Proposed Rule Change to the Exchange’s Options Regulatory Fee Pricing Schedule
Summary
SIFMA Submits comments to the Securities and Exchange Commission (SEC) on the proposed rule change to amend the Exchange’s pricing schedule with respect to the options regulatory fee. In the Filings, Nasdaq proposes to revise parts of its Pricing Schedule to “more closely reflect the manner in which Nasdaq assesses and collects its ORF.” While SIFMA supports certain aspects of the filings, we recommend that the Commission suspend the Nasdaq filings under the applicable provisions of the Securities Exchange Act of 1934 so that the Commission can consider and analyze the proposal and determine whether the proposal should be approved or disapproved.
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Excerpt
September 13, 2017
Via Electronic Mail ([email protected])
Brent J. Fields
Secretary
Securities and Exchange Commission
I 00 F Street, N.E.
Washington, DC 20549
Re: File No. SR-PHLX-20 17-54; SR-NASDAQ-20 17-068; SR-BX-20 17-032; SR- lSE20 17-77 and SR-GEMX-20 17-31; Notice of Filing and Immed iate Effectiveness of a Proposed Rule Change to Amend the Exchange’s Pricing Schedule With Respect to the Options Regulatory Fee
Dear Mr. Fields:
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on the above-referenced proposals filed by the Self-Regulatory Organizations (“SROs”), each of which is owned by Nasdaq (the “Filings” or “Nasdaq Filings”) with the Securities and Exchange Commission (“Commission” ). In the Filings, Nasdaq proposes to revise parts of its Pricing Schedule to “more closely reflect the manner in which Nasdaq assesses and collects its ORF.”2
While SIFMA supports certain aspects of the filings, we recommend that the Commission suspend the Nasdaq filings under the applicable provisions of the Securities Exchange Act of 1934 (“Exchange Act”) so that the Commission can consider and analyze the proposal and determine whether the proposal should be approved or disapproved. This additional consideration is key because there are important issues in the ORF proposal that SIFMA believes must be resolved to ensure the assessment of ORF is fair and transparent, with a harmonized policy across a ll listed options exchanges. In particular:
• Harmonization: SIFMA supports a harmonized approach for the assessment and collection of ORF across all exchanges that have codified this regulatory fee .
• Assessment Methodology: SIFMA recommends that the SEC review the data used by the exchanges to assess and collect ORF given the contrasts in the exchange filings surrounding the availability of certain data fields.
• Assessment of ORF on Away Exchanges: SIFMA does not support the practice of an options exchange assessing ORF on away exchange transactions, regardless of any regulatory nexus between the charging exchange and the transaction.
1. Harmonization
SIFMA agrees with Nasdaq and supports “a common approach for the assessment and collection of ORF among the various options exchanges that assess such a fee , as well as guidance from the Commission regarding regulatory cost structures to ensure equal knowledge and treatment among options markets assessing ORF.3 SIFMA has engaged in, and supported, the collective efforts of the exchanges and Commission to harmonize certain, non-competitive rules, such as the obvious and catastrophic error rules. By harmonizing those rules which are regulatory in nature, investors will receive the similar trading experience on each options exchange, regardless of where the execution occurred. There is also a need for further clarification in ORF transparency which would go a long way in mitigating any industry doubts about how the funding is being spent. This enhances investor trust and confidence, and is consistent with the SEC’s mission to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”4
SIFMA recommends that each exchange adopt the same rule set for ORF to achieve harmonization across the market since ORF is a regulatory fee (not intended to fund commercial activities).5 Many exchanges, including Nasdaq Gemini and Nasdaq ISE 6, have established a precedent tor harmonizing certain aspects of ORF, as evidenced by the adoption of SIFMA’s proposal that requires the Exchanges to provide 30 days written notice prior to a fee change.7 SIFMA urges Nasdaq to codify this on its exchanges that presently do not have this provision codified in their rule books, namely Nasdaq BX, Nasdaq Options Market and Nasdaq Phlx.
1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly I million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $20 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. 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 See Securities Exchange Act Release No. 34-81343 (August 8, 20 17), 82 FR 37964 (August 14, 20 17).
3 Jd.
4 “What We Do,” U.S. Securities and Exchange Commission, June 10,201 3, https:/ /www .sec.gov/ Article/whatwedo.htm I.
5 ORF was first introduced by CBOE in 2009, and was designed to cover a portion of the Exchange’s regulatory costs, as opposed to subsidizing for-profit commercial expenditures.
6 While Nasdaq provided 30 days-notice for the recent Nasdaq BX and Nasdaq Options Market ORF rate change, SlFMA recommends that these exchanges, along with Nasdaq Phlx, codify this provision of their ORF rules.
7 See Securities Exchange Act Release No. 34-81342 (August 8, 20 17), 82 FR 37972 (August 14, 20 17) and Securities Exchange Act Release No. 34-81345 (August 8, 20 17), 82 FR 37940 (August 14, 20 17).