Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 90165 

48 15 U.S.C. 78s(b)(3)(A)(ii). 

49 17 CFR 240.19b–4(f)(2). 50 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

account for those Options Regulatory 

Costs. Additionally, the Exchange 

believes that limiting the amount of 

ORF assessed for activity that occurs on 

non-ISE exchanges does not impose a 

burden on intra-market competition, 

rather it avoids overlapping ORFs that 

would otherwise be assessed by ISE and 

other options exchanges that also assess 

an ORF. With this model, Customer 

transactions would be assessed a higher 

Local ORF, while not being assessed an 

Away ORF as compared to Firm 

Proprietary and Broker-Dealer 

Transactions. The Exchange believes 

that this difference in allocation is 

appropriate and correlates to the degree 

of regulatory responsibility and Options 

Regulatory Costs borne by different 

Members of the Exchange in light of the 

volume different Members transact on 

the Exchange. 

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 48 and Rule 

19b–4(f)(2) 49 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– 

ISE–2024–49 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–ISE–2024–49. 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–ISE–2024–49 and should be 

submitted on or before December 5, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.50

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–26411 Filed 11–13–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101550; File No. SR–BX– 

2024–040] 

Self-Regulatory Organizations; Nasdaq 

BX, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Adopt a New 

Approach to the Options Regulatory 

Fee (ORF) in 2025 

November 7, 2024. 

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 October 

31, 2024, Nasdaq BX, Inc. (‘‘BX’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

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 its 

Pricing Schedule at Options 7, Section 

5, Options Regulatory Fee. 

While the changes proposed herein 

are effective upon filing, the Exchange 

has designated the amendments to be 

operative on January 1, 2025. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/bx/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. 


ddrumheller on DSK120RN23PROD with NOTICES1
90166 Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 

3Today, ORF is collected from Customers, 

Professionals and broker-dealers that are not 

affiliated with a clearing member that clear in the 

‘‘C’’ range at OCC. See supra notes 13 and 14 for 

descriptions of Customers and Professionals. 

4The term ‘‘Options Participant’’ or ‘‘Participant’’ 

mean a firm, or organization that is registered with 

the Exchange pursuant to Options 2A of these Rules 

for purposes of participating in options trading on 

BX Options as a ‘‘BX Options Order Entry Firm’’ 

or ‘‘BX Options Market Maker.’’ See Options 1, 

Section 1(a)(40). 

5Participants must record the appropriate 

account origin code on all orders at the time of 

entry of the order. The Exchange represents that it 

has surveillances in place to verify that Participants 

mark orders with the correct account origin code. 

6The Exchange uses reports from OCC when 

assessing and collecting the ORF. 

7CMTA or Clearing Member Trade Assignment is 

a form of ‘‘give-up’’ whereby the position will be 

assigned to a specific clearing firm at OCC. 

8By way of example, if Broker A, a BX 

Participant, routes a Customer order to CBOE and 

the transaction executes on CBOE and clears in 

Broker A’s OCC Clearing account, ORF will be 

collected by BX from Broker A’s clearing account 

at OCC via direct debit. While this transaction was 

executed on a market other than BX, it was cleared 

by a BX Participant in the member’s OCC clearing 

account in the Customer range, therefore there is a 

regulatory nexus between BX and the transaction. 

If Broker A was not a BX Participant, then no ORF 

should be assessed and collected because there is 

no nexus; the transaction did not execute on BX nor 

was it cleared by a BX Participant. 

9The regulatory costs for options comprise a 

subset of the Exchange’s regulatory budget that is 

specifically related to options regulatory expenses 

and encompasses the cost to regulate all 

Participants’ options activity (‘‘Options Regulatory 

Cost’’). 

10 Direct and indirect expenses are based on the 

Exchange’s 2024 Regulatory Budget. 

11Proprietary products are products with 

intellectual property rights that are not multi-listed. 

BX has no proprietary products. 

12Capacity ‘‘M’’ covers Market Makers registered 

on BX and market makers registered at non-BX 

exchanges. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

BX proposes to amend its current ORF 

in several respects. BX proposes to 

amend its methodology of collection to: 

(1) exclude options transactions in 

proprietary products; and (2) assess ORF 

in all clearing ranges except market 

makers who clear as ‘‘M’’ at The 

Options Clearing Corporation (‘‘OCC’’). 

Additionally, BX will assess a different 

rate for trades executed on BX (‘‘Local 

ORF Rate’’) and trades executed on nonBX exchanges (‘‘Away ORF Rate’’). 

Background on Current ORF 

Today, BX assesses its ORF for each 

Customer 3 option transaction that is 

either: (1) executed by a Participant 4 on 

BX; or (2) cleared by a BX Participant 

at OCC in the Customer range,5 even if 

the transaction was executed by a nonmember of BX, regardless of the 

exchange on which the transaction 

occurs.6 If the OCC clearing member is 

a BX Participant, ORF is assessed and 

collected on all ultimately cleared 

Customer contracts (after adjustment for 

CMTA 7); and (2) if the OCC clearing 

member is not a BX Participant, ORF is 

collected only on the cleared Customer 

contracts executed at BX, taking into 

account any CMTA instructions which 

may result in collecting the ORF from a 

non-member.8 The current BX ORF is 

$0.0005 per contract side. 

Today, in the case where a Participant 

both executes a transaction and clears 

the transaction, the ORF will be 

assessed to and collected from that 

Participant. Today, in the case where a 

Participant executes a transaction and a 

different Participant clears the 

transaction, the ORF will be assessed to 

and collected from the Participant who 

clears the transaction and not the 

Participant who executes the 

transaction. Today, in the case where a 

non-member executes a transaction at 

an away market and a Participant clears 

the transaction, the ORF will be 

assessed to and collected from the 

Participant who clears the transaction. 

Today, in the case where a Participant 

executes a transaction on BX and a nonmember clears the transaction, the ORF 

will be assessed to the Participant that 

executed the transaction on BX and 

collected from the non-member who 

cleared the transaction. Today, in the 

case where a Participant executes a 

transaction at an away market and a 

non-member ultimately clears the 

transaction, the ORF will not be 

assessed to the Participant who 

executed the transaction or collected 

from the non-member who cleared the 

transaction because the Exchange does 

not have access to the data to make 

absolutely certain that ORF should 

apply. Further, the data does not allow 

the Exchange to identify the Participant 

executing the trade at an away market. 

ORF Revenue and Monitoring of ORF 

Today, the Exchange monitors the 

amount of revenue collected from the 

ORF (‘‘ORF Regulatory Revenue’’) to 

ensure that it, in combination with other 

regulatory fees and fines, does not 

exceed Options Regulatory Costs.9 In 

determining whether an expense is 

considered an Options Regulatory Cost, 

the Exchange reviews all costs and 

makes determinations if there is a nexus 

between the expense and a regulatory 

function. The Exchange notes that fines 

collected by the Exchange in connection 

with a disciplinary matter offset Options 

Regulatory Cost. 

ORF Regulatory Revenue, when 

combined with all of the Exchange’s 

other regulatory fees and fines, is 

designed to recover a material portion of 

the Options Regulatory Costs to the 

Exchange of the supervision and 

regulation of member Customer options 

business including performing routine 

surveillances, investigations, 

examinations, financial monitoring, and 

policy, rulemaking, interpretive, and 

enforcement activities. Options 

Regulatory Costs include direct 

regulatory expenses and certain indirect 

expenses in support of the regulatory 

function. The direct expenses include 

in-house and third-party service 

provider costs to support the day-to-day 

regulatory work such as surveillances, 

investigations and examinations. The 

indirect expenses are only those 

expenses that are in support of the 

regulatory functions, such areas include 

Office of the General Counsel, 

technology, finance, and internal audit. 

Indirect expenses will not exceed 35% 

of the total Options Regulatory Costs. 

Thus, direct expenses would be 65% of 

total Options Regulatory Costs for 

2024.10

The ORF is designed to recover a 

material portion of the Options 

Regulatory Costs to the Exchange of the 

supervision and regulation of its 

Participants, including performing 

routine surveillances, investigations, 

examinations, financial monitoring, and 

policy, rulemaking, interpretive, and 

enforcement activities. 

Proposal for January 1, 2025 

BX has been reviewing it 

methodologies for the assessment and 

collection of ORF. As a result of this 

review, BX proposes to revamp the 

current process of assessing and 

collecting ORF in various ways. Below 

BX will explain the modelling it 

performed and the outcomes of the 

modelling which have led the Exchange 

to propose the below changes. 

Effective January 1, 2025, BX 

proposes to assess ORF to each BX 

Participant for multi-listed options 

transactions, excluding options 

transactions in proprietary products,11

cleared by OCC in all clearing ranges 

except market makers who clear as ‘‘M’’ 

at OCC (‘‘Market Makers’’) 12 where: (1) 

the execution occurs on BX or (2) the 

execution occurs on another exchange 

and is cleared by a BX Participant. With 

this change, BX proposes to amend its 

current ORF to assess ORF on 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 90167 

13The term ‘‘Customer’’ or (‘‘C’’) applies to any 

transaction that is identified by a Participant for 

clearing in the Customer range at The Options 

Clearing Corporation (‘‘OCC’’) which is not for the 

account of broker or dealer or for the account of a 

‘‘Professional’’ (as that term is defined in Options 

1, Section 1(a)(48)). See Options 7, Section 1(a). 

14The term ‘‘Professional’’ or (‘‘P’’) means any 

person or entity that (i) is not a broker or dealer in 

securities, and (ii) places more than 390 orders in 

listed options per day on average during a calendar 

month for its own beneficial account(s) pursuant to 

Options 1, Section 1(a)(48). All Professional orders 

shall be appropriately marked by Participants. See 

Options 7, Section 1(a). 15The term ‘‘Firm’’ or (‘‘F’’) applies to any 

transaction that is identified by a Participant for 

clearing in the Firm range at OCC. See Options 7, 

Section 1(A). 16The term ‘‘Broker-Dealer’’ or (‘‘B’’) applies to 

any transaction which is not subject to any of the 

other transaction fees applicable within a particular 

category. See Options 7, Section 1(a). A BrokerDealer clears in the ‘‘F’’ range at OCC. 

17This new model seeks to provide a new 

approach to attributing Options Regulatory Cost to 

Options Regulatory Expense. In creating this model, 

the exchange did not rely on data from a single SRO 

as it had in the past. 

18The Exchange utilized data from all Nasdaq 

affiliated options exchanges to create this model 

from 2023 Q3 through 2024Q2 (‘‘Time Period’’). 

19R-Squared is a statistical measure that indicates 

how much of the variation of a dependent variable 

is explained by an independent variable in a 

regression model. The formula for calculating Rsquared is: R2 = 1¥Unexplained Variation/Total 

Variation. 

Customer,13 Professional,14 Firm 15 and 

Broker-Dealer 16 transactions. All market 

participants, except Market Makers, 

would be subject to ORF. 

The ORF would be collected by OCC 

on behalf of BX from (1) BX clearing 

members for all Customer, Professional, 

Firm and Broker-Dealer transactions 

they clear or (2) non-members for all 

Customer, Professional, Firm and 

Broker-Dealer transactions they clear 

that were executed on BX. This model 

collects ORF where there is a nexus 

with BX and does not collect ORF from 

a non-member where the transaction 

takes place away from the Exchange. 

Further, effective January 1, 2025, the 

Exchange proposes to establish a 

different ORF for trades executed on BX 

(‘‘Local ORF Rate’’) and trades executed 

on non-BX exchanges (‘‘Away ORF 

Rate’’) by market participants. For 

Customer, Professional, and brokerdealer (not affiliated with a clearing 

member) transactions that clear in the 

‘‘C’’ range at OCC (collectively 

‘‘Customers’’) the Exchange proposes to 

assess a Local ORF Rate of $0.0198 per 

contract and an Away ORF Rate of $0.00 

per contract. For Firm and BrokerDealer transactions that clear in the ‘‘F’’ 

range at OCC (collectively ‘‘Firm and 

Broker-Dealer Transactions’’) the 

Exchange proposes to assess a Local 

ORF Rate of $0.000113 per contract and 

an Away ORF Rate of $0.000113 per 

contract. The combined amount of Local 

ORF and Away ORF collected may not 

exceed 88% of Options Regulatory Cost. 

BX will ensure that ORF Regulatory 

Revenue does not exceed Options 

Regulatory Cost. As is the case today, 

the Exchange will notify Participants via 

an Options Trader Alert of these 

changes at least 30 calendar days prior 

to January 1, 2025. 

The Exchange utilized historical and 

current data from its affiliated options 

exchanges to create a new regression 

model that would tie expenses 

attributable to regulation to a respective 

source.17 To that end, the Exchange 

plotted Customer volumes from each 

exchange 18 against Options Regulatory 

Cost from each exchange for the Time 

Period. Specifically, the Exchange 

utilized standard charting functionality 

to create a linear regression. The 

charting functionality yields a ‘‘slope’’ 

of the line, representing the marginal 

cost of regulation, as well as an 

‘‘intercept,’’ representing the fixed cost 

of regulation. The Exchange considered 

using non-linear models, but concluded 

that the best R∧2 (‘‘R-Squared’’) 19

results came from a standard y = Mx +B 

format for regulatory expense. The RSquared for the below charting method 

ranged from 85% to 95% historically. 

As noted, the plots below represent the 

Time Period. The X-axis reflects 

Customer volumes by exchange, by 

quarter and the Y-axis reflects 

regulatory expense by exchange. 

The results of this modelling 

indicated a high correlation and 

intercept for the baseline cost of 

regulating the options market as a 

whole. Specifically, the regression 

model indicated that (1) the marginal 

cost of regulation is easily measurable, 

and significantly attributable to 

Customer activity; and (2) the fixed cost 

of setting up a regulatory regime should 

arguably be dispersed across the 

industry so that all options exchanges 

have substantially similar revenue 

streams to satisfy the ‘‘intercept’’ 

element of cost. When seeking to offset 

the ‘‘set-up’’ cost of regulation, the 

Exchange attempted several levels of 

attribution. The most successful 

attribution was related to industry wide 

Firm and Broker-Dealer Transaction 

volume. Of note, through analysis of the 


ddrumheller on DSK120RN23PROD with NOTICES1EN14NO24.008</GPH>

6,000,000.00 

5,000,000.00 

ci. 4,000,000.00 

X 

~ 3,000,000.00 tlO 

QJ 

c:: 2,000,000.00 

1,000,000.00 

0.00 

Customer Volume vs Reg. Exp. 

0 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 300,000,000 

Cust Volume 
90168 Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 

20The Exchange notes that various exchanges 

negotiate their respective contracts independently 

with FINRA creating some variability. Additionally, 

an exchange with a floor component would create 

some variability. 

21The direct expenses include in-house and 

third-party service provider costs to support the 

day-to-day regulatory work such as surveillances, 

investigations and examinations. 

22The indirect expenses include support from 

such areas as Office of the General Counsel, 

technology, finance and internal audit. 

23The Exchange proposes to reconsider the 

sunset date in 2025 and determine whether to 

proceed with the proposed ORF structure at that 

time. 

24 15 U.S.C. 78f(b). 

25 15 U.S.C. 78f(b)(4). 

26 15 U.S.C. 78f(b)(5). 

results of this regression model, there 

was no positive correlation that could 

be established between Customer away 

volume and regulatory expense. This 

led the Exchange to utilize a model with 

a two-factor regression on a quarterly 

basis for the last four quarters of 

volumes relative to the pool of expense 

data for the six Nasdaq affiliated options 

exchanges. Once again, standard 

spreadsheet functionality (including the 

Data Analysis Packet) was used to 

determine the mathematics for this 

model. The results of this two-factor 

model, which resulted in the attribution 

of Customer Local ORF and Firm and 

Broker-Dealer Transaction Local and 

Away ORF, typically increased the RSquared (goodness of fit) to >97% across 

multiple historical periods.20

Utilizing the new regression model, 

and assumptions in the proposal, the 

model demonstrates that Customer 

volumes are directly attributable to 

marginal cost, and also shows that Firm 

and Broker-Dealer Transaction volumes 

industry-wide are a valid method (given 

the goodness of fit) to offset the fixed 

cost of regulation. Applying the 

regression coefficient values 

historically, the Exchange established a 

‘‘normalization’’ by per options 

exchange. This ‘‘normalization’’ 

encompassed idiosyncratic exchange 

expense-volume relationships which 

served to tighten the attributions further 

while not deviating by more than 30% 

from the mean for any single options 

exchange in the model. The primary 

driver of this need for ‘‘normalization’’ 

are negotiated regulatory contracts that 

were negotiated at different points in 

time, yielding some differences in per 

contract regulatory costs by exchange. 

Normalization is therefore the average of 

a given exchange’s historical (prior 4 

quarters) ratio of regulatory expense to 

revenue when using the regressed 

values (for Customer Local ORF and 

Firm and Broker-Dealer Transaction 

Local and Away ORF) that yields an 

effective rate by exchange. The 

‘‘normalization’’ was then multiplied to 

a ‘‘targeted collection rate’’ of 

approximately 88% to arrive at ORF 

rates for Customer, Firm and BrokerDealer Transactions. Of note, when 

comparing the ORF rates generated from 

this method, historically, there appears 

to be a very tight relationship between 

the estimated modeled collection and 

actual expense and the regulatory 

expenses for that same period. In 

summary, the model does not appear to 

increase marginal returns. 

One other important aspect of this 

modeling is the input of Options 

Regulatory Costs. The Exchange notes 

that in defining Options Regulatory 

Costs it accounts for the nexus between 

the expense and options regulation. By 

way of example, the Exchange excludes 

certain indirect expenses such as 

payroll expenses, accounts receivable, 

accounts payable, marketing, executive 

level expenses and corporate systems. 

The Exchange would continue to 

monitor the amount of Options 

Regulatory Revenue collected from the 

ORF to ensure that it, in combination 

with other regulatory fees and fines, 

does not exceed Options Regulatory 

Costs. In determining whether an 

expense is considered an Options 

Regulatory Cost, the Exchange would 

continue to review all costs and makes 

determinations if there is a nexus 

between the expense and a regulatory 

function. The Exchange notes that fines 

collected by the Exchange in connection 

with a disciplinary matter will continue 

to offset Options Regulatory Cost. 

Participants will continue to be 

provided with 30 calendar day notice of 

any change to ORF. 

As is the case today, ORF Regulatory 

Revenue, when combined with all of the 

Exchange’s other regulatory fees and 

fines, is designed to recover a material 

portion of the Options Regulatory Costs 

to the Exchange for the supervision and 

regulation of Participants’ transactions, 

including performing routine 

surveillances, investigations, 

examinations, financial monitoring, and 

policy, rulemaking, interpretive, and 

enforcement activities. As discussed 

above, Options Regulatory Costs include 

direct regulatory expenses 21 and certain 

indirect expenses in support of the 

regulatory function.22

Finally, the Exchange notes that this 

proposal will be sunset on July 1, 2025, 

at which point the Exchange would 

revert back to the ORF methodology and 

rate ($0.0005 per contract side) that was 

in effect prior to this rule change.23

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.24 Specifically, 

the Exchange believes the proposed rule 

change is consistent with Section 6(b)(4) 

of the Act,25 which provides that 

Exchange rules may provide for the 

equitable allocation of reasonable dues, 

fees, and other charges among its 

members, and other persons using its 

facilities. Additionally, the Exchange 

believes the proposed rule change is 

consistent with the Section 6(b)(5) 26

requirement that the rules of an 

exchange not be designed to permit 

unfair discrimination between 

customers, issuers, brokers, or dealers. 

Proposal for January 1, 2025 

The Exchange believes the proposed 

ORF to be assessed on January 1, 2025, 

is reasonable, equitable and not unfairly 

discriminatory for various reasons. First, 

as of January 1, 2025, the Exchange 

would expand the collection of ORF to 

all clearing ranges, except Market 

Makers, provided the transaction was 

executed by an BX Participant or 

cleared by an BX Participant. With this 

amendment, BX would begin to assess 

Firm and Broker-Dealer Transactions an 

ORF, provided the transactions were 

executed by a BX Participant or cleared 

by a BX Participant, except transactions 

in proprietary products. Second, as of 

January 1, 2025, the Exchange would 

assess different rates to Customer 

transactions for the Local ORF Rate and 

Away ORF Rate as compared to Firms 

and Broker-Dealer Transactions. Third, 

as of January 1, 2025, the combined 

amount of Local ORF and Away ORF 

collected would not exceed 88% of 

Options Regulatory Cost as all 

Participants, except Market Makers, 

would be assessed ORF. 


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27See BX Options 2, Section 4(j). 28See BX Options 2, Section 5(d). 29See BX Options 2, Section 4(a)(3) and (5). 30See BX Options 2, Section 6(b). The total 

number of contracts executed by a Market Maker in 

options in which it is not registered as a Market 

Maker shall not exceed 25 percent of the total 

number of all contracts executed by the Market 

Maker in any calendar quarter. 

31The Exchange notes that the regulatory costs 

relating to monitoring Participants with respect to 

Customer trading activity are generally higher than 

the regulatory costs associated with Participants 

that do not engage in Customer trading activity, 

which tends to be more automated and less laborintensive. By contrast, regulating Participants that 

engage in Customer trading activity is generally 

more labor intensive and requires a greater 

expenditure of human and technical resources as 

the Exchange needs to review not only the trading 

activity on behalf of Customers, but also the 

Participant’s relationship with its Customers via 

more labor-intensive exam-based programs. 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 of the regulatory program. 

32See BX Options 10 Rules. 

33The Know Your Customer or ‘‘KYC’’ provision 

is the obligation of the broker-dealer. 

The Exchange believes that assessing 

all Participants, except Market Makers, 

an ORF is reasonable, equitable and not 

unfairly discriminatory. While the 

Exchange acknowledges that there is a 

cost to regulate Market Makers, unlike 

other market participants, Market 

Makers have various regulatory 

requirements with respect to quoting as 

provided for in Options 2, Section 4. 

Specifically, Market Makers have 

certain quoting requirements with 

respect to their assigned options series 

as provided in Options 2, Section 5. 

Lead Market Makers are obligated to 

quote intra-day.27 Additionally, Market 

Makers are required to quote intraday.28 Further, unlike other market 

participants, Lead Market Makers and 

Market Makers have obligations to 

compete with other Market Makers to 

improve the market in all series of 

options classes to which the Market 

Maker is appointed and to update 

market quotations in response to 

changed market conditions in all series 

of options classes to which the Market 

Maker is appointed.29 Lead Market 

Makers and Market Makers are critical 

market participants in that they are the 

only market participants that are 

required to provide liquidity to BX and 

are necessary for opening the market. 

Excluding Market Maker transactions 

from ORF allows these market 

participants to manage their costs and 

consequently their business model more 

effectively thus enabling them to better 

allocate resources to other technologies 

that are necessary to manage risk and 

capacity to ensure that these market 

participants continue to compete 

effectively on BX in providing tight 

displayed quotes which in turn benefits 

markets generally and market 

participants specifically. Finally, the 

Exchange notes that Market Makers may 

transact orders in addition to submitting 

quotes on the Exchange. This proposal 

would except orders submitted by 

Market Makers, in addition to quotes, 

for purposes of ORF. Market Makers 

utilize orders in their assigned options 

series to sweep the order book. The 

Exchange believes the quantity of orders 

utilized by Market Makers in their 

assigned series is de minimis. In their 

unassigned options series, Market 

Makers utilize orders to hedge their risk 

or respond to auction. The Exchange 

notes that the number of orders 

submitted by Market Makers in their 

unassigned options series are far below 

the cap 30 and therefore de minimis. 

The Exchange believes excluding 

options transactions in proprietary 

products is reasonable, equitable and 

not unfairly discriminatory because BX 

does not list any proprietary products. 

The Exchange believes that only 

exchanges that list proprietary products 

should be able to collect a Local ORF for 

those products. BX notes that there are 

a small number of proprietary products 

transacted as compared to multi-list 

options. BX’s focus is on surveillance 

related to multi-listed options. Should 

BX list a proprietary product in the 

future, BX would amend its ORF to 

collect a Local ORF on that proprietary 

product. 

The Exchange believes that assessing 

different rates to Customer transactions 

for the Local ORF Rate and Away ORF 

Rate as compared to Firm and BrokerDealer Transactions and collecting no 

more than 88% of Options Regulatory 

Cost is reasonable, equitable and not 

unfairly discriminatory. Customer 

transactions account for a material 

portion of BX’s Options Regulatory 

Cost.31 Customer transactions in 

combination with Firm and BrokerDealer Transactions account for a large 

portion of the Exchange’s surveillance 

expense. Therefore, the Exchange 

believes that 88% of Options Regulatory 

Cost is appropriate and correlates to the 

degree of regulatory responsibility and 

Options Regulatory Cost borne by the 

Exchange. With respect to Customer 

transactions, options volume continues 

to surpass volume from other options 

participants. Additionally, there are 

rules in the Exchange’s Rulebook that 

deal exclusively with Customer 

transactions, such as rules involving 

doing business with a Customer, which 

would not apply to Firm and BrokerDealer Transactions.32 For these 

reasons, regulating Customer trading 

activity is ‘‘much more labor-intensive’’ 

and therefore, more costly. The 

Exchange believes that a large portion of 

the Options Regulatory Cost relates to 

Customer allocation because obtaining 

Customer information may be more time 

intensive. For example, non-Customer 

market participants are subject to 

various regulatory and reporting 

requirements which provides the 

Exchange certain data with respect to 

these market participants. In contrast, 

Customer information is known by 

Participants of the Exchange and is not 

readily available to BX.33 The Exchange 

may have to take additional steps to 

understand the facts surrounding 

particular trades involving a Customer 

which may require requesting such 

information from a broker-dealer. 

Further, Customers require more 

Exchange regulatory services based on 

the amount of options business they 

conduct. For example, there are Options 

Regulatory Costs associated with main 

office and branch office examinations 

(e.g., staff expenses), as well as 

investigations into Customer complaints 

and the terminations of registered 

persons. As a result, the Options 

Regulatory Costs associated with 

administering the Customer component 

of the Exchange’s overall regulatory 

program are materially higher than the 

Options Regulatory Costs associated 

with administering the non-Customer 

component when coupled with the 

amount of volume attributed to such 

Customer transactions. Utilizing the 

new regression model, and assumptions 

in the proposal, it appears that BX’s 

Customer regulation occurs to a large 

extent on Exchange. Utilizing the new 

regression model, and assumptions in 

the proposal, the Exchange does not 

believe that significant Options 

Regulatory Costs should be attributed to 

Customers for activity that may occur 

across options markets. To that end, 

with this proposal, the Exchange would 

assess Customers a Local ORF, but not 

an Away ORF rate. 

In contrast, the Options Regulatory 

Cost of regulating Firm and BrokerDealer Transactions is materially less 

than the Options Regulatory Costs of 

regulating Customer transactions, as 

explained above. The below chart 

derived from OCC data reflects the 

percentage of transactions by market 

participant. 


ddrumheller on DSK120RN23PROD with NOTICES1
90170 Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 

34BX pays the Financial Industry Regulatory 

Authority (‘‘FINRA’’) to perform certain crossmarket surveillances on its behalf. In order to 

perform cross-market surveillances, Consolidated 

Audit Trail (‘‘CAT’’) data is utilized to match 

options transactions to underlying equity 

transactions. This review is data intensive given the 

volumes of information that are being reviewed and 

analyzed. 

35BX conducts surveillances and enforces BX 

Rules, however only a subset of those rules is 

subject to cross-market surveillance, such as margin 

and position limits. Of note, some BX trading rules 

are automatically enforced by BX’s System. 

36BX would submit a rule change to the 

Commission to amend ORF rates. 

With this model, the addition of Firm 

and Broker-Dealer Transactions to the 

collection of ORF does not entail 

significant volume when compared to 

Customer transactions. As these market 

participants are more sophisticated, the 

Exchange notes that there are not the 

same protections in place for Firm and 

Broker-Dealer Transactions as compared 

to Customer transactions. Therefore, 

with the proposed model, the regulation 

of Firm and Broker-Dealer Transactions 

is less resource intensive than the 

regulation of Customer transactions. 

However, the Exchange notes that it 

appears from the new regression model 

and assumptions in the proposal, that 

unlike Customer transactions, the 

regulation of Firm and Broker-Dealer 

Transactions occurs both on the 

Exchange and across options markets. 

To that end, the Exchange proposes to 

assess Firm and Broker-Dealer 

Transactions both a Local ORF and an 

Away ORF in contrast to Customer 

transactions that would only be assessed 

a Local ORF. The Exchange believes that 

not assessing Market Maker transactions 

an ORF permits these market 

participants to utilize their resources to 

quote tighter in the market. Tighter 

quotes benefits Customers as well as 

other market participants who interact 

with that liquidity. 

The Exchange’s proposal to establish 

both a Local ORF Rate and an Away 

ORF Rate and allocate the portion of 

Options Regulatory Cost differently 

between the two separate rates, by 

market participant, ensures that the 

Local ORF Rate and Away ORF Rate 

reflect the amount of Options 

Regulatory Costs associated with 

different types of surveillances and are 

reasonable, equitable and not unfairly 

discriminatory. The Exchange is 

responsible for regulating activity on its 

market as well as activity that may 

occur across options markets. The 

Exchange believes that it is reasonable, 

equitable and not unfairly 

discriminatory to assess only Firm and 

Broker-Dealer Transactions an Away 

ORF. With this model, while the 

regulation of Firm and Broker-Dealer 

Transactions is less resource intensive 

than the regulation of Customer 

transactions, it occurs both on the 

Exchange and across options markets.34

The Exchange believes that assessing 

the Firm and Broker-Dealer 

Transactions the same rate for Local 

ORF and Away ORF is appropriate 

given the lower volume that is 

attributed to these Participants 

combined with the activity that is 

required to be regulated both on the 

Exchange and across options markets. 

The Exchange notes that there are 

Exchange rules that involve cross 

market surveillances that relate to 

activities conducted by Firm and 

Broker-Dealer Participants.35 While not 

large in number, when compared to the 

overall number of Exchange rules that 

are surveilled by BX for on-Exchange 

activity, the Away ORF that would be 

assessed to Firm and Broker-Dealer 

regulation would account for those 

costs. Additionally, the Exchange 

believes that limiting the amount of 

ORF assessed for activity that occurs on 

non-BX exchanges avoids overlapping 

ORFs that would otherwise be assessed 

by BX and other options exchanges that 

also assess an ORF. Also, the Exchange’s 

proposal continues to ensure that 

Options Regulatory Revenue, in 

combination with other regulatory fees 

and fines, does not exceed Options 

Regulatory Costs. Fines collected by the 

Exchange in connection with a 

disciplinary matter will continue to 

offset Options Regulatory Cost. 

Capping the combined amount of 

Local ORF and Away ORF collected at 

88% of Options Regulatory Cost 

commencing January 1, 2025, is 

reasonable, equitable and not unfairly 

discriminatory as given these factors. 

The Exchange will review the ORF 

Regulatory Revenue at the end of 

January 2025 and would amend the ORF 

if it finds that its ORF Regulatory 

Revenue exceeds its projections.36

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 intra-market competition 

not necessary or appropriate in 

furtherance of the purposes of the Act. 

The proposed changes to ORF do not 

impose an undue burden on interVerDate Sep<11>2014 20:16 Nov 13, 2024 Jkt 265001 PO 00000 Frm 00224 Fmt 4703 Sfmt 4703 E:\FR\FM\14NON1.SGM 14NON1

ddrumheller on DSK120RN23PROD with NOTICES1EN14NO24.009</GPH>

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2024 
Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 90171 

37See BX Options 2, Section 4(j). 

38See BX Options 2, Section 5(d). 

39See BX Options 2, Section 4(a)(3) and (5). 

40See BX Options 2, Section 6(b). The total 

number of contracts executed by a Market Maker in 

options in which it is not registered as a Market 

Maker shall not exceed 25 percent of the total 

number of all contracts executed by the Market 

Maker in any calendar quarter. 

41The Exchange notes that the regulatory costs 

relating to monitoring Participants with respect to 

Customer trading activity are generally higher than 

the regulatory costs associated with Participants 

that do not engage in Customer trading activity, 

which tends to be more automated and less laborintensive. By contrast, regulating Participants that 

engage in Customer trading activity is generally 

more labor intensive and requires a greater 

expenditure of human and technical resources as 

the Exchange needs to review not only the trading 

activity on behalf of Customers, but also the 

Participant’s relationship with its Customers via 

more labor-intensive exam-based programs. 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 of the regulatory program. 

42See BX Options 10 Rules. 

43The Know Your Customer or ‘‘KYC’’ provision 

is the obligation of the broker-dealer. 

market competition because ORF is a 

regulatory fee that supports regulation 

in furtherance of the purposes of the 

Act. The Exchange notes, however, the 

proposed change is not designed to 

address any competitive issues. The 

Exchange is obligated to ensure that the 

amount of ORF Regulatory Revenue, in 

combination with its other regulatory 

fees and fines, does not exceed ORF 

Regulatory Cost. 

Proposal for January 1, 2025 

Excluding Market Makers does not 

impose an undue burden on intramarket competition because, unlike 

other market participants, Market 

Makers have various regulatory 

requirements with respect to quoting as 

provided for in Options 2, Section 4. 

Specifically, Market Makers have 

certain quoting requirements with 

respect to their assigned options series 

as provided in Options 2, Section 5. 

Lead Market Makers are obligated to 

quote intra-day.37 Additionally, Market 

Makers are required to quote intraday.38 Further, unlike other market 

participants, Lead Market Makers and 

Market Makers have obligations to 

compete with other Market Makers to 

improve the market in all series of 

options classes to which the Market 

Maker is appointed and to update 

market quotations in response to 

changed market conditions in all series 

of options classes to which the Market 

Maker is appointed.39 Lead Market 

Makers and Market Makers are critical 

market participants in that they are the 

only market participants that are 

required to provide liquidity to BX and 

are necessary for opening the market. 

Excluding Market Maker transactions 

from ORF does not impose an intramarket burden on competition, rather it 

allows these market participants to 

manage their costs and consequently 

their business model more effectively 

thus enabling them to better allocate 

resources to other technologies that are 

necessary to manage risk and capacity to 

ensure that these market participants 

continue to compete effectively on BX 

in providing tight displayed quotes 

which in turn benefits markets generally 

and market participants specifically. 

Finally, the Exchange notes that Market 

Makers may transact orders on the 

Exchange in addition to submitting 

quotes. The Exchange’s proposal to 

except orders submitted by Market 

Makers, in addition to quotes, for 

purposes of ORF does not impose an 

undue burden on intra-market 

competition because Market Makers 

utilize orders in their assigned options 

series to sweep the order book. Further, 

the Exchange believes the quantity of 

orders utilized by Market Makers in 

their assigned series is de minimis. In 

their unassigned options series, Market 

Makers utilize orders to hedge their risk 

or respond to auction. The Exchange 

notes that the number of orders 

submitted by Market Makers in their 

unassigned options series are far below 

the cap 40 and therefore de minimis. 

Uniformly excluding options 

transactions in proprietary products 

from ORF for all BX Participants does 

not impose an undue burden on intramarket competition. The Exchange 

believes that only exchanges that list 

proprietary products should be able to 

collect a Local ORF for those products. 

There are a small number of proprietary 

products transacted as compared to 

multi-list options. Also, proprietary 

products are transacted on a limited 

number of options exchanges and would 

require a de minimis amount of cross 

market surveillance, for these reasons 

the Exchange believes that only a Local 

ORF should be applied to the extent that 

BX were to list a proprietary product. 

BX’s focus is on surveillance related to 

multi-listed options. Should BX list a 

proprietary product in the future, BX 

would amend its ORF to collect a Local 

ORF on that proprietary product. 

The Exchange’s proposal to expand 

the clearing ranges to specifically 

include Firm and Broker-Dealer 

Transactions, in addition to Customer 

and Professional transactions, as of 

January 1, 2025, does not impose an 

undue burden on intra-market 

competition as Customer transactions 

account for a material portion of BX’s 

Options Regulatory Cost.41 Customer 

transactions in combination with Firm 

and Broker-Dealer Transactions account 

for a large portion of the Exchange’s 

surveillance expense. With respect to 

Customer transactions, options volume 

continues to surpass volume from other 

options participants. Additionally, there 

are rules in the Exchange’s Rulebook 

that deal exclusively with Customer 

transactions, such as rules involving 

doing business with a Customer, which 

would not apply to Firm and BrokerDealer Transactions.42 For these 

reasons, regulating Customer trading 

activity is ‘‘much more labor-intensive’’ 

and therefore, more costly. Further, the 

Exchange believes that a large portion of 

the Options Regulatory Cost relates to 

Customer allocation because obtaining 

Customer information may be more time 

intensive. For example, non-Customer 

market participants are subject to 

various regulatory and reporting 

requirements which provides the 

Exchange certain data with respect to 

these market participants. In contrast, 

Customer information is known by 

Participants of the Exchange and is not 

readily available to BX.43 The Exchange 

may have to take additional steps to 

understand the facts surrounding 

particular trades involving a Customer 

which may require requesting such 

information from a broker-dealer. 

Further, Customers require more 

Exchange regulatory services based on 

the amount of options business they 

conduct. For example, there are Options 

Regulatory Costs associated with main 

office and branch office examinations 

(e.g., staff expenses), as well as 

investigations into Customer complaints 

and the terminations of registered 

persons. As a result, the Options 

Regulatory Costs associated with 

administering the Customer component 

of the Exchange’s overall regulatory 

program are materially higher than the 

Options Regulatory Costs associated 

with administering the non-Customer 

component when coupled with the 

amount of volume attributed to such 

Customer transactions. Not attributing 

significant Options Regulatory Costs to 

Customers for activity that may occur 

across options markets does not impose 

an undue burden on intra-market 

competition because the data in the 

regression model demonstrates that BX’s 

Customer regulation occurs to a large 

extent on Exchange. 

The Exchange believes that assessing 

Firm and Broker-Dealer Transactions a 

different ORF and assessing both a Local 

ORF and an Away ORF to these 

transactions does not impose an undue 


ddrumheller on DSK120RN23PROD with NOTICES1
90172 Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 

44BX pays the Financial Industry Regulatory 

Authority (‘‘FINRA’’) to perform certain crossmarket surveillances on its behalf. In order to 

perform cross-market surveillances, Consolidated 

Audit Trail (‘‘CAT’’) data is utilized to match 

options transactions to underlying equity 

transactions. This review is data intensive given the 

volumes of information that are being reviewed and 

analyzed. 

45BX conducts surveillances and enforces BX 

Rules, however only a subset of those rules is 

subject to cross-market surveillance, such as margin 

and position limits. Of note, some BX trading rules 

are automatically enforced by BX’s System. 

46 15 U.S.C. 78s(b)(3)(A)(ii). 

47 17 CFR 240.19b–4(f)(2). 

burden on intra-market competition 

because the regulation of Firm and 

Broker-Dealer Transactions is less 

resource intensive than the regulation of 

Customer transactions. With this model, 

the addition of Firm and Broker-Dealer 

Transactions to the collection of ORF 

does not entail significant volume when 

compared to Customer transactions. 

Unlike Customer transactions, the 

regulation of Firm and Broker-Dealer 

Transactions occurs both on the 

Exchange and across options markets. 

To that end, the Exchange proposes to 

assess Firm and Broker-Dealer 

Transactions both a Local ORF and an 

Away ORF. 

The Exchange’s proposal to allocate 

the portion of costs differently between 

the Local ORF and Away ORF does not 

create an undue burden on intra-market 

competition. The Exchange believes that 

each rate reflects the amount of Options 

Regulatory Costs associated with 

different types of surveillances and does 

not create an undue burden on 

competition as BX Participants, 

excluding except Market Makers, would 

be uniformly assessed either a Local 

ORF Rate or an Away ORF Rate 

depending on where the transaction 

occurred and whether the transaction 

was executed or cleared by an BX 

Participant. Also, the Exchange would 

uniformly assess the Local ORF Rate 

and an Away ORF Rate by market 

participant. The Exchange is responsible 

for regulating activity on its market as 

well as activity that may occur across 

options markets. 

The Exchange believes that assessing 

only Firm and Broker-Dealer 

Transactions an Away ORF does not 

create an undue burden on intra-market 

competition because while the 

regulation of Firm and Broker-Dealer 

Transactions is less resource intensive 

than the regulation of Customer 

transactions, the regulation of Firm and 

Broker-Dealer Transactions occurs both 

on the Exchange and across options 

markets.44 The Exchange believes that 

assessing Firm and Broker-Dealer 

Transactions the same rate for Local 

ORF and Away ORF is appropriate 

given the lower volume that is 

attributed to these Participants 

combined with the activity that is 

required to be regulated both on the 

Exchange and across options markets. 

There are Exchange rules that involve 

cross market surveillances that relate to 

activities conducted by Firm and 

Broker-Dealer Participants.45 While not 

large in number, when compared to the 

overall number of Exchange rules that 

are surveilled by BX for on-Exchange 

activity, the Away ORF that would be 

assessed to Firm and Broker-Dealer 

Transactions would account for those 

Options Regulatory Costs. Additionally, 

the Exchange believes that limiting the 

amount of ORF assessed for activity that 

occurs on non-BX exchanges does not 

impose a burden on intra-market 

competition, rather it avoids 

overlapping ORFs that would otherwise 

be assessed by BX and other options 

exchanges that also assess an ORF. With 

this model, Customer transactions 

would be assessed a higher Local ORF, 

while not being assessed an Away ORF 

as compared to Firm and Broker-Dealer 

Transactions. The Exchange believes 

that this difference in allocation is 

appropriate and correlates to the degree 

of regulatory responsibility and Options 

Regulatory Costs borne by different 

Participants of the Exchange in light of 

the volume different Participants 

transact on the Exchange. 

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 46 and Rule 

19b–4(f)(2) 47 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– 

BX–2024–040 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–BX–2024–040. 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–BX–2024–040 and should be 

submitted on or before December 5, 

2024. 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 220 / Thursday, November 14, 2024 / Notices 90173 

48 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Today, ORF is collected from Customers, 

Professionals and broker-dealers that are not 

affiliated with a clearing member that clear in the 

‘‘C’’ range at OCC. See supra notes 13 and 14 for 

descriptions of Priority Customers and Professional 

Customers. 

4The term ‘‘Member’’ means an organization that 

has been approved to exercise trading rights 

associated with Exchange Rights. See General 1, 

Section 1(a)(14). 

5Market participants must record the appropriate 

account origin code on all orders at the time of 

entry of the order. The Exchange represents that it 

has surveillances in place to verify that members 

mark orders with the correct account origin code. 

6The Exchange uses reports from OCC when 

assessing and collecting the ORF. 

7CMTA or Clearing Member Trade Assignment is 

a form of ‘‘give-up’’ whereby the position will be 

assigned to a specific clearing firm at OCC. 

8By way of example, if Broker A, an GEMX 

Member, routes a Customer order to CBOE and the 

transaction executes on CBOE and clears in Broker 

A’s OCC Clearing account, ORF will be collected by 

GEMX from Broker A’s clearing account at OCC via 

direct debit. While this transaction was executed on 

a market other than GEMX, it was cleared by an 

GEMX Member in the member’s OCC clearing 

account in the Customer range, therefore there is a 

regulatory nexus between GEMX and the 

transaction. If Broker A was not an GEMX Member, 

then no ORF should be assessed and collected 

because there is no nexus; the transaction did not 

execute on GEMX nor was it cleared by an GEMX 

Member. 

9The regulatory costs for options comprise a 

subset of the Exchange’s regulatory budget that is 

specifically related to options regulatory expenses 

and encompasses the cost to regulate all Members’ 

options activity (‘‘Options Regulatory Cost’’). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.48

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–26412 Filed 11–13–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101546; File No. SR– 

GEMX–2024–37] 

Self-Regulatory Organizations; Nasdaq 

GEMX, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Adopt a New 

Approach to the Options Regulatory 

Fee (ORF) in 2025 

November 7, 2024. 

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 October 

31, 2024, Nasdaq GEMX, LLC (‘‘GEMX’’ 

or ‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

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 

GEMX’s Pricing Schedule at Options 7, 

Section 5 regarding the Options 

Regulatory Fee. 

While the changes proposed herein 

are effective upon filing, the Exchange 

has designated the amendments to be 

operative on January 1, 2025. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/gemx/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 

GEMX proposes to amend its current 

ORF in several respects. GEMX 

proposes to amend its methodology of 

collection to: (1) specify that it is 

including options transactions in GEMX 

proprietary products; and (2) assess ORF 

in all clearing ranges except market 

makers who clear as ‘‘M’’ at The 

Options Clearing Corporation (‘‘OCC’’). 

Additionally, GEMX will assess a 

different rate for trades executed on 

GEMX (‘‘Local ORF Rate’’) and trades 

executed on non-GEMX exchanges 

(‘‘Away ORF Rate’’). 

Background on Current ORF 

Today, GEMX assesses its ORF for 

each Customer 3 option transaction that 

is either: (1) executed by a Member 4 on 

GEMX; or (2) cleared by an GEMX 

Member at OCC in the Customer range,5

even if the transaction was executed by 

a non-Member of GEMX, regardless of 

the exchange on which the transaction 

occurs.6 If the OCC clearing member is 

an GEMX Member, ORF is assessed and 

collected on all ultimately cleared 

Customer contracts (after adjustment for 

CMTA 7); and (2) if the OCC clearing 

member is not an GEMX Member, ORF 

is collected only on the cleared 

Customer contracts executed at GEMX, 

taking into account any CMTA 

instructions which may result in 

collecting the ORF from a non-Member.8

The current GEMX ORF is $0.0012 per 

contract side. 

Today, in the case where a Member 

both executes a transaction and clears 

the transaction, the ORF will be 

assessed to and collected from that 

Member. Today, in the case where a 

Member executes a transaction and a 

different Member clears the transaction, 

the ORF will be assessed to and 

collected from the Member who clears 

the transaction and not the Member who 

executes the transaction. Today, in the 

case where a non-Member executes a 

transaction at an away market and a 

Member clears the transaction, the ORF 

will be assessed to and collected from 

the Member who clears the transaction. 

Today, in the case where a Member 

executes a transaction on GEMX and a 

non-Member clears the transaction, the 

ORF will be assessed to the Member that 

executed the transaction on GEMX and 

collected from the non-Member who 

cleared the transaction. Today, in the 

case where a Member executes a 

transaction at an away market and a 

non-Member ultimately clears the 

transaction, the ORF will not be 

assessed to the Member who executed 

the transaction or collected from the 

non-Member who cleared the 

transaction because the Exchange does 

not have access to the data to make 

absolutely certain that ORF should 

apply. Further, the data does not allow 

the Exchange to identify the Member 

executing the trade at an away market. 

ORF Revenue and Monitoring of ORF 

Today, the Exchange monitors the 

amount of revenue collected from the 

ORF (‘‘ORF Regulatory Revenue’’) to 

ensure that it, in combination with other 

regulatory fees and fines, does not 

exceed Options Regulatory Costs.9 In 

determining whether an expense is 

considered an Options Regulatory Cost, 

the Exchange reviews all costs and 

makes determinations if there is a nexus 

between the expense and a regulatory 

function. The Exchange notes that fines 

collected by the Exchange in connection 

with a disciplinary matter offset Options 

Regulatory Cost. 


ddrumheller on DSK120RN23PROD with NOTICES1