Notice2023-27261
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule To Adopt a Temporary Options Regulatory Fee
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 13, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 238 (Wednesday, December 13, 2023)</title>
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[Federal Register Volume 88, Number 238 (Wednesday, December 13, 2023)]
[Notices]
[Pages 86417-86420]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27261]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99112; File No. SR-MEMX-2023-31]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule To Adopt a Temporary Options Regulatory Fee
December 7, 2023.
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 24, 2023, MEMX LLC (``MEMX'' or the ``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 is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (the
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c) relating
to the Options Regulatory Fee. The Exchange proposes to implement the
changes to the Fee Schedule pursuant to this proposal on November 24,
2023. The text of the proposed rule change is provided in Exhibit 5.
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\3\ See Exchange Rule 1.5(p).
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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
[[Page 86418]]
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
The Exchange proposes to amend the Fee Schedule to revise the ORF
charged solely for the dates of November 24 through November 30, 2023.
Background
By way of background, the per-contract ORF is collected by the
Options Clearing Corporation (``OCC'') on behalf of the Exchange for
each options transaction, cleared or ultimately cleared by an Exchange
member in the ``customer'' range, regardless of the exchange on which
the transaction occurs. The ORF is collected from either: (1) a Member
that was the ultimate clearing firm \4\ for the transaction; or (2) a
non-Member that was the ultimate clearing firm where a Member was the
executing clearing firm \5\ for the transaction.
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\4\ The Exchange takes into account any CMTA transfers when
determining the ultimate clearing firm for a transaction. CMTA or
Clearing Member Trade Assignment is a form of ``give up'' whereby
the position will be assigned to a specific clearing firm at the
OCC.
\5\ Throughout this filing, ``executing clearing firm'' means
the clearing firm through which the entering broker indicated that
the transaction would be cleared at the time it entered the original
order which executed, and that clearing firm could be a designated
``give up'', if applicable. The executing clearing firm may be the
ultimate clearing firm if no CMTA transfer occurs. If a CMTA
transfer occurs, however, the ultimate clearing firm would be the
clearing firm that the position was transferred to for clearing via
CMTA.
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To illustrate how the ORF is assessed and collected, the Exchange
provides the following set of examples.
1. For all transactions executed on the Exchange, if the ultimate
clearing firm is a Member of the Exchange, the ORF is assessed to and
collected from that Member. If the ultimate clearing firm is not a
Member of the Exchange, the ORF is collected from that non-Member
clearing firm but assessed to the executing clearing firm.
2. If the transaction is executed on an away exchange, the ORF is
only assessed and collected if either the executing clearing firm or
ultimate clearing firm are Members of the Exchange. If the ultimate
clearing firm is a Member of the Exchange, the ORF is assessed to and
collected from that ultimate clearing firm. If the ultimate clearing
firm is not a Member of the Exchange, the ORF is assessed to the
executing clearing firm (again, only if that executing clearing firm is
a Member of the Exchange), and collected from the ultimate clearing
firm. Thus, to reiterate, if neither the executing clearing firm nor
the ultimate clearing firm are members of the Exchange, no ORF is
assessed or collected.
Finally, the Exchange will not assess the ORF on outbound linkage
trades. ``Linkage trades'' are tagged in the Exchange's system, so the
Exchange can distinguish them from other trades. A customer order
routed to another exchange results in the appearance of two customer
trades, one from the originating exchange and one from the recipient
exchange. Charging ORF on both trades could result in double-billing of
ORF for a single customer order, thus the Exchange will not assess ORF
on outbound linkage trades in a linkage scenario.\6\
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\6\ To clarify, as stated previously, the Exchange will assess
and collect the ORF for each customer options transaction that is
cleared by a Member of the Exchange, regardless of where the
transaction occurs. As such, transactions may fall into this
category that originated from customer orders entered on the
Exchange that were routed to and executed on an away market pursuant
to the Options Linkage Plan. However, the Exchange will not assess
the ORF in this instance on the original entering broker on MEMX
Options, which would result in a potential double billing. Instead,
the Exchange will only assess and collect from the ultimate clearing
firm, and only if the ultimate clearing firm or the executing
clearing firm is a MEMX Options Member (because the transaction
ultimately occurs on an away market).
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The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of Members' customer
options business, including performing routine surveillances and
investigations, as well as 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 and fines, will cover a material portion, but not all, of the
Exchange's regulatory costs. Regulatory costs include direct regulatory
expenses and certain indirect expenses for work allocated 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 surveillance, investigations and examinations. The
indirect expenses include support from personnel in such areas as human
resources, legal, information technology, facilities and accounting as
well as shared costs necessary to operate the Exchange and to carry out
its regulatory function, such as hardware, data center costs and
connectivity. The Exchange acknowledges that these indirect expenses
are also allocated towards other business operations, such as providing
connectivity and market data services, for which the Exchange has also
conducted a cost-based analysis. As such, when analyzing the indirect
expenses associated with its regulatory program, the Exchange did not
double-count any expenses, but instead, allocated a portion of the cost
not already allocated to other fees imposed by the Exchange. Indirect
expenses are anticipated to be approximately 24% of the total
regulatory costs for 2023 and 2024. Thus, direct expenses are
anticipated to be approximately 76% of the total regulatory costs for
2023 and 2024.
The Exchange monitors 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. More
specifically, the Exchange will ensure that revenue generated from ORF
not exceed more than 75% of total annual regulatory costs. The Exchange
will monitor regulatory costs and revenues at a minimum on a semi-
annual basis. If the Exchange determines regulatory revenues exceed or
are insufficient to cover a material portion of its regulatory costs,
the Exchange will adjust the ORF by submitting a fee change filing to
the Commission. The Exchange will also notify Members of adjustments to
the ORF via regulatory circular, including for the change being
proposed herein.\7\ In preparation for the launch of the Exchange's
options market (``MEMX Options''),\8\ the Exchange proposed to
establish an ORF in the amount of $0.0015 per contract side, effective
September 27, 2023.\9\ The amount of the proposed fee was based on
historical industry volume, projected volumes on the Exchange, and
projected Exchange regulatory costs. Additionally, the Exchange
proposed that the ORF would automatically sunset on September 30, 2024.
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\7\ See Exchange Regulatory Notice 23-22, located at: <a href="https://info.memxtrading.com/category/alerts-notices/reg/">https://info.memxtrading.com/category/alerts-notices/reg/</a>.
\8\ On August 8, 2022, the Commission approved SR-MEMX-2022-10,
which proposed rules for the trading of options on the Exchange. See
Securities Exchange Act Release No. 95445 (August 8, 2022), 87 FR
49894 (August 12, 2022) (SR-MEMX-2022-010). The Exchange launched
MEMX Options on September 27, 2023.
\9\ See Securities Exchange Act Release No. 98585 (September 28,
2023), 88 FR 68692 (October 4, 2023) (SR-MEMX-2023-25).
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[[Page 86419]]
OIP and Current Proposal
As noted above, on September 27, 2023, the Exchange filed to
establish an ORF in the amount of $0.0015 per contract side (the
``initial ORF filing'') and began assessing and collecting the ORF as
proposed in the initial ORF filing. However, on November 24, 2023, the
Commission issued the Suspension of and Order Instituting Proceedings
to Determine whether to Approve or Disapprove a Proposed Rule Change to
Amend its Fee Schedule to Establish an Options Regulatory Fee (``the
OIP'').\10\ As a result of the OIP, on November 24, 2023, the Exchange
would revert back to not charging the ORF.
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\10\ See Securities Exchange Act Release No. 99017 (November 24,
2023) (SR-MEMX-2023-25).
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To ensure consistency of ORF assessments for the full month of
November 2023, the Exchange proposes to modify the Fee Schedule to
specify that the amount of the ORF that will be collected by the
Exchange through November 30, 2023 (i.e., the last trading day of the
month of November), will be $0.0015 per contract side (the ``Initial
ORF Rate'').\11\ The Exchange believes that revenue generated from the
ORF as adopted on September 27, 2023 will continue to cover a material
portion, but not all, of the Exchange's regulatory costs.
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\11\ This proposal is not intended to be responsive to any
issues that may be raised in the OIP, but to instead address the
immediate issue of billing for November 24-30th.
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In general, the Exchange endeavors to notify Members of any change
in the amount of the ORF at least 30 calendar days prior to the
effective date of the change via regulatory notice; however, the
Exchange notes that as a result of the OIP, such notice in this
instance could not be given 30 days in advance. Lastly, since the
proposed ORF will only be charged up through November 30, 2023, the
Exchange proposes to delete the bullet point on the Fee Schedule that
indicates that the ORF will automatically sunset on September 30, 2024,
given that this sunset provision no longer applies and conflicts with
the proposal herein.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with section 6(b) of the Act \12\ in general, and
furthers the objectives of section 6(b)(4) of the Act \13\ in
particular, in that it is an equitable allocation of reasonable dues,
fees, and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of section 6(b)(5) of the Act \14\ in that it is
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest and is not designed to permit unfair discrimination
between customers, issuers, brokers and dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f(b)(5).
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The Proposal Is Reasonable
The Exchange believes that the proposed Initial ORF Rate of $0.0015
is reasonable because it would help maintain fair and orderly markets
and benefit investors and the public interest because it would ensure
transparency and consistency of the ORF for the entire month of
November 2023. Specifically, the proposal would ensure that the amount
of ORF collected by the Exchange for the trading days of November 24th,
27th, 28th, 29th, and 30th, 2023 will be the same rate collected on
every other trading day since the ORF was implemented. The Exchange's
by-laws state in Section 17.4(b): ``[a]ny Regulatory Funds shall not be
used for non-regulatory purposes or distributed, advanced or allocated
to any Company Member, but rather, shall be applied to fund regulatory
operations of the Company (including surveillance and enforcement
activities) . . .''.\15\ In this regard, the Exchange believes that the
amount of the fee is reasonable. The Exchange also believes the
proposal to delete the bullet point in the Fee Schedule that indicates
the ORF will automatically sunset on September 24, 2024 is reasonable
because such sunset provision is no longer applicable and conflicts
with the proposal herein that the ORF apply up through November 30,
2023.
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\15\ See MEMX LLC--LLC Agreement at <a href="https://info.memxtrading.com/regulation/governance/">https://info.memxtrading.com/regulation/governance/</a>.
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The Proposed Fee Is an Equitable Allocation of Fees
The Exchange believes its proposal is an equitable allocation of
fees among its market participants. The Exchange believes that the
proposed Initial ORF Rate would not place certain market participants
at an unfair disadvantage because all options transactions must clear
via a clearing firm. Such clearing firms can then choose to pass
through all, a portion, or none of the cost of the ORF to its
customers, i.e., the entering firms. Because the ORF is collected from
Member clearing firms by the OCC on behalf of the Exchange, the
Exchange believes that using options transactions in the Customer range
serves as a proxy for how to apportion regulatory costs among such
Members. In addition, 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 (e.g., Member proprietary transactions) of its
regulatory program. Thus, the Exchange believes the Initial ORF Rate
would be equitably allocated in that it is charged to all Members on
all their transactions that clear in the Customer range at the OCC.
The Proposed Fee Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. The Exchange believes that the Initial ORF Rate would
not place certain market participants at an unfair disadvantage because
all options transactions must clear via a clearing firm. Such clearing
firms can then choose to pass through all, a portion, or none of the
cost of the ORF to its customers, i.e., the entering firms. Because the
ORF is collected from Member clearing firms by the OCC on behalf of the
Exchange, the Exchange believes that using options transactions in the
Customer range serves as a proxy for how to apportion regulatory costs
among such Members. In addition, 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
[[Page 86420]]
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
(e.g., Member proprietary transactions) of its regulatory program.
Thus, the Exchange believes the Initial ORF Rate (like the rate
assessed for every other day since the ORF was implemented), is not
unfairly discriminatory because it is charged to all Members on all
their transactions that clear in the Customer range at the OCC.
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.
Intramarket Competition
The Exchange believes the proposed change will change will not
impose an undue burden on competition as it is charged to all Members
on all their transactions that clear in the Customer range at the OCC;
thus, the amount of ORF imposed is based on the amount of Customer
volume transacted. The Exchange believes that the proposed ORF would
not place certain market participants at an unfair disadvantage because
all options transactions must clear via a clearing firm. Such clearing
firms can then choose to pass through all, a portion, or none of the
cost of the ORF to its customers, i.e., the entering firms. In
addition, because the ORF is collected from Member clearing firms by
the OCC on behalf of the Exchange, the Exchange believes that using
options transactions in the Customer range serves as a proxy for how to
apportion regulatory costs among such Members.
Intermarket Competition
The proposed fee change is not designed to address any competitive
issues. Rather, the proposed change is designed to help the Exchange
adequately fund its regulatory activities while seeking to ensure that
total regulatory revenues do not exceed total regulatory costs.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
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 \16\ and Rule 19b-4(f)(2) \17\ thereunder.
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 17 CFR 240.19b-4(f)(2).
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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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5321263f367e303c3e3e363d2720132036307d343c25"><span class="__cf_email__" data-cfemail="a3d1d6cfc68ec0cccecec6cdd7d0e3d0c6c08dc4ccd5">[email protected]</span></a>. Please include
file number SR-MEMX-2023-31 on the subject line.
Paper Comments
<bullet> 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-MEMX-2023-31. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-MEMX-2023-31 and should be
submitted on or before January 3, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27261 Filed 12-12-23; 8:45 am]
BILLING CODE 8011-01-P
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