Notice2025-14863
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Methodology for Its Options Regulatory Fee (ORF) as of January 2, 2026
Primary source
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
August 6, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 149 (Wednesday, August 6, 2025)</title>
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[Federal Register Volume 90, Number 149 (Wednesday, August 6, 2025)]
[Notices]
[Pages 37931-37936]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-14863]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103619; File No. SR-NASDAQ-2025-054]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Methodology for Its Options Regulatory Fee (ORF) as of
January 2, 2026
August 1, 2025.
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 25, 2025, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 The Nasdaq Options Market LLC's
(``NOM'') Pricing Schedule at Options 7, Section 5, Nasdaq Options
Regulatory Fee, to amend its current methodology of collection.
While the changes proposed herein are effective upon filing, the
Exchange has designated the proposed rule change to be operative on
January 2, 2026.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings">https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings</a>
and at the principal office of the Exchange.
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
NOM proposes to amend its current methodology of assessment and
collection of the Options Regulatory Fee or ``ORF'' to assess ORF only
for options transactions that occur on NOM that are cleared in the
Customer \3\ range at The Options Clearing Corporation (``OCC''). With
this proposal NOM would not assess ORF for transactions that occur on
other exchanges. Below is a more detailed description of the proposal.
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\3\ Currently, the ORF is assessed by NOM and collected via the
OCC from Customers, Professional Customers, and Broker-Dealers that
are not affiliated with a clearing member. These market participants
clear in the ``C'' range at OCC. ORF will continue to be assessed
and collected from these market participants under the new
methodology. On NOM, a ``Customer'' applies to any transaction that
is identified by a Participant for clearing in the Customer range at
OCC which is not for the account of broker or dealer or for the
account of a ``Professional''; a ``Professional'' 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) pursuant
to Options 1, Section 1(a)(47); and a ``Broker-Dealer'' applies to
any transaction which is not subject to any of the other transaction
fees applicable within a particular category.
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Background on Current ORF
Today, NOM assesses its ORF for each Customer option transaction
that is either: (1) executed by a Participant \4\ on NOM; or (2)
cleared by a NOM Participant at OCC in the Customer range, even if the
transaction was executed by a non-member of NOM, regardless of the
exchange on which the transaction occurs.\5\ If the OCC clearing member
is a NOM Participant, ORF is assessed and collected on all ultimately
cleared Customer contracts (after adjustment for CMTA \6\); 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.\7\ The NOM ORF as of August 1, 2025 is $0.0005 per contract
side.\8\
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\4\ The term ``Options Participant'' or ``Participant'' mean a
firm, or organization that is registered with the Exchange pursuant
to Options 2A of these Rules for purposes of participating in
options trading on NOM Options as a ``Nasdaq Options Order Entry
Firm'' or ``Nasdaq Options Market Maker.'' See Options 1, Section
1(a)(39).
\5\ The Exchange uses reports from OCC when assessing and
collecting the ORF. 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 members mark orders with the correct account origin code.
\6\ CMTA or Clearing Participant Trade Assignment is a form of
``give-up'' whereby the position will be assigned to a specific
clearing firm at OCC.
\7\ By way of example, if Broker A, an 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 an 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 an 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
an NOM Participant.
\8\ NOM decreased its ORF from $0.0014 to $0.0005 per contract
side effective August 1, 2025. See Securities Exchange Act Release
No. 103392 (July 7, 2025), 90 FR 30710 (July 10, 2025) (SR-NASDAQ-
2025-050) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Lower the Options Regulatory Fee (ORF)).
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Today, in the case where a Participant both executes a transaction
and clears the transaction, the ORF will be assessed to and collected
from that Participant. Today, in the case where a Participant executes
a transaction and a different Participant clears the transaction, the
ORF will be assessed to and collected from the Participant who clears
the transaction and not the Participant who executes the transaction.
Today, in the case where a non-member executes a transaction at an away
market and a Participant clears the transaction, the ORF will be
assessed to and collected from the Participant who clears the
transaction. Today, in the case where a Participant executes a
transaction on NOM and a non-member clears the transaction, the ORF
will be assessed to the Participant that executed the transaction on
NOM and collected from the non-member who cleared the transaction.
Today, in the case where a Participant executes a transaction at an
away market and a non-member ultimately clears the transaction, the ORF
will not be 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.
[[Page 37932]]
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.\9\ 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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\9\ 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
Participants' 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 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 surveillance,
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, in which case direct expenses could be 65% or
more of total Options Regulatory Costs.\10\
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\10\ Direct and indirect expenses are based on the Exchange's
2025 Regulatory Budget.
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Proposal for January 2, 2026
NOM has been reviewing its methodologies for the assessment and
collection of ORF. As a result of this review, NOM proposes to modify
its current ORF to continue to assess ORF for options transactions
cleared by OCC in the Customer range, however ORF would be assessed to
each NOM Participant for executions that occur on NOM. Specifically,
the ORF would continue to be collected by OCC on behalf of NOM from NOM
Participants and non-members for all Customer transactions executed on
NOM. ORF would be assessed and collected on all ultimately cleared
Customer contracts, taking into account adjustments for CMTA that were
provided to NOM the same day as the trade.\11\
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\11\ Adjustments to CMTA that occur at OCC would not be taken
into account.
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Further, the Exchange would bill ORF according to the clearing
instructions provided on the execution. More specifically, NOM proposes
to assess ORF based on the clearing instruction provided on the
execution on trade date and would not take into consideration CMTA
changes or transfers that occur at OCC.\12\ As a result of this
proposed rule change, if a Participant executes a Customer transaction
on NOM and is the clearing member on record on the transaction on NOM,
the ORF will be assessed to that Participant. With this proposal, in
the case where a Participant executes a Customer transaction on NOM and
a different Participant is the clearing member on record on the
transaction on NOM, the ORF will be assessed to and collected from the
Participant who is the clearing member on record on the transaction and
not the Participant who executes the transaction. Additionally, in the
case where a Participant executes a Customer transaction on NOM and a
non-member is the clearing member on record on the transaction on NOM,
the ORF will be assessed to the non-member who is the clearing member
on record on the transaction and not the Participant who executes the
transaction. With this proposal, in the case where a Participant
executes a Customer transaction on a non-NOM exchange, NOM will not
assess an ORF, regardless of how the transaction is cleared. As is the
case today, OCC will collect ORF from OCC clearing members on behalf of
NOM based on NOM's instructions.
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\12\ Adjustments that were made the same day as the trade on NOM
will be taken into account.
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With this proposal, the NOM ORF as of August 1, 2025 of $0.0005 per
contract side would be increased to $0.0157 per contract side.\13\ With
this proposal, the Exchange will endeavor to ensure that ORF Regulatory
Revenue generated from ORF will not exceed 82% of Options Regulatory
Cost. NOM will continue to ensure that ORF Regulatory Revenue does not
exceed Options Regulatory Cost. As is the case today, the Exchange will
notify Participants via an Options Trader Alert of any change in the
amount of the fee at least 30 calendar days prior to the effective date
of the change. In this case, the Exchange will notify Participants via
an Options Trader Alert of these changes at least 30 calendar days
prior to January 2, 2026.
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\13\ NOM currently assesses an ORF of $0.0014 per contract side
until August 1, 2025. See <a href="https://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2025-27">https://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2025-27</a>.
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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.\14\ To that end, the Exchange plotted Customer volumes from
each exchange \15\ 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.\16\ The Exchange considered using non-linear
models, but concluded that the best R-2 (``R-Squared'') \17\ results
came from a standard y = Mx + B format for regulatory expense. The R-
Squared for the charting method ranged from 70% to 90% 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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\14\ This model seeks to relate Options Regulatory Cost to
historical volumes on each Nasdaq affiliated exchange by market
participant. In creating this model, the Exchange did not rely on
data from a single SRO as it had in the past.
\15\ The Exchange utilized data from all Nasdaq affiliated
options exchanges to create this model from data obtained from Q3
2024 to Q2 2025 (``Time Period'').
\16\ The Exchange utilized data from Time Period to calculate
the slope and intercept.
\17\ 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: R 2= 1-Unexplained Variation/Total
Variation.
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[[Page 37933]]
[GRAPHIC] [TIFF OMITTED] TN06AU25.002
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 cost of regulation is 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.\18\ This led the Exchange to utilize a model
with a two-factor regression on a quarterly basis (Q3 2024 to Q2 2025)
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.\19\
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\18\ 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. The most
successful attribution was related to industry wide Firm and Broker-
Dealer Transaction volume which accounted for approximately 3-4% of
the regulatory expense both on-exchange and away.
\19\ 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, although NOM does not have a floor.
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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. Applying the regression coefficient
values historically, the Exchange established a ``normalization'' by
per options exchange. The primary driver of this need for
``normalization'' are negotiated regulatory contracts that were
negotiated at different points in time, yielding differences in per
contract regulatory costs by exchange. Normalization is therefore the
average of a given exchange's historical period (Q3 2024 to Q2 2025)
ratio of regulatory expense to revenue when using the regressed values
(for Customer ORF) that yields an effective rate by exchange. The
``normalization'' was then multiplied to a ``targeted collection rate''
of approximately 82% to arrive at ORF rates for Customer. 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.
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 will continue to monitor ORF Regulatory Revenue 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 will
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.
As is the case today, ORF Regulatory Revenue is designed to recover
a material portion of the Options Regulatory Costs to the Exchange for
the supervision and regulation of Participants' 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 \20\ and certain indirect expenses
in support of the regulatory function.\21\
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\20\ 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.
\21\ 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 sunset on
February 1, 2026, at which point the Exchange would revert back to the
ORF methodology and rate of $0.0005 per contract side.\22\
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\22\ The Exchange proposes to reconsider the sunset date in 2026
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.\23\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4)
[[Page 37934]]
of the Act \24\, 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) \25\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(4).
\25\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed ORF to be assessed on January 2,
2026, is reasonable, equitable and not unfairly discriminatory for
various reasons. First, the Exchange believes that continuing to assess
only Customers an ORF is reasonable because Customer transactions
account for a material portion of NOM's Options Regulatory Cost.\26\ 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 Participants of the Exchange
and is not readily available to NOM.\27\ 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 NOM'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 result from activity
attributed to Customers that may occur across options markets. To that
end, with this proposal, the amount of Options Regulatory Cost
allocated to on-exchange Customer transactions is significant. Also,
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.\28\ For
these reasons, regulating Customer trading activity is ``much more
labor-intensive'' and therefore, more costly.
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\26\ The Exchange notes that the regulatory costs relating to
monitoring Participants with respect to Customer trading activity
are generally higher than the regulatory costs associated with
Participants that do not engage in customer trading activity, which
tends to be more automated and less labor-intensive. By contrast,
regulating Participants 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
Participant'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.
\27\ The Know Your Customer or ``KYC'' provision is the
obligation of the broker-dealer.
\28\ See NOM Options 10 Rules.
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Second, 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. Market Makers are obligated
to quote intra-day.\29\ Further, unlike other market participants,
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.\30\ Market Makers are critical market
participants in that they are the only market participants that are
required to provide liquidity to NOM. 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 NOM 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
auctions. The Exchange notes that the number of orders submitted by
Market Makers in their unassigned options series are far below the cap
\31\ and therefore de minimis.
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\29\ See NOM Options 2, Section 5.
\30\ See NOM Options 2, Section 4(a)(3) and (5).
\31\ See NOM 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.
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Additionally, while the Exchange acknowledges that there is a cost
to regulate Firm and Broker-Dealer transactions, the Exchange notes
that these market participants do not entail significant volume when
compared to Customer transactions. The Exchange notes that Firm and
Broker-Dealer market participants are more sophisticated. There are not
the same protections in place for Firm and Broker-Dealer Transactions
as compared to Customer transactions. The regulation of Firm and
Broker-Dealer transactions is less resource intensive than the
regulation of Customer transactions and accounts for a small percentage
of Options Regulatory Costs.
Third, assessing ORF on Customer executions that occur on NOM is
reasonable, equitable and not unfairly discriminatory because it will
avoid overlapping ORFs that would otherwise be assessed by NOM and
other options exchanges that also assess an ORF. With this proposal,
Customers executions that occur on other exchanges would no longer be
subject to an NOM ORF. Further, the Exchange believes that collecting
82% 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. The Exchange's
proposal
[[Page 37935]]
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.
Capping ORF collected at 82% of Options Regulatory Cost, commencing
January 2, 2026, is reasonable, equitable and not unfairly
discriminatory as the Options Regulatory Revenue collected will offset
the corresponding Options Regulatory Cost associated with on-exchange
Customer transactions. The Exchange will review the ORF Regulatory
Revenue and would amend the ORF if it finds that its ORF Regulatory
Revenue exceeds its projections.\32\
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\32\ NOM would submit a rule change to the Commission to amend
ORF rates.
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The proposed sunset date of February 1, 2026 is reasonable,
equitable and not unfairly discriminatory. If all options exchanges
have adopted a similar ORF model, the Exchange notes that it would not
sunset the proposal on February 1, 2026. The Exchange proposes to
reconsider the sunset date in early 2026 and determine whether to
proceed with the proposed ORF structure at that time.
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 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.
Continuing to assess ORF only on Customer executions that occur on
NOM does not impose an undue burden on intra-market competition.
Customer 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 Non-Customer
transactions.\33\ 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 Participants of the Exchange and is not readily available
to NOM.\34\ 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. 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 NOM's Customer regulation occurs to a large extent on
Exchange.
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\33\ See NOM Options 10 Rules.
\34\ The Know Your Customer or ``KYC'' provision is the
obligation of the broker-dealer.
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The Exchange believes that not assessing ORF on Market Makers does
not impose an undue burden on intra-market competition because these
liquidity providers are critical market participants in that they are
the only market participants that are required to provide liquidity to
NOM. 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 NOM in providing tight displayed quotes which in turn benefits
markets generally and market participants specifically. 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. Market Makers are required to quote intra-day.\35\ Further,
unlike other market participants, 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.\36\
Market Makers are critical market participants in that they are the
only market participants that are required to provide liquidity to NOM.
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 auctions. The Exchange
notes that the number of orders submitted by Market Makers in their
unassigned options series are far below the cap \37\ and therefore de
minimis.
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\35\ See NOM Options 2, Section 5(d).
\36\ See NOM Options 2, Section 4(a)(3) and (5).
\37\ See NOM Options 2, Section 6(b). The total number of
contracts executed by a Market Maker in options in which it is not
registered as a Market Maker shall not exceed 25 percent of the
total number of all contracts executed by the Market Maker in any
calendar quarter.
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The Exchange believes that not assessing ORF on Firm and Broker-
Dealer market participants 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. The volume generated from Firm and Broker-Dealer
transactions does not entail significant
[[Page 37936]]
volume when compared to Customer transactions. Therefore, excluding
Firm and Broker-Dealer transactions from ORF does not impose an undue
burden on intra-market competition as Customer transactions account for
a material portion of NOM's Options Regulatory Cost.\38\
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\38\ The Exchange notes that the regulatory costs relating to
monitoring Participants with respect to customer trading activity
are generally higher than the regulatory costs associated with
Participants that do not engage in customer trading activity, which
tends to be more automated and less labor-intensive. By contrast,
regulating Participants 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
Participant'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.
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The Exchange's proposal to assess ORF only on Customer executions
that occur on NOM does not impose an intra-market burden on competition
because the amount of activity surveilled across exchanges is small
when compared to the overall number of Exchange rules that are
surveilled by NOM for on-Exchange activity. Limiting the amount of ORF
assessed to activity that occurs on NOM avoids overlapping ORFs that
would otherwise be assessed by NOM and other options exchanges that
also assess an ORF. Further, capping ORF collected at 82% of Options
Regulatory Cost commencing January 2, 2026, does not impose an intra-
market burden on competition as this collection accounts for the
collection only on Customer executions. The Exchange will review the
ORF Regulatory Revenue and would amend the ORF if it finds that its ORF
Regulatory Revenue exceeds its projections.\39\
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\39\ NOM would submit a rule change to the Commission to amend
ORF rates.
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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) of the Act \40\ and paragraph (f)(2) of Rule 19b-4 \41\
thereunder.
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\40\ 15 U.S.C. 78s(b)(3)(A).
\41\ 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 will 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#750700191058161a1818101b0106350610165b121a03"><span class="__cf_email__" data-cfemail="afdddac3ca82ccc0c2c2cac1dbdcefdccacc81c8c0d9">[email protected]</span></a>. Please include
file number SR-NASDAQ-2025-054 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-NASDAQ-2025-054. 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 filing 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-NASDAQ-2025-054 and should be submitted
on or before August 27, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-14863 Filed 8-5-25; 8:45 am]
BILLING CODE 8011-01-P
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