Notice2023-10359
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 2
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Published
May 16, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 94 (Tuesday, May 16, 2023)</title>
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[Federal Register Volume 88, Number 94 (Tuesday, May 16, 2023)]
[Notices]
[Pages 31293-31296]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10359]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97471; File No. SR-NASDAQ-2023-011]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Options 7, Section 2
May 10, 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 May 1, 2023, 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 and II 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 Nasdaq Options Market LLC
(``NOM'') Pricing Schedule at Options 7, Section 2.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the 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 Exchange proposes to amend NOM's Pricing Schedule at Options 7,
Section 2(1), ``Nasdaq Options Market--Fees and Rebates.''
Specifically, the Exchange proposes to amend note 2 within Options 7,
Section 2(1).
Today, NOM Options 7, Section 2(1) provides for various fees and
rebates applicable to NOM Participants. Specifically, the Exchange pays
the following Rebates to Add Liquidity in Penny Symbols:
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Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6
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Customer.......................... ($0.20) ($0.25) ($0.43) ($0.44) ($0.45) \7\ ($0.48)
Professional...................... (0.20) (0.25) (0.43) (0.44) (0.45) (0.47)
Broker-Dealer..................... (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)
Firm.............................. (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)
Non-NOM Market Maker.............. (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)
NOM Market Maker.................. (0.20) (0.25) \4\ (0.30) \4\ (0.32) (0.44) (0.48)
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[[Page 31294]]
Additionally, today, NOM pays and assesses the following Fees and
Rebates to Add Liquidity in Non-Penny Symbols:
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Customer................................................... ($0.80)
Professional............................................... (0.80)
Broker-Dealer.............................................. 0.45
Firm....................................................... 0.45
Non-NOM Market Maker....................................... 0.45
NOM Market Maker........................................... 0.35/(0.30)
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Finally, the Exchange Assesses the Following Fees To Remove Liquidity in
Penny and Non-Penny Symbols: Fees to Remove Liquidity in Penny and Non-
Penny Symbols
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Penny Non-penny
symbols symbols
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Customer...................................... $0.49 $0.85
Professional.................................. 0.49 0.85
Broker-Dealer................................. 0.50 1.10
Firm.......................................... 0.50 1.10
Non-NOM Market Maker.......................... 0.50 1.10
NOM Market Maker.............................. 0.50 1.10
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Currently, the Non-NOM Market Makers \3\ and NOM Market Makers \4\
who remove liquidity in Penny Symbols and Non-Penny Symbols are subject
to note 2 within NOM Options 7, Section 2(1), which provides,
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\3\ The term ``Non-NOM Market Maker'' or (``O'') is a registered
market maker on another options exchange that is not a NOM Market
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market
Maker designation to orders routed to NOM. See Options 7, Section
1(a).
\4\ 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. See Options 7, Section 1(a).
Participants that add 1.30% of Customer, Professional, Firm,
Broker-Dealer or Non-NOM Market Maker liquidity in Penny Symbols
and/or Non-Penny Symbols of total industry customer equity and ETF
option ADV contracts per day in a month will be subject to the
following pricing applicable to executions: a $0.48 per contract
Penny Symbols Fee for Removing Liquidity when the Participant is (i)
both the buyer and the seller or (ii) the Participant removes
liquidity from another Participant under Common Ownership.
Participants that add 1.50% of Customer, Professional, Firm,
Broker-Dealer or Non-NOM Market Maker liquidity in Penny Symbols
and/or Non-Penny Symbols of total industry customer equity and ETF
option ADV contracts per day in a month and meet or exceed the cap
for The Nasdaq Stock Market Opening Cross during the month will be
subject to the following pricing applicable to executions less than
10,000 contracts: a $0.32 per contract Penny Symbols Fee for
Removing Liquidity when the Participant is (i) both the buyer and
seller or (ii) the Participant removes liquidity from another
Participant under Common Ownership.
Participants that add 1.75% of Customer, Professional, Firm,
Broker-Dealer or Non-NOM Market Maker liquidity in Penny Symbols
and/or Non-Penny Symbols of total industry customer equity and ETF
option ADV contracts per day in a month will be subject to the
following pricing applicable to executions less than 10,000
contracts: a $0.32 per contract Penny Symbols Fee for Removing
Liquidity when the Participant is (i) both the buyer and seller or
(ii) the Participant removes liquidity from another Participant
under Common Ownership.
At this time, the Exchange proposes to amend note 2 within NOM
Options 7, Section 2(1) to increase the $0.32 per contract NOM Market
Maker and Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees
to Remove Liquidity to $0.38 per contract for executions less than
10,000 contracts when the Participant is (i) both the buyer and seller
or (ii) the Participant removes liquidity from another Participant
under Common Ownership. In order to receive the lower NOM Market Maker
and Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees to
Remove Liquidity of $0.38 per contract, Participants would continue to
either: (1) add 1.50% of Customer,\5\ Professional,\6\ Firm,\7\ Broker-
Dealer \8\ or Non-NOM Market Maker liquidity in Penny Symbols and/or
Non-Penny Symbols of total industry customer equity and ETF option ADV
contracts per day in a month and meet or exceed the cap for The Nasdaq
Stock Market Opening Cross during the month; or (2) add 1.75% of
Customer, Professional, Firm, Broker-Dealer or Non-NOM Market Maker
liquidity in Penny Symbols and/or Non-Penny Symbols of total industry
customer equity and ETF option ADV contracts per day in a month. The
$0.38 per contract fee is in comparison to the $0.50 per contract Penny
Symbol Fee to Remove Liquidity for NOM Market Makers and Non-NOM Market
Makers and the $1.10 per contract Non-Penny Symbol Fee to Remove
Liquidity for NOM Market Makers and Non-NOM Market Makers. Customers
and Professionals would continue to pay a $0.49 per contract Penny
Symbols Fee to Remove Liquidity and an $0.85 per contract Non-Penny
Symbol Fee to Remove Liquidity. Broker-Dealers and Firms would continue
to pay a $0.50 per contract Penny Symbols Fee to Remove Liquidity and
an $1.10 per contract Non-Penny Symbol Fee to Remove Liquidity. Despite
the increase to the Penny Symbol and Non-Penny Symbol Fees to Remove
Liquidity for NOM Market Makers and Non-NOM Market Makers, the Exchange
believes the incentive offered in note 2 within NOM Options 7, Section
2(1) will continue to incentivize NOM Participants to direct liquidity
to NOM for an opportunity to pay lower NOM Market Makers and Non-NOM
Market Makers Penny Symbol or Non-Penny Symbol Fees to Remove
Liquidity.
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\5\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(a)(47)). See Options 7, Section 1(a).
\6\ The term ``Professional'' or (``P'') means any person or
entity that (i) is not a broker or dealer in securities, and (ii)
places more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s) pursuant
to Options 1, Section 1(a)(47). All Professional orders shall be
appropriately marked by Participants. See Options 7, Section 1(a).
\7\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at OCC. See Options 7, Section 1(a).
\8\ The term ``Broker-Dealer'' or (``B'') applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category. See Options 7, Section
1(a).
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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 proposed changes to its Pricing Schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for options 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 \11\
(``NetCoalition''), 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
[[Page 31295]]
of choices of where to route orders for execution'; [and] `no exchange
can afford to take its market share percentages for granted' because
`no exchange possesses a monopoly, regulatory or otherwise, in the
execution of order flow from broker dealers'. . . .'' \12\
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\11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\12\ Id. at 539 (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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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options 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. Within the
foregoing context, the proposal represents a reasonable attempt by the
Exchange to attract additional order flow to the Exchange and increase
its market share relative to its competitors.
The Exchange's proposal to amend note 2 within NOM Options 7,
Section 2(1) to increase the $0.32 per contract NOM Market Maker and
Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees to Remove
Liquidity to $0.38 per contract for executions less than 10,000
contracts when the Participant is (i) both the buyer and seller or (ii)
the Participant removes liquidity from another Participant under Common
Ownership and they meet the requisite order flow requirements \13\ is
reasonable because despite the increase to the NOM Market Maker and
Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees to Remove
Liquidity, the Exchange believes the incentive offered in note 2 within
NOM Options 7, Section 2(1) will continue to incentivize NOM
Participants to direct liquidity to NOM for an opportunity to pay lower
NOM Market Maker and Non-NOM Market Maker Penny Symbol and Non-Penny
Symbol Fees to Remove Liquidity. Participants would continue to be
offered an opportunity to lower NOM Market Maker and Non-NOM Market
Maker Penny Symbol and Non-Penny Symbol Fees to Remove Liquidity,
thereby attracting order flow to the Exchange to the benefit of all
other market participants.
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\13\ In order to receive the lower fee of $0.38 per contract
proposed in note 2 of Options 7, Section 2(1), Participants would
continue to either: (1) add 1.50% of Customer, Professional, Firm,
Broker-Dealer or Non-NOM Market Maker liquidity in Penny Symbols
and/or Non-Penny Symbols of total industry customer equity and ETF
option ADV contracts per day in a month and meet or exceed the cap
for The Nasdaq Stock Market Opening Cross during the month; or (2)
add 1.75% of Customer, Professional, Firm, Broker-Dealer or Non-NOM
Market Maker liquidity in Penny Symbols and/or Non-Penny Symbols of
total industry customer equity and ETF option ADV contracts per day
in a month.
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The Exchange's proposal to amend note 2 within NOM Options 7,
Section 2(1) to increase the $0.32 per contract NOM Market Maker and
Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees to Remove
Liquidity to $0.38 per contract for executions less than 10,000
contracts when the Participant is (i) both the buyer and seller or (ii)
the Participant removes liquidity from another Participant under Common
Ownership and they meet the requisite order flow requirements is
equitable and not unfairly discriminatory because the Exchange will
uniformly pay the lower Non-NOM Marker Maker or NOM Market Maker Penny
Symbol or Non-Penny Symbol Fees for Removing Liquidity to all
qualifying NOM Participants. Offering these discounts to NOM Market
Makers is equitable and not unfairly discriminatory because NOM Market
Makers have obligations to the market and regulatory requirements which
do not apply to other market participants.\14\ A NOM Market Maker has
the obligation, for example, to make continuous markets, engage in a
course of dealings reasonably calculated to contribute to the
maintenance of a fair and orderly market, and not make bids or offers
or enter into transactions that are inconsistent with a course of
dealings. The proposed differentiation as between NOM Market Makers and
other market participants recognizes the differing contributions of NOM
Market Makers. For the above reasons, the Exchange believes that NOM
Market Makers are entitled to discounted fees, provided they qualify
for the discount. The Exchange believes it is equitable and not
unfairly discriminatory to offer the fee discount to Non-NOM Market
Makers because the Exchange is offering Participants flexibility in the
manner in which they are submitting their orders. Non-NOM Market Makers
have obligations on other exchanges to qualify as a market maker. Also,
the Exchange believes that market makers not registered on NOM will be
encouraged to send orders to NOM as an away market maker (Non-NOM
Market Maker) with this incentive. Because the incentive is being
offered to both market makers registered on NOM and those not
registered on NOM, the Exchange believes that the proposal is equitable
and not unfairly discriminatory because it encourages market makers to
direct liquidity to NOM to the benefit of all Participants. This
proposal recognizes the overall contributions made by market makers to
a listed options market.
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\14\ See NOM 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.
Inter-Market Competition
The proposal does not impose an undue burden on inter-market
competition. The Exchange believes its proposal remains competitive
with other options markets and will offer market participants with
another choice of where to transact options. 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 and rebates to remain competitive with
other exchanges. Because competitors are free adjust their order
routing practices, the Exchange believes that the degree to which
pricing changes in this market may impose any burden on competition is
extremely limited.
Intra-Market Competition
The proposed amendments do not impose an undue burden on intra-
market competition. 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's proposal to
amend note 2 within NOM Options 7, Section 2(1) to increase the $0.32
per contract NOM Market Maker and Non-NOM Market Maker Penny Symbol and
Non-Penny Symbol Fees to Remove Liquidity to $0.38 per contract for
executions less than 10,000 contracts when the Participant is (i) both
the buyer and seller or (ii) the Participant removes liquidity from
another Participant under Common Ownership and they meet the requisite
order flow requirements does not impose an undue burden on competition
because the Exchange will uniformly pay the lower Non-NOM Marker Maker
or NOM Market Maker Penny Symbol or Non-Penny Symbol Fees for Removing
Liquidity to all qualifying NOM Participants. Offering
[[Page 31296]]
these discounts to NOM Market Makers does not impose an undue burden on
competition because NOM Market Makers have obligations to the market
and regulatory requirements which do not apply to other market
participants.\15\ A NOM Market Maker has the obligation, for example,
to make continuous markets, engage in a course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market, and not make bids or offers or enter into transactions that are
inconsistent with a course of dealings. The proposed differentiation as
between NOM Market Makers and other market participants recognizes the
differing contributions of NOM Market Makers. For the above reasons,
the Exchange believes that NOM Market Makers are entitled to discounted
fees, provided they qualify for the discount. Offering the fee discount
to Non-NOM Market Makers does not impose an undue burden on competition
because the Exchange is offering Participants flexibility in the manner
in which they are submitting their orders. Non-NOM Market Makers have
obligations on other exchanges to qualify as a market maker. Also, the
Exchange believes that market makers not registered on NOM will be
encouraged to send orders to NOM as an away market maker (Non-NOM
Market Maker) with this incentive. Because the incentive is being
offered to both market makers registered on NOM and those not
registered on NOM, the Exchange believes that the proposal does not
impose an undue burden on competition because it encourages market
makers to direct liquidity to NOM to the benefit of all Participants.
This proposal recognizes the overall contributions made by market
makers to a listed options market.
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\15\ See NOM Options 2, Sections 4 and 5.
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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) of the Act \16\ and paragraph (f)(2) of Rule 19b-4
thereunder.\17\ 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.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(2).
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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#a9dbdcc5cc84cac6c4c4ccc7dddae9daccca87cec6df"><span class="__cf_email__" data-cfemail="acded9c0c981cfc3c1c1c9c2d8dfecdfc9cf82cbc3da">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2023-011 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-2023-011. 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. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-NASDAQ-2023-011, and should be submitted
on or before June 6, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10359 Filed 5-15-23; 8:45 am]
BILLING CODE 8011-01-P
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