Notice2023-28039
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 3
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Published
December 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 244 (Thursday, December 21, 2023)</title>
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[Federal Register Volume 88, Number 244 (Thursday, December 21, 2023)]
[Notices]
[Pages 88464-88466]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-28039]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99187; File No. SR-NASDAQ-2023-054]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Options 7, Section 3
December 15, 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 December 5, 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's
(``NOM'') Rules at Options 7, Section 3, Nasdaq Options Market--Ports
and Other Services.\3\
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\3\ The Exchange initially filed the proposed pricing changes on
November 28, 2023 (SR-NASDAQ-2023-050). On December 5, 2023, the
Exchange withdrew that filing and submitted this filing.
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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 Options 7, Section 3, Nasdaq Options
Market--Ports and Other Services. Specifically, the Exchange proposes
to amend Options 7, Section 3(i) to increase the per port, per month
SQF Port \4\ and SQF Purge \5\ Port Fees for all ports over 20 ports
(21 and above) from $500 to $750.\6\
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\4\ ``Specialized Quote Feed'' or ``SQF'' is an interface that
allows Market Makers to connect, send, and receive messages related
to quotes and Immediate-or-Cancel Orders into and from the Exchange.
Features include the following: (1) options symbol directory
messages (e.g., underlying instruments); (2) system event messages
(e.g., start of trading hours messages and start of opening); (3)
trading action messages (e.g., halts and resumes); (4) execution
messages; (5) quote messages; (6) Immediate-or-Cancel Order
messages; (7) risk protection triggers and purge notifications; and
(8) opening imbalance messages. The SQF Purge Interface only
receives and notifies of purge requests from the Market Maker.
Market Makers may only enter interest into SQF in their assigned
options series. Immediate-or-Cancel Orders entered into SQF are not
subject to the Order Price Protection, Market Order Spread
Protection, or Size Limitation in Options 3, Section 15(a)(1) and
(a)(2), and (b)(2), respectively. See Options 3, Section 7(e)(1)(B).
\5\ SQF Purge is a specific port for the SQF interface that only
receives and notifies of purge requests from the NOM Market Maker.
\6\ The Exchange also proposes a technical amendment to remove
an extraneous period in Options 7, Section 3 in the second
paragraph.
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Today, NOM assesses SQF Ports and SQF Purge Ports a per port, per
month fee based on a tiered fee schedule. Specifically, NOM assesses an
SQF Port and an SQF Purge Port fee of $1,500 per port, per month for
the first 5 ports (1-5), a $1,000 per port, per month fee for the next
15 ports (6-20), and a $750 per port, per month fee for all ports over
20 ports (21 and above).
The Exchange proposes to amend the per port, per month fee for SQF
Ports and SQF Ports above 20 ports (21 and above) from $500 to $750 per
port, per month. The Exchange is not amending the SQF Port and SQF
Purge Port fees for ports below 20 ports. SQF Ports and SQF Purge Ports
over 20 ports are unnecessary for a NOM Market Maker to fulfill its
regulatory requirements.\7\ A NOM Market Maker requires only one SQF
Port to submit quotes in its assigned options series into NOM. A NOM
Market Maker may submit all quotes through one SQF Port and utilize one
SQF Purge Port to view its purge requests. While a NOM Market Maker may
elect to obtain multiple SQF Ports and SQF Purge Ports to organize its
business,\8\ only one SQF Port and SQF Purge Port is necessary for a
NOM Market Maker to fulfill its regulatory quoting obligations.\9\
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\7\ See NOM Options 2, Sections 4 and 5.
\8\ For example, a NOM Market Maker may desire to utilize
multiple SQF Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that NOM Participant.
\9\ NOM Market Makers have various regulatory requirements as
provided for in Options 2, Section 4. Additionally, NOM Market
Makers have certain quoting requirements with respect to their
assigned options series as provided in Options 2, Section 5. The
Exchange notes that SQF Ports are the only quoting protocol
available on NOM and only NOM Market Makers may utilize SQF Ports.
The same is true for SQF Purge Ports.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed pricing change to increase fees for certain
SQF Ports and SQF Purge Ports is reasonable in several respects. As a
threshold matter, the Exchange is subject to significant competitive
forces in the market for options securities transaction services that
constrain its pricing determinations in that market. The fact that this
market is competitive has long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \12\
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\12\ 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
[[Page 88465]]
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.'' \13\
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\13\ 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.
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.
The Exchange believes that increasing the fee for SQF Ports and SQF
Purge Ports over 20 ports (21 and above) from $500 to $750 per port,
per month is reasonable because SQF Ports and SQF Purge Ports over 20
ports are unnecessary for a NOM Market Maker to fulfill its regulatory
requirements.\14\ A NOM Market Maker requires only one SQF Port to
submit quotes in its assigned options series into NOM. A NOM Market
Maker may submit all quotes through one SQF Port and utilize one SQF
Purge Port to view its purge requests. While a NOM Market Maker may
elect to obtain multiple SQF Ports and SQF Purge Ports to organize its
business,\15\ only one SQF Port and SQF Purge Port is necessary for a
NOM Market Maker to fulfill its regulatory quoting obligations.
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\14\ See NOM Options 2, Sections 4 and 5.
\15\ For example, a NOM Market Maker may desire to utilize
multiple SQF Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that Participant.
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The Exchange believes that increasing the fee for SQF Ports and SQF
Purge Ports over 20 ports (21 and above) from $500 to $750 per port,
per month is equitable and not unfairly discriminatory because all NOM
Market Makers would be assessed the same fees for SQF Ports and SQF
Purge Ports to the extent that these NOM Market Makers have subscribed
to more than 20 SQF Ports or SQF Purge Ports. NOM Market Makers are the
only market participants that are assessed SQF Port and SQF Purge Port
fees because they are the only market participants that are permitted
to quote on the Exchange.
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 proposal does not impose an undue burden on intermarket
competition. The Exchange believes its proposal remains competitive
with other options markets who also offer order entry protocols. 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. In such an environment,
the Exchange must continually adjust its fees to remain competitive
with other 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.
Intramarket Competition
The Exchange believes that increasing the fee for SQF Ports and SQF
Purge Ports over 20 ports (21 and above) from $500 to $750 per port,
per month does not impose an undue burden on competition because all
NOM Market Makers would be assessed the same fees for SQF Ports and SQF
Purge Ports to the extent that these NOM Market Makers have subscribed
to more than 20 SQF Ports or SQF Purge Ports. NOM Market Makers are the
only market participants that are assessed SQF Port and SQF Purge Port
fees because they are the only market participants that are permitted
to quote on the Exchange.
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\
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\16\ 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
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#641611080149070b0909010a1017241701074a030b12"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email protected]</span></a>. Please include
file number SR-NASDAQ-2023-054 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-2023-054. 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
[[Page 88466]]
submissions should refer to file number SR-NASDAQ-2023-054 and should
be submitted on or before January 11, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-28039 Filed 12-20-23; 8:45 am]
BILLING CODE 8011-01-P
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