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Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices
regulatory costs for 2021. Thus, direct expenses are estimated to be approximately 47% of total regulatory costs for 2021. The Exchange notes that its estimated direct and indirect expense percentages are in the range and similar to those at other options exchanges.9
The ORF is designed to recover a material portion of the costs to the Exchange of the supervision and regulation of its members, including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities.

lotter on DSK11XQN23PROD with NOTICES1

Proposal Based on the Exchanges most recent review, the Exchange proposes to increase the amount of ORF that will be collected by the Exchange from $0.00060 per contract side to $0.0016
per contract side. The Exchange issued an Options Regulatory Fee Announcement on July 2, 2021, indicating the proposed rate change for August 1, 2021.10 As described above, when the Exchange set the amount of its current ORF almost 212 years ago, it was a brand new marketplace, and the amount was based on cost and revenue projections that were applicable to a new market. At that time, the Exchanges cost structure, including regulatory costs and projections, were significantly lower. The Exchanges regulatory cost structure has since significantly increased since 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. The Exchange believes the proposed adjustment will permit the Exchange to cover a material portion of its regulatory costs, while not exceeding regulatory costs; notwithstanding the fact that ORF revenues have also grown as a result of increased volumes. As noted above, the Exchange regularly reviews its ORF to ensure that the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs.
There can be no assurance that the Exchanges final costs for 2021 will not 9 See Securities Exchange Act Release Nos. 91418
March 26, 2021, 86 FR 17254 April 1, 2021 SR
Phlx202116 reducing the Nasdaq PHLX LLC
ORF and estimating direct expenses at 58% and indirect expenses at 42%; 91420 March 26, 2021, 86 FR 17223 April 1, 2021 SRISE202104
reducing the Nasdaq ISE, LLC ORF and estimating direct expenses at 58% and indirect expenses at 42%.
10 See https www.miaxoptions.com/sites/
default/files/circular-files/MIAX_Emerald_RC_
2021_33.pdf.

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differ materially from these expectations and prior practice, nor can the Exchange predict with certainty whether options volume will remain at the current level going forward. The Exchange notes however, that when combined with regulatory fees and fines, the revenue being generated utilizing the current ORF rate results in revenue that is running below the Exchanges estimated regulatory costs for the year.
Particularly, as noted above, the Exchange initially set its ORF at a substantially lower rate when the Exchange first launched operations.11
The Exchange now believes that it is appropriate to increase the amount of the ORF so that it is in line with the Exchanges cost structure for operating a more established exchange, so that when combined with all of the Exchanges other regulatory fees and fines, it would allow the Exchange to recover a material portion of its regulatory costs, while continuing to not generate excess revenue.12
The Exchange will continue to 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 will continue to monitor MIAX Emerald regulatory costs and revenues at a minimum on a semiannual 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 notify Members of adjustments to the ORF via regulatory circular at least 30 days prior to the effective date of the change.
In connection with this filing, the Exchange notes that its affiliates, MIAX
Pearl and MIAX, will also be adjusting the ORF fees that each of those exchanges charge.
2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6b of the Act 13
in general, and furthers the objectives of Section 6b4 of the Act 14 in particular, in that it is an equitable allocation of reasonable dues, fees, and 11 See
supra note 3.
Exchange notes that its regulatory responsibilities with respect to Member compliance with options sales practice rules have been allocated to the Financial Industry Regulatory Authority FINRA under a 17d2 Agreement.
The ORF is not designed to cover the cost of options sales practice regulation.
13 15 U.S.C. 78fb.
14 15 U.S.C. 78fb4.
12 The
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other charges among its members and issuers and other persons using its facilities. The Exchange also believes the proposal furthers the objectives of Section 6b5 of the Act 15 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.
The Exchange believes that increasing the ORF from $0.00060 to $0.0016 per contract side is equitable and not unfairly discriminatory because it is objectively allocated to Members in that it is charged to all Members on all their transactions that clear as customer at the OCC, with an exception.16 Moreover, the Exchange believes the ORF ensures fairness by assessing fees to Members such that the ORF assessment is directly based on the amount of customer options business each Member conducts. 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. 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 non-customer component e.g., Member proprietary transactions of its regulatory program.
The Exchange notes it originally adopted the current ORF amount at a significantly lower rate as the Exchange had just begun operations and that the amount of ORF it collects has remain unchanged since it was first adopted in 2019.17 When the Exchange set the amount of its current ORF almost 212
years ago, it was a brand new marketplace, and the amount was based on cost and revenue projections that were applicable to a new market. As such, the Exchanges cost structure, including regulatory costs and projections, were significantly lower.
The Exchanges regulatory cost structure has since significantly increased since 15 15

U.S.C. 78fb5.
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.
17 See supra note 3.
16 When
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