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Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices
collected from that non-Member. The Exchange believes that this collection practice continues to be reasonable and appropriate, and was originally instituted for the benefit of clearing firms that desired to have the ORF be collected from the clearing firm that ultimately clears the transaction.
The Exchange designed the ORF so that revenue generated from the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs, which is consistent with the view of the Commission that regulatory fees be used for regulatory purposes and not to support the Exchanges business operations. As discussed above, however, after review of its regulatory costs and regulatory revenues, which includes revenues from ORF and other regulatory fees and fines, the Exchange determined that absent a reduction in ORF, it may be collecting revenue in excess of its regulatory costs.
Indeed, the Exchange notes that when taking into account the recent options volume, which included an increase in customer options transactions, it estimates the ORF will generate revenues that may cover more than the approximated Exchanges projected regulatory costs. Moreover, when coupled with the Exchanges other regulatory fees and revenues, the Exchange estimates ORF to generate over 100% of the Exchanges projected regulatory costs. As such, the Exchange believes it is reasonable and appropriate to decrease the ORF amount from $0.0028 to $0.0018 per contract side.
The Exchange also believes the proposed fee change is equitable and not unfairly discriminatory in that it is charged to all Members on all their transactions that clear in the customer range at the OCC,15 with an exception.16
The Exchange believes the ORF ensures fairness by assessing higher fees to those members that require more Exchange regulatory services based on the amount of customer options business they conduct. Regulating customer trading activity is much more labor intensive and requires greater expenditure of
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15 If
the OCC clearing member is an Exchange Member, ORF is assessed and collected on all cleared customer contracts after adjustment for CMTA; and if the OCC clearing member is not an Exchange Member, ORF is collected only on the cleared customer contracts executed at the Exchange, taking into account any CMTA
instructions which may result in collecting the ORF
from a non-Member.
16 When a transaction is executed on an away exchange, the Exchange does not assess the ORF
when neither the executing clearing firm nor the ultimate clearing firm is a Member even if a Member is given-up or CMTAed and then such Member subsequently gives-up or CMTAs the transaction to another non-Member via a CMTA
reversal.

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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. 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. Moreover, 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 17 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.
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. 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 17 ISG is an industry organization formed in 1983
to coordinate intermarket surveillance among the SROs by cooperatively sharing regulatory information pursuant to a written agreement between the parties. The goal of the ISGs information sharing is to coordinate regulatory efforts to address potential intermarket trading abuses and manipulations.

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regulatory revenue derived from noncustomer activity. The Exchange notes, however, the proposed change is not designed to address any competitive issues. Indeed, this proposal does not create an unnecessary or inappropriate inter-market burden on competition because it is a regulatory fee that supports regulation in furtherance of the purposes of the Act. The Exchange is obligated to ensure that the amount of regulatory revenue collected from the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs.
C. Self-Regulatory Organizations Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor 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 19b3Aii of the Act,18 and Rule 19b4f2 19 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 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 Commissions internet comment form http www.sec.gov/
rules/sro.shtml; or Send an email to rule-comments@
sec.gov. Please include File No. SR
PEARL202138 on the subject line.
Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 205491090.
18 15
19 17

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U.S.C. 78sb3Aii.
CFR 240.19b4f2.

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