manner to all 

Members that are subject to the ORF and 

provide them with additional advance 

notice of changes to that fee. 

The Exchange believes that the 

proposal to collect the ORF from nonMembers when such non-Members 

ultimately clear the transaction (that is, 

when the non-Member is the ‘‘ultimate 

clearing firm’’ for a transaction in which 

a Member was assessed the ORF), is an 

equitable allocation of reasonable dues, 

fees, and other charges among its 

members and issuers 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 nonMembers in any instance. For all 

executions, regardless of where they 

occur, the ORF is collected from the 

ultimate clearing firm, regardless of 

whether that clearing firm is a Member, 

but only if the original executing 

clearing firm is a Member. If the original 

executing clearing firm is a not a 

Member, no ORF is assessed or 

collected. If the original executing 

clearing firm is a Member, while the 

ORF may be collected from the ultimate 

non-Member clearing firm, the ORF is 

assessed to the Member executing 

clearing firm. The Exchange believes 

that this collection practice is 

reasonable and appropriate, given its 

broad regulatory responsibilities with 

respect to its Members activity, as well 

as the fact that this collection method 

was originally instituted for the benefit 

of clearing firms that desired to have the 

ORF be collected from the clearing firm 

that ultimately clears the transaction. 

The Exchange believes that 

implementing the proposed ORF with a 

sunset date of approximately one year 

after the operative date is reasonable 

because it will give the Exchange 

adequate time to collect and analyze 

pertinent data while ensuring the 

Exchange, as a new entrant into equity 

options trading, is able to adequately 

fund its regulatory program to the same 

extent as its competitors. As noted 

above, by adopting a one-year sunset to 

its proposed ORF, the Exchange will be 

the only options exchange (of 

seventeen) that will be required to 

demonstrate to the Commission that the 

existing fee is reasonable, equitably 

allocated and not unfairly 

discriminatory in the next year. Absent 

rulemaking by the Commission, all 

other sixteen (16) options exchanges 

will be able to continue charging ORF 

as they do today, and as they have for 

years. Further, the Exchange emphasizes 

that other exchanges will be charging 

ORF for transactions occurring on 

MEMX Options, and as such, it follows 

that the Exchange that is primarily 

responsible for monitoring those 


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25See supra, note 13. 

26 15 U.S.C. 78s(b)(3)(A)(ii). 

27 17 CFR 240.19b–4(f)(2). 28 17 CFR 200.30–3(a)(12). 

transactions should also be able to 

charge the ORF for activity occurring on 

its own market, as well as transactions 

it surveils on away markets. 

The Exchange believes that 

implementing the ORF with the sunset 

provision is equitable and not unfairly 

discriminatory because it will apply in 

the same manner to all Members that are 

subject to the ORF and the Exchange 

will provide such Members with 

advance notice of any changes to the 

ORF imposed by the Exchange. 

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 will not create an unnecessary 

or inappropriate intra-market burden on 

competition because the ORF will apply 

to all customer activity, and is designed 

to enable the Exchange to recover a 

material portion of the Exchange’s cost 

related to its regulatory activities. This 

proposal will not create an unnecessary 

or inappropriate inter-market burden on 

competition because it will be a 

regulatory fee that supports regulation 

and customer protection in furtherance 

of the purposes of the Act. 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. Unilateral 

action by the Exchange in establishing 

fees for services provided to its 

Members and others using its facilities 

will not have an impact on competition. 

The Exchange’s proposed ORF, as 

described herein, is lower than or 

comparable to fees charged by other 

options exchanges (though as noted 

above, some exchange groups do have 

options exchanges operating with a 

lower ORF on a standalone basis). The 

proposal to limit the changes to the ORF 

to twice a year with advance notice is 

not intended to address a competitive 

issue but rather to provide Members 

with better notice of any change that the 

Exchange may make to the ORF. 

The Exchange notes that while it does 

not believe that its proposed ORF will 

impose any burden on inter-market 

competition, the Exchange not charging 

an ORF or being precluded from 

charging an ORF would, in-fact, 

represent a significant burden on 

competition. As noted above, the 

Exchange is a new entrant in the highly 

competitive environment for equity 

options trading. As also noted above, all 

sixteen (16) registered options 

exchanges currently impose ORF on 

their members, and, similar to the 

Exchange, the majority of the options 

exchanges launched over the last decade 

have implemented an ORF on the day 

of launch or shortly thereafter.25 Upon 

the launch of the Exchange, such ORF 

fees imposed by other options 

exchanges will extend to executions 

occurring on the Exchange. The 

Exchange believes that in order to 

compete with these existing options 

exchanges, it must, in fact, impose an 

ORF on its Members, and that the 

inability to do so would result in an 

unfair competitive disadvantage to the 

Exchange. Given the Commission’s 

questions, as articulated in various 

orders instituting proceedings, the 

Exchange has proposed its ORF with a 

sunset that will allow the Exchange the 

time to gather the necessary data, 

including its actual regulatory costs and 

revenues, as well as the cost of 

regulations executions that clear in the 

customer capacity and executions that 

occur on away markets, while also 

allowing it to adequately cover a portion 

of the projected costs associated with 

the regulation of its Members. 

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)(ii) of the Act 26 and Rule 

19b–4(f)(2) 27 thereunder. 

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. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change 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 Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

MEMX–2023–25 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 

number SR–MEMX–2023–25. 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 (https://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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–MEMX–2023–25 and should be 

submitted on or before October 25, 2023 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21934 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 


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