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lotter on DSK11XQN23PROD with NOTICES1

Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices that time, as the Exchange has had to deploy significant resources and capital as the Exchanges membership base, volume, and market share have grown.
The increase in cost structure has outgrown any revenue increase as a result of higher volumes. Therefore, the Exchange believes it is reasonable, equitable and not unfairly discriminatory to increase the amount of ORF assessed to Members, notwithstanding the fact that ORF
revenues have also grown as a result of increased volumes.
The ORF is designed to recover a material portion of the costs of supervising and regulating Members customer options business including performing routine surveillances and investigations, as well as 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 Exchanges total regulatory costs. The Exchange has designed the ORF to generate revenues that, when combined with all of the Exchanges other regulatory fees, will be less than or equal to the Exchanges regulatory costs, which is consistent with the Commissions view that regulatory fees be used for regulatory purposes and not to support the Exchanges business side.
In this regard, the Exchange believes that the proposed increase to the fee is reasonable.
The Exchange believes that continuing to limit changes to the ORF
to twice a year on specific dates with advance notice is reasonable because it gives participants certainty on the timing of changes, if any, and better enables them to properly account for ORF charges among their customers.
The Exchange believes that continuing to limit changes to the ORF to twice a year on specific dates is equitable and not unfairly discriminatory because it will apply in the same manner to all Members that are subject to the ORF and provide them with additional advance notice of changes to that fee.
The Exchange believes that collecting the ORF from non-Members when such non-Members ultimately clear the transaction that is, when the nonMember is the ultimate clearing firm for a transaction in which a Member was assessed the ORF is an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. The Exchange notes that there is a material distinction between assessing the ORF and collecting the ORF. The ORF is only assessed to
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a Member with respect to a particular transaction in which it is either the executing clearing firm or ultimate clearing firm. The Exchange does not assess the ORF to non-Members. Once, however, the ORF is assessed to a Member for a particular transaction, the ORF may be collected from the Member or a non-Member, depending on how the transaction is cleared at OCC. If there was no change to the clearing account of the original transaction, the ORF would be collected from the Member. If there was a change to the clearing account of the original transaction and a non-Member becomes the ultimate clearing firm for that transaction, then the ORF will be 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.
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,18 with an exception.19
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 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 18 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.
19 See supra note 16.

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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 20 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 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 20 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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