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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices
The Exchange believes recommencing the ORF on February 1, 2022 at the same rate, unless options volumes or the Exchanges regulatory expense at that time warrant a proposed rule change, continues to ensure fairness by assessing higher fees to those members that require more Exchange regulatory services based on the amount of customer options business they conduct. As noted in prior ORF rule changes which set the current ORF rate of $0.0018 per contract side, 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. For example, there are 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.16

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B. Self-Regulatory Organizations 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. The Exchange does not believe that this proposal creates an unnecessary or inappropriate intra-market or intermarket burden on competition for several reasons. First, while GEMXs ORF has been not sic been amended may result in collecting the ORF from a nonmember.
16 See Securities Exchange Act Release No. 85140
February 14, 2019, 84 FR 5511 February 21, 2019
SRGEMX201901 Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Options Regulatory Fee. The Exchange also noted in this rule change that, As a result, the costs associated with administering the customer component of the Exchanges overall regulatory program are materially higher than the costs associated with administering the noncustomer component e.g., member proprietary transactions of its regulatory program. Further, the Exchange notes that it has broad regulatory responsibilities with respect to activities of its members, irrespective of where their transactions take place. Many of the Exchanges surveillance programs for customer trading activity may require the Exchange to look at activity across all markets, such as reviews related to position limit violations and manipulation. Indeed, the Exchange cannot effectively review for such conduct without looking at and evaluating activity regardless of where it transpires. In addition to its own surveillance programs, the Exchange also works with other SROs and exchanges on intermarket surveillance related issues. Through its participation in the Intermarket Surveillance Group ISG the Exchange shares information and coordinates inquiries and investigations with other exchanges designed to address potential intermarket manipulation and trading abuses. Accordingly, there is a strong nexus between the ORF and the Exchanges regulatory activities with respect to customer trading activity of its members.

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since its inception in 2013,17 other exchanges have amended their ORF. For example, ISE amended its ORF rate on April 1, 2021, from $0.0020 to $0.0018
per contract side.18 With respect to that filing, members who either executed a transaction on ISE or cleared a transaction at OCC in the customer range would have been assessed a higher ORF for a transaction executed on ISE on March 31, 2021 $0.0020 per contract side as compared to April 1, 2021 $0.0018 per contract side.
Second, GEMXs regulatory costs have varied over time. For example, if GEMX
received payment of a fine from a disciplinary action, that fine would offset regulatory costs and would cause GEMX to require less regulatory revenue for a particular period. The changing regulatory costs would impact the ORF
assessed by GEMX to members. Third, options markets assess ORF at different rates. For instance, today, Nasdaq MRX, LLC MRX assesses a lower ORF of $0.0004 per contract side.19 MRX has assessed this rate since February 1, 2019.20 Depending on where a customer order is executed, a member could be assessed a much different ORF. For example, in the case where a customer order is sent to GEMX and routed to MRX, and a non-member cleared that transaction, the GEMX ORF of $0.0018
would not be assessed to the member who executed the transaction or cleared the transaction, rather the MRX rate of $0.0004 per contract side would be assessed. In that same scenario presuming a non-member cleared the transaction, if the customer order could have executed on GEMX instead of routing away the member would have been assessed the GEMX ORF of $0.0018 per contract side. The customer, in that instance, would have no knowledge of where the order could be executed, as the liquidity profile of each exchange may differ at that exact moment. Therefore, members could be 17 The Exchange adopted the ORF in 2013. See Securities Exchange Act Release No. 70200 August 14, 2013, 78 FR 51242 August 20, 2013 SRTopaz-201301. GEMX amended its ORF in 2017, but no rate change occurred at that time. See Securities Exchange Act Release No. 81342 August 8, 2017, 82 FR 37971 August 14, 2017 SR
GEMX201731.
18 See Securities Exchange Act Release No. 91420
March 26, 2021, 86 FR 17223 April 1, 2021 SR
ISE202104 Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend ISEs Pricing Schedule at Options 7, Section 9, Part C To Reduce the Options Regulatory Fee.
19 See Securities Exchange Act Release Nos.
85127 February 13, 2019, 84 FR 5173 February 20, 2019 SRMRX201903.
20 Of note, prior to February 1, 2019, MRX
assessed no ORF thereby creating a calendar year where members were assessed no ORF for a period similar to what is proposed.

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assessed a different ORF on the same day on the same transaction based on routing decisions, and in those cases the member would continue to benefit from the regulatory program available on each market and discover where the liquidity is available, irrespective of any ORF rate differentials across markets.
The Exchange believes recommencing the ORF on February 1, 2022 at the same rate, unless options volumes or the Exchanges regulatory expense at that time warrant a proposed rule change, does not create an undue 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 noncustomer activity. Recommencing the assessment of the current ORF 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 Organizations 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 19b3A
of the Act 21 and paragraph f of Rule 19b4 22 thereunder. 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.
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15 U.S.C. 78sb3A.
17 CFR 240.19b4f.

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