Notice2022-23483
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend MRX's Pricing Schedule at Options 7, Section 7
Primary source
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Published
October 28, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 208 (Friday, October 28, 2022)</title>
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[Federal Register Volume 87, Number 208 (Friday, October 28, 2022)]
[Notices]
[Pages 65273-65279]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-23483]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96144; File No. SR-MRX-2022-22]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend MRX's
Pricing Schedule at Options 7, Section 7
October 24, 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 October 14, 2022, Nasdaq MRX, LLC (``MRX'' 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 MRX's Pricing Schedule at Options 7,
Section 7.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/mrx/rules">https://listingcenter.nasdaq.com/rulebook/mrx/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 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
On May 2, 2022, MRX initially filed this proposal to amend its
Pricing Schedule at Options 7, Section 7, to assess market data fees,
which had not been assessed since MRX's inception in 2016.\3\ The
proposed changes are designed to update data fees to reflect their
current value--rather than their value when it was a new exchange six
years ago--based on increased market share. Newly-opened exchanges
often charge no fees for market data to attract order flow to an
exchange, and later amend their fees to reflect the true value of those
services.\4\ Allowing newly-
[[Page 65274]]
opened exchanges time to build and sustain market share before charging
for their market data encourages market entry and promotes competition.
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\3\ The Exchange initially filed the proposed pricing changes on
May 2, 2022 (SR-MRX-2022-04), instituting fees for membership, ports
and market data. See Securities Exchange Act Release No. 94901 (May
12, 2022), 87 FR 30305 (May 18, 2022) (SR-MRX-2022-04). On June 29,
2022, the Exchange withdrew that filing, and submitted separate
filings for membership (SR-MRX-2022-07), market data (SR-MRX-2022-
08) and ports (SR-MRX-2022-09). On August 25, 2022, the Exchange
withdrew the market data filing (SR-MRX-2022-08) and replaced it
with SR-MRX-2022-14. See Securities Exchange Act Release No. 95708
(September 8, 2022), 87 FR 56457 (September 14, 2022) (SR-MRX-2022-
14). On October 14, 2022, the Exchange withdrew SR-MRX-2022-14 and
replaced it with the instant filing in order to reflect changes to
the information contained within each of the five MRX market data
feeds proposed in SR-MRX-2022-18. See Securities Exchange Act
Release No. 95982 (October 4, 2022), 87 FR 61391 (October 11, 2022)
(SR-MRX-2022-18).
\4\ See, e.g., Securities Exchange Act Release No 88211
(February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-NYSENAT-
2020-05), also available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf</a>. (initiating market data fees for the NYSE National exchange
after initially setting such fees at zero).
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This Proposal reflects MRX's assessment that it has gained
sufficient market share to compete effectively against other 15 options
exchanges without waiving market data fees. Such fees are assessed by
options exchanges that compete with MRX--indeed, MRX is the only
options exchange (out of the 16 current options exchanges) not to
assess them today.
As explained in further detail below, MRX in 2022 is in the same
position as NYSE National in 2020, when it sought approval for the
``NYSE National Integrated Feed.'' \5\ The Commission approved the NYSE
National Integrated Feed based on a finding that it ``was subject to
significant substitution-based competitive forces'' based on ``NYSE
National's consistently low percentage of market share, the relatively
small number of subscribers to the NYSE National Integrated Feed, and
the sizeable portion of subscribers that terminated their subscriptions
following the proposal of the fees.'' \6\
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\5\ NYSE National stated that the proposed integrated feed
included depth-of-book order data, last sale data, security status
updates, and stock summary messages. See Securities Exchange Act
Release No 88211 (February 14, 2020), 85 FR 9847 (February 20, 2020)
(SR-NYSENAT-2020-05), also available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf</a>.
\6\ See id.
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The three factors cited in the Commission's approval order for NYSE
National are present in MRX today. First, MRX has a consistently low
percentage of market share, starting at approximately 0.2 percent when
it opened as an Exchange and ending in approximately 1.8 percent today.
Second, only a small number of firms purchase market data from MRX
relative to its affiliated options exchanges. Third, a sizeable portion
of subscribers--approximately 15 percent--have terminated their
subscriptions following the implementation of the proposed fees,
demonstrating that customers can and do exercise choice in deciding
whether to purchase the Exchange's market data feeds.
Disapproval of the Proposal--given that the three factors cited in
the Commission's approval order for NYSE National two years ago are
present in MRX today--would result in differential treatment of
similarly-situated exchanges. Under such circumstances, disapproval of
the Proposal should be rejected as arbitrary and capricious.
Disapproval would also place a substantial burden on competition.
MRX would be uniquely disadvantaged as the only options exchange unable
to charge for its market data. If the Commission were to disapprove
this Proposal, that action, and not market forces, would determine
whether MRX is successful in its competition with other options
exchanges.
New exchanges commonly waive data fees to attract market
participants, facilitating their entry into the market and, once there
is sufficient depth and breadth of liquidity, ``graduate'' to compete
against established exchanges and charge fees that reflect the value of
their services. If MRX is incorrect in its assessment, that error will
be reflected in MRX's ability to compete with other options
exchanges.\7\
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\7\ Nasdaq announced that, beginning in 2022, it will migrate
its North American markets to Amazon Web Services in a phased
approach, starting with MRX. The MRX migration will take place in
November 2022. The proposed fee changes are entirely unrelated to
this effort.
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The Exchange proposes to amend fees for the following market data
feeds within Options 7, Section 7: (1) Nasdaq MRX Depth of Market Data
Feed (``Depth of Market Feed''); \8\ (2) Nasdaq MRX Order Feed (``Order
Feed''); \9\ (3) Nasdaq MRX Top of Market Feed (``Top Feed''); \10\ (4)
Nasdaq MRX Trades Feed (``Trades Feed''); \11\ and (5) Nasdaq MRX
Spread Feed (``Spread Feed'').\12\ Prior to the initial filing of these
proposed price changes on May 2, 2022, no fees had been assessed for
these feeds.
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\8\ Nasdaq MRX Depth of Market Data Feed is a data feed that
provides full order and quote depth information for individual
orders and quotes on the Exchange book and last sale information for
trades executed on the Exchange. The data provided for each option
series includes the symbols (series and underlying security), put or
call indicator, expiration date, the strike price of the series, and
whether the option series is available for trading on the Exchange
and identifies if the series is available for closing transactions
only. The feed also provides order imbalances on opening/reopening
(size of matched contracts and size of the imbalance). See Options
3, Section 23(a)(1).
\9\ Nasdaq MRX Order Feed provides information on new orders
resting on the book (e.g., price, quantity, market participant
capacity and Attributable Order tags when provided by a Member). The
data provided for each option series includes the symbols (series
and underlying security), displayed order types, order attributes
(e.g., OCC account number, give-up information, CMTA information),
put or call indicator, expiration date, the strike price of the
series, and whether the option series is available for trading on
MRX and identifies if the series is available for closing
transactions only. The feed also provides order imbalances on
opening/reopening (size of matched contracts and size of the
imbalance), auction and exposure notifications. See Options 3,
Section 23(a)(2).
\10\ Nasdaq MRX Top of Market Feed calculates and disseminates
MRX's best bid and offer position, with aggregated size (including
total size in aggregate, for Professional Order size in the
aggregate and Priority Customer Order size in the aggregate), based
on displayable order and quote interest in the System. The feed also
provides last trade information and for each option series includes
the symbols (series and underlying security), put or call indicator,
expiration date, the strike price of the series, and whether the
option series is available for trading on MRX and identifies if the
series is available for closing transactions only. The feed also
provides order imbalances on opening/reopening. See Options 3,
Section 23(a)(3).
\11\ Nasdaq MRX Trades Feed displays last trade information. The
data provided for each option series includes the symbols (series
and underlying security), put or call indicator, expiration date,
the strike price of the series, and whether the option series is
available for trading on MRX and identifies if the series is
available for closing transactions only. See Options 3, Section
23(a)(4).
\12\ Nasdaq MRX Spread Feed is a feed that consists of: (1)
options orders for all Complex Orders (i.e., spreads, buy-writes,
delta neutral strategies, etc.); (2) full Complex Order depth
information, including prices, side, size, capacity, Attributable
Complex Order tags when provided by a Member, and order attributes
(e.g., OCC account number, give-up information, CMTA information),
for individual Complex Orders on the Exchange book; (3) last trades
information; and (4) calculating and disseminating MRX's complex
best bid and offer position, with aggregated size (including total
size in aggregate, for Professional Order size in the aggregate and
Priority Customer Order size in the aggregate), based on displayable
Complex Order interest in the System. The feed also provides Complex
Order auction notifications. See Options 3, Section 23(a)(5).
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In addition to the proposed fees for each data feed, the Exchange
proposes an Internal Distributor Fee \13\ of $1,500 per month for the
Depth of Market Feed, Order Feed, and Top Feed, an Internal Distributor
Fee of $750 per month for the Trades Feed, and an Internal Distributor
Fee of $1,000 per month for the Spread Feed. If a Member subscribes to
both the Trades Feed and the Spread Feed, both Internal Distributor
Fees would be assessed.
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\13\ A ``distributor'' of Nasdaq MRX data is any entity that
receives a feed or data file of data directly from Nasdaq MRX or
indirectly through another entity and then distributes it either
internally (within that entity) or externally (outside that entity).
All distributors shall execute a Nasdaq Global Data Agreement.
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The Exchange also proposes to assess an External Distributor Fee of
$2,000 per month for the Depth of Market Feed, Order Feed, and Top
Feed, an External Distributor Fee of $1,000 per month for the Trades
Feed, and an External Distributor Fee of $1,500 per month for the
Spread Feed.
MRX will also assess Professional \14\ and Non-Professional \15\
subscriber fees.
[[Page 65275]]
The Professional Subscriber will be $25 per month, and the Non-
Professional Subscriber will be $1 per month. These subscriber fees
(both Professional and Non-Professional) cover the usage of all five
MRX data products identified above and would not be assessed separately
for each product.\16\
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\14\ A Professional Subscriber is any Subscriber that is not a
Non-Professional Subscriber.
\15\ A Non-Professional Subscriber is a natural person who is
neither: (i) registered or qualified in any capacity with the
Commission, the Commodities Futures Trading Commission, any state
securities agency, any securities exchange or association, or any
commodities or futures contract market or association; (ii) engaged
as an ``investment adviser'' as that term is defined in section
201(11) of the Investment Advisors Act of 1940 (whether or not
registered or qualified under that Act); nor (iii) employed by a
bank or other organization exempt from registration under federal or
state securities laws to perform functions that would require
registration or qualification if such functions were performed for
an organization not so exempt.
\16\ For example, if a firm has one Professional (Non-
Professional) Subscriber accessing Top Quote Feed, Order, and Depth
of Market Feed the firm would only report the Subscriber once and
pay $25 ($1 for Non-Professional).
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MRX also proposes a Non-Display Enterprise License for $7,500 per
month. This license would lower costs for internal professional
subscribers and lower administrative costs overall by permitting the
distribution of all MRX proprietary direct data feed products to an
unlimited number of internal non-display Subscribers without incurring
additional fees for each internal Subscriber, or requiring the customer
to count internal subscribers.\17\ The Non-Display Enterprise License
is in addition to any other associated distributor fees for MRX
proprietary direct data feed products.
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\17\ The Non-Display Enterprise License of $7,500 per month is
optional. A firm that does not have a sufficient number of
subscribers to benefit from purchase of the license need not do so.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\18\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ 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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\18\ See 15 U.S.C. 78f(b).
\19\ See 15 U.S.C. 78f(b)(4) and (5).
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The proposed changes to the pricing schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for order flow, which
constrains its pricing determinations. The fact that the market for
order flow is competitive has long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated, ``[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'. . . .'' \20\
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\20\ See NetCoalition, 615 F.3d at 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 to determine
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.'' \21\
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\21\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Congress directed the Commission to ``rely on `competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \22\ As a
result, the Commission has historically relied on competitive forces to
determine whether a fee proposal is equitable, fair, reasonable, and
not unreasonably or unfairly discriminatory. ``If competitive forces
are operative, the self-interest of the exchanges themselves will work
powerfully to constrain unreasonable or unfair behavior.'' \23\
Accordingly, ``the existence of significant competition provides a
substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \24\ In its 2019 guidance on fee proposals,
Commission staff indicated that they would look at factors beyond the
competitive environment, such as cost, only if a ``proposal lacks
persuasive evidence that the proposed fee is constrained by significant
competitive forces.'' \25\
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\22\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
\23\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\24\ Id.
\25\ See U.S. Securities and Exchange Commission, ``Staff
Guidance on SRO Rule filings Relating to Fees'' (May 21, 2019),
available at <a href="https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees">https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees</a>.
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History of MRX Operations
Over the years, MRX has amended its transactional pricing to
attract order flow to the Exchange.\26\ In June 2019,
[[Page 65276]]
MRX commenced offering complex orders.\27\ With the addition of complex
order functionality, MRX offered Members certain order types, an
opening process, auction capabilities and other trading functionality
that was nearly identical to functionality available on ISE.\28\ The
added functionality attracted order flow, which has enhanced the value
of its market data and is the basis for these proposed fee changes.
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\26\ See, e.g., Securities Exchange Act Release Nos. 77292
(March 4, 2016), 81 FR 12770 (March 10, 2016) (SR-ISEMercury-2016-
02) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Establish the Schedule of Fees); 77409 (March 21, 2016),
81 FR 16240 (March 25, 2016) (SR-ISEMercury-2016-05) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Schedule of Fees); 81 FR 16238 (March 21, 2016), 81 FR 16238
(March 25, 2016) (SR-ISEMercury-2016-06) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend the
Schedule of Fees); 77841 (May 16, 2016), 81 FR 31986 (SR-ISEMercury-
2016-11) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend the Schedule of Fees); 82537 (January 19,
2018), 83 FR 3784 (January 26, 2018) (SR-MRX-2018-01) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Schedule of Fees To Introduce a New Pricing Model); 82990 (April
4, 2018), 83 FR 15434 (April 10, 2018) (SR-MRX-2018-10) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Chapter IV of the Exchange's Schedule of Fees); 28677 (June 14,
2018), 83 FR 28677 (June 20, 2018) (SR-MRX-2018-19) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To
Increase Certain Route-Out Fees Set Forth in Section II.A of the
Schedule of Fees); 84113 (September 13, 2018), 83 FR 47386
(September 19, 2018) (SR-MRX-2018-27) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Relocate the
Exchange's Schedule of Fees); 85143 (February 14, 2019), 84 FR 5508
(February 21, 2019) (SR-MRX-2019-02) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend the Pricing
Schedule at Options 7, Section 3); 85313 (March 14, 2019), 84 FR
10357 (March 20, 2019) (SR-MRX-2019-05) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change Relating to PIM
Fees and Rebates); 86326 (July 8, 2019), 84 FR 33300 (July 12, 2019)
(SR-MRX-2019-14) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt Complex Order Pricing); 88022 (January
23, 2020), 85 FR 5263 (January 29, 2020) (SR-MRX-2020-02) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
MRX Pricing Schedule); 89046 (June 11, 2020), 85 FR 36633 (June 17,
2020) (SR-MRX-2020-11) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend Its Pricing Schedule at Options 7);
89320 (July 15, 2020), 85 FR 44135 (July 21, 2020) (SR-MRX-2020-14)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend Its Pricing Schedule at Options 7, Section 5, Other
Options Fees and Rebates, in Connection With the Pricing for Orders
Entered Into the Exchanges Price Improvement Mechanism); 90503
(November 24, 2020), 85 FR 77317 (December 1, 2020) (SR-MRX-2020-18)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend Its Pricing Schedule at Options 7 for Orders Entered
Into the Exchange's Price Improvement Mechanism); 90434 (November
16, 2020), 85 FR 74473 (November 20, 2020) (SR-MRX-2020-19) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To the
Exchange's Pricing Schedule at Options 7 To Amend Taker Fees for
Regular Orders); 90455 (November 18, 2020), 85 FR 75064 (November
24, 2020) (SR-MRX-2020-21) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend the Pricing
Schedule); and 91687 (April 27, 2021), 86 FR 23478 (May 3, 2021)
(SR-MRX-2021-04) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the Exchange's Pricing Schedule at
Options 7). Note that ISE Mercury is an earlier name for MRX.
\27\ See Securities Exchange Act Release No. 86326 (July 8,
2019), 84 FR 33300 (July 12, 2019) (SR-MRX-2019-14) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to
Adopt Complex Order Pricing).
\28\ One distinction is that ISE offered its Members access to
Nasdaq Precise in 2019 and since that time. MRX has never offered
Precise. ``Nasdaq Precise'' or ``Precise'' is a front-end interface
that allows EAMs and their Sponsored Customers to send orders to the
Exchange and perform other related functions. Features include the
following: (1) order and execution management: enter, modify, and
cancel orders on the Exchange, and manage executions (e.g., parent/
child orders, inactive orders, and post-trade allocations); (2)
market data: access to real-time market data (e.g., NBBO and
Exchange BBO); (3) risk management: set customizable risk parameters
(e.g., kill switch); and (4) book keeping and reporting:
comprehensive audit trail of orders and trades (e.g., order history
and done away trade reports). See ISE Supplementary Material .03(d)
of Options 3, Section 7. Precise is also available on GEMX.
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Market Data Products Are Subject to Significant Substitution-Based
Competitive Forces
An Exchange can show that a product is ``subject to significant
substitution-based competitive forces'' by introducing evidence that
customers can substitute that product with products offered by other
exchanges.
NYSE National was able to prove exactly this when it sought
approval for the ``NYSE National Integrated Feed'' \29\ in 2020. NYSE
National at the time of its filing was in a similar position to MRX
today--the exchange had an approximately 1.9% market share of executed
volume of equity trades.\30\ The Commission approved the proposal to
establish fees for NYSE National based on a finding that the exchange
``was subject to significant substitution-based competitive forces.''
Citing NetCoalition I,\31\ the Commission stated that ``whether a
market is competitive notwithstanding potential alternatives depends on
factors such as the number of buyers who consider other products
interchangeable and at what prices.'' \32\ Noting that ``many market
participants . . . do not subscribe to . . . the NYSE National
Integrated Feed, even when the feed is offered without charge,'' the
Commission concluded that ``NYSE National's consistently low percentage
of market share, the relatively small number of subscribers to the NYSE
National Integrated Feed, and the sizeable portion of subscribers that
terminated their subscriptions following the proposal of the fees,''
demonstrated that the exchange ``was subject to significant
substitution-based competitive forces'' in setting fees such that the
proposed rule change was consistent with the Act.\33\
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\29\ See Securities Exchange Act Release No 88211 (February 14,
2020), 85 FR 9847 (February 20, 2020) (SR-NYSENAT-2020-05), also
available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf</a>.
\30\ See id.
\31\ See NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. 2010)
(``NetCoalition I'').
\32\ See NYSE National Approval Order (citing NetCoalition I).
\33\ See id.
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MRX today is in essentially the same position as NYSE National in
2020, and all three of the factors cited in the Commission's approval
order for NYSE National are present in MRX today. First, MRX has a
consistently low percentage of market share, starting at approximately
0.2 percent when it opened as an Exchange and ending in approximately
1.8 percent today. Second, only a small number of firms purchase market
data from MRX relative to its affiliated options exchanges. Third, a
sizeable portion of subscribers--approximately 15 percent--have
terminated their subscriptions following the implementation of the
proposed fees, demonstrating that customers can and do exercise choice
in deciding whether to purchase the Exchange's market data feeds.
As of May 2, 2022, the date that MRX initially proposed these
market data fees, MRX reported that two customers had terminated their
market data subscriptions.\34\ As of now, a total of five firms have
cancelled, amounting to approximately 15 percent of the 34 customers
that had been taking MRX feeds in the first quarter of 2022.\35\
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\34\ See Securities Exchange Act Release No. 94901 (May 12,
2022), 87 FR 30305 (May 18, 2022) (SR-MRX-2022-04).
\35\ These terminations were limited to market data; none of
these customers were members of MRX and therefore purchased neither
memberships nor ports from the Exchange.
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Commission Staff have requested additional information pertaining
to: (i) the types of feeds available to these customers prior to
termination, (ii) the characteristics of the customers that terminated
their feeds, and (iii) whether such customers traded on the Exchange.
With respect to the types of data feeds accessed, two of the five
customers had access to all five feeds: the Depth of Market Data, the
Order Feed, the Top Feed, the Trades Feed, and the Spread Feed. The
three remaining customers had access to only two feeds: the Order Feed
and the Top Feed. All five customers cancelled all feeds that they had
access to.
With respect to the types of customers cancelling feeds, three of
the five were either data vendors or technology suppliers. Data vendors
purchase exchange data and redistribute it to downstream customers,
while technology suppliers incorporate exchange data into software
solutions, which are sold to downstream customers. The remaining two
firms engage in options trading, either on their own behalf or that of
a customer.
With respect to trading, the three data vendors/technology
suppliers do not trade on their own behalf or on the behalf of any
downstream customs, although their customers may do so. The Exchange
understands that these three firms cancelled due to insufficient demand
from their downstream customers for MRX data. The two remaining firms,
which do engage in options trading, have not traded on MRX, but are
active traders on other Nasdaq options exchanges.\36\
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\36\ NYSE National did not provide similarly detailed
information regarding the characteristics of cancelling customers.
Nevertheless, the Exchange believes that the characteristics of such
customers are similar for both NYSE National and MRX, and the same
competitive forces apply to all exchanges.
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Detailed information supporting the first step in the analysis of
substitution-based competitive forces--low market share--is set forth
in Chart 1, which shows the January 2022 market share for multiply-
listed options by exchange. Of the 16 operating options exchanges, none
currently has more than a 13.1% market share, and MRX has the smallest
market share at 1.8%. Customers widely distribute their transactions
across exchanges according to their business needs and the ability of
each exchange to meet those needs through technology, liquidity and
functionality. Average market share for the 16 options exchanges is
6.26 percent, with the median at 5.8, and a range between 1.8 and 13.1
percent.
[[Page 65277]]
[GRAPHIC] [TIFF OMITTED] TN28OC22.000
Market share is the percentage of volume on a particular exchange
relative to the total volume across all exchanges, and indicates the
amount of order flow directed to that exchange. High levels of market
share enhance the value of market data.
The second step in this analysis--demonstrating that only a small
number of firms purchase market data relative to affiliated options
exchanges--is shown in Chart 2, which compares the number of firms with
access to market data from MRX to the number of firms purchasing market
data from the four MRX-affiliated options exchanges, GEMX, ISE, The
Nasdaq Stock Market LLC (``NOM'') and Nasdaq PHLX, LLC (``Phlx'').
[GRAPHIC] [TIFF OMITTED] TN28OC22.001
Chart 2 shows that 34 firms subscribed to at least one market data
product from MRX in the first quarter of 2022. This is the second
lowest number of firms purchasing market data from the Nasdaq-
affiliated options exchanges.
The third step in this analysis--showing that a sizable number of
customers terminated subscriptions following the proposal of the fees--
is confirmed by the five customer cancellations. As explained above,
all five customers terminated all feeds available to them. Although not
all customers took all of the MRX feeds, each one of these feeds was
cancelled by at least one customer, demonstrating that customers can
and do exercise
[[Page 65278]]
choice with respect to each feed. These cancellations reduced the
number of firms with access to at least one MRX market data feed from
34 to 29, an approximately 15 percent reduction in usage, demonstrating
that firms can and do exercise choice in determining whether to
purchase market data from the Exchange.
MRX lists no proprietary options products that are entirely unique
to MRX. Firms can substitute MRX market data with feeds from exchanges
that provide a high degree of functionality, including complex orders.
Full market data options are available, for example, from Cboe,\37\
MIAX,\38\ and NYSE Arca Options.\39\ Because MRX does not list options
on products that are exclusively available on MRX, consumers can
substitute MRX data with data from any exchange that lists such
multiply-listed options, or through OPRA. Moreover, all broker-dealers
involved in order routing must take consolidated data from OPRA, and
proprietary data feeds cannot be used to meet that particular
requirement. As such, all proprietary data feeds are optional.
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\37\ See Cboe DataShop, available at <a href="https://datashop.cboe.com/">https://datashop.cboe.com/</a>.
\38\ See MIAX Options Market Data & Offerings, available at
<a href="https://www.miaxoptions.com/market-data-offerings">https://www.miaxoptions.com/market-data-offerings</a>.
\39\ See NYSE Options Markets, available at <a href="https://www.nyse.com/options">https://www.nyse.com/options</a>.
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This analysis must be viewed in the context of a field with
relatively low barriers to entry. MRX, like many new entrants to the
field, offered market data for free to establish itself and gain market
share. As new entrants enter the field, MRX can also expect competition
from these new entrants. Those new entrants, like MRX, are likely to
set market data fees to zero, increasing marketplace competition.
The Proposal is not unfairly discriminatory. The five market data
feeds at issue here--the Depth of Market Feed, Order Feed, Top Feed,
Trades Feed, and Spread Feed--are used by a variety of market
participants for a variety of purposes. Users include regulators,
market makers, competing exchanges, media, retail, academics, portfolio
managers. Market data feeds will be available to members of all of
these groups on a non-discriminatory basis.
With respect to the proposed Non-Display Enterprise License,
enterprise licenses in general have been widely recognized as an
effective and not unfairly discriminatory method of distributing market
data. Enterprise licenses are widely employed by options exchanges, and
the proposal here is typical of such licenses.
After 6 years, MRX proposes to assess market data fees, just as all
other options exchanges do now.\40\ These fees will not impede access
to MRX, but rather will allow MRX to continue to compete and grow its
marketplace so that it may continue to offer a robust trading
architecture, a quality opening process, an array of simple and complex
order types and auctions, and competitive transaction pricing. If MRX
is incorrect in its assessment of the value of its services, that
assessment will be reflected in MRX's ability to compete with other
options exchanges.
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\40\ Prior to submission of the proposed pricing changes on May
2, 2022, MRX was the only options exchange not assessing market data
fees.
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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. For all of the reasons set
forth above, the Exchange is subject to ``significant substitution-
based competitive forces'': (i) it has a consistently low percentage of
market share, starting at approximately 0.2 percent when it opened as
an Exchange and ending in approximately 1.8 percent today; (ii) only a
small number of firms purchase market data from MRX relative to its
affiliated options exchanges; and (iii) a sizeable portion of
subscribers--approximately 15 percent--have terminated their
subscriptions following the implementation of the proposed fees,
demonstrating that customers can and do exercise choice in deciding
whether to purchase market data.
Nothing in the Proposal burdens inter-market competition (the
competition among self-regulatory organizations) because approval of
the Proposal does not impose any burden on the ability of other options
exchanges to compete. Each of the remaining 15 options exchanges
currently sells its market data, and is capable of modifying its fees
in response to the proposed changes by MRX. Moreover, allowing MRX, or
any new market entrant, to waive fees for a period of time to allow it
to become established encourages market entry and thereby ultimately
promotes competition.
Nothing in the Proposal burdens intra-market competition (the
competition among consumers of exchange data) because each customer
will be able to decide whether or not to purchase the Exchange's market
data, as demonstrated by the fact that a significant number of the
Exchange's customers have already elected to terminate their access to
such feeds.
The Exchange 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. 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. If the
changes proposed herein are unattractive to market participants, it is
likely that the Exchange will lose market share.\41\
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\41\ The Exchange notified market participants of the new fees
on December 20, 2021. See Data News #2021-11 (December 20, 2021,
available at <a href="http://www.nasdaqtrader.com/TraderNews.aspx?id=dn2021-11">http://www.nasdaqtrader.com/TraderNews.aspx?id=dn2021-11</a>). As such, market participants have had ample notice of the
proposed fee changes and will be able to adjust their purchases of
exchange services accordingly.
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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.\42\
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\42\ 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
[[Page 65279]]
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#fa888f969fd7999597979f948e89ba899f99d49d958c"><span class="__cf_email__" data-cfemail="453730292068262a2828202b3136053620266b222a33">[email protected]</span></a>. Please include
File Number SR-MRX-2022-22 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-MRX-2022-22. 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-MRX-2022-22 and should be submitted on
or before November 18, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-23483 Filed 10-27-22; 8:45 am]
BILLING CODE 8011-01-P
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