October 1, 2025

Ms. Vanessa Countryman
Secretary
U.S. Securities and Exchange Commission
100 F Street NE
Washington, D.C. 20549-1090

RE: File No. SR-Phlx-2025-30; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend the Methodology for its Options Regulatory Fee (ORF) as of January 2, 2026

Dear Ms. Countryman:

The Securities Industry and Financial Markets Association (“SIFMA”)¹ submits this comment letter to the Securities and Exchange Commission (the “Commission” or “SEC”) in response to the proposal (“Proposal”) by Nasdaq Phlx LLC (“Phlx” or “Exchange”) to amend its fee schedule to change the methodology by which it assesses the options regulatory fee (“ORF”) to only charge the ORF on customer transactions executed on the Exchange.² Nasdaq is proposing the same methodology change for its five other options exchanges, with an effective date of January 2, 2026.³ Nasdaq’s options exchanges currently use the ORF to cover the vast majority of their “Options Regulatory Costs” and are not proposing to change this aspect of the ORF.⁴ As described below, SIFMA requests that the SEC review whether the ORF continues to be an appropriate mechanism for listed options exchanges to fund their regulatory costs. Given the significant changes in the options marketplace since the ORF was established in 2008 and the continuing, unresolved flaws with the ORF funding structure, SIFMA believes that the ORF should be eliminated and the options exchanges should fund regulatory costs out of their own revenues.

While the SEC undertakes this review, SIFMA supports the implementation of Phlx’s Proposal to change its ORF assessment methodology, as well as the identical proposals from Nasdaq’s other options exchanges, as they represent an improvement over Nasdaq’s current ORF methodology. SIFMA includes certain recommendations below intended to help SIFMA members manage the implementation process of the new ORF assessment methodology proposed by Phlx and Nasdaq’s other options exchanges, as well as any other options exchange that moves to this Nasdaq model.

The Proposal

Phlx proposes to change the methodology by which it assesses the ORF. As Phlx notes in the Proposal, Phlx currently assesses its ORF for each customer option transaction that is either: (1) executed by a member organization on Phlx; or (2) cleared by a Phlx member organization at the Options Clearing Corporation (“OCC”) in the Customer range,5 even if the transaction was executed by a non-member organization of Phlx, regardless of the exchange on which the transaction occurs. If the OCC clearing member is a Phlx member organization, ORF is assessed and collected on all cleared Customer contracts by that member (after adjustment for clearing member trade assignment (“CMTA”) processing at OCC). If the OCC clearing member is not a Phlx member organization, the ORF is collected only on that firm’s cleared Customer contracts that were executed at Phlx, taking into account any CMTA instructions which may result in collecting the ORF from another firm. Phlx’s current ORF rate is $0.0024 per contract side.6

Under the Proposal, Phlx would continue to assess the ORF only on Customer options transactions, but would assess the ORF on Phlx member and non-member organizations only for executions that occur on the Exchange. Specifically, the ORF would continue to be collected by OCC on behalf of Phlx from Phlx member organizations and non-member organizations for all Customer transactions executed on Phlx, taking into account adjustments for CMTAs that were provided to Phlx the same day as the trade. In other words, the Exchange would bill ORF according to the clearing instructions provided on the execution and would not take into consideration CMTA changes or transfers that occur at OCC. To account for this change, Phlx proposes that its current ORF rate of $0.0024 per contract side be increased to $0.0150 per contract side as of January 2, 2026.

As noted in the Proposal, Phlx’s current ORF covers a material portion of the Exchange’s Options Regulatory Costs, which consist of its supervision and regulation of member organizations’ transactions, including performing routine surveillances, investigations, examinations, financial monitoring, as well as policy, rulemaking, interpretive, and enforcement activities. According to Phlx, Options Regulatory Costs include direct regulatory expenses and certain indirect expenses in support of the regulatory function. Direct expenses include in-house and third-party service provider costs to support the day-to-day regulatory work such as surveillance, investigations, and examinations. Indirect expenses are only those expenses that are in support of the regulatory functions, including support from the Office of the General Counsel, technology, finance, and internal audit functions. Phlx further notes that indirect expenses will not exceed 35% of its total Options Regulatory Costs, with direct expenses being
65% or more of total Options Regulatory Costs. Phlx is not proposing to change these aspects of the ORF.

While Phlx does not provide in the Proposal an exact percentage of Options Regulatory Costs that it currently funds through the ORF, SIFMA understands that Phlx currently funds the vast majority of such costs through the ORF. Under the Proposal, Phlx is proposing to adopt a percentage guideline regarding how much Options Regulatory Costs Phlx will fund through the ORF, stating that it will endeavor to ensure that ORF revenue will not exceed 82% of its Options Regulatory Costs.

Discussion

SIFMA urges the SEC to review the appropriateness of Phlx and the other options exchanges funding the vast majority of their regulatory costs through ORF charges on Customer options transactions. As for-profit companies, it is long past time for the options exchanges to move away from this structure of subsidizing their regulatory costs through these charges and instead fund these costs out of their own revenues. While the SEC conducts such a review, SIFMA supports the model proposed by Phlx in which the ORF is assessed only for on-exchange Customer transactions. SIFMA includes for the Commission’s consideration certain recommendations on how this new model should be implemented, including that it be adopted by all options exchanges to prevent market distortions.

1. SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org. [↩]
2. Release No. 34-103620 (Aug. 1, 2025), 90 FR 37918 (Aug. 6, 2025). [↩]
3. Release No. 34-103559 (July 28, 2025), 90 FR 36074 (July 31, 2025); Release No. 34-103617 (Aug. 1, 2025), 90 FR 37912 (Aug. 6, 2025); Release No. 34-103558 (July 28, 2025), 90 FR 36080 (July 31, 2025); Release No. 34-103618 (Aug. 1, 2025), 90 FR 37910 (Aug. 6, 2025); Release No. 34-103619 (Aug. 1, 2025), 90 FR 37931 (Aug. 6, 2025). [↩]
4. Phlx notes that “[t]he regulatory costs for options comprise a subset of the Exchange’s regulatory budget that is specifically related to options regulatory expenses and encompasses the cost to regulate all member organizations’ options activity (“Options Regulatory Cost”).” 90 FR at 37919, at n. 9. [↩]