```

[Federal Register Volume 89, Number 243 (Wednesday, December 18, 2024)]
[Notices]
[Pages 103003-103012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29922]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101893; File No. SR-Phlx-2024-66]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Lower the 
Options Regulatory Fee (ORF) and Adopt a New Approach to ORF in 2025

December 12, 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 November 27, 2024, Nasdaq PHLX LLC (``Phlx'' 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx's Pricing Schedule at Options 
7, Section 6D, Options Regulatory Fee.\3\
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    \3\ On October 31, 2024, SR-Phlx-2024-50 was filed to amend ORF. 
On November 27, 2024, SR-SR-Phlx-2024-50 was withdrawn and this rule 
change was filed. The current proposal amends the ORF Rate for Local 
Customer ``C'' Origin Code transactions executed on Phlx, Local Firm 
``F'' Origin Code transactions executed on Phlx, and Away ORF Rate 
Firm ``F'' Origin Code multi-list transactions executed on non-Phlx 
exchanges.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated certain amendments to be operative on November 
1, 2024, and other amendments to be operative on January 1, 2025, as 
noted in the Exhibit 5 and herein.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/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
    Phlx proposes to amend its current ORF in several respects. In 
summary, first, Phlx proposes to reduce its ORF from $0.0034 to $0.0022 
per contract side from November 1, 2024, through December 31, 2024. 
Second, as of January 1, 2025, Phlx proposes to amend its methodology 
of collection to: (1) specify that it is including options transactions 
in Phlx proprietary products; and (2) assess ORF in all clearing ranges 
except market makers who clear as ``M'' at The Options Clearing 
Corporation (``OCC''). Additionally, Phlx will assess a different rate 
for trades executed on Phlx (``Local ORF Rate'') and trades executed on 
non-Phlx exchanges (``Away ORF Rate''). Each change will be described 
below in greater detail.
Background on Current ORF
    Today, Phlx assesses its ORF for each Customer \4\ option 
transaction that is either: (1) executed by a member organization \5\ 
on Phlx; or (2) cleared by a Phlx member organization at OCC in the 
Customer range,\6\ even if the transaction was executed by a non-member 
organization of Phlx, regardless of the exchange on which the 
transaction occurs.\7\ If the OCC clearing member is a Phlx member 
organization, ORF is assessed and collected on all ultimately cleared 
Customer contracts (after adjustment for CMTA \8\); and (2) if the OCC 
clearing member is not a Phlx member organization, ORF is collected 
only on the cleared Customer contracts executed at Phlx, taking into 
account any CMTA instructions which may result in collecting the ORF 
from a non-member organization.\9\
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    \4\ Today, 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 18 and 19 for 
descriptions of Customers and Professionals.
    \5\ The term ``member organization'' means a corporation, 
partnership (general or limited), limited liability partnership, 
limited liability company, business trust or similar organization, 
transacting business as a broker or a dealer in securities and which 
has the status of a member organization by virtue of (i) admission 
to membership given to it by the Membership Department pursuant to 
the provisions of General 3, Sections 5 and 10 or the By-Laws or 
(ii) the transitional rules adopted by the Exchange pursuant to 
Section 6-4 of the By-Laws. References herein to officer or partner, 
when used in the context of a member organization, shall include any 
person holding a similar position in any organization other than a 
corporation or partnership that has the status of a member 
organization. See General 1, Section 1(17).
    \6\ Market 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 member organizations mark orders with the correct account 
origin code.
    \7\ The Exchange uses reports from OCC when assessing and 
collecting the ORF.
    \8\ CMTA or Clearing Member Trade Assignment is a form of 
``give-up'' whereby the position will be assigned to a specific 
clearing firm at OCC.
    \9\ By way of example, if Broker A, a Phlx member organization, 
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 Phlx from Broker A's clearing account at OCC via direct debit. 
While this transaction was executed on a market other than Phlx, it 
was cleared by a Phlx member organization in the member 
organization's OCC clearing account in the Customer range, therefore 
there is a regulatory nexus between Phlx and the transaction. If 
Broker A was not a Phlx member organization, then no ORF should be 
assessed and collected because there is no nexus; the transaction 
did not execute on Phlx nor was it cleared by a Phlx member 
organization.
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    Today, in the case where a member organization both executes a 
transaction and clears the transaction, the ORF will

[[Page 103004]]

be assessed to and collected from that member organization. Today, in 
the case where a member organization executes a transaction and a 
different member organization clears the transaction, the ORF will be 
assessed to and collected from the member organization who clears the 
transaction and not the member organization who executes the 
transaction. Today, in the case where a non-member organization 
executes a transaction at an away market and a member organization 
clears the transaction, the ORF will be assessed to and collected from 
the member organization who clears the transaction. Today, in the case 
where a member organization executes a transaction on Phlx and a non-
member organization clears the transaction, the ORF will be assessed to 
the member organization that executed the transaction on Phlx and 
collected from the non-member organization who cleared the transaction. 
Today, in the case where a member organization executes a transaction 
at an away market and a non-member organization ultimately clears the 
transaction, the ORF will not be assessed to the member organization 
who executed the transaction or collected from the non-member 
organization 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 organization 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.\10\ 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.
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    \10\ The 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 member 
organizations' options activity (``Options Regulatory Cost'').
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    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.\11\
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    \11\ Direct and indirect expenses are based on the Exchange's 
2024 Regulatory Budget.
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    The ORF is designed to recover a material portion of the Options 
Regulatory Costs to the Exchange of the supervision and regulation of 
its member organizations, including performing routine surveillances, 
investigations, examinations, financial monitoring, and policy, 
rulemaking, interpretive, and enforcement activities.
Proposal for November 1, 2024, Through December 31, 2024
    Based on Phlx's most recent review of its ORF Regulatory Revenues 
as compared to its ORF Regulatory Costs in light of recent fines, Phlx 
proposes to reduce the amount of ORF that will be collected by the 
Exchange from $0.0034 to $0.0022 per contract side from November 1, 
2024, through December 31, 2024. The Exchange issued an Options Trader 
Alert on September 16, 2024, that specified the proposed rate change 
for November 1, 2024.\12\
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    \12\ See https://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2024-53. The Exchange plans on issuing a second Options Trader Alert 
announcing changes for January 1, 2025.
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    Phlx notes that there can be no assurance that the Options 
Regulatory Costs for the remainder of 2024 will not differ materially 
from these expectations and prior practice, nor can the Exchange 
predict with certainty whether options volume will remain at the 
current level going forward. The Exchange notes however, that when 
combined with regulatory fees and fines, the Options Regulatory Revenue 
that may be generated utilizing an ORF rate of $0.0034 per contract 
side may result in Options Regulatory Revenue which exceeds the 
Exchange's estimated Options Regulatory Costs for 2024 as a result of 
fines. The Exchange therefore proposes to reduce its ORF to $0.0022 per 
contract side to ensure that Options Regulatory Revenue does not exceed 
the Exchange's estimated Options Regulatory Costs in 2024. 
Particularly, the Exchange believes that reducing the ORF when combined 
with all of the Exchange's other regulatory fees and fines, would allow 
the Exchange to continue covering a material portion of its Options 
Regulatory Costs, while lessening the potential for generating excess 
revenue that may otherwise occur using the rate of $0.0034 per contract 
side.\13\
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    \13\ The Exchange notes that its regulatory responsibilities 
with respect to member and member organization compliance with 
options sales practice rules have largely been allocated to FINRA 
under a 17d-2 agreement. The ORF is not designed to cover the cost 
of that options sales practice regulation.
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    The Exchange will continue to monitor the amount of Options 
Regulatory Revenue collected from the ORF to ensure that Options 
Regulatory Revenue, in combination with its other regulatory fees and 
fines, does not exceed Options Regulatory Costs. If the Exchange 
determines Options Regulatory Revenue exceed Options Regulatory Costs, 
the Exchange will adjust the ORF by submitting a fee change filing to 
the Commission and notifying \14\ its members and member organizations 
via an Options Trader Alert.\15\
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    \14\ The Exchange will provide members and member organizations 
with such notice at least 30 calendar days prior to the effective 
date of the change.
    \15\ The Exchange notes that in connection with this proposal, 
it provided the Commission confidential details regarding the 
Exchange's projected regulatory revenue, including projected revenue 
from ORF, along with a projected regulatory expense.
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Proposal for January 1, 2025
    Phlx has been reviewing it methodologies for the assessment and 
collection of ORF. As a result of this review, Phlx proposes to revamp 
the current process of assessing and collecting ORF in various 
ways.\16\ Below Phlx will explain the modelling it performed and the 
outcomes of the modelling which have led the Exchange to propose the 
below changes.
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    \16\ The Exchange proposes to delete language in the Pricing 
Schedule at Options 7, Section 6D that will be obsolete as of 
November 1, 2024.
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    Effective January 1, 2025, Phlx proposes to assess ORF to each Phlx 
member organization for multi-listed options transactions and options 
transactions in Phlx proprietary

[[Page 103005]]

products,\17\ cleared by OCC in all clearing ranges except market 
makers who clear as ``M'' at OCC (``Market Makers'') \18\ where: (1) 
the execution occurs on Phlx or (2) the execution occurs on another 
exchange and is cleared by a Phlx member organization. With this 
change, Phlx proposes to amend its current ORF to assess ORF on 
Customer,\19\ Professional,\20\ Firm \21\ and Broker-Dealer \22\ 
transactions. All market participants, except Market Makers, would be 
subject to ORF.
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    \17\ Proprietary products are products with intellectual 
property rights that are not multi-listed. Phlx lists several 
proprietary products.
    \18\ Capacity ``M'' covers Market Makers registered on Phlx and 
market makers registered at non-Phlx exchanges.
    \19\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation (``OCC'') which 
is not for the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Options 1, Section 
1(b)(45)). See Options 7, Section 1(c).
    \20\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Options 1, Section 1(b)(45) 
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). See Options 7, Section 1(c).
    \21\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC. See Options 7, Section 1(c).
    \22\ The term ``Broker-Dealer'' 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(c). A Broker-
Dealer clears in the ``F'' range at OCC.
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    The ORF would be collected by OCC on behalf of Phlx from (1) Phlx 
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 Phlx. This model collects ORF where there is a nexus with 
Phlx and does not collect ORF from a non-member organization 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 Phlx (``Local ORF 
Rate'') and trades executed on non-Phlx exchanges (``Away ORF Rate'') 
by market participants. For Customer, Professional, and broker-dealer 
(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 $0.0190 per contract and an Away ORF Rate 
of $0.00 per contract. For Firm and Broker-Dealer 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 
$0.00022 per contract and an Away ORF Rate of $0.00022 per contract. 
The combined amount of Local ORF and Away ORF collected may not exceed 
88% of Options Regulatory Cost. Phlx will ensure that ORF Regulatory 
Revenue does not exceed Options Regulatory Cost. As is the case today, 
the Exchange will notify member organizations 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.\23\ To that end, the Exchange plotted Customer volumes from 
each exchange \24\ 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.\25\ The Exchange considered using non-linear 
models, but concluded that the best R[supcaret]2 (``R-Squared'') \26\ 
results came from a standard y = Mx + B format for regulatory expense. 
The R-Squared 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.
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    \23\ This 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.
    \24\ The Exchange utilized data from all Nasdaq affiliated 
options exchanges to create this model from 2023 Q3 through 2024 Q2 
(``Time Period'').
    \25\ The Exchange utilized data from 2023 Q1 to 2024 Q3 to 
calculate the slope and intercept.
    \26\ R-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 R-squared is: R2 = 1-Unexplained Variation/Total 
Variation.
[GRAPHIC] [TIFF OMITTED] TN18DE24.067

    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

[[Page 103006]]

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 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 R-Squared (goodness of fit) to >97% across multiple 
historical periods.\27\
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    \27\ The 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.
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    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 Broker-Dealer 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. Members 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 member organizations' 
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 \28\ 
and certain indirect expenses in support of the regulatory 
function.\29\
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    \28\ 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.
    \29\ The indirect expenses include support from such areas as 
Office of the General Counsel, technology, finance and internal 
audit.
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    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 ($0.0034 per contract side) that was in effect 
prior to this rule change.\30\
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    \30\ The Exchange proposes to reconsider the sunset date in 2025 
and determine whether to proceed with the proposed ORF structure at 
that time.
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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.\31\ Specifically, the 
Exchange believes the proposed rule change is consistent with Section 
6(b)(4) of the Act,\32\ 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) \33\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(4).
    \33\ 15 U.S.C. 78f(b)(5).
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Proposal for November 1, 2024, Through December 31, 2024
    The Exchange believes the proposed reduction of ORF is reasonable 
because it would help ensure that ORF Regulatory Revenue does not 
exceed a material portion of the Exchange's ORF Regulatory Costs. As 
noted above, the ORF is designed to recover a material portion, but not 
all, of the Exchange's ORF Regulatory Costs. Further, the Exchange 
believes the proposed fee change is reasonable because Customer 
transactions will be subject to a lower ORF than the rate that would 
otherwise be in effect on November 1, 2024.
    The Exchange had designed the ORF to generate ORF Regulatory 
Revenue that would be less than the amount of the Exchange's ORF 
Regulatory Costs to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed ORF Regulatory Costs, which 
is consistent with the view of the Commission that regulatory fees be 
used for regulatory purposes and not to support the Exchange's business

[[Page 103007]]

operations. As discussed above, however, after review of its ORF 
Regulatory Costs and ORF Regulatory Revenue which includes revenues 
from ORF and other regulatory fees and fines, the Exchange determined 
that absent a reduction in ORF, it may collect ORF Regulatory Revenue 
which would exceed its ORF Regulatory Costs. Indeed, the Exchange notes 
that when taking into account the potential that recent options volume 
persists, it estimates the ORF may generate ORF Regulatory Revenue that 
would cover more than the approximated Exchange's projected ORF 
Regulatory Costs due to fines. As such, the Exchange believes it's 
reasonable and appropriate to reduce the ORF amount from $0.0034 to 
$0.0022 per contract side.
    The Exchange also believes the proposed fee change is equitable and 
not unfairly discriminatory in that it is charged to all member 
organizations on all their transactions that clear in the Customer 
range at OCC.\34\ The Exchange believes the ORF ensures fairness by 
assessing higher fees to those member organizations that require more 
Exchange regulatory services based on the amount of Customer options 
business they conduct. Regulating Customer trading activity is much 
more labor intensive and requires greater expenditure of human and 
technical resources than regulating non-Customer trading activity, 
which tends to be more automated and less labor-intensive. For example, 
there are 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 costs associated with administering the Customer component 
of the Exchange's overall regulatory program are materially higher than 
the costs associated with administering the non-Customer component of 
its regulatory program. Moreover, the Exchange notes that it has broad 
regulatory responsibilities with respect to activities of its members 
and member organizations, a small portion of which takes place on away 
exchanges. Indeed, the Exchange cannot effectively review for such 
conduct without looking at and evaluating activity regardless of where 
it transpires. In addition to its own surveillance programs, the 
Exchange also works with other SROs and exchanges on intermarket 
surveillance related issues. Through its participation in the 
Intermarket Surveillance Group (``ISG'') \35\ the Exchange shares 
information and coordinates inquiries and investigations with other 
exchanges designed to address potential intermarket manipulation and 
trading abuses. Accordingly, there is a strong nexus between the ORF 
and the Exchange's regulatory activities with respect to Customer 
trading activity of its members and member organizations.
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    \34\ If the OCC clearing member is a Phlx member organization, 
ORF will be assessed and collected on all cleared Customer contracts 
(after adjustment for CMTA); and (2) if the OCC clearing member is 
not a Phlx member organization, ORF will be collected only on the 
cleared Customer contracts executed at Phlx, taking into account any 
CMTA instructions which may result in collecting the ORF from a non-
member organization.
    \35\ ISG is an industry organization formed in 1983 to 
coordinate intermarket surveillance among the SROs by cooperatively 
sharing regulatory information pursuant to a written agreement 
between the parties. The goal of the ISG's information sharing is to 
coordinate regulatory efforts to address potential intermarket 
trading abuses and manipulations.
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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 Phlx member 
organization or cleared by an Phlx member organization. With this 
amendment, Phlx would begin to assess Firm and Broker-Dealer 
Transactions an ORF, provided the transactions were executed by a Phlx 
member organization or cleared by a Phlx member organization. 
Additionally, the Exchange would assess an ORF for options transactions 
in Phlx 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 member organizations, except Market Makers, 
would be assessed ORF.
    The Exchange believes that assessing all member organizations, 
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 in the Opening Process and intra-day.\36\ 
Additionally, Market Makers may enter quotes in the Opening Process to 
open an option series and they are required to quote intra-day.\37\ 
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.\38\ Also, Lead Market Makers and Market 
Makers incur other costs imposed by the Exchange related to their 
quoting obligations in addition to other fees paid by other market 
participants. Market Makers are subject to a number of fees, unlike 
other market participants. Market Makers pay Streaming Quote Trader 
Fees,\39\ Remote Market Maker Organization (RMO) Fee,\40\ and Remote 
Lead Market Maker Fee \41\ in addition to other fees paid by other 
market participants. These liquidity providers are critical market 
participants in that they are the only market participants that are 
required to provide liquidity to Phlx 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 Phlx 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

[[Page 103008]]

submitted by Market Makers in their unassigned options series are far 
below the cap \42\ and therefore de minimis.
---------------------------------------------------------------------------

    \36\ See Phlx Options 3, Section 8 and Options 2, Section 5.
    \37\ Id.
    \38\ See Phlx Options 2, Section 5(a)(3) and (5).
    \39\ See Phlx Options 7, Section 8, B.
    \40\ See Phlx Options 7, Section 8, C.
    \41\ See Phlx Options 7, Section 8, D.
    \42\ See Phlx Options 2, Section 6(a). The total number of 
contracts executed during a quarter by a Market Maker and Lead 
Market Maker in options series to which it is not appointed may not 
exceed twenty-five percent (25%) of the total number of contracts 
executed by the Market Maker and Lead Market Maker in options 
series.
---------------------------------------------------------------------------

    The Exchange believes including options transactions in Phlx 
proprietary products is reasonable, equitable and not unfairly 
discriminatory because Phlx lists various proprietary products for 
which the Exchange incurs Options Regulatory Costs. The Exchange 
believes that only exchanges that list proprietary products should be 
able to collect a Local ORF on their products. Phlx notes that there 
are a small number of Phlx proprietary products transacted as compared 
to multi-list options. Also, Phlx would only collect an ORF for 
proprietary products transacted on its market. As such, the Exchange 
believes that only a Local ORF should be applied to a Phlx 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 Broker-Dealer 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 
Phlx's Options Regulatory Cost.\43\ Customer transactions in 
combination with Firm and Broker-Dealer 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 Broker-Dealer Transactions.\44\ 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 member organizations of the Exchange and is not readily 
available to Phlx.\45\ 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 Phlx'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.
---------------------------------------------------------------------------

    \43\ The Exchange notes that the regulatory costs relating to 
monitoring member organizations with respect to Customer trading 
activity are generally higher than the regulatory costs associated 
with member organizations that do not engage in Customer trading 
activity, which tends to be more automated and less labor-intensive. 
By contrast, regulating member organizations 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 member organization'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 non-Customer component 
of the regulatory program.
    \44\ See Phlx Options 10 Rules.
    \45\ The Know Your Customer or ``KYC'' provision is the 
obligation of the broker-dealer.
---------------------------------------------------------------------------

    In contrast, the Options Regulatory Cost of regulating Firm and 
Broker-Dealer 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.

[[Page 103009]]

[GRAPHIC] [TIFF OMITTED] TN18DE24.068

    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 Range 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.\46\ 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 member 
organizations 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 Members.\47\ While not large in number, when compared to the 
overall number of Exchange rules that are surveilled by Phlx 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-Phlx exchanges avoids overlapping ORFs that 
would otherwise be assessed by Phlx 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.
---------------------------------------------------------------------------

    \46\ Phlx pays the Financial Industry Regulatory Authority 
(``FINRA'') to perform certain cross-market 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.
    \47\ Phlx conducts surveillances and enforces Phlx Rules, 
however only a subset of those rules is subject to cross-market 
surveillance, such as margin and position limits. Of note, some Phlx 
trading rules are automatically enforced by Phlx's System.
---------------------------------------------------------------------------

    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.\48\
---------------------------------------------------------------------------

    \48\ Phlx would submit a rule change to the Commission to amend 
ORF rates.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose

[[Page 103010]]

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 inter-
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 November 1, 2024, Through December 31, 2024

    The Exchange's proposal to reduce its ORF from $0.0034 to $0.0022 
per contract side from November 1, 2024, through December 31, 2024, 
does not create an unnecessary or inappropriate burden on intra-market 
competition because the ORF applies to all Customer activity, thereby 
raising regulatory revenue to offset regulatory expenses. It also 
supplements the regulatory revenue derived from non-customer activity.
Proposal for January 1, 2025
    Excluding Market Makers does not impose an undue burden on intra-
market 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 in the Opening Process and intra-day.\49\ 
Additionally, Market Makers may enter quotes in the Opening Process to 
open an option series and they are required to quote intra-day.\50\ 
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.\51\ Also, Lead Market Makers and Market 
Makers incur other costs imposed by the Exchange related to their 
quoting obligations in addition to other fees paid by other market 
participants. Market Makers are subject to a number of fees, unlike 
other market participants. Market Makers pay Streaming Quote Trader 
Fees,\52\ Remote Market Maker Organization (RMO) Fee,\53\ and Remote 
Lead Market Maker Fee \54\ in addition to other fees paid by other 
market participants. These liquidity providers are critical market 
participants in that they are the only market participants that are 
required to provide liquidity to Phlx and are necessary for opening the 
market. Excluding Market Maker transactions from ORF does not impose an 
intra-market 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 Phlx 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 \55\ and therefore de 
minimis.
---------------------------------------------------------------------------

    \49\ See Phlx Options 3, Section 8 and Options 2, Section 5.
    \50\ Id.
    \51\ See Phlx Options 2, Section 5(a)(3) and (5).
    \52\ See Phlx Options 7, Section 8, B.
    \53\ See Phlx Options 7, Section 8, C.
    \54\ See Phlx Options 7, Section 8, D.
    \55\ See Phlx Options 2, Section 6. The total number of 
contracts executed during a quarter by a Market Maker in options 
classes to which it is not appointed may not exceed twenty-five 
percent (25%) of the total number of contracts traded. In the 
Exchange's experience, Market Maker's are generally below the 25% 
cap.
---------------------------------------------------------------------------

    Uniformly including options transactions in Phlx proprietary 
products in ORF for all Phlx member organizations does not impose an 
undue burden on intra-market competition. The Exchange believes that 
only exchanges that list proprietary products should be able to collect 
a Local ORF on their products. Phlx notes that there are a small number 
of Phlx proprietary products transacted as compared to multi-list 
options. Also, Phlx would only collect an ORF for proprietary products 
transacted on its market.
    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 Phlx's Options 
Regulatory Cost.\56\ 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 Broker-Dealer Transactions.\57\ 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 member organizations of the Exchange 
and is not readily available to Phlx.\58\ 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,

[[Page 103011]]

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 Phlx's Customer 
regulation occurs to a large extent on Exchange.
---------------------------------------------------------------------------

    \56\ The Exchange notes that the regulatory costs relating to 
monitoring Members with respect to customer trading activity are 
generally higher than the regulatory costs associated with Members 
that do not engage in customer trading activity, which tends to be 
more automated and less labor-intensive. By contrast, regulating 
Members 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 Member'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 
non-customer component of the regulatory program.
    \57\ See Phlx Options 10 Rules.
    \58\ The Know Your Customer or ``KYC'' provision is the 
obligation of the broker-dealer.
---------------------------------------------------------------------------

    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 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 Phlx member organizations, 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 Phlx member organization. 
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.\59\ 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 member 
organizations 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 member 
organizations.\60\ While not large in number, when compared to the 
overall number of Exchange rules that are surveilled by Phlx 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-Phlx exchanges does not 
impose a burden on intra-market competition, rather it avoids 
overlapping ORFs that would otherwise be assessed by Phlx 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 member 
organizations of the Exchange in light of the volume different member 
organizations transact on the Exchange.
---------------------------------------------------------------------------

    \59\ Phlx pays the Financial Industry Regulatory Authority 
(``FINRA'') to perform certain cross-market 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.
    \60\ Phlx conducts surveillances and enforces Phlx Rules, 
however only a subset of those rules is subject to cross-market 
surveillance, such as margin and position limits. Of note, some Phlx 
trading rules are automatically enforced by Phlx's System.
---------------------------------------------------------------------------

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 \61\ and Rule 19b-4(f)(2) \62\ thereunder.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \62\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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 [email protected]. Please include 
file number SR-Phlx-2024-66 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-Phlx-2024-66. 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

[[Page 103012]]

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-Phlx-2024-66 and should be submitted on or before January 8, 2025.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\63\
---------------------------------------------------------------------------

    \63\ 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29922 Filed 12-17-24; 8:45 am]
BILLING CODE 8011-01-P
```