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Federal Register / Vol. 86, No. 164 / Friday, August 27, 2021 / Notices ORF revenues have also grown as a result of increased volumes. To illustrate, for the first six months of 2021, the Exchange had market share of 3.50% in multi-listed options.4 The Exchange now proposes to adjust the amount of its ORF to be in line with those of more mature, established exchanges, as its regulatory cost structure has shifted from that of a nascent exchange to a more mature exchange.

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Collection of ORF
Currently, the Exchange assesses the per-contract ORF to each Member 5 for all options transactions, including Mini Options, cleared or ultimately cleared by the Member, which are cleared by the Options Clearing Corporation OCC in the customer range,6
regardless of the exchange on which the transaction occurs. The ORF is collected by OCC on behalf of the Exchange from either: 1 A Member that was the ultimate clearing firm for the transaction; or 2 a non-Member that was the ultimate clearing firm where a Member was the executing clearing firm for the transaction. The Exchange uses reports from OCC to determine the identity of the executing clearing firm and ultimate clearing firm.
To illustrate how the Exchange assesses and collects ORF, the Exchange provides the following set of examples.
For a transaction that is executed on the Exchange and the ORF is assessed, if there is no change to the clearing account of the original transaction, then the ORF is collected from the Member that is the executing clearing firm for the transaction the Exchange notes that, for purposes of the Fee Schedule, when there is no change to the clearing account of the original transaction, the executing clearing firm is deemed to be the ultimate clearing firm. If there is a change to the clearing account of the original transaction i.e., the executing clearing firm gives-up or CMTAs 7
the transaction to another clearing firm, then the ORF is collected from the clearing firm that ultimately clears the 4 See https www.miaxoptions.com/sites/default/
files/press_release-files/MIAX_Press_Release_
07132021.pdf.
5 The term Member means an individual or organization approved to exercise the trading rights associated with a Trading Permit. Members are deemed members under the Exchange Act. See Exchange Rule 100. See the Definitions Section of the Fee Schedule and Exchange Rule 100.
6 Exchange participants must record the appropriate account origin code on all orders at the time of entry in order. The Exchange represents that it has surveillances in place to verify that Members mark orders with the correct account origin code.
7 CMTA or Clearing Member Trade Assignment is a form of give-up whereby the position will be assigned to a specific clearing firm at OCC.

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transactionthe ultimate clearing firm. The ultimate clearing firm may be either a Member or non-Member of the Exchange. If the transaction is executed on an away exchange and the ORF is assessed, then the ORF is collected from the ultimate clearing firm for the transaction. Again, the ultimate clearing firm may be either a Member or nonMember of the Exchange. The Exchange notes, however, that when the 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.
Finally, the Exchange does not assess the ORF on outbound linkage trades, whether executed at the Exchange or an away exchange. Linkage trades are tagged in the Exchanges system, so the Exchange can readily tell them apart from other trades. A customer order routed to another exchange results in two customer trades, one from the originating exchange and one from the recipient exchange. Charging ORF on both trades could result in doublebilling of ORF for a single customer order; thus, the Exchange does not assess ORF on outbound linkage trades in a linkage scenario. This assessment practice is identical to the assessment practice currently utilized by the Exchanges affiliates, MIAX PEARL, LLC
MIAX Pearl and Miami International Securities Exchange, LLC MIAX.8
As a practical matter, when a transaction that is subject to the ORF is not executed on the Exchange, the Exchange lacks the information necessary to identify the order-entering member for that transaction. There are a multitude of order-entering market participants throughout the industry, and such participants can make changes to the market centers to which they connect, including dropping their connection to one market center and establishing themselves as participants on another. For these reasons, it is not possible for the Exchange to identify, and thus assess fees such as ORF, on order-entering participants on away markets on a given trading day. Clearing members, however, are distinguished from order-entering participants because they remain identified to the Exchange on information the Exchange receives 8 See Securities Exchange Act Release Nos. 85163
February 15, 2019, 84 FR 5798 February 22, 2019
SRPEARL201901; 85162 February 15, 2019, 84 FR 5783 February 22, 2019 SRMIAX2019
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from OCC regardless of the identity of the order-entering participant, their location, and the market center on which they execute transactions.
Therefore, the Exchange believes it is more efficient for the operation of the Exchange and for the marketplace as a whole to collect the ORF from clearing members.
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.
As discussed below, the Exchange believes it is appropriate to charge the ORF only to transactions that clear as customer at the OCC. The Exchange believes that its broad regulatory responsibilities with respect to a Members activities supports applying the ORF to transactions cleared but not executed by a Member. The Exchanges regulatory responsibilities are the same regardless of whether a Member enters a transaction or clears a transaction executed on its behalf. The Exchange regularly reviews all such activities, including performing surveillance for position limit violations, manipulation, front-running, contrary exercise advice violations and insider trading. These activities span across multiple exchanges.
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 Members 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 third party 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 the Office of the General Counsel, technology, and internal audit. Indirect expenses are estimated to be approximately 53% of the total
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