Notice2023-20962
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NOM Options 7, Section 2
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 27, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 88, Number 186 (Wednesday, September 27, 2023)]
[Notices]
[Pages 66541-66547]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-20962]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98475; File No. SR-NASDAQ-2023-037]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend NOM Options 7, Section 2
September 21, 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 September 13, 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, 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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[[Page 66542]]
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.\3\
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\3\ On September 13, 2023, the Exchange withdrew SR-NASDAQ-2023-
033 and replaced it with the instant rule change.
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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, Nasdaq Options Market--Fees and Rebates. Today, NOM Options
7, Section 2(1) provides for various fees and rebates applicable to NOM
Participants.
Today, Customer,\4\ Professional,\5\ and NOM Market Maker \6\
Rebates to Add Liquidity in Penny Symbols are paid per the highest tier
achieved among the available tiers. The tiers for Customer and
Professional Rebates to Add Liquidity in Penny Symbols are below.
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\4\ 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).
\5\ 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).
\6\ 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).
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Monthly Volume
Tier 1: Participant adds Customer, Professional, Firm, Non-NOM
Market Maker and/or Broker-Dealer liquidity in Penny Symbols and/or
Non-Penny Symbols of up to 0.10% of total industry customer equity and
ETF option average daily volume (``ADV'') contracts per day in a month.
Tier 2: Participant adds Customer, Professional, Firm, Non-NOM
Market Maker and/or Broker-Dealer liquidity in Penny Symbols and/or
Non-Penny Symbols above 0.10% of total industry customer equity and ETF
option ADV contracts per day in a month.
Tier 3: Participant: (a) adds Customer, Professional, Firm, Non-NOM
Market Maker and/or Broker-Dealer liquidity in Penny Symbols and/or
Non-Penny Symbols above 0.20% of total industry customer equity and ETF
option ADV contracts per day in a month; or (b) adds Customer and/or
Professional liquidity in Penny Symbols and/or Non-Penny Symbols above
0.05% of total industry customer equity and ETF option ADV contracts
per day in a month and qualifies for MARS.
Tier 4: Participant adds Customer, Professional, Firm, Non-NOM
Market Maker and/or Broker-Dealer liquidity in Penny Symbols and/or
Non-Penny Symbols above 0.30% of total industry customer equity and ETF
option ADV contracts per day in a month.
Tier 5: Participant adds Customer, Professional, Firm, Non-NOM
Market Maker and/or Broker-Dealer liquidity in Penny Symbols and/or
Non-Penny Symbols above 0.40% of total industry customer equity and ETF
option ADV contracts per day in a month.
Tier 6<SUP>##</SUP>: Participant adds Customer, Professional, Firm,
Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Symbols
and/or Non-Penny Symbols above 0.70% or more of total industry customer
equity and ETF option ADV contracts per day in a month, or Participant:
(1) adds Customer and/or Professional liquidity in Penny Symbols and/or
Non-Penny Symbols of 0.10% or more of total industry customer equity
and ETF option ADV contracts per day in a month, and (2) has added
liquidity in all securities through one or more of its Nasdaq Market
Center MPIDs that represent 1.00% or more of Consolidated Volume in a
month or qualifies for MARS (defined below).
To determine the applicable percentage of total industry customer
equity and ETF option average daily volume for a Customer and
Professional Rebate to Add Liquidity in Penny Symbols, unless otherwise
stated, the Participant's Penny Symbol and Non-Penny Symbol Customer
and/or Professional volume that adds liquidity will be included.\7\
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\7\ See note 1 in Options 7, Section 2.
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With respect to the NOM Market Maker Rebates to Add Liquidity in
Penny Symbols, today, rebates are paid on the below tier
qualifications.
Monthly Volume
Tier 1: Participant adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols of up to 0.10% of total industry
customer equity and ETF option average daily volume (``ADV'') contracts
per day in a month.
Tier 2: Participant adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols above 0.10% of total industry customer
equity and ETF option ADV contracts per day in a month.
Tier 3: Participant: (a) adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols above 0.20% of total industry customer
equity and ETF option ADV contracts per day in a month; or (b)(1) adds
NOM Market Maker liquidity in Penny Symbols and/or Non-Penny Symbols
above 0.07% of total industry customer equity and ETF option ADV
contracts per day in a month, (2) transacts in all securities through
one or more of its Nasdaq Market Center MPIDs that represent (i) 0.70%
or more of Consolidated Volume (``CV'') which adds liquidity in the
same month on The Nasdaq Stock Market or (ii) 70 million shares or more
ADV which adds liquidity in the same month on The Nasdaq Stock Market,
(3) transacts in Tape B securities through one or more of its Nasdaq
Market Center MPIDs that represent 0.10% or more of CV which adds
liquidity in the same month on The Nasdaq Stock Market, and (4)
executes greater than 0.01% of CV via Market-on- Close/Limit-on-Close
(``MOC/LOC'') volume within The Nasdaq Stock Market Closing Cross in
the same month.
Tier 4: Participant adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols of above 0.60% of total industry
customer equity and ETF option ADV contracts per day in a month.
Tier 5: Participant adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols of above 0.40% of total industry
customer equity and ETF option ADV contracts per day in a
[[Page 66543]]
month and transacts in all securities through one or more of its Nasdaq
Market Center MPIDs that represent 0.40% or more of Consolidated Volume
(``CV'') which adds liquidity in the same month on The Nasdaq Stock
Market.
Tier 6: Participant: (a)(1) adds NOM Market Maker liquidity in
Penny Symbols and/or Non-Penny Symbols above 0.95% of total industry
customer equity and ETF option ADV contracts per day in a month, (2)
executes Total Volume of 250,000 or more contracts per day in a month,
of which 30,000 or more contracts per day in a month must be removing
liquidity, and (3) adds Firm, Broker-Dealer and Non-NOM Market Maker
liquidity in Non-Penny Symbols of 10,000 or more contracts per day in a
month; or (b)(1) adds NOM Market Maker liquidity in Penny Symbols and/
or Non-Penny Symbols above 1.50% of total industry customer equity and
ETF option ADV contracts per day in a month, and (2) executes Total
Volume of 250,000 or more contracts per day in a month, of which 15,000
or more contracts per day in a month must be removing liquidity.
Total Volume is defined as Customer, Professional, Firm, Broker-
Dealer, Non-NOM Market Maker and NOM Market Maker volume in Penny
Symbols and/or Non-Penny Symbols which either adds or removes liquidity
on NOM. Finally, today, Broker-Dealers,\8\ Firms \9\ and Non-NOM Market
Makers \10\ are paid a $0.10 per contract Rebate to Add Liquidity in
Penny Symbols regardless of the tier.
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\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).
\9\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC. See Options 7, Section 1(a).
\10\ 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).
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Proposal
NOM Market Maker--Note 4
At this time, the Exchange proposes to amend note 4 of Options 7,
Section 2 which currently applies to Participants who achieve the NOM
Market Maker Tier 3 or Tier 4 Rebate to Add Liquidity in Penny Symbols.
Note 4 of Options 7, Section 2 currently states, ``Participants who
achieve the NOM Market Maker Tier 3 or Tier 4 Rebate to Add Liquidity
will receive $0.40 per contract to add liquidity in the following
symbols: AAPL, SPY, QQQ, IWM, and VXX.'' The Exchange proposes to amend
this rebate in note 4 of Options 7, Section 2 and also offer a second
additional rebate.
First, the Exchange proposes to amend the existing rebate of $0.40
per contract in note 4 of Options 7, Section 2, which is paid to
Participants who achieve the NOM Market Maker Tier 3 or Tier 4 Rebate
to Add Liquidity in Penny Symbols to $0.39 per contract. Second, the
Exchange proposes to remove the symbols ``AAPL'' and ``VXX'' as
eligible for the existing rebate. Third, the Exchange proposes to offer
an additional rebate, in note 4 of Options 7, Section 2, of $0.33 per
contract to add liquidity in SPY, QQQ, and IWM to Participants who
achieve the NOM Market Maker Tier 2 Rebate to Add Liquidity in Penny
Symbols and execute 1 million shares or more ADV in the same month
utilizing the M-ELO order type \11\ on The Nasdaq Stock Market,
provided the Participant also transacts in all securities through one
or more of its Nasdaq Market Center MPIDs that represent (i) 0.45% or
more of Consolidated Volume (``CV'') which adds liquidity in the same
month on The Nasdaq Stock Market or (ii) 45 million shares or more ADV
which adds liquidity in the same month on The Nasdaq Stock Market.
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\11\ The M-ELO order type, also known as the ``Midpoint Extended
Life Order,'' is a Non-Displayed Order priced at the midpoint
between the National Best Bid and Offer (``NBBO'') and is eligible
for execution only against other eligible M-ELOs and only after a
minimum period of 10 milliseconds (``Holding Period'') has passed
after acceptance of the Order by the System. All market participants
on The Nasdaq Stock Market LLC may utilize this order type. See
Nasdaq Equities 4, Rule 4702(b)(14). Of note, the Commission
recently approved a rule proposal amending the Holding Period of the
M-ELO order type so that it may adjust dynamically between .025 and
2.5 milliseconds upon real-time assessments of market conditions.
See Securities and Exchange Act Release No. 98321 (September 7,
2003), 88 FR 62850 (September 13, 2023) (SR-NASDAQ-2022-079). This
rule change has not yet been implemented.
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Therefore, in order to qualify for the new $0.33 per contract
rebate to add liquidity in SPY, QQQ, and IWM, in note 4 of Options 7,
Section 2, a Participant must first qualify for the NOM Market Maker
Tier 2 Rebate to Add Liquidity in Penny Symbols and execute 1 million
shares or more ADV in the same month utilizing the M-ELO order type on
The Nasdaq Stock Market. Further, a Participant must transact in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent either (i) 0.45% or more of CV which adds liquidity in the
same month \12\ on The Nasdaq Stock Market; or (ii) 45 million shares
or more ADV which adds liquidity in the same month on The Nasdaq Stock
Market to receive a $0.33 per contract to add liquidity in SPY, QQQ,
and IWM.
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\12\ The Exchange notes that 0.45% or more of Consolidated
Volume (``CV'') is approximately $44 million.
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The Exchange believes the amendment to the current rebate in note 4
of Options 7, Section 2 will continue to incentivize Participants to
add liquidity to NOM to qualify for the $0.39 per contract rebate to
add liquidity in SPY, QQQ, and IWM despite the lower rebate ($0.40 to
$0.39 per contract) and removal of AAPL and VXX. Additionally, the
Exchange believes that introducing a new $0.33 rebate for Participants
who achieve the NOM Market Maker Tier 2 Rebate to Add Liquidity in
Penny Symbols, in addition to other qualifications, will create an
additional opportunity for Market Makers to increase their liquidity
adding activity on the Exchange's equity market. The Exchange believes
that the new note 4 rebate qualifying criteria will incentivize
participation in greater volume from cross asset activity, which would
improve the overall quality of the Exchange's marketplace to the
benefit of all market participants, both on NOM and The Nasdaq Stock
Market.
NOM Market Maker--Tier 3 Qualifier
The Exchange also proposes to amend the qualifications in the Tier
3 NOM Market Maker Rebate to Add Liquidity in Penny Symbol that
currently state,
Participant: (a) adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols above 0.20% of total industry
customer equity and ETF option ADV contracts per day in a month; or
(b)(1) adds NOM Market Maker liquidity in Penny Symbols and/or Non-
Penny Symbols above 0.07% of total industry customer equity and ETF
option ADV contracts per day in a month, (2) transacts in all
securities through one or more of its Nasdaq Market Center MPIDs
that represent (i) 0.70% or more of Consolidated Volume (``CV'')
which adds liquidity in the same month on The Nasdaq Stock Market or
(ii) 70 million shares or more ADV which adds liquidity in the same
month on The Nasdaq Stock Market, (3) transacts in Tape B securities
through one or more of its Nasdaq Market Center MPIDs that represent
0.10% or more of CV which adds liquidity in the same month on The
Nasdaq Stock Market, and (4) executes greater than 0.01% of CV via
Market-on-Close/Limit-on-Close (``MOC/LOC'') volume within The
Nasdaq Stock Market Closing Cross in the same month.
The Exchange proposes to amend the Tier 3 NOM Market Maker Rebate
to Add Liquidity in Penny Symbol qualifications in several ways. First,
the Exchange proposes to amend the (b)(1) qualifier to require NOM
Market Maker liquidity in Penny Symbols and/or Non-Penny Symbols above
0.15% of total industry customer equity and ETF
[[Page 66544]]
option ADV contracts per day in a month (a change from 0.07% to 0.15%).
Second, the Exchange proposes to amend the (b)(2)(i) qualifier to
require 0.50% or more of CV which adds liquidity in the same month on
The Nasdaq Stock Market (a change from 0.70% to 0.50%). Third, the
Exchange proposes to amend the (b)(2)(ii) qualifier to require 50
million shares or more ADV which adds liquidity in the same month on
The Nasdaq Stock Market (a change from 70 million to 50 million
shares). Fourth, the Exchange proposes to remove the current (b)(3) and
(4) qualifiers and replace those qualifiers with a new (b)(3) qualifier
that requires a Participant to execute 1.5 million shares or more ADV
in the same month utilizing the M-ELO order type on The Nasdaq Stock
Market. In order to qualify for the Tier 3 NOM Market Maker Rebate to
Add Liquidity a Participant must meet either the Tier 3 (a) or (b)
requirements. To the extent a Participant desires to qualify for the
Tier 3 (b) requirements, all 3 parts of the requirement must be met.
The proposed new language of the Tier 3 NOM Market Maker Rebate to Add
Liquidity would provide,
Participant: (a) adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols above 0.20% of total industry
customer equity and ETF option ADV contracts per day in a month; or
(b)(1) adds NOM Market Maker liquidity in Penny Symbols and/or Non-
Penny Symbols above 0.15% of total industry customer equity and ETF
option ADV contracts per day in a month, (2) transacts in all
securities through one or more of its Nasdaq Market Center MPIDs
that represent (i) 0.50% or more of Consolidated Volume (``CV'')
which adds liquidity in the same month on The Nasdaq Stock Market or
(ii) 50 million shares or more ADV which adds liquidity in the same
month on The Nasdaq Stock Market, and (3) executes 1.5 million
shares or more ADV in the same month utilizing the M-ELO order type
on The Nasdaq Stock Market.
The Exchange believes that the proposed Tier 3 NOM Market Maker
Rebate to Add Liquidity will continue to provide NOM Participants an
opportunity to qualify for the NOM Market Maker Tier 3 Rebate to Add
Liquidity in more than one way. The proposed new Tier 3 NOM Market
Maker Rebate to Add Liquidity (b) qualifiers will incentivize greater
options participation with the amendment to (b)(1) increasing the
percentage of total industry customer equity and ETF option ADV
contracts per day in a month from 0.07% to 0.15%; decreasing the
(b)(2)(i) percentage of CV required to add liquidity on The Nasdaq
Stock Market from 0.70% to 0.50%; lowering the current share
requirement for participation in The Nasdaq Stock Market as part of
(b)(2)(ii) from 70 to 50 million shares; and adding a new (b)(3)
requirement to utilize M-ELO to execute 1.5 million shares or more ADV
on The Nasdaq Stock Market. The amended qualifiers for (b) within Tier
3 will incentivize participation in greater volume from cross asset
activity, which would improve the overall quality of the Exchange's
marketplace to the benefit of all market participants, both on NOM and
The Nasdaq Stock Market.
2. Statutory Basis
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 \13\
(``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 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'. . . .'' \14\
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\13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\14\ 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.
NOM Market Maker--Note 4
Amending note 4 of Options 7, Section 2, which currently applies to
Participants who achieve the NOM Market Maker Tier 3 or Tier 4 Rebate
to Add Liquidity in Penny Symbols is reasonable in several ways. The
Exchange believes the amendment to the current rebate in note 4 of
Options 7, Section 2 will continue to incentivize Participants to add
liquidity to NOM to qualify for the $0.39 per contract rebate to add
liquidity in SPY, QQQ, and IWM despite the lower rebate ($0.40 to $0.39
per contract) and removal of AAPL and VXX. The Exchange notes that it
proposes to limit the rebate to adding liquidity in SPY, QQQ, and IWM,
and not AAPL and VXX, because options on these broad-based Exchange-
Traded Funds collectively have large volumes. The amended $0.39 per
contract rebate remains higher than the NOM Market Maker Tier 3 or Tier
4 Rebates to Add Liquidity of $0.30 and $0.32 per contract,
respectively. Additionally, amending note 4 of Options 7, Section 2 to
introduce an additional rebate for Participants who achieve the NOM
Market Maker Tier 2 Rebate to Add Liquidity in Penny Symbols is
reasonable because it will create an additional opportunity for Market
Makers to increase their liquidity adding activity on the Exchange's
equity market. The Exchange believes that the new note 4 rebate
qualifying criteria will incentivize participation in greater volume
from cross asset activity, which would improve the overall quality of
the Exchange's marketplace to the benefit of all market participants,
both on NOM and The Nasdaq Stock Market. The proposed new Tier 2 NOM
Market Maker Rebate to Add Liquidity in Penny Symbols of $0.33 per
contract is higher than the Tier 2 NOM Market Maker Rebate to Add
Liquidity of $0.25 per contract. Finally, the Exchange notes that all
NOM Participants are required to become members of The Nasdaq Stock
Market pursuant to General 3 Membership and Access rules. Therefore, a
NOM Participant is able to transact the requisite volume on NOM as an
Options Participant and also utilize the M-ELO order type as a member
of The Nasdaq Stock Market. All members of The Nasdaq Stock Market LLC
may utilize the M-ELO order type.
Amending note 4 of Options 7, Section 2, which currently applies to
Participants who achieve the NOM Market Maker Tier 3 or Tier 4 Rebate
to Add Liquidity in Penny Symbols is equitable and not unfairly
discriminatory because the Exchange
[[Page 66545]]
will pay the Tier 3 and 4 NOM Market Maker rebates uniformly to any
qualifying Participants. Additionally, amending note 4 of Options 7,
Section 2 to introduce an additional rebate for Participants who
achieve the NOM Market Maker Tier 2 Rebate to Add Liquidity in Penny
Symbols is equitable and not unfairly discriminatory because the
Exchange will pay the new Tier 2 NOM Market Maker rebate uniformly to
any qualifying Participants. The Exchange notes that all NOM
Participants are required to become members of The Nasdaq Stock Market
pursuant to General 3 Membership and Access rules. Therefore, a NOM
Participant is able to transact the requisite volume on NOM as an
Options Participant and also utilize the M-ELO order type as a member
of The Nasdaq Stock Market. All members of The Nasdaq Stock Market LLC
may utilize the M-ELO order type. Additionally, Market Makers add value
through continuous quoting and the commitment of capital.\15\ Because
Market Makers have these obligations to the market and regulatory
requirements that normally do not apply to other market participants,
the Exchange believes that offering these rebates to Market Makers is
equitable and not unfairly discriminatory in light of their
obligations. Finally, encouraging Market Makers to add greater
liquidity benefits all market participants, both on NOM and The Nasdaq
Stock Market, in the quality of order interaction.
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\15\ See Options 2, Sections 4 and 5.
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NOM Market Maker--Tier 3 Qualifier
Amending the Tier 3 NOM Market Maker Rebate to Add Liquidity
qualifications in several ways \16\ is reasonable because Participants
will continue to have more than one way to qualify for the Tier 3 NOM
Market Maker Rebate to Add Liquidity in Penny Symbols.\17\ The proposed
new Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny Symbols
part (b) qualifier will incentivize greater options participation with
the amendment to (b)(1) as it increases the percentage of total
industry customer equity and ETF option ADV contracts per day in a
month from 0.07% to 0.15%. Further part (b)(2)(i) decreases the
percentage of CV required to add liquidity on The Nasdaq Stock Market
from 0.70% to 0.50%, lowers the current share requirement for
participation in The Nasdaq Stock Market as part of (b)(2)(ii) from 70
to 50 million shares, and adds a new (b)(3) requirement to utilize M-
ELO to execute 1.5 million shares or more ADV on The Nasdaq Stock
Market. The amended qualifiers for (b) within Tier 3 will incentivize
participation in greater volume from cross asset activity, which would
improve the overall quality of the Exchange's marketplace to the
benefit of all market participants, both on NOM and The Nasdaq Stock
Market. All NOM Participants are required to become members of The
Nasdaq Stock Market pursuant to General 3 Membership and Access rules.
Therefore, a NOM Participant is able to transact the requisite volume
on NOM as an Options Participant and also utilize the M-ELO order type
as a member of The Nasdaq Stock Market.
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\16\ First, the Exchange proposes to amend the (b)(1) qualifier
to require NOM Market Maker liquidity in Penny Symbols and/or Non-
Penny Symbols above 0.15% of total industry customer equity and ETF
option ADV contracts per day in a month (a change from 0.07% to
0.15%). Second, the Exchange proposes to amend the (b)(2)(i)
qualifier to require 0.50% or more of CV which adds liquidity in the
same month on The Nasdaq Stock Market (a change from 0.70% to
0.50%). Third, the Exchange proposes to amend the (b)(2)(ii)
qualifier to require 50 million shares or more ADV which adds
liquidity in the same month on The Nasdaq Stock Market (a change
from 70 million to 50 million shares). Fourth, the Exchange proposes
to remove the current (b)(3) and (4) qualifiers and replace those
qualifiers with a new (b)(3) qualifier that requires a Participant
to execute 1.5 million shares or more ADV in the same month
utilizing the M-ELO order type on The Nasdaq Stock Market.
\17\ In order to qualify for the Tier 3 NOM Market Maker Rebate
to Add Liquidity a Participant must meet the (a) or (b) requirements
within the tier.
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Amending the Tier 3 NOM Market Maker Rebate to Add Liquidity in
Penny Symbols qualifications in several ways \18\ is equitable and not
unfairly discriminatory because the Exchange will pay the Tier 3 NOM
Market Maker Rebate to Add Liquidity uniformly to all Participants that
qualify for this tier. All NOM Participants are required to become
members of The Nasdaq Stock Market pursuant to General 3 Membership and
Access rules. Therefore, a NOM Participant is able to transact the
requisite volume on NOM as an Options Participant and also utilize the
M-ELO order type as a member of The Nasdaq Stock Market. Additionally,
Market Makers add value through continuous quoting and the commitment
of capital.\19\ Because Market Makers have these obligations to the
market and regulatory requirements that normally do not apply to other
market participants, the Exchange believes that offering the rebate to
only Market Makers is equitable and not unfairly discriminatory in
light of their obligations. Finally, encouraging Market Makers to add
greater liquidity on both NOM and The Nasdaq Stock Market benefits all
market participants, both on NOM and The Nasdaq Stock Market, in the
quality of order interaction.
---------------------------------------------------------------------------
\18\ See supra note 14.
\19\ See Options 2, Sections 4 and 5.
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The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to pay a rebate to add liquidity in SPY, QQQ,
and IWM, as compared to other options, because pricing by symbol is a
common practice on many U.S. options exchanges as a means to
incentivize order flow to be sent to an exchange for execution in the
most actively traded options classes, in this case actively traded
Penny Symbols. SPY, QQQ, and IWM are among the most actively traded
options in the U.S. The Exchange believes that this pricing will
incentivize members to transact options in SPY, QQQ, and IWM on NOM in
order to obtain higher NOM Market Maker rebates in Penny Symbols.
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.
Intermarket Competition
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, or rebate opportunities
available at other venues to be more favorable. In such an environment,
the Exchange must continually adjust its pricing to remain competitive
with other exchanges. Because competitors are free to modify their
pricing in response, and because market participants may readily 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 because other options exchanges offer
similar pricing.
Moreover, as noted above, price competition between exchanges is
fierce, with liquidity and market share moving freely between exchanges
in reaction to fee and rebate changes. 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.
[[Page 66546]]
Intramarket Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
Amending note 4 of Options 7, Section 2, which currently applies to
Participants who achieve the NOM Market Maker Tier 3 or Tier 4 Rebate
to Add Liquidity in Penny Symbols does not impose an undue burden on
competition because the Exchange will pay the Tier 3 and 4 NOM Market
Maker rebates uniformly to any qualifying Participants. Additionally,
amending note 4 of Options 7, Section 2 to introduce an additional
rebate for Participants who achieve the NOM Market Maker Tier 2 Rebate
to Add Liquidity in Penny Symbols does not impose an undue burden on
competition because the Exchange will pay the new Tier 2 NOM Market
Maker rebate uniformly to any qualifying Participants. The Exchange
notes that all NOM Participants are required to become members of The
Nasdaq Stock Market pursuant to General 3 Membership and Access rules.
Therefore, a NOM Participant is able to transact the requisite volume
on NOM as an Options Participant and also utilize the M-ELO order type
as a member of The Nasdaq Stock Market. All members of The Nasdaq Stock
Market LLC may utilize the M-ELO order type. Additionally, Market
Makers add value through continuous quoting and the commitment of
capital.\20\ Because Market Makers have these obligations to the market
and regulatory requirements that normally do not apply to other market
participants, the Exchange believes that offering these rebates to
Market Makers does not impose an undue burden on competition in light
of their obligations. Finally, encouraging Market Makers to add greater
liquidity benefits all market participants, both on NOM and The Nasdaq
Stock Market, in the quality of order interaction.
---------------------------------------------------------------------------
\20\ See Options 2, Sections 4 and 5.
---------------------------------------------------------------------------
Amending the Tier 3 NOM Market Maker Rebate to Add Liquidity in
Penny Symbols qualifications in several ways \21\ does not impose an
undue burden on competition because the Exchange will pay the Tier 3
NOM Market Maker Rebate to Add Liquidity in Penny Symbols uniformly to
all Participants that qualify for this tier. All NOM Participants are
required to become members of The Nasdaq Stock Market pursuant to
General 3 Membership and Access rules. Therefore, a NOM Participant is
able to transact the requisite volume on NOM as an Options Participant
and also utilize the M-ELO order type as a member of The Nasdaq Stock
Market. Additionally, Market Makers add value through continuous
quoting and the commitment of capital.\22\ Because Market Makers have
these obligations to the market and regulatory requirements that
normally do not apply to other market participants, the Exchange
believes that offering the rebate to only Market Makers does not impose
an undue burden on competition in light of their obligations. Finally,
encouraging Market Makers to add greater liquidity on both NOM and The
Nasdaq Stock Market benefits all market participants, both on NOM and
The Nasdaq Stock Market, in the quality of order interaction.
---------------------------------------------------------------------------
\21\ See supra note 14.
\22\ See Options 2, Sections 4 and 5.
---------------------------------------------------------------------------
The Exchange believes that paying a rebate to add liquidity in SPY,
QQQ, and IWM, as compared to other options, does not impose an undue
burden on competition because pricing by symbol is a common practice on
many U.S. options exchanges as a means to incentivize order flow to be
sent to an exchange for execution in the most actively traded options
classes, in this case actively traded Penny Symbols. SPY, QQQ, and IWM
are among the most actively traded options in the U.S. The Exchange
believes that this pricing will incentivize members to transact options
in SPY, QQQ, and IWM on NOM in order to obtain higher NOM Market Maker
rebates in Penny Symbols.
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.\23\
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\23\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4032352c256d232f2d2d252e3433003325236e272f36"><span class="__cf_email__" data-cfemail="0a787f666f27696567676f647e794a796f69246d657c">[email protected]</span></a>. Please include
file number
SR-NASDAQ-2023-037 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-2023-037. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 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-2023-037 and should
be submitted on or before October 18, 2023.
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\24\ 17 CFR 200.30-3(a)(12).
[[Page 66547]]
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20962 Filed 9-26-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on September 27, 2023.
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