8256 Federal Register / Vol. 89, No. 25 / Tuesday, February 6, 2024 / Notices 

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

2 17 CFR 240.19b–4. 

3The Exchange initially filed the proposed 

pricing changes on November 28, 2023 (SR– 

NASDAQ–2023–050) to be effective on December 1, 

2023. On December 5, 2023, the Exchange withdrew 

SR–NASDAQ–2023–050 and placed it with SR– 

NASDAQ–2023–054. On January 16, 2023, the 

Exchange withdrew SR–NASDAQ–2023–054 and 

submitted this filing. 

4 ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an 

interface that allows Market Makers to connect, 

send, and receive messages related to quotes and 

Immediate-or- Cancel Orders into and from the 

Exchange. Features include the following: (1) 

options symbol directory messages (e.g., underlying 

instruments); (2) system event messages (e.g., start 

of trading hours messages and start of opening); (3) 

trading action messages (e.g., halts and resumes); (4) 

execution messages; (5) quote messages; (6) 

Immediate-or-Cancel Order messages; (7) risk 

protection triggers and purge notifications; and (8) 

opening imbalance messages. The SQF Purge 

Interface only receives and notifies of purge 

requests from the Market Maker. Market Makers 

may only enter interest into SQF in their assigned 

options series. Immediate-or-Cancel Orders entered 

into SQF are not subject to the Order Price 

Protection, Market Order Spread Protection, or Size 

Limitation in Options 3, Section 15(a)(1) and (a)(2), 

and (b)(2), respectively. See Options 3, Section 

7(e)(1)(B). 

5SQF Purge is a specific port for the SQF 

interface that only receives and notifies of purge 

requests from the NOM Market Maker. 

6The Exchange also proposes a technical 

amendment to remove an extraneous period in 

Options 7, Section 3 in the second paragraph. 

7See NOM Options 2, Sections 4 and 5. 

8For example, a NOM Market Maker may desire 

to utilize multiple SQF Ports for accounting 

purposes, to measure performance, for regulatory 

reasons or other determinations that are specific to 

that NOM Participant. The Exchange notes that 

78% of NOM Market Makers pay the $1,000 per 

port, per month fee for 6–20 ports and 39% pay the 

proposed $750 per port, per month fee for over 20 

ports. 

9NOM Market Makers have various regulatory 

requirements as provided for in Options 2, Section 

4. Additionally, NOM Market Makers have certain 

quoting requirements with respect to their assigned 

options series as provided in Options 2, Section 5. 

The Exchange notes that SQF Ports are the only 

quoting protocol available on NOM and only NOM 

Market Makers may utilize SQF Ports. The same is 

true for SQF Purge Ports. 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78f(b)(4) and (5). 

12NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. 

Cir. 2010) (quoting Securities Exchange Act Release 

No. 59039 (December 2, 2008), 73 FR 74770, 74782– 

83 (December 9, 2008) (SR–NYSEArca–2006–21)). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99452; File No. SR– 

NASDAQ–2024–003] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Amend 

Options 7, Section 3 

January 31, 2024. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 

16, 2024, The Nasdaq Stock Market LLC 

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

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III, below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend The 

Nasdaq Options Market LLC’s (‘‘NOM’’) 

Rules at Options 7, Section 3, Nasdaq 

Options Market—Ports and Other 

Services.3

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend 

Options 7, Section 3, Nasdaq Options 

Market—Ports and Other Services. 

Specifically, the Exchange proposes to 

amend Options 7, Section 3(i) to 

increase the per port, per month SQF 

Port 4 and SQF Purge 5 Port Fees for all 

ports over 20 ports (21 and above) from 

$500 to $750.6

Today, NOM assesses SQF Ports and 

SQF Purge Ports a per port, per month 

fee based on a tiered fee schedule. 

Specifically, NOM assesses an SQF Port 

and an SQF Purge Port fee of $1,500 per 

port, per month for the first 5 ports (1– 

5), a $1,000 per port, per month fee for 

the next 15 ports (6–20), and a $750 per 

port, per month fee for all ports over 20 

ports (21 and above). 

The Exchange proposes to amend the 

per port, per month fee for SQF Ports 

and SQF Ports above 20 ports (21 and 

above) from $500 to $750 per port, per 

month. The Exchange is not amending 

the SQF Port and SQF Purge Port fees 

for ports below 20 ports. SQF Ports and 

SQF Purge Ports over 20 ports are 

unnecessary for a NOM Market Maker to 

fulfill its regulatory requirements.7 A 

NOM Market Maker requires only one 

SQF Port to submit quotes in its 

assigned options series into NOM. A 

NOM Market Maker may submit all 

quotes through one SQF Port and utilize 

one SQF Purge Port to view its purge 

requests. While a NOM Market Maker 

may elect to obtain multiple SQF Ports 

and SQF Purge Ports to organize its 

business,8 only one SQF Port and SQF 

Purge Port is necessary for a NOM 

Market Maker to fulfill its regulatory 

quoting obligations.9

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,10 in general, and furthers the 

objectives of Sections 6(b)(4) and 6(b)(5) 

of the Act,11 in particular, in that it 

provides for the equitable allocation of 

reasonable dues, fees, and other charges 

among members and issuers and other 

persons using any facility, and is not 

designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

The proposed pricing change to 

increase the maximum SQF Port and 

SQF Purge Port Fees is reasonable in 

several respects. As a threshold matter, 

the Exchange is subject to significant 

competitive forces in the market for 

options securities transaction services 

that constrain its pricing determinations 

in that market. The fact that this market 

is competitive has long been recognized 

by the courts. In NetCoalition v. 

Securities and Exchange Commission, 

the D.C. Circuit stated as follows: ‘‘[n]o 

one disputes that competition for order 

flow is ‘fierce.’ . . . As the SEC 

explained, ‘[i]n the U.S. national market 

system, buyers and sellers of securities, 

and the broker-dealers that act as their 

order-routing agents, have a wide range 

of choices of where to route orders for 

execution’; [and] ‘no exchange can 

afford to take its market share 

percentages for granted’ because ‘no 

exchange possesses a monopoly, 

regulatory or otherwise, in the execution 

of order flow from broker 

dealers’. . . .’’ 12

The Commission and the courts have 

repeatedly expressed their preference 

for competition over regulatory 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 25 / Tuesday, February 6, 2024 / Notices 8257 

13Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’). 

14See NOM Options 2, Sections 4 and 5. 

15For example, a NOM Market Maker may desire 

to utilize multiple SQF Ports for accounting 

purposes, to measure performance, for regulatory 

reasons or other determinations that are specific to 

that Participant. 16See Options 2, Sections 4 and 5. 

17See Securities Exchange Act Release No. 95412 

(June 23, 2022), 87 FR 38786 (June 29, 2022) (SR– 

NYSEArca–2022–36). NYSE Arca proposed to 

increase both the monthly fee per Market Maker 

OTP and the number of issues covered by each 

additional OTP because, among other reasons, the 

number of issues traded on the Exchange has 

increased significantly in recent years. 

18 Id at 38788. 

19 Id at 38790. 

intervention in determining prices, 

products, and services in the securities 

markets. In Regulation NMS, while 

adopting a series of steps to improve the 

current market model, the Commission 

highlighted the importance of market 

forces in determining prices and SRO 

revenues and, also, recognized that 

current regulation of the market system 

‘‘has been remarkably successful in 

promoting market competition in its 

broader forms that are most important to 

investors and listed companies.’’ 13

Numerous indicia demonstrate the 

competitive nature of this market. 

Within this environment, market 

participants can freely and often do shift 

their order flow among the Exchange 

and competing venues in response to 

changes in their respective pricing 

schedules. 

The Exchange believes that increasing 

the fee for SQF Ports and SQF Purge 

Ports over 20 ports (21 and above) from 

$500 to $750 per port, per month is 

reasonable because SQF Ports and SQF 

Purge Ports over 20 ports are 

unnecessary for a NOM Market Maker to 

fulfill its regulatory requirements.14 A 

NOM Market Maker requires only one 

SQF Port to submit quotes in its 

assigned options series into NOM. A 

NOM Market Maker may submit all 

quotes through one SQF Port and utilize 

one SQF Purge Port to view its purge 

requests. While a NOM Market Maker 

may elect to obtain multiple SQF Ports 

and SQF Purge Ports to organize its 

business,15 only one SQF Port and SQF 

Purge Port is necessary for a NOM 

Market Maker to fulfill its regulatory 

quoting obligations. Additionally, the 

Exchange believes the proposed SQF 

Port and SQF Purge Port fee increases 

are reasonable for two reasons. 

First, SQF Ports are a secure method 

for Market Makers to submit quotes into 

the Exchange’s match engine and for the 

Exchange to send messages related to 

those quotes to Market Makers. NOM 

must manage the security and message 

traffic, among other things, for each 

port. Amending the SQF Port and SQF 

Purge Port tiered fees to manage a 

Market Maker’s costs while also 

managing the quantity of SQF Ports and 

SQF Purge Ports issued on NOM has led 

the Exchange to increase the tier for all 

ports over 20 ports to $750 per port, per 

month. Lowering the fee for SQF Ports 

and SQF Purge Ports over 20 ports 

allows the Exchange to manage message 

traffic and message rates associated with 

the current number of outstanding SQF 

Port and SQF Purge Ports and consider 

the Exchange’s ability to process 

messages. The ability to manage ports 

through pricing permits the Exchange to 

scale its needs with respect to 

processing messages in an efficient 

manner. 

Second, the Exchange notes that 

multiple ports are not necessary, 

however, to the extent that some Market 

Makers elect to obtain multiple ports, 

the Exchange is offering to lower their 

fees for SQF Ports and SQF Purge Ports 

over 20 ports, per month. NOM believes 

that lowering costs for ports beyond 20 

ports allows for efficiencies and permits 

Market Makers to increase their number 

of ports beyond the 20 ports. Lowering 

the SQF Port and SQF Purge Port fees, 

per month, beyond 20 ports allows 

those Market Makers that want to obtain 

a larger number of SQF Port and SQF 

Purge ports to do so at a lower cost. In 

this case, the Exchange is raising the 

current SQF Port and SQF Purge Port 

Fee for over 20 ports from $500 to $750 

per port, per month. Despite the 

increase, Market Makers will continue 

to pay less for over 20 SQF Port and 

SQF Purge Ports per month if they 

desire to obtain multiple ports on NOM. 

The Exchange believes that increasing 

the fee for SQF Ports and SQF Purge 

Ports over 20 ports (21 and above) from 

$500 to $750 per port, per month is 

equitable and not unfairly 

discriminatory because all NOM Market 

Makers would be assessed the same fees 

for SQF Ports and SQF Purge Ports to 

the extent that these NOM Market 

Makers have subscribed to more than 20 

SQF Ports or SQF Purge Ports. NOM 

Market Makers are the only market 

participants that are assessed SQF Port 

and SQF Purge Port fees because they 

are the only market participants that are 

permitted to quote on the Exchange. 

Unlike other market participants, 

Market Makers are subject to market 

making and quoting obligations.16 These 

liquidity providers are critical market 

participants in that they are the only 

market participants that provide 

liquidity to NOM on a continuous basis. 

Providing Market Makers a means to cap 

their cost related to quoting and 

enabling all Market Makers to acquire 

SQF Ports and SQF Purge Ports at a 

lower cost beyond 20 ports enables 

these market participants to provide the 

necessary liquidity to NOM at lower 

costs. 

In 2022, NYSE Arca, Inc. (‘‘NYSE 

Arca’’) proposed to restructure fees 

relating to OTPs for Market Makers.17 In 

that rule change,18 NYSE Arca argued 

that, 

Market Makers serve a unique and 

important function on the Exchange (and 

other options exchanges) given the quotedriven nature of options markets. Because 

options exchanges rely on actively quoting 

Market Makers to facilitate a robust 

marketplace that attracts order flow, options 

exchanges must attract and retain Market 

Makers, including by setting competitive 

Market Maker permit fees. Stated otherwise, 

changes to Market Maker permit fees can 

have a direct effect on the ability of an 

exchange to compete for order flow. The 

Exchange also believes that the number of 

options exchanges on which Market Makers 

can effect option transactions also ensures 

competition in the marketplace and 

constrains the ability of exchanges to charge 

supracompetitive fees for access to its market 

by Market Makers. 

Further, NYSE ARCA noted that,19

The Exchange further believes that its 

ability to set Market Maker permit fees is 

constrained by competitive forces based on 

the fact that Market Makers can, and have, 

chosen to terminate their status as a Market 

Maker if they deem Market Maker permit fees 

to be unreasonable or excessive. Specifically, 

the Exchange notes that a BOX participant 

modified its access to BOX in connection 

with the implementation of a proposed 

change to BOX’s Market Maker permit fees. 

The Exchange has also observed that another 

options exchange group experienced 

decreases in market share following its 

proposed modifications of its access fees 

(including Market Maker trading permit fees), 

suggesting that market participants 

(including Market Makers) are sensitive to 

changes in exchanges’ access fees and may 

respond by shifting their order flow 

elsewhere if they deem the fees to be 

unreasonable or excessive. 

There is no requirement, regulatory or 

otherwise, that any Market Maker connect to 

and access any (or all of) the available 

options exchanges. The Exchange also is not 

aware of any reason why a Market Maker 

could not cease being a permit holder in 

response to unreasonable price increases. 

The Exchange does not assess any 

termination fee for a Market Maker to drop 

its OTP, nor is the Exchange aware of any 

other costs that would be incurred by a 

Market Maker to do so. 

The Exchange likewise believes that 

its lower SQF Ports and SQF Purge Port 

monthly fees beyond 20 ports is 


ddrumheller on DSK120RN23PROD with NOTICES1
8258 Federal Register / Vol. 89, No. 25 / Tuesday, February 6, 2024 / Notices 

20See Securities Exchange Act Release No. 95412 

(June 23, 2022), 87 FR 38786 (June 29, 2022) (SR– 

NYSEArca–2022–36). 

21See Securities Exchange Act No. 

96824(February 7, 2023), 88 FR 8975 (February 10, 

2023) (SR–MRX–2023–05) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend MRX Options 7, Section 6). 

22 Id at 8976. 

23See Options 2, Sections 4 and 5. 

24 15 U.S.C. 78s(b)(3)(A)(ii). 

constrained by competitive forces and 

that its proposed modifications to the 

SQF Port and SQF Purge Fees is 

reasonably designed in consideration of 

the competitive environment in which 

the Exchange operates, by balancing the 

value of the enhanced benefits available 

to Market Makers due to the current 

level of activity on the Exchange with a 

fee structure that will continue to incent 

Market Makers to support increased 

liquidity, quote competition, and 

trading opportunities on the Exchange, 

for the benefit of all market participants. 

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. 

Intermarket Competition 

The proposal does not impose an 

undue burden on intermarket 

competition. The Exchange believes its 

proposal remains competitive with 

other options markets who also offer 

order entry protocols. The Exchange 

notes that it operates in a highly 

competitive market in which market 

participants can readily favor competing 

venues if they deem fee levels at a 

particular venue to be excessive. In such 

an environment, the Exchange must 

continually adjust its fees to remain 

competitive with other exchanges. 

Because competitors are free to modify 

their own fees in response, and because 

market participants may readily adjust 

their order routing practices, the 

Exchange believes that the degree to 

which fee changes in this market may 

impose any burden on competition is 

extremely limited. Other exchanges 

have been permitted to amend certain 

costs attributed to Market Makers.20

Further, in 2022, MRX proposed a 

monthly cap for SQF Ports and SQF 

Purge Ports of 17,500.21 MRX noted in 

its rule change that, ‘‘Only one SQF 

quote protocol is required for an MRX 

Market Maker to submit quotes into 

MRX and to meet its regulatory 

requirements.’’ 22

If the Commission were to apply a 

different standard of review this 

proposal than it applied to other 

exchange fee filings, where Market 

Maker fees were increased and port fee 

caps were established, it would create a 

burden on competition such that it 

would impair NOM’s ability to compete 

among other options markets. 

Intramarket Competition 

The Exchange believes that increasing 

the fee for SQF Ports and SQF Purge 

Ports over 20 ports (21 and above) from 

$500 to $750 per port, per month does 

not impose an undue burden on 

competition because all NOM Market 

Makers would be assessed the same fees 

for SQF Ports and SQF Purge Ports to 

the extent that these NOM Market 

Makers have subscribed to more than 20 

SQF Ports or SQF Purge Ports. NOM 

Market Makers are the only market 

participants that are assessed SQF Port 

and SQF Purge Port fees because they 

are the only market participants that are 

permitted to quote on the Exchange. 

Unlike other market participants, 

Market Makers are subject to market 

making and quoting obligations.23 These 

liquidity providers are critical market 

participants in that they are the only 

market participants that provide 

liquidity to NOM on a continuous basis. 

Providing Market Makers a means to cap 

their cost related to quoting and 

enabling all Market Makers to acquire 

SQF Ports and SQF Purge Ports at a 

lower cost beyond 20 ports enables 

these market participants to provide the 

necessary liquidity to NOM at lower 

costs. Therefore, because Market Makers 

fulfill a unique role on the Exchange, 

are the only market participant required 

to submit quotes as part of their 

obligations to operate on the Exchange, 

and, in light of that role, they are 

eligible for certain incentives. The 

proposed lower monthly SQF Fee and 

SQF Purge Port fee is designed to 

continue to incent Market Makers to 

quote on NOM, thereby promoting 

liquidity, quote competition, and 

trading opportunities. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.24

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is: (i) necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic 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– 

NASDAQ–2024–003 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–NASDAQ–2024–003. 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 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 25 / Tuesday, February 6, 2024 / Notices 8259 

25 17 CFR 200.30–3(a)(12). 

1This estimate of $73 per hour for clerical work 

and the other estimated wage rates below are based 

on salary information for the securities industry 

compiled by the Securities Industry and Financial 

Markets Association’s Office Salaries in the 

Securities Industry 2013; the estimated wage figures 

are modified by Commission staff to account for an 

1,800-hour work-year and adjusted to account for 

bonuses, firm size, employee benefits, overhead, 

and adjusted to account for the effects of inflation. 

2This estimate is based on the following 

calculations: (1,379 funds × 25% = 345 funds); (345 

× 1 (clerical hour) = 345 clerical hours); (345 × $73 

= $25,185 total annual cost for recordkeeping 

requirement). 

3This estimate is based on the following 

calculations: 1,379 funds × 5% = 69 funds; 69 × ((1 

attorney hour × $484 per hour) + (2 clerical hours 

× $73 per hour)) = $43,470 total annual cost. 

4This estimate is based on the following 

calculations: (207 (notice hours) + 345 

(recordkeeping hours) = 552 total hours); ($43,470 

(notice costs) + $25,185 (recordkeeping costs) = 

$68,655 total annual costs). 

5This estimate is based on the following 

calculation: (345 funds responding to recordkeeping 

requirement + 69 funds responding to notice 

requirement = 414 total respondents). 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NASDAQ–2024–003 and should be 

submitted on or before February 27, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–02270 Filed 2–5–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–321, OMB Control No. 

3235–0358] 

Proposed Collection; Comment 

Request; Extension: Rule 11a–3 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736 

Notice is hereby given that pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520), the Securities 

and Exchange Commission (the 

‘‘Commission’’) is soliciting comments 

on the collection of information 

summarized below. The Commission 

plans to submit this existing collection 

of information to the Office of 

Management and Budget for extension 

and approval. 

Section 11(a) of the Investment 

Company Act of 1940 (‘‘Act’’) (15 U.S.C. 

80a–11(a)) provides that it is unlawful 

for a registered open-end investment 

company (‘‘fund’’) or its underwriter to 

make an offer to the fund’s shareholders 

or the shareholders of any other fund to 

exchange the fund’s securities for 

securities of the same or another fund 

on any basis other than the relative net 

asset values (‘‘NAVs’’) of the respective 

securities to be exchanged, ‘‘unless the 

terms of the offer have first been 

submitted to and approved by the 

Commission or are in accordance with 

such rules and regulations as the 

Commission may have prescribed in 

respect of such offers.’’ Section 11(a) 

was designed to prevent ‘‘switching,’’ 

the practice of inducing shareholders of 

one fund to exchange their shares for 

the shares of another fund for the 

purpose of exacting additional sales 

charges. 

Rule 11a–3 (17 CFR 270.11a–3) under 

the Act is an exemptive rule that 

permits open-end investment 

companies (‘‘funds’’), other than 

insurance company separate accounts, 

and funds’ principal underwriters, to 

make certain exchange offers to fund 

shareholders and shareholders of other 

funds in the same group of investment 

companies. The rule requires a fund, 

among other things, (i) to disclose in its 

prospectus and advertising literature the 

amount of any administrative or 

redemption fee imposed on an exchange 

transaction, (ii) if the fund imposes an 

administrative fee on exchange 

transactions, other than a nominal one, 

to maintain and preserve records with 

respect to the actual costs incurred in 

connection with exchanges for at least 

six years, and (iii) give the fund’s 

shareholders a sixty day notice of a 

termination of an exchange offer or any 

material amendment to the terms of an 

exchange offer (unless the only material 

effect of an amendment is to reduce or 

eliminate an administrative fee, sales 

load or redemption fee payable at the 

time of an exchange). 

The rule’s requirements are designed 

to protect investors against abuses 

associated with exchange offers, provide 

fund shareholders with information 

necessary to evaluate exchange offers 

and certain material changes in the 

terms of exchange offers, and enable the 

Commission staff to monitor funds’ use 

of administrative fees charged in 

connection with exchange transactions. 

The staff estimates that there are 

approximately 1,379 active open-end 

investment companies registered with 

the Commission as of December 2022 

(using filings made through July 2023). 

The staff estimates that 25 percent of 

these funds (345 funds) impose a nonnominal administrative fee on exchange 

transactions. The staff estimates that the 

recordkeeping requirement of the rule 

requires approximately 1 hour annually 

of clerical time (at an estimated $73 per 

hour) 1 per fund, for a total of 345 hours 

for all funds (at a total annual cost of 

$25,185).2

The staff estimates that 5 percent of 

these 1,379 funds (or 69 funds) 

terminate an exchange offer or make a 

material change to the terms of their 

exchange offer each year, requiring the 

fund to comply with the notice 

requirement of the rule. The staff 

estimates that complying with the 

notice requirement of the rule requires 

approximately 1 hour of attorney time 

(at an estimated $484 per hour) and 2 

hours of clerical time (at an estimated 

$73 per hour) per fund, for a total of 

approximately 207 hours for all funds to 

comply with the notice requirement (at 

a total annual cost of $43,470).3 The 

staff estimates that such notices will be 

enclosed with other written materials 

sent to shareholders, such as annual 

shareholder reports or account 

statements, and therefore any burdens 

associated with mailing required notices 

are accounted for in the burdens 

associated with Form N–1A registration 

statements for funds. 

The recordkeeping and notice 

requirements together impose an 

estimated total burden of 552 hours on 

all funds (at a total annual cost of 

$68,655).4 The total number of 

respondents is 414, each responding 

once a year.5 The burdens associated 

with the disclosure requirement of the 

rule are accounted for in the burdens 

associated with the Form N–1A 

registration statement for funds. 

Table 1 below summarizes the 

currently approved and updated 

burdens associated with rule 11a–3. 


ddrumheller on DSK120RN23PROD with NOTICES1