Notice2023-03484
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Pricing Schedule at Options 7, Section 4 (Complex Order Fees)
Primary source
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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 10611-10614]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03484]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96925; File No. SR-MRX-2023-03]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Pricing Schedule at Options 7, Section 4 (Complex Order Fees)
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 a proposal to amend the Exchange's Pricing
Schedule at Options 7, Section 4 (Complex Order Fees).
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
[[Page 10612]]
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 4 (Complex Order Fees).\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 complex order fees set
forth in SR-MRX-2023-02.
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As set forth in Options 7, Section 4, the Exchange presently
assesses all market participants except Priority Customers \4\ a
uniform $0.15 per contract fee for all complex order transactions in
all symbols.\5\ Priority Customers are presently assessed no fees for
complex order transactions. In addition, the Exchange currently reduces
this $0.15 per contract fee to $0.00 for Market Makers \6\ when a
Market Maker trades against Priority Customer orders that originate
from an Affiliated Member \7\ or Affiliated Entity.\8\ This incentive
is designed to encourage Market Makers, Affiliated Members, and/or
Affiliated Entities to direct additional Priority Customer order flow
to the Exchange.
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\4\ A ``Priority Customer'' is a person or entity that is not a
broker/dealer in securities, and does not place more than 390 orders
in listed options per day on average during a calendar month for its
own beneficial account(s), as defined in Nasdaq MRX Options 1,
Section 1(a)(36).
\5\ With the exception of complex PIM orders, which are subject
to separate pricing in Options 7, Section 3.A.
\6\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
\7\ An ``Affiliated Member'' is a Member that shares at least
75% common ownership with a particular Member as reflected on the
Member's Form BD, Schedule A.
\8\ An ``Affiliated Entity'' is a relationship between an
Appointed Market Maker and an Appointed OFP for purposes of
qualifying for certain pricing specified in the Pricing Schedule.
Market Makers and OFPs are required to send an email to the Exchange
to appoint their counterpart, at least 3 business days prior to the
last day of the month to qualify for the next month. The Exchange
will acknowledge receipt of the emails and specify the date the
Affiliated Entity is eligible for applicable pricing, as specified
in the Pricing Schedule. Each Affiliated Entity relationship will
commence on the 1st of a month and may not be terminated prior to
the end of any month. An Affiliated Entity relationship will
automatically renew each month until or unless either party
terminates earlier in writing by sending an email to the Exchange at
least 3 business days prior to the last day of the month to
terminate for the next month. Affiliated Members may not qualify as
a counterparty comprising an Affiliated Entity. Each Member may
qualify for only one (1) Affiliated Entity relationship at any given
time.
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The Exchange now proposes to differentiate complex order pricing
between Penny and Non-Penny Symbols as follows:
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Fee per Fee per
Capacity of market participant contract--penny contract--non-
symbols penny symbols
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Market Maker........................... $0.35 $0.85
Non-Nasdaq MRX Market Maker (FarMM).... 0.35 0.85
Firm Proprietary/Broker-Dealer......... 0.35 0.85
Professional Customer.................. 0.35 0.85
Priority Customer...................... 0.00 0.00
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With the proposed changes, the complex order fee for all non-
Priority Customers will increase from $0.15 to $0.35 per contract in
Penny Symbols. In Non-Penny Symbols, this fee will increase from $0.15
to $0.85 per contract for all non-Priority Customers. Priority
Customers will continue to receive free executions in all symbols under
this proposal.
In addition, the Exchange will continue to provide Market Makers
with the reduced fee described above for their complex orders in both
Penny and Non-Penny Symbols when the Market Maker trades against
Priority Customer orders that originate from an Affiliated Member or
Affiliated Entity. Accordingly, the Exchange proposes to clarify note 2
in Options 7, Section 4 to reflect the proposed changes. In particular,
note 2 will provide that a complex order Market Maker fee of $0.00 per
contract applies instead of the above-referenced complex order fee in
Penny and Non-Penny Symbols, when the Market Maker trades against
Priority Customer orders that originate from an Affiliated Member or an
Affiliated Entity.
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
[[Page 10613]]
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 the proposed changes to its complex
order fee schedule in Options 7, Section 4 are reasonable. As discussed
above, the proposed complex order fee for all non-Priority Customers
will increase from $0.15 to $0.35 per contract in Penny Symbols. In
Non-Penny Symbols, this fee will increase from $0.15 to $0.85 per
contract for all non-Priority Customers. Priority Customers will
continue to receive free executions in all symbols under this proposal.
While the non-Priority Customer complex fees are increasing across the
board for all symbols, the Exchange believes that the proposing pricing
will remain competitive and in line with other options exchanges that
charge complex order fees.\13\ When the Exchange first adopted complex
functionality and related fees back in 2019, it initially set non-
Priority Customer complex fees at $0.15 per contract (i.e., the current
rate).\14\ The Exchange adopted this initial pricing structure (which
was lower than certain options exchanges that had comparable complex
pricing) to enable it to effectively compete with other exchanges by
attracting complex order flow to the Exchange, thereby helping the
Exchange to gain market share for complex executions. After more than
three years, the Exchange now believes that it is appropriate and
reasonable to adjust these fees in order to bring them in line with
complex fees charged at other options exchanges.
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\13\ For example, MIAX Emerald charges complex order fees in
Penny Classes that range from $0.10 to $0.50 per contract for all
origin types except Priority Customers, depending on whether the
market participant is a maker or taker. In Non-Penny Classes, those
fees range from $0.20 to $0.88 per contract for all origin types
except Priority Customer, depending on whether the market
participant is a maker or taker. See MIAX Emerald Fee Schedule,
Section 1)a)i) at <a href="https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_1_9_2023.pdf">https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_1_9_2023.pdf</a>.
\14\ See Securities Exchange Act Release No. 86326 (July 8,
2019), 84 FR 33300 (July 12, 2019) (SR-MRX-2019-14).
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Furthermore, the Exchange believes that the proposed fee structure
for non-Priority Customer complex orders is equitable and not unfairly
discriminatory because it will apply uniformly to all similarly
situated participants. The Exchange believes that it is equitable and
not unfairly discriminatory to continue to offer Priority Customers
free executions in complex orders in all symbols. Priority Customer
liquidity benefits all market participants by providing more trading
opportunities, which attracts Market Makers. An increase in the
activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants.
Lastly, the Exchange believes that the proposed changes to note 2
in Options 7, Section 4 are reasonable, equitable, and not unfairly
discriminatory because these are clarifying changes to reflect that the
Exchange will continue to provide Market Makers with the reduced fee
described above for their complex orders in all symbols when the Market
Maker trades against Priority Customer orders that originate from an
Affiliated Member or Affiliated Entity.
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. As noted above, the proposed changes will
apply uniformly to all similarly situated market participants.
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 for the proposed non-Priority
Customer complex fee structure, the Exchange notes that its proposal
will bring this pricing in line with other options exchanges that offer
similar complex functionality.\15\
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\15\ See supra note 13.
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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
[[Page 10614]]
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#295b5c454c044a4644444c475d5a695a4c4a074e465f"><span class="__cf_email__" data-cfemail="7604031a135b15191b1b131802053605131558111900">[email protected]</span></a>. Please include
File Number SR-MRX-2023-03 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-2023-03. 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-2023-03 and should be submitted on
or before March 14, 2023.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03484 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P
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