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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices
in combination with other regulatory fees and fines, does not exceed regulatory costs, the Exchange has found it difficult to determine when volumes will return to more normal levels. In order to avoid iterative rule changes to amend its ORF, the Exchange believes it is prudent to instead waive its ORF from October 1, 2021 to January 31, 2022, to permit the Exchange to plan future forecasts without the need to account for any ORF collection during that timeframe. This proposal would ensure that revenue collected from the ORF, in combination with other regulatory fees and fines, would not exceed the Exchanges total regulatory costs. GEMX would recommence assessing its current ORF rate of $0.0018
per contract side as of February 1, 2022.
Furthermore, prior to February 1, 2022, GEMX will examine its ORF rate to determine if the $0.0018 per contract side ORF is justified given the current volumes in 2022 as well as the current Exchange regulatory expenses at that time. GEMX would file a proposed rule change to amend its per contract ORF if changes are necessary to ensure an equitable allocation of reasonable ORF, if e.g., the Exchange believes that the volumes GEMX experiences in the second half of 2021 are likely to persist throughout 2022. Of note, GEMX
proposes to continue to operate with the ORF fee waived in January 2022 to allow its members and other broker dealers time to align their systems for February 1, 2022, allowing for time after the holiday period which traditionally have year-end code freezes in place.
Collection of ORF
Currently, GEMX assesses its ORF for each customer option transaction that is
either: 1 Executed by a member on GEMX; or 2 cleared by an GEMX
member at The Options Clearing Corporation OCC in the customer range,3 even if the transaction was executed by a non-member of GEMX, regardless of the exchange on which the transaction occurs.4
ORF Revenue and Monitoring of ORF
The Exchange monitors the amount of revenue collected from the ORF to ensure that it, in combination with other regulatory fees and fines, does not exceed regulatory costs. In determining whether an expense is considered a 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 ORF.
Revenue generated from ORF, when combined with all of the Exchanges other regulatory fees and fines, is designed to recover a material portion of the 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. Regulatory costs include direct regulatory expenses and certain indirect expenses in support of the regulatory function. The direct expenses include in-house and thirdparty service provider costs to support the day-to-day regulatory work such as surveillances, investigations and examinations. The indirect expenses include support from such areas as Office of the General Counsel,
Volume
October 2020

Total
Customer
Total ADV
Customer ADV

Below is industry data from OCC 8
which illustrates the significant increase in volume from January 2021 through
lotter on DSK11XQN23PROD with NOTICES1

Volume
838,339,790
784,399,878
44,123,146.84

3 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.

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February 2021
823,412,827
782,113,450
43,337,517.20

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Based on the Exchanges most recent review, the Exchange proposes to waive ORF from October 1, 2021 to January 31, 2022, to help ensure that revenue collected from the ORF, in combination with other regulatory fees and fines, does not exceed the Exchanges total regulatory costs. GEMX would recommence assessing its current ORF
rate of $0.0018 per contract side as of February 1, 2022. The Exchange issued an Options Trader Alert on August 9, 2021 indicating the proposed rate change for October 1, 2021.5
The proposed waiver is based on recent options volume which has remained at abnormally and unexpectedly high levels. Options volume in 2021 remains significantly high when that volume is compared to 2019 and 2020 options volume. For example, total options contract volume in November 2020 was 71% higher than the total options contract volume in November 2019.6 Below is industry data from OCC 7 which illustrates the significant increase in volume during the fourth quarter of 2020.

673,660,858
630,297,252
33,683,042.90
31,514,862.60

December 2020
753,568,354
708,037,956
34,253,107.00
32,183,543.45

Q4 2020
2,060,594,396
1,926,042,509
32,196,787.44
30,094,414.20

May 2021 volumes remain significantly high as compared to 2020 options volume in general.

March 2021
898,653,388
837,247,059
39,071,886.40

4 The Exchange uses reports from OCC when assessing and collecting the ORF.
5 See Options Trader Alert 202145.
6 See data from OCC at: https
www.businesswire.com/news/home/

PO 00000

Proposal
November 2020

March 2021. The options volume in the first quarter of 2021 was higher than the fourth quarter of 2020. Also, April and
January 2021

Total
Customer
Total ADV

633,365,184
587,707,301
28,789,326.55
26,713,968.23

technology, and internal audit. Indirect expenses are estimated to be approximately 42% of the total regulatory costs for 2021. Thus, direct expenses are estimated to be approximately 58% of total regulatory costs for 2021.
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.

April 2021

May 2021

711,388,828
667,208,963
33,875,658.50

718,368,993
659,913,862
35,918,449.70

20201202005584/en/OCC-November-2020-TotalVolume-Up-71-Percent-From-a-Year-Ago.
7 See data from OCC at: https www.theocc.com/
Market-Data/Market-Data-Reports/Volume-andOpen-Interest/Volume-by-Account-Type.
8 Id.

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