Notice2022-15546
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Certain NOM Market Maker Non-Penny Discounts in Options 7, Section 2
Primary source
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Published
July 21, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 139 (Thursday, July 21, 2022)</title>
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[Federal Register Volume 87, Number 139 (Thursday, July 21, 2022)]
[Notices]
[Pages 43576-43578]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-15546]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95300; File No. SR-NASDAQ-2022-040]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Certain NOM Market Maker Non-Penny Discounts in Options 7,
Section 2
July 15, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 1, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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\ 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 Exchange's Pricing Schedule at
Options 7, Section 2(1), which governs pricing for Nasdaq participants
using The Nasdaq Options Market (``NOM''), Nasdaq's facility for
executing and routing standardized equity and index options.
The text of the proposed rule change is detailed below: proposed
new language is underlined and proposed deletions are in brackets.[sic]
* * * * *
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 places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of
[[Page 43577]]
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
Pursuant to Options 7, Section 2(1), the Exchange currently
assesses NOM Market Makers \3\ a $0.35 per contract Fee to Add
Liquidity in Non-Penny Symbols. This fee applies unless Participants
meet the volume thresholds set forth in note 5. Note 5 currently
stipulates that Participants that add NOM Market Maker liquidity in
Non-Penny Symbols of 10,000 to 14,999 average daily volume (``ADV'')
contracts per day in a month will be assessed a $0.00 per contract Non-
Penny Options Fee for Adding Liquidity in that month. Participants that
add NOM Market Maker liquidity in Non-Penny Symbols of 15,000 or more
ADV contracts per day in a month will receive the Non-Penny Rebate to
Add Liquidity (currently $0.30 per contract) for that month instead of
paying the Non-Penny Fee for Adding Liquidity. Accordingly, qualifying
Participants are offered an opportunity to reduce the $0.35 fee or earn
a rebate if they meet the volume-based requirements under note 5.
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\3\ 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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The Exchange now proposes to replace the current ADV thresholds in
note 5 with new thresholds that will be based on a percentage of total
industry volume. Specifically, Participants will be eligible for free
executions instead of paying the $0.35 per contract fee if they add NOM
Market Maker liquidity in Non-Penny Symbols of 0.05% to 0.07% of total
industry customer equity and ETF option ADV contracts (``TCV'') per day
in a month (currently 10,000 to 14,999 ADV contracts per day in a
month). Further, Participants will receive the $0.30 per contract
rebate instead of paying the $0.35 per contract fee if they add NOM
Market Maker liquidity in Non-Penny Symbols of above 0.07% TCV
(currently 15,000 or more ADV contracts) per day in a month. As
proposed, note 5 will state:
The NOM Market Maker Fee for Adding Liquidity in Non-Penny Symbols
will apply unless Participants meet the volume thresholds set forth
in this note. Participants that add NOM Market Maker liquidity in
Non-Penny Symbols of 0.05% to 0.07% of total industry customer
equity and ETF option ADV contracts per day in a month will be
assessed a $0.00 per contract Non-Penny Options Fee for Adding
Liquidity in that month. Participants that add NOM Market Maker
liquidity in Non-Penny Symbols of above 0.07% of total industry
customer equity and ETF option ADV contracts per day in a month will
receive the Non-Penny Rebate to Add Liquidity for that month instead
of paying the Non-Penny Fee for Adding Liquidity.
Only the volume requirements for the note 5 incentives will be
amended with this proposal, not the related fees or rebates. The
Exchange notes that the new volume requirements are more stringent than
the current ADV volume requirements.\4\ The Exchange is proposing to
effectively raise the volume requirements to align with increasing
Participant activity on the Exchange over time. While the proposed
tiered requirements are more stringent, the Exchange believes that the
note 5 incentives will continue to encourage NOM Market Makers to add
Non-Penny Symbol liquidity on NOM to the benefit of all market
participants.
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\4\ For example, 0.05% TCV is currently representative of
approximately 16,150 contracts ADV and 0.07% TCV is currently
representative of approximately 22,610 contracts ADV.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\6\ 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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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to 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'. . . .'' \7\
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\7\ 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.'' \8\
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\8\ 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.
The Exchange believes that its proposal to replace the current ADV
thresholds in note 5 with the new TCV% thresholds described above is
reasonable for the reasons that follow. The Exchange is proposing to
base the note 5 incentives on a percentage of industry volume in
recognition of the fact that the volume executed by a member may rise
or fall with industry volume. A percentage of industry volume
calculation allows the Exchange's tiers to be calibrated to current
market volumes rather than requiring the same amount of volume
regardless of market conditions. While the amount of volume required by
the proposed tiers in note 5 may change in any given month due to
increases or decreases in industry volume, the Exchange believes that
the proposed tier requirements are set at appropriate levels. While the
proposed TCV%
[[Page 43578]]
requirements are more stringent than the current ADV requirements, the
Exchange is proposing to effectively raise the volume thresholds in
note 5 to align with increased Participant activity over time.\9\
Furthermore, the Exchange believes that the more stringent volume
requirements will encourage NOM Market Makers to add a greater amount
of liquidity on NOM in order to receive the note 5 incentives. The
Exchange believes that encouraging additional NOM Market Maker
liquidity in this manner would increase overall liquidity and trading
opportunities on NOM to the benefit of all market participants.
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\9\ See supra note 4.
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The Exchange believes that its proposal is equitable and not
unfairly discriminatory. As described above, the proposed volume
requirements will primarily impact NOM Market Makers that are eligible
to receive the note 5 incentives for Non-Penny Symbols. The Exchange,
however, anticipates minimal impact with the proposed changes as no NOM
Market Maker would fall in or out of the new TCV% tiers as a result of
this change. The Exchange further believes that the proposed changes to
the volume requirements in note 5 is equitable and not unfairly
discriminatory because the Exchange will apply the proposed
requirements uniformly to all qualifying NOM Market Makers. The
Exchange does not believe that it is unfairly discriminatory to offer
the note 5 incentives to only NOM Market Makers because these market
participants add value through continuous quoting and the commitment of
capital.\10\ Because NOM 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 note 5
incentives to only NOM Market Makers is equitable and not unfairly
discriminatory in light of their obligations. Finally, encouraging NOM
Market Makers to add greater liquidity benefits all market participants
in the quality of order interaction.
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\10\ 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 necessary or appropriate in
furtherance of the purposes of the Act.
In terms of intra-market competition, the Exchange does not believe
that its proposal will place any category of market participant at a
competitive disadvantage. As discussed above, while the Exchange's
proposal targets certain activity on NOM (i.e., NOM Market Makers
adding liquidity in Non-Penny Symbols), 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.\11\
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\11\ 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#e092958c85cd838f8d8d858e9493a0938583ce878f96"><span class="__cf_email__" data-cfemail="d9abacb5bcf4bab6b4b4bcb7adaa99aabcbaf7beb6af">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-040 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-2022-040. 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-2022-040 and should be submitted
on or before August 11, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15546 Filed 7-20-22; 8:45 am]
BILLING CODE 8011-01-P
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