Notice2023-03483
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchanges Pricing Schedule at Options 7, Section 3
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Published
February 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 34 (Tuesday, February 21, 2023)</title>
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[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10585-10588]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03483]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96924; File No. SR-MRX-2023-04]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchanges Pricing Schedule at Options 7, Section 3
February 14, 2023.
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 January 30, 2023, 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 the Exchange's Pricing Schedule at
Options 7, Section 3 (Regular Order Fees and Rebates).
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
The purpose of the proposed rule change is to amend the Exchange's
Pricing Schedule at Options 7, Section 3 (Regular Order Fees and
Rebates).\3\
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\3\ The Exchange initially filed the proposed pricing changes on
January 3, 2023 (SR-MRX-2023-01) to adopt a Market Maker growth
incentive and to amend complex order fees. On January 17, 2023, the
Exchange withdrew that filing and submitted SR-MRX-2023-02. On
January 30, 2023, the Exchange withdrew that filing and submitted
separate filings for the Market Maker growth incentive and complex
order fees. This specific filing replaces the Market Maker growth
incentive set forth in SR-MRX-2023-02.
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Today, as set forth in Table 1 of Options 7, Section 3, the
Exchange assesses the following fees for regular orders in Penny
Symbols:
Penny Symbols
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Maker fee Maker fee Taker fee Taker fee
Market participant tier 1 tier 2 tier 1 tier 2
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Market Maker.................................... $0.20 $0.10 $0.50 $0.50
Non-Nasdaq MRX Market Maker (FarMM)............. 0.47 0.47 0.50 0.50
Firm Proprietary/Broker-Dealer.................. 0.47 0.47 0.50 0.50
Professional Customer........................... 0.47 0.47 0.50 0.50
Priority Customer............................... 0.00 0.00 0.00 0.00
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The Exchange now proposes to introduce a growth incentive in new
note 6 that would allow Market Makers \4\ to reduce their maker fees
described above. The proposed growth incentive will be aimed at
rewarding new and existing Market Makers to grow the extent of their
liquidity adding activity in Penny Symbols on the Exchange over time.
Market Makers, including any new Market Makers, who did not have any
volume in the Market Maker Penny add liquidity segment for the month of
December 2022 (and therefore lack December 2022 baseline volume against
which to measure subsequent growth) would meet the growth requirement
through whatever volume of Market
[[Page 10586]]
Maker add liquidity activity in Penny Symbols during the first month of
use.\5\
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\4\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
\5\ The Exchange will continue to evaluate the proposed growth
tier criteria to determine whether the parameters are appropriately
designed to incentivize Market Makers in the intended manner. If the
Exchange determines that the growth tier parameters need to be
adjusted, it will do so in a future rule filing.
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Specifically, Market Makers may qualify for a reduction in the Tier
1 and Tier 2 Maker Fees described above if the Market Maker has
increased its volume which adds liquidity in Penny Symbols as a
percentage of Customer Total Consolidated Volume \6\ by at least 100%
over the Member's December 2022 Market Maker volume which adds
liquidity in Penny Symbols as a percentage of Customer Total
Consolidated Volume. Market Makers that qualify will have their Tier 1
Maker Fee reduced by $0.15 and their Tier 2 Market Fee reduced by
$0.05. As a result, Market Makers that qualify for the growth incentive
would pay a discounted maker fee of $0.05 per contract in Tier 1 and
Tier 2.\7\
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\6\ ``Customer Total Consolidated Volume'' means the total
volume cleared at The Options Clearing Corporation in the Customer
range in equity and ETF options in that month. See Options 7,
Section 1(c).
\7\ The Exchange notes that MIAX Pearl Options (``PEARL'')
currently has a similarly structured growth incentive in place
whereby it provides additional maker rebates to Market Makers in
Non-Penny classes, which are applied to the Market Maker's base
maker rebates for Non-Penny classes in Tiers 1 through 4 if the
Market Maker increases their Non-Penny Class Maker TCV by 100% or
more compared to that Market Maker's TCV for the month of July 2022.
Today, PEARL Market Makers are provided base maker rebates in Non-
Penny classes of $0.30 (Tier 1), $0.30 (Tier 2), $0.60 (Tier 3), and
$0.65 (Tier 4). PEARL Market Makers that qualify for the growth
incentive would receive the following additional rebates: ($0.40) in
Tier 1; ($0.40) in Tier 2; ($0.10) in Tier 3; and ($0.05) in Tier 4.
As a result, qualifying PEARL Market Makers would receive total
rebates of $0.70 per contract (i.e., base rebate plus additional
rebate) in Tiers 1 through 4. See PEARL Fee Schedule at <a href="https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_01012023_1.pdf">https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_01012023_1.pdf</a>. See also Securities
Exchange Act Release No. 95886 (September 22, 2022), 87 FR 58843
(September 28, 2022) (SR-PEARL-2022-40) (``Adopting Filing'').
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As noted above, Market Makers, including any new Market Makers, who
did not have any volume in the Market Maker Penny add liquidity segment
for the month of December 2022 would meet the growth requirement
through whatever volume of Market Maker add liquidity activity in Penny
Symbols during the first month of use. The Exchange therefore proposes
to also add that Market Makers with no volume in the Penny Symbol add
liquidity segment for the month of December 2022 will have any new
volume considered as added volume.\8\
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\8\ The Exchange notes that PEARL has a substantially similar
structure in place for its Market Maker growth incentive whereby it
considers any new volume as added volume for PEARL Market Makers
with no volume in the Non-Penny class maker segment for the month of
July 2022. See supra note 7 for PEARL Fee Schedule and for Adopting
Filing.
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As noted above, the Exchange intends for this proposal to reward
Market Makers that increase the extent to which they add Penny Symbol
liquidity to the Exchange over time and specifically, relative to a
recent benchmark month (December 2022). The Exchange believes that if
the proposed incentive is effective, any ensuing increase in added
liquidity in Penny Symbols will improve market quality, to the benefit
of all market participants.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\10\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its schedule of credits 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'. . . .'' \11\
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\11\ 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.'' \12\
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\12\ 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 it is reasonable to establish a new
growth incentive that would provide Market Makers with the opportunity
to reduce their maker fees by $0.15 (Tier 1) and by $0.05 (Tier 2) if
they increase their Market Maker volume which adds liquidity in Penny
Symbols as a percentage of Customer Total Consolidated Volume by at
least 100% over their December 2022 Market Maker volume which adds
liquidity in Penny Symbols as a percentage of Customer Total
Consolidated Volume. The proposal is reasonable because it will provide
extra incentives to Market Makers to engage in substantial amounts of
liquidity adding activity in Penny Symbols on the Exchange, as well as
to grow substantially the extent to which they do so relative to a
recent benchmark month. The Exchange believes that if the proposed
incentive is effective, then any ensuing increase in liquidity adding
activity on the Exchange will improve the quality of the market
overall, to the benefit of all market participants. The Exchange also
believes that it is reasonable to provide Market Makers with a higher
discount in the base Tier 1 marker fee than in Tier 2 because the
Exchange believes that the prospect of obtaining the higher discount in
Tier 1 will attract Penny add liquidity volume from new Market Makers.
The Exchange similarly believes that it is reasonable to consider any
new Penny add liquidity volume for
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Market Makers with no such volume for the month of December 2022 in
order for those Market Makers to receive the proposed discounts to
their maker fees because this is designed to attract additional Penny
liquidity from new Market Makers to the Exchange. To the extent this
proposal attracts new Market Maker Penny add liquidity volume to the
Exchange, all market participants should benefit through more trading
opportunities and tighter spreads. The Exchange notes that another
options exchange employs a similarly structured growth incentive today
that provides tiered incentives to Market Makers for increasing their
add liquidity activity relative to a benchmark month, including
providing higher incentives in the lower tiers versus the higher tiers
and considering any new volume as added volume for Market Makers with
no volume in the targeted segment for the benchmark month.\13\
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\13\ See supra note 7.
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The Exchange believes that the proposed growth incentive is
equitable and not unfairly discriminatory for the reasons that follow.
As a general matter, the Exchange believes that it is equitable and not
unfairly discriminatory to provide the proposed growth incentive to
only Market Makers because Market Makers have different requirements
and additional obligations to the Exchange that other market
participants do not (such as quoting requirements). As such, the
Exchange's proposal is designed to increase Market Maker participation
and reward Market Makers for the unique role they play in ensuring a
robust market. As discussed above, the proposal is designed to
encourage Market Makers to substantially add Penny Symbol liquidity to
the Exchange. To the extent the Exchange succeeds in increasing the
levels of liquidity and activity on the Exchange, the Exchange will
experience improvements in market quality, which stands to benefit all
market participants.
Furthermore, the Exchange believes that it is equitable and not
unfairly discriminatory to provide a higher discount to qualifying
Market Makers in the base Tier 1 marker fee than in Tier 2 because as
noted above, the Exchange is seeking to attract Penny add liquidity
volume from new Market Makers by offering the opportunity of obtaining
a higher discount in Tier 1. The Exchange similarly believes that it is
equitable and not unfairly discriminatory to consider any new Penny add
liquidity volume for Market Makers with no such volume for the month of
December 2022 in order for those Market Makers to receive the proposed
discounts to their maker fees because this is designed to attract
additional Penny liquidity from new Market Makers to the Exchange. In
turn, this additional Penny liquidity should benefit all market
participants through increased liquidity and order interaction. To the
extent the proposed maker fee attracts new Market Makers to the
Exchange, the Exchange similarly believes that its proposal will
increase liquidity on MRX, which benefits all market participants by
providing more trading opportunities, tighter spreads, and increased
order interaction. As discussed earlier, the proposed growth incentive
is structured similarly to another options exchange.\14\
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\14\ Id.
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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 proposals will place any category of market participant at a
competitive disadvantage. The Exchange believes that the proposed
Market Maker growth incentive should encourage the provision of
liquidity from both existing and new Market Makers that enhances the
quality of the Exchange's market and increases the number of trading
opportunities on the Exchange for all market participants who will be
able to compete for such 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
options 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.
As discussed above, the proposed growth incentive is pro-
competitive in that the Exchange intends for the changes to increase
liquidity addition and activity on the Exchange, thereby rendering the
Exchange a more attractive and vibrant venue to market participants.
The Exchange also notes that its proposed incentive is structured
similarly to a competing options exchange.\15\
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\15\ See supra note 7.
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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 members or competing order execution
venues 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\ 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.
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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#c1b3b4ada4eca2aeacaca4afb5b281b2a4a2efa6aeb7"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email protected]</span></a>. Please include
File Number SR-MRX-2023-04 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-2023-04. This file
number should be included on the
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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-
2023-04 and should be submitted on or before March 14, 2023.
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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03483 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P
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