Notice2023-22811
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
October 17, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 199 (Tuesday, October 17, 2023)</title>
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[Federal Register Volume 88, Number 199 (Tuesday, October 17, 2023)]
[Notices]
[Pages 71616-71619]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-22811]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98721; File No. SR-NASDAQ-2023-040]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Options 7, Section 2
October 11, 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 29, 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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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.
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on October 2,
2023.
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, NOM Market Maker \3\ Rebates to Add Liquidity in Penny
Symbols are paid per the highest tier achieved among the below tiers.
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\3\ 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).
Monthly Volume
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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 0.15% 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.
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 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.
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``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.
Proposal
At this time, the Exchange proposes to amend Tiers 5 and 6 of the
NOM Market
[[Page 71617]]
Maker Rebates to Add Liquidity in Penny Symbols.
NOM Market Maker Tier 5
Currently, the NOM Market Maker Tier 5 Rebate to Add Liquidity in
Penny Symbols provides:
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 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.
The Exchange proposes to amend the NOM Market Maker Tier 5 Rebate
to Add Liquidity in Penny Symbols by adding an additional qualifier to
achieve the rebate. The Exchange proposes to provide that a Participant
may add NOM Market Maker liquidity in Penny Symbols and/or Non-Penny
Symbols above 1.00% of total industry customer equity and ETF option
ADV contracts per day in a month to qualify for the NOM Market Maker
Tier 5 Rebate to Add Liquidity in Penny Symbols. In the alternative, as
is the case today, a Participant may continue to add 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 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 to qualify for the NOM Market Maker Tier 5 Rebate to Add
Liquidity in Penny Symbols. Therefore, a Participant may qualify for
the $0.44 per contract NOM Market Maker Tier 5 Rebate to Add Liquidity
in Penny Symbols by either qualifying for the new tier qualifier that
is denoted by an ``a'' or the current qualifier which is denoted by a
``b.'' As proposed, the NOM Market Maker Tier 5 Rebate to Add Liquidity
in Penny Symbols would provide:
Participant: (a) adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols above 1.00% of total industry
customer equity and ETF option ADV contracts per day in a month; or
(b) 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 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.
The Exchange believes the additional proposed qualifier for the NOM
Market Maker Tier 5 Rebate to Add Liquidity in Penny Symbols will
provide Participants an additional way to achieve the Tier 5 rebate.
The new qualification criteria is intended to attract additional order
flow to NOM. Any Participant may interact with the additional liquidity
attracted by this incentive.
NOM Market Maker Tier 6
Currently, the NOM Market Maker Tier 6 Rebate to Add Liquidity in
Penny Symbols provides:
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.
Currently, there are two ways to qualify for the $0.48 per contract
NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols. A
Participant may add 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) execute 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) add
Firm, Broker-Dealer and Non-NOM Market Maker liquidity in Non-Penny
Symbols of 10,000 or more contracts per day in a month to qualify for
the NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols.
This option is denoted as ``a.'' In the alternative, a Participant may
add 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) execute 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 to qualify for
the NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols.
This option is denoted as ``b.''
At this time, the Exchange proposes to amend the qualifier in ``b''
of the NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols
by lowering the (b)(1) qualifier from 1.50% to 1.40%. The proposed
amended (b)(1) qualifier would require a Participant to add NOM Market
Maker liquidity in Penny Symbols and/or Non-Penny Symbols above 1.40%
\4\ of total industry customer equity and ETF option ADV contracts per
day in a month. As proposed, the amended NOM Market Maker Tier 6 Rebate
to Add Liquidity in Penny Symbols would provide:
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\4\ Of note, 1.50% equates to approximately 490,000 contracts
per day adding liquidity and 1.40% equates to approximately 450,000
contracts per day adding liquidity.
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 1.40% 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
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day in a month must be removing liquidity.
The Exchange believes that lowering part of the NOM Market Maker
Tier 6 Rebate to Add Liquidity in Penny Symbols qualifier will attract
additional order flow to NOM by allowing additional Participants to
qualify for this tier.
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 \5\
(``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
[[Page 71618]]
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'. . . .'' \6\
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\5\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\6\ 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 seventeen
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 Tier 5
The Exchange's proposal to amend the NOM Market Maker Tier 5 Rebate
to Add Liquidity in Penny Symbols by adding an additional qualifier is
reasonable because it will provide Participants another way to qualify
for the Tier 5 rebate. NOM Participants that currently qualify for the
NOM Market Maker Tier 5 Rebate to Add Liquidity in Penny Symbols will
continue to qualify for this rebate because the current qualifications
are not being amended. With this proposal, additional NOM Participants
may be able to qualify for the NOM Market Maker Tier 5 Rebate to Add
Liquidity in Penny Symbols utilizing the proposed new qualifier. The
new qualification criteria is intended to attract additional order flow
to NOM. Any Participant may interact with the additional liquidity
attracted by this incentive.
The Exchange's proposal to amend the NOM Market Maker Tier 5 Rebate
to Add Liquidity in Penny Symbols by adding an additional qualifier is
equitable and not unfairly discriminatory because the proposed tier
qualifier will be applied uniformly to all qualifying NOM Participants.
NOM Market Maker Tier 6
The Exchange's proposal to amend part ``b'' of the NOM Market Maker
Tier 6 Rebate to Add Liquidity in Penny Symbols by lowering the (b)(1)
qualifier from 1.50% to 1.40% is reasonable because it will attract
additional order flow to NOM by allowing additional Participants to
qualify for this tier. NOM Participants who currently qualify for the
NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols will
continue to qualify for this rebate. With this proposal, additional
Participants may be able to qualify for the NOM Market Maker Tier 6
Rebate to Add Liquidity in Penny Symbols with the proposed lower (b)(1)
qualifier. The proposed lower (b)(1) qualification criteria is intended
to attract additional order flow to NOM. Any Participant may interact
with the additional liquidity attracted by this incentive.
The Exchange's proposal to amend part ``b'' of the NOM Market Maker
Tier 6 Rebate to Add Liquidity in Penny Symbols by lowering the (b)(1)
qualifier from 1.50% to 1.40% is equitable and not unfairly
discriminatory because the proposed tier qualifier will be applied
uniformly to all qualifying NOM Participants.
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.
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.
NOM Market Maker Tier 5
The Exchange's proposal to amend the NOM Market Maker Tier 5 Rebate
to Add Liquidity in Penny Symbols by adding an additional qualifier
does not impose an undue burden on competition because the proposed
tier qualifier will be applied uniformly to all qualifying NOM
Participants.
NOM Market Maker Tier 6
The Exchange's proposal to amend part ``b'' of the NOM Market Maker
Tier 6 Rebate to Add Liquidity in Penny Symbols by lowering the (b)(1)
qualifier from 1.50% to 1.40% does not impose an undue burden on
competition because the proposed tier qualifier will be applied
uniformly to all qualifying NOM Participants.
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.\7\
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\7\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
[[Page 71619]]
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6614130a034b05090b0b030812152615030548010910"><span class="__cf_email__" data-cfemail="89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff">[email protected]</span></a>. Please include
file number SR-NASDAQ-2023-040 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-2023-040. 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-2023-040 and should
be submitted on or before November 7, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22811 Filed 10-16-23; 8:45 am]
BILLING CODE 8011-01-P
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