Document ID: SEC-2019-0159-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq MRX, LLC
Posted Date: 2019-02-20T05:00Z

[Federal Register Volume 84, Number 34 (Wednesday, February 20, 2019)]
[Notices]
[Pages 5173-5176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02740]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85127; File No. SR-MRX-2019-03]

Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Adopt an 
Options Regulatory Fee

February 13, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 1, 2019, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (the ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 5174]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 7, Section 5 to adopt an 
Options Regulatory Fee or ``ORF''.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqmrx.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    MRX proposes to amend its rules at Options 7, Section 5 to adopt an 
ORF. Specifically, MRX proposes to adopt an ORF of $0.0004 per contract 
side as of February 1, 2019 at Options 7, Section 5, A. The Exchange 
proposes to re-letter current ``A'' (FINRA Web CRD Fees) as ``B.'' MRX 
has been operating since 2016. Initially MRX did not adopt an ORF as it 
was a new market. MRX proposes to adopt an ORF at this time. The 
Exchange's proposed ORF should balance the Exchange's regulatory 
revenue against the anticipated regulatory costs.
Collection of ORF
    MRX would assess the proposed ORF for each customer option 
transaction that is either: (1) Executed by a Member on MRX; or (2) 
cleared by a MRX Member at The Options Clearing Corporation (``OCC'') 
in the customer range,\3\ even if the transaction was executed by a 
non-member of MRX, regardless of the exchange on which the transaction 
occurs.\4\ If the OCC Clearing Member is an MRX Member, ORF would be 
assessed and collected on all cleared customer contracts (after 
adjustment for CMTA) \5\; and (2) if the OCC Clearing Member is not a 
MRX Member, ORF is collected only on the cleared customer contracts 
executed at MRX, taking into account any CMTA instructions which may 
result in collecting the ORF from a non-member.
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    \3\ Members must record the appropriate account origin code on 
all orders at the time of entry in order. The Exchange represents 
that it has surveillances in place to verify that Members mark 
orders with the correct account origin code.
    \4\ The Exchange would use reports from OCC when assessing and 
collecting the ORF.
    \5\ 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.
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    By way of example, if Broker A, an MRX Member, routed a customer 
order to Cboe Exchange, Inc. (``CBOE'') and the transaction executed on 
CBOE and cleared in Broker A's OCC Clearing account, ORF would be 
collected by MRX from Broker A's clearing account at OCC via direct 
debit. While in this example the transaction was executed on a market 
other than MRX, it was cleared by an MRX Member in the member's OCC 
clearing account in the customer range, therefore there would be a 
regulatory nexus between MRX and the transaction. If Broker A was not 
an MRX Member, then no ORF should be assessed and collected because 
there is no nexus; the transaction did not execute on MRX nor was it 
cleared by an MRX Member.
    In the case where a Member both executed a transaction and cleared 
the transaction, the ORF would be assessed to and collected from that 
Member. In the case where a Member executed a transaction and a 
different Member cleared the transaction, the ORF would be assessed to 
and collected from the Member who cleared the transaction and not the 
Member who executed the transaction. In the case where a non-member 
executed a transaction at an away market and a Member cleared the 
transaction, the ORF would be assessed to and collected from the Member 
who cleared the transaction. In the case where a Member executed a 
transaction on MRX and a non-member cleared the transaction, the ORF 
would be assessed to the Member that executed the transaction on MRX 
and collected from the non-member who cleared the transaction. In the 
case where a Member executed a transaction at an away market and a non-
Member cleared the transaction, the ORF would not assessed to the 
Member who executed the transaction or collected from the non-member 
who cleared the transaction because the Exchange would not have access 
to the data to make absolutely certain that ORF should apply. Further, 
the data would not allow the Exchange to identify the Member executing 
the trade at an away market.
ORF Revenue and Monitoring of ORF
    The Exchange would monitor the amount of revenue collected from the 
ORF to ensure that it, in combination with other regulatory fees and 
fines, would not exceed regulatory costs. In determining whether an 
expense is considered a regulatory cost, the Exchange would review all 
costs and make 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 would offset ORF.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of its members, 
including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities.
    The Exchange believes that revenue generated from the ORF, when 
combined with all of the Exchange's other regulatory fees, would cover 
a material portion, but not all, of the Exchange's regulatory costs. 
The Exchange would monitor the amount of revenue collected from the ORF 
to ensure that it, in combination with its other regulatory fees and 
fines, would not exceed regulatory costs. If the Exchange determines 
regulatory revenues exceed regulatory costs, the Exchange would adjust 
the ORF by submitting a fee change filing to the Commission.
    The Exchange notified Members via an Options Trader Alert of the 
proposed change to the ORF thirty (30) calendar days prior to the 
proposed operative date, February 1, 2019.\6\ The Exchange believes 
that the prior notification will ensure Members are prepared to 
configure their systems to properly account for the ORF.
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    \6\ See Options Trader Alert #2018-46.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act \8\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using its facility and is 
not designed to permit unfair

[[Page 5175]]

discrimination between customers, issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that adopting an ORF of $0.0004 per contract 
side as of February 1, 2019 is reasonable because the Exchange's 
collection of ORF would be balanced against the amount of regulatory 
costs incurred by the Exchange. Specifically, the ORF would balance the 
Exchange's regulatory revenue against the anticipated regulatory costs. 
The Exchange notes that other options markets have adopted an ORF.\9\
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    \9\ CBOE, Nasdaq Phlx LLC, The Nasdaq Options Market LLC, Nasdaq 
ISE, LLC, BOX Exchange LLC and Miami International Securities 
Exchange LLC are examples of options markets that have adopted an 
ORF.
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    The Exchange believes that adopting an ORF of $0.0004 per contract 
side as of February 1, 2019 is equitable and not unfairly 
discriminatory because assessing the ORF to each Member for options 
transactions cleared by OCC in the customer range where the execution 
occurs on another exchange and is cleared by an MRX Member would be an 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities. The ORF 
would be collected by OCC on behalf of MRX from Exchange clearing 
members for all customer transactions they clear or from non-members 
for all customer transactions they clear that were executed on MRX. The 
Exchange believes the ORF would ensure fairness by assessing fees to 
Members 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. 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 (e.g., Member proprietary 
transactions) of its regulatory program.
    The ORF would be designed to recover a material portion of the 
costs of supervising and regulating Members' customer options business 
including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. The Exchange would monitor 
the amount of revenue collected from the ORF to ensure that it, in 
combination with its other regulatory fees and fines, would not exceed 
the Exchange's total regulatory costs. The Exchange has designed the 
ORF to generate revenues that, when combined with all of the Exchange's 
other regulatory fees, would be less than or equal to the Exchange's 
regulatory costs, which is consistent with the Commission's view that 
regulatory fees be used for regulatory purposes and not to support the 
Exchange's business side.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. This proposal does not create 
an unnecessary or inappropriate intra-market burden on competition 
because the ORF would apply to all customer activity, thereby raising 
regulatory revenue to offset regulatory expenses. It would also 
supplement the regulatory revenue derived from non-customer activity. 
This proposal does not create an unnecessary or inappropriate inter-
market burden on competition because it is a regulatory fee that 
supports regulation in furtherance of the purposes of the Act. The 
Exchange is obligated to ensure that the amount of regulatory revenue 
collected from the ORF, in combination with its other regulatory fees 
and fines, would not exceed regulatory costs.

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.\10\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is: (i) Necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-MRX-2019-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
    All submissions should refer to File No. SR-MRX-2019-03. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File No. SR-MRX-2019-03, and should be submitted on or 
before March 13, 2019.

[[Page 5176]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02740 Filed 2-19-19; 8:45 am]
 BILLING CODE 8011-01-P