Document ID: SEC-2019-0162-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-02-20T05:00Z

[Federal Register Volume 84, Number 34 (Wednesday, February 20, 2019)]
[Notices]
[Pages 5119-5122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02742]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85124; File No. SR-NASDAQ-2019-006]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend the 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, The Nasdaq Stock Market LLC (``Nasdaq'' 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to revise The Nasdaq Options Market LLC's 
Rules (``NOM'') at Options 7, Section 5 to amend the Nasdaq Options 
Regulatory Fee or ``ORF.''
    The text of the proposed rule change is available on the Exchange's 
website at

[[Page 5120]]

http://nasdaq.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
    Currently, Nasdaq assesses an ORF of $0.0008 per contract side. The 
Exchange proposes to increase this ORF to $0.0020 per contract side as 
of February 1, 2019. In light of recent market volumes, the Exchange is 
proposing to increase the amount of ORF that will be collected by the 
Exchange. The proposal would allow the Exchange to increase the per 
contract amount of ORF in order to offset the Exchange anticipated 
regulatory costs. The Exchange's proposed change to the ORF should 
balance the Exchange's regulatory revenue against the anticipated 
regulatory costs. The Exchange also proposes to delete obsolete 
language in the rule text as described herein.
Collection of ORF
    Currently, NOM assesses its ORF for each customer option 
transaction that is either: (1) Executed by a Participant on NOM; or 
(2) cleared by a NOM Participant at The Options Clearing Corporation 
(``OCC'') in the customer range,\3\ even if the transaction was 
executed by a non-member of NOM, regardless of the exchange on which 
the transaction occurs.\4\ If the OCC clearing member is a NOM 
Participant, ORF is assessed and collected on all cleared customer 
contracts (after adjustment for CMTA \5\); and (2) if the OCC clearing 
member is not a NOM Participant, ORF is collected only on the cleared 
customer contracts executed at NOM, taking into account any CMTA 
instructions which may result in collecting the ORF from a non-member.
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    \3\ Participants 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 uses 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, a NOM 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 NOM from 
Broker A's clearing account at OCC via direct debit. While this 
transaction was executed on a market other than NOM, it was cleared by 
a NOM Participant in the member's OCC clearing account in the customer 
range, therefore there is a regulatory nexus between NOM and the 
transaction. If Broker A was not a NOM Participant, then no ORF should 
be assessed and collected because there is no nexus; the transaction 
did not execute on NOM nor was it cleared by a NOM Participant.
    In the case where a Participant both executes a transaction and 
clears the transaction, the ORF is assessed to and collected from that 
Participant. In the case where a Participant executes a transaction and 
a different member clears the transaction, the ORF is assessed to and 
collected from the Participant who clears the transaction and not the 
Participant who executes the transaction. In the case where a non-
member executes a transaction at an away market and a Participant 
clears the transaction, the ORF is assessed to and collected from the 
Participant who clears the transaction. In the case where a Participant 
executes a transaction on NOM and a non-member clears the transaction, 
the ORF is assessed to the Participant that executed the transaction on 
NOM and collected from the non-member who cleared the transaction. In 
the case where a Participant executes a transaction at an away market 
and a non-member clears the transaction, the ORF is not 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
    The Exchange monitors the amount of revenue collected from the ORF 
to ensure that it, in combination with other regulatory fees and fines, 
does not exceed regulatory costs. In determining whether an expense is 
considered a 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 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, will cover a 
material portion, but not all, of the Exchange's regulatory costs. The 
Exchange will continue to monitor the amount of revenue collected from 
the ORF to ensure that it, in combination with its other regulatory 
fees and fines, does not exceed regulatory costs. If the Exchange 
determines regulatory revenues exceed regulatory costs, the Exchange 
will adjust the ORF by submitting a fee change filing to the 
Commission.
Proposal
    The Exchange proposes to increase the ORF from $0.0008 to $0.0020 
per contract side as of February 1, 2019. In light of recent market 
volumes, the Exchange is proposing to increase the amount of ORF that 
will be collected by the Exchange. The proposal would allow the 
Exchange to increase the per contract amount of ORF in order to offset 
the Exchange anticipated regulatory costs. The Exchange proposes to add 
the following rule text to Options 7, Section 5, ``NOM Participants 
will be assessed an Options Regulatory Fee of $0.0020 per contract side 
as of February 1, 2019.''
    The Exchange regularly reviews its ORF to ensure that the ORF, in 
combination with its other regulatory fees and fines, does not exceed 
regulatory costs. The Exchange believes this adjustment will permit the 
Exchange to cover a material portion of its regulatory costs, while not 
exceeding regulatory costs.
    The Exchange notified Participants 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

[[Page 5121]]

Exchange believes that the prior notification market participants will 
ensure market participants are prepared to configure their systems to 
account properly for the ORF.
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    \6\ See Options Trader Alert #2018-46.
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    Finally, the Exchange proposes to remove the following rule text 
from Options 7, Section 5, ``NOM Participants are assessed an Options 
Regulatory Fee of $0.0027 per contract side. NOM Participants will be 
assessed an Options Regulatory Fee of $0.0008 per contract side as of 
August 1, 2018''. This text is obsolete as it references prior ORF 
rates which were effective in the past.
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 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 increasing the ORF from $0.0008 to 
$0.0020 per contract side as of February 1, 2019 is reasonable because 
with this increase, the Exchange would recoup additional regulatory 
revenue to offset anticipated regulatory costs. The Exchange believes 
that the proposed adjustments noted herein will serve to balance the 
Exchange's regulatory revenue against the anticipated regulatory costs.
    The Exchange believes that increasing the ORF from $0.0008 to 
$0.0020 per contract side as of February 1, 2019 is equitable and not 
unfairly discriminatory because assessing the ORF to each Participant 
for options transactions cleared by OCC in the customer range where the 
execution occurs on another exchange and is cleared by a NOM 
Participant is an equitable allocation of reasonable dues, fees, and 
other charges among its members and issuers and other persons using its 
facilities. OCC collects the ORF on behalf of NOM from Exchange 
clearing members for all customer transactions they clear or from non-
members for all customer transactions they clear that were executed on 
NOM. The Exchange believes the ORF ensures fairness by assessing fees 
to Participants 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., 
Participant proprietary transactions) of its regulatory program.
    The ORF is designed to recover a material portion of the costs of 
supervising and regulating Participants' customer options business 
including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. The Exchange will monitor the 
amount of revenue collected from the ORF to ensure that it, in 
combination with its other regulatory fees and fines, does not exceed 
the Exchange's total regulatory costs. The Exchange has designed the 
ORF to generate revenues that, when combined with all of the Exchange's 
other regulatory fees, will be less than 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 applies to all customer activity, thereby raising 
regulatory revenue to offset regulatory expenses. It also supplements 
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, 
does 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.\9\ 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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    \9\ 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-NASDAQ-2019-006 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-NASDAQ-2019-006. 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,

[[Page 5122]]

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-NASDAQ-2019-006, and should be 
submitted on or before March 13, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02742 Filed 2-19-19; 8:45 am]
BILLING CODE 8011-01-P