FR 2024-29625

The document in question, from the U.S. Securities and Exchange Commission, details a proposed change by Nasdaq BX to the Options Regulatory Fee (ORF), set to take effect on January 1, 2025. The ORF is a charge meant to cover the regulatory costs associated with monitoring options trading. The document outlines an intricate plan to modify the way fees are assessed, with a focus on adjusting the methodology to more accurately recover the costs of regulation from specific types of trades.

General Summary

The proposed changes suggest a nuanced adjustment to the ORF. This modification involves collecting separate fees for trades executed on the Nasdaq BX Exchange and those executed elsewhere. The intent is to better match the fee collection to the regulatory expenses incurred by differentiating between local (on-exchange) and away (off-exchange) trades. A key feature of the proposal is the cap, where the total ORF collected should not exceed 88% of the actual regulatory costs. Notably, this new approach is slated to revert to the previous system by July 1, 2025, unless further adjustments are deemed necessary.

Significant Issues and Concerns

The document is notably dense, containing complex financial terms and regulatory jargon that might be challenging for individuals without a financial background to understand. Key terms such as "normalization" and "targeted collection rate" are not clearly defined, which may lead to confusion among stakeholders attempting to assess the impact of these changes.

Additionally, the exclusion of Market Makers from certain fees could raise concerns about fairness and favoritism. It appears as though certain market participants might be benefiting from this exclusion, which could be perceived as an uneven playing field.

The rationale for excluding proprietary products from the fee changes also lacks clear explanation, especially as the Exchange holds the option to introduce these products later, potentially altering the fee structure once again.

Impact on the Public

While the broader public might not be directly affected by these changes, the educational aspect in understanding how regulatory bodies function could raise awareness about the complexities of financial regulation. However, the technical nature of the document might also alienate those without specialized knowledge, complicating public understanding of such regulatory adjustments.

Impact on Specific Stakeholders

For stakeholders within the financial industry, especially options traders and financial firms, this proposal carries significant implications. The methodology being employed might alter how they conduct business on the Nasdaq BX Exchange, impacting their cost structures for trading based on their type of market participation. Customers and firms will need to adjust to the potential changes in trading costs due to the proposed differentiated ORF rates for local and away transactions.

On a positive note, for Market Makers, the exclusion from certain fees could provide an opportunity to manage costs more efficiently. However, this preferential treatment could trigger competitive concerns, affecting those market participants not receiving similar benefits.

In conclusion, while Nasdaq BX's proposal to amend the ORF seeks to align fee collections with regulatory costs more accurately, its success hinges on clarity and fairness across the board for all market participants. The temporary nature of the change, with a review scheduled for mid-2025, indicates an openness to reassessment, which could provide an opportunity for stakeholder feedback and adjustments post-implementation.

In reviewing the Federal Register document concerning Nasdaq BX, Inc.'s proposed rule change regarding the Options Regulatory Fee (ORF), several financial references and their implications can be identified.

Summary of Financial References

The document outlines a proposed change in the Options Regulatory Fee (ORF) assessed by Nasdaq BX. The current ORF is set at $0.0005 per contract side. Under the new proposal, starting January 1, 2025, the Exchange will assess different rates for trades executed on BX and those executed on non-BX exchanges.

• Local ORF Rate for Customers: BX plans to assess Customers a Local ORF Rate of $0.0203 per contract, while the Away ORF Rate for these transactions will be $0.00 per contract.
• Local and Away ORF Rates for Firms and Broker-Dealers: For Firm and Broker-Dealer transactions, both Local and Away ORF Rates are set at $0.00024 per contract.

Additionally, the document notes that this new fee structure is temporary, with a "sunset" clause that will end on July 1, 2025, at which point the ORF would revert back to the original rate of $0.0005 per contract side.

Relation to Identified Issues

The introduction of these varied rates for different types of transactions, particularly the differentiation between Local and Away rates, highlights some complexities that may not be immediately clear to all stakeholders. The exclusion of fees for certain transactions, such as Market Makers and certain proprietary products, could raise questions about equal treatment among different market participants. This may be perceived as favoritism or an uneven playing field, as noted in the document's issues section.

Moreover, terms such as "normalization" and "targeted collection rate" are not explicitly defined or explained in financial terms, leading to potential confusion about how these financial metrics are applied. This ties into the broader issue of a complex methodology, which may hinder understanding and compliance among stakeholders.

The document's proposed sunset rule, reverting to the pre-existing ORF rate by mid-2025, suggests a trial period for the new fee structure. However, the lack of detailed criteria for evaluating this temporary change or understanding its financial success may leave stakeholders uncertain about the implications and outcomes.

Overall, while the financial allocations aim to adjust for market dynamics and regulatory costs, the complexity and temporary nature of the changes, combined with unclear explanations, might present challenges to comprehending the document’s broader financial strategy and its impact on all participants.