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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices Volume
January 2021

lotter on DSK11XQN23PROD with NOTICES1

Customer ADV

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As a result of the historical anomaly created by these high options volumes, GEMX has no assurance that the Exchanges final costs for 2021 will not 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 may result in revenue in excess of the Exchanges estimated regulatory costs for the year.
Particularly, as noted above, the options market has seen a substantial increase in volume in 2021 as compared to 2020, due in large part to the continued extreme volatility in the marketplace as a result of the COVID19 pandemic.
This unprecedented spike in volatility resulted in significantly higher volume than was originally projected by the Exchange thereby resulting in substantially higher ORF revenue than projected. The Exchange therefore proposes to waive ORF from October 1, 2021 to January 31, 2022 to ensure it does not exceed its regulatory costs for 2021. Particularly, the Exchange believes that waiving ORF from October 1, 2021 to January 31, 2022 and considering all of the Exchanges other regulatory fees and fines would allow the Exchange to continue covering a material portion of its regulatory costs, while lessening the potential for generating excess revenue that may otherwise occur using the current rate.9
GEMX would recommence assessing its current ORF rate of $0.0018 per contract side as of February 1, 2022.
Until October 1, 2021, 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 regulatory costs. The Exchange would also continue monitoring the amount of revenue collected from the ORF when it recommences assessing ORF on February 1, 2022. If the Exchange determines regulatory revenues exceed regulatory costs, the Exchange will adjust the ORF by submitting a fee change filing to the 9 The Exchange notes that its regulatory responsibilities with respect to member compliance with options sales practice rules have largely been allocated to FINRA under a 17d2 agreement. The ORF is not designed to cover the cost of that options sales practice regulation.

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Commission and notifying 10 its members via an Options Trader Alert.11
2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6b of the Act.12 Specifically, the Exchange believes the proposed rule change is consistent with Section 6b4
of the Act,13 which provides that Exchange rules may provide for the equitable allocation of reasonable dues, fees, and other charges among its members, and other persons using its facilities. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6b5 14
requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
The Exchange believes the proposed fee waiver is reasonable because customer transactions will be subject to no ORF from October 1, 2021 to January 31, 2022. Moreover, the proposed waiver is necessary, so the Exchange does not collect revenue in excess of its anticipated regulatory costs, in combination with other regulatory fees and fines, which is consistent with the Exchanges practices.
The Exchange designed the ORF to generate revenues that would be less than the amount of the Exchanges regulatory costs to ensure that it, 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 10 The Exchange will provide members with such notice at least 30 calendar days prior to the effective date of the change.
11 The Exchange notes that in connection with this proposal, it provided the Commission confidential details regarding the Exchanges projected regulatory revenue, including projected revenue from ORF, along with a projected regulatory expenses.
12 15 U.S.C. 78fb.
13 15 U.S.C. 78fb4.
14 15 U.S.C. 78fb5.

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reduction in ORF, it may be collecting revenue in excess of its regulatory costs.
Indeed, the Exchange notes that when considering the recent options volume, which included an increase in customer options transactions, it estimates the ORF may generate revenues that may cover more than the approximated Exchanges projected regulatory costs.
As such, the Exchange believes it is reasonable and appropriate to waive ORF from October 1, 2021 to January 31, 2022 and recommence assessing ORF on February 1, 2022.
The Exchange also believes the proposed fee change is equitable and not unfairly discriminatory as no member would be assessed an ORF from October 1, 2021 to January 31, 2022.
While the Exchange has assessed and collected ORF from January through September 2021, but will not collect ORF, with this proposal, from October 2021 through January 2022, the Exchange does not believe that it is unfairly discriminatory to not assess the ORF from October 2021 through January 2022 because the ORF is designed and intended to recover a portion of the Exchanges regulatory costs without collecting in excess of those costs.
Unexpectedly high and sustained customer volume has resulted in higher revenues from the ORF that, if not suspended, will likely result in overcollection of ORF, which would be inconsistent with the Exchanges prior representations and undertaking to not collect ORF in excess of regulatory expenses. The Exchange did not decrease the amount of the ORF earlier in 2021 because it did not expect, based on its prior experience, that customer volume would remain abnormally high.
Also, it is equitable and not unfairly discriminatory to recommence the assessment of the ORF on February 1, 2022 because assessing the ORF to each member for options transactions cleared by OCC in the customer range where the execution occurs on another exchange and is cleared by a GEMX member is an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities.15
15 If the OCC clearing member is a GEMX
member, ORF is assessed and collected on all cleared customer contracts after adjustment for CMTA; and 2 if the OCC clearing member is not a GEMX member, ORF is collected only on the cleared customer contracts executed at GEMX, taking into account any CMTA instructions which
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