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lotter on DSK11XQN23PROD with NOTICES1

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Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices
2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6b of the Act 12
in general, and furthers the objectives of Section 6b4 of the Act 13 in particular, in that it is an equitable allocation of reasonable dues, fees, and 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 14 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 the proposed fee change is reasonable because customer transactions will be subject to a lower ORF fee than the current rate.
Moreover, the proposed reduction is necessary in order for the Exchange to 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 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 decrease 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 12 15

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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 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. 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
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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 $0.0029 to $0.0019 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 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, 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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