Notice2022-01219
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NOM Pricing Schedule at Options 7, Section 2
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Published
January 24, 2022
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 87 Issue 15 (Monday, January 24, 2022)</title>
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[Federal Register Volume 87, Number 15 (Monday, January 24, 2022)]
[Notices]
[Pages 3610-3613]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-01219]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93987; File No. SR-NASDAQ-2022-001]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the NOM Pricing Schedule at Options 7, Section 2
January 18, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 3, 2022, The Nasdaq Stock Market LLC (``Nasdaq''
or ``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Nasdaq Options Market (``NOM'')
Pricing Schedule at Options 7, Section 2.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the
[[Page 3611]]
places specified in Item IV below. The Exchange has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend NOM's Pricing
Schedule at Options 7, Section 2 to: (1) Increase the Fee to Remove
Liquidity in Penny Symbols for Customers \4\ and Professionals,\5\ and
(2) amend the qualifications for the Tier 3 NOM Market Maker \6\ Rebate
to Add Liquidity in Penny Symbols to allow an alternative way to
qualify for the rebate. Each change is further discussed below.
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\4\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(a)(47)).
\5\ The term ``Professional'' or (``P'') means any person or
entity that (i) is not a broker or dealer in securities, and (ii)
places more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s) pursuant
to Options 1, Section 1(a)(47). All Professional orders shall be
appropriately marked by Participants.
\6\ The term ``NOM Market Maker'' or (``M'') is a Participant
that has registered as a Market Maker on NOM pursuant to Options 2,
Section 1, and must also remain in good standing pursuant to Options
2, Section 9. In order to receive NOM Market Maker pricing in all
securities, the Participant must be registered as a NOM Market Maker
in at least one security.
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Customer and Professional Fee To Remove Liquidity
Today, the Exchange charges Customers and Professionals a $0.48 per
contract Fee to Remove Liquidity in Penny Symbols. The Exchange
proposes to increase this fee to $0.49 per contract for Customers and
Professionals.
NOM Market Maker Rebate To Add Liquidity
Today, the Exchange offers tiered NOM Market Maker Rebates to Add
Liquidity in Penny Symbols that are $0.20 (Tier 1), $0.25 (Tier 2),
$0.30 (Tier 3),\7\ $0.32 (Tier 4),\8\ $0.44 (Tier 5), and $0.48 (Tier
6). These rebates are paid per the highest tier achieved below.
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\7\ This rebate is $0.40 per contract in the following symbols:
AAPL, SPY, QQQ, IWM, and VXX. See Options 7, Section 2(1), note 4.
\8\ Id.
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Monthly volume
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Tier 1..................... Participant adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols
of up to 0.10% of total industry customer
equity and ETF option average daily volume
(``ADV'') contracts per day in a month.
Tier 2..................... Participant adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols
above 0.10% to 0.20% of total industry
customer equity and ETF option ADV
contracts per day in a month.
Tier 3..................... Participant: (a) Adds NOM Market Maker
liquidity in Penny Symbols and/or Non-
Penny Symbols above 0.20% to 0.60% of
total industry customer equity and ETF
option ADV contracts per day in a month;
or (b)(1) adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols
above 0.07% to 0.20% of total industry
customer equity and ETF option ADV
contracts per day in a month, (2)
transacts in all securities through one or
more of its Nasdaq Market Center MPIDs
that represent 0.70% or more of
Consolidated Volume (``CV'') which adds
liquidity in the same month on The Nasdaq
Stock Market, (3) transacts in Tape B
securities through one or more of its
Nasdaq Market Center MPIDs that represent
0.10% or more of CV which adds liquidity
in the same month on The Nasdaq Stock
Market, and (4) executes greater than
0.01% of CV via Market-on- Close/Limit-on-
Close (``MOC/LOC'') volume within The
Nasdaq Stock Market Closing Cross in the
same month.
Tier 4..................... Participant adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols
of above 0.60% of total industry customer
equity and ETF option ADV contracts per
day in a month.
Tier 5..................... Participant adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols
of above 0.40% of total industry customer
equity and ETF option ADV contracts per
day in a month and transacts in all
securities through one or more of its
Nasdaq Market Center MPIDs that represent
0.40% or more of Consolidated Volume
(``CV'') which adds liquidity in the same
month on The Nasdaq Stock Market.
Tier 6..................... Participant: (a)(1) Adds NOM Market Maker
liquidity in Penny Symbols and/or Non-
Penny Symbols above 0.95% of total
industry customer equity and ETF option
ADV contracts per day in a month, (2)
executes Total Volume of 250,000 or more
contracts per day in a month, of which
30,000 or more contracts per day in a
month must be removing liquidity, and (3)
adds Firm, Broker-Dealer and Non-NOM
Market Maker liquidity in Non-Penny
Symbols of 10,000 or more contracts per
day in a month; or (b)(1) adds NOM Market
Maker liquidity in Penny Symbols and/or
Non-Penny Symbols above 1.50% of total
industry customer equity and ETF option
ADV contracts per day in a month, and (2)
executes Total Volume of 250,000 or more
contracts per day in a month, of which
15,000 or more contracts per day in a
month must be removing liquidity.
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As set forth above, the Exchange currently offers two different
paths in (a) and (b) for Participants to achieve the Tier 3 Market
Maker rebate. The Exchange now proposes to amend the Tier 3
qualifications in (b) as follows:
Participant . . . (b)(1) adds NOM Market Maker liquidity in
Penny Symbols and/or Non-Penny Symbols above 0.07% to 0.20% of total
industry customer equity and ETF option ADV contracts per day in a
month, (2) transacts in all securities through one or more of its
Nasdaq Market Center MPIDs that represent (i) 0.70% or more of
Consolidated Volume (``CV'') which adds liquidity in the same month
on The Nasdaq Stock Market or (ii) 70 million shares or more ADV
which adds liquidity in the same month on The Nasdaq Stock Market,
(3) transacts in Tape B securities through one or more of its Nasdaq
Market Center MPIDs that represent 0.10% or more of CV which adds
liquidity in the same month on The Nasdaq Stock Market, and (4)
executes greater than 0.01% of CV via Market-on- Close/Limit-on-
Close (``MOC/LOC'') volume within The Nasdaq Stock Market Closing
Cross in the same month
The proposal adds an alternative route to achieve the equity
component in (b)(2), namely by introducing an alternative volume-based
requirement in new (b)(2)(ii) that requires Market Makers to transact
in all securities through one or more of its Nasdaq Market Center MPIDs
that represent 70 million shares or more ADV which adds liquidity in
the same month on The Nasdaq Stock Market.\9\ The options component in
(b)(1) and the other equity components in (b)(3) and (b)(4) to qualify
for the Tier 3 rebate will remain unchanged. The Exchange will also
make a related change to renumber the existing volume requirement in
(b)(2) as (b)(2)(i).
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\9\ All NOM Participants are required to be members of The
Nasdaq Stock Market pursuant to General 3 (Membership and Access).
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[[Page 3612]]
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its Pricing Schedule are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for options
securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers' . . . .'' \12\
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\12\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \13\
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\13\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options security transaction services. The Exchange is only one of
sixteen options exchanges to which market participants may direct their
order flow. Within this environment, market participants can freely and
often do shift their order flow among the Exchange and competing venues
in response to changes in their respective pricing schedules. As such,
the proposal represents a reasonable attempt by the Exchange to
increase its liquidity and market share relative to its competitors.
Customer and Professional Fee To Remove Liquidity
The Exchange believes that its proposal to increase the Fee to
Remove Liquidity in Penny Symbols for Customers and Professionals from
$0.48 to $0.49 per contract is reasonable. While this fee is
increasing, Customers and Professionals will continue to be assessed
the lowest Fee to Remove Liquidity in Penny Symbols compared to all
other market participants.\14\ Accordingly, the Exchange believes that
the proposed fee will continue to attract Customer and Professional
order flow to NOM to the benefit of all market participants.
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\14\ The Exchange currently charges all other market
participants (i.e., Broker-Dealers, Firms, Non-NOM Market Makers,
and NOM Market Makers) a $0.50 per contract Fee to Remove Liquidity
in Penny Symbols.
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The Exchange further believes that its proposal is equitable and
not unfairly discriminatory because it will apply uniformly to all
similarly situated Participants. With the proposed changes, Customers
and Professionals will continue to be assessed a lower Fee to Remove
Liquidity in Penny Symbols compared to all other market participants.
The Exchange does not believe it is inequitable or unfairly
discriminatory to assess a lower fee to Customers and Professionals,
and not to other market participants. Customer order flow offers unique
benefits to the market by providing more trading opportunities, which
attracts specialists and market makers. An increase in the activity of
these market participants in turn facilitates tighter spreads, which
may cause a corresponding increase in order flow from other market
participants. The Exchange believes that encouraging Professional order
flow is similarly beneficial, as the lower fee may cause market
participants to select NOM as a venue to send Professional order flow,
which benefits all market participants by attracting valuable liquidity
to the market and thereby enhancing the trading quality and efficiency
for all.
NOM Market Maker Rebate To Add Liquidity
The Exchange believes that its proposal to amend the qualifications
for the Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny
Symbols represents a reasonable attempt to incentivize market
participants to increase the number and variety of orders sent to the
Exchange for execution. Specifically, the Exchange proposes to
introduce an alternative volume-based requirement in new subsection
(b)(2)(ii) that requires Market Makers to transact in all securities
through one or more of its Nasdaq Market Center MPIDs that represent 70
million shares or more ADV which adds liquidity in the same month on
The Nasdaq Stock Market. By introducing an alternative method to
qualify for the Tier 3 rebate, the Exchange will create an additional
opportunity for Market Makers to increase their liquidity adding
activity on the Exchange's equity market. Taken together with existing
options and equity components that comprise the Tier 3 rebate
qualifications in (b), the Exchange believes that the amended
qualifying criteria will continue to incentivize participation in
greater volume from cross asset activity, which would improve the
overall quality of the Exchange's marketplace to the benefit of all
market participants, both on NOM and The Nasdaq Stock Market.
The Exchange also believes that the proposed changes to the
qualifications for the Tier 3 Market Maker Rebate to Add Liquidity in
Penny Symbols is equitable and not unfairly discriminatory because the
Exchange will pay the Tier 3 rebate uniformly to any qualifying Market
Makers. Market Makers add value through continuous quoting and the
commitment of capital.\15\ Because Market Makers have these obligations
to the market and regulatory requirements that normally do not apply to
other market participants, the Exchange believes that offering the
rebate to only Market Makers is equitable and not unfairly
discriminatory in light of their obligations. Finally, encouraging
Market Makers to add greater liquidity benefits all market
participants, both on NOM and The Nasdaq Stock Market, in the quality
of order interaction.
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\15\ See Options 2, Sections 4 and 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not
[[Page 3613]]
necessary or appropriate in furtherance of the purposes of the Act.
In terms of intra-market competition, the Exchange does not that
its proposals will place any category of market participant at a
competitive disadvantage. As discussed above, while the Exchange's
proposals target certain order flow and activity on the Exchange (i.e.,
Customer, Professional, and Market Maker activity), the proposed
changes are ultimately aimed at attracting greater order flow to the
Exchange, which benefits all market participants by providing more
trading opportunities.
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges. Because competitors are free to modify their own fees in
response, and because market participants may readily adjust their
order routing practices, the Exchange believes that the degree to which
fee changes in this market may impose any burden on competition is
extremely limited. In sum, if the changes proposed herein are
unattractive to market participants, it is likely that the Exchange
will lose market share as a result. Accordingly, the Exchange does not
believe that the proposed changes will impair the ability of
Participants or competing exchanges to maintain their competitive
standing in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\16\
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1664637a733b75797b7b737862655665737538717960"><span class="__cf_email__" data-cfemail="5d2f283138703e3230303833292e1d2e383e733a322b">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-001 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2022-001. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2022-001, and should be submitted
on or before February 14, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01219 Filed 1-21-22; 8:45 am]
BILLING CODE 8011-01-P
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