Document ID: SEC-2018-1261-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2018-08-13T04:00Z

[Federal Register Volume 83, Number 156 (Monday, August 13, 2018)]
[Notices]
[Pages 40099-40101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17258]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83794; File No. SR-NASDAQ-2018-062]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Nasdaq Options Regulatory Fee

August 7, 2018.
    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 July 27, 2018, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 Chapter XV, Section 5 to amend the Nasdaq Options 
Regulatory Fee or ``ORF.''
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on August 1, 
2018.
    The text of the proposed rule change is available on the Exchange's 
website at 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 $0.0027 per contract side. The 
Exchange proposes to decrease this ORF to $0.0008 per contract side. In 
light of recent market volumes on NOM, the Exchange is proposing to 
change the amount of ORF that will be collected by the Exchange. The 
Exchange's proposed change to the ORF should balance the Exchange's 
regulatory revenue against the anticipated costs.
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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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

[[Page 40100]]

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 is proposing to decrease the ORF from $0.0027 to 
$0.0008 as of August 1, 2018. In light of recent market volumes on NOM, 
the Exchange is proposing to decrease the amount of ORF that will be 
collected by the Exchange. 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, August 1, 2018.\6\ The Exchange believes that 
the prior notification market participants will ensure market 
participants are prepared to configure their systems to properly 
account for the ORF.
---------------------------------------------------------------------------

    \6\ See Options Trader Alert #2018-27.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes that decreasing the ORF from $0.0027 to 
$0.0008 as of August 1, 2018 is reasonable because the Exchange's 
collection of ORF needs to be balanced against the amount of regulatory 
costs incurred by the Exchange. 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 amending the ORF from $0.0027 to $0.0008 
as of August 1, 2018 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. The ORF is 
collected by OCC 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

[[Page 40101]]

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\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-NASDAQ-2018-062 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-2018-062. 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-NASDAQ-2018-062, and should be submitted on 
or before September 4, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17258 Filed 8-10-18; 8:45 am]
 BILLING CODE 8011-01-P