Notice2024-15668
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Options 7, Section 2(1)
Primary source
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Published
July 17, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 137 (Wednesday, July 17, 2024)</title>
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[Federal Register Volume 89, Number 137 (Wednesday, July 17, 2024)]
[Notices]
[Pages 58227-58229]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15668]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100497; File No. SR-NASDAQ-2024-033]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Pricing Schedule at Options 7, Section 2(1)
July 11, 2024.
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 July 1, 2024, 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 Exchange's Pricing Schedule at
Options 7, Section 2(1), which governs the pricing for Nasdaq
Participants using The Nasdaq Options Market (``NOM''), Nasdaq's
facility for executing and routing standardized equity and index
options. The proposed changes are described further below.
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
Pursuant to Options 7, Section 2(1), the Exchange currently
assesses NOM Market Makers \3\ a $0.35 per contract Fee to Add
Liquidity in Non-Penny Symbols. This fee applies unless Participants
meet the volume thresholds set forth in note 5. Note 5 currently
stipulates that Participants that add NOM Market Maker liquidity in
Non-Penny Symbols of 0.05% to 0.07% of total industry customer equity
and ETF option ADV contracts per day in a month will be assessed a
$0.00 per contract Non-Penny Options Fee for Adding Liquidity in that
month. Participants that add NOM Market Maker liquidity in Non-Penny
Symbols of above 0.07% of total industry customer equity and ETF option
ADV contracts per day in a month will receive the Non-Penny Rebate to
Add Liquidity for that month instead of paying the Non-Penny Fee for
Adding Liquidity. Accordingly, qualifying Participants are offered an
opportunity to reduce the $0.35 fee or earn a rebate if they meet the
volume-based requirements under note 5.
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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.
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The Exchange now proposes to amend the volume thresholds and
associated pricing in note 5 as follows:
The NOM Market Maker Fee for Adding Liquidity in Non-Penny
Symbols will apply unless Participants meet the volume thresholds
set forth in this note. Participants that add NOM Market Maker
liquidity in Non-Penny Symbols of 0.03% to 0.05% of total industry
customer equity and ETF option ADV contracts per day in a month will
be assessed a $0.00 per contract Non-Penny Options Fee for Adding
Liquidity in that month. Participants that add NOM Market Maker
liquidity in Non-Penny Symbols of above 0.05% to 0.08% of total
industry customer equity and ETF option ADV contracts per day in a
month will receive a Non-Penny Rebate to Add Liquidity of $0.20 per
contract for that month instead of paying the Non-Penny Fee for
Adding Liquidity. Participants that add NOM Market Maker liquidity
in Non-Penny Symbols of above 0.08% of total industry customer
equity and ETF option ADV contracts per day in a month will receive
a Non-Penny Rebate to Add Liquidity of $0.40 per contract for that
month instead of paying the Non-Penny Fee for Adding Liquidity.
The Exchange will also amend the related NOM Market Maker Non-Penny
pricing chart in Options 7, Section 2(1) to reflect the pricing
described above. The Exchange believes that the proposed volume
thresholds will incentivize NOM Market Makers to add greater Non-Penny
Symbol liquidity on NOM to the benefit of all market participants. With
the proposed changes, the Exchange is generally lowering the volume
thresholds while increasing the rebate amounts so that NOM Market
Makers adding the same amount of liquidity in Non-Penny Symbols today
would get more favorable pricing either by qualifying for free
executions or receiving a higher
[[Page 58228]]
rebate. The only exception is for NOM Market Makers that add liquidity
in Non-Penny Symbols of above 0.07% to 0.08% as they would receive a
$0.30 per contract rebate today versus $0.20 per contract under this
proposal. However, the Exchange believes that its proposal will
encourage NOM Market Makers to reach for the highest volume threshold
to receive the significantly higher rebate of $0.40 per contract.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\4\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\5\ 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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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's 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
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'. . . .'' \6\
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\6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \7\
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\7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options security transaction services. The Exchange is only one of
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. As such, the proposal represents a reasonable attempt by the
Exchange to increase its liquidity and market share relative to its
competitors.
The Exchange believes that its proposal to amend the volume
thresholds in note 5 and related rebates in the manner described above
is reasonable because it will incentivize NOM Market Makers to add
greater Non-Penny Symbol liquidity on NOM to the benefit of all market
participants. As discussed above, the Exchange is generally lowering
the volume thresholds while increasing the rebate amounts with the
proposed changes. As such, NOM Market Makers adding the same amount of
liquidity in Non-Penny Symbols as they do today would generally get
more favorable pricing either by qualifying for free executions or
receiving a higher rebate. The only exception is for NOM Market Makers
that add liquidity in Non-Penny Symbols of above 0.07% to 0.08% as they
would receive a $0.30 per contract rebate today versus $0.20 per
contract under this proposal. However, the Exchange believes that its
proposal will encourage NOM Market Makers to reach for the highest
volume threshold to receive the significantly higher rebate of $0.40
per contract.
The Exchange further believes that its proposal is equitable and
not unfairly discriminatory. As discussed above, the proposed changes
to the note 5 volume thresholds and associated pricing will be applied
uniformly to all NOM Market Makers that add liquidity in Non-Penny
Symbols. The Exchange does not believe that it is unfairly
discriminatory to offer the note 5 incentives to only NOM Market Makers
because these market participants add value through continuous quoting
and the commitment of capital.\8\ Because NOM 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 note 5 incentives to only NOM Market Makers is equitable
and not unfairly discriminatory in light of their obligations. Finally,
encouraging NOM Market Makers to add greater liquidity benefits all
market participants in the quality of order interaction.
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\8\ See 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.
In terms of intra-market competition, the Exchange does not believe
that its proposal will place any category of market participant at a
competitive disadvantage. As discussed above, while the Exchange's
proposal targets certain activity on NOM (i.e., NOM Market Makers
adding liquidity in Non-Penny Symbols), the proposed changes are
ultimately aimed at attracting greater order flow to the Exchange,
which benefits all market participants by providing more trading
opportunities.
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
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. 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 exchanges to maintain their competitive standing in the
financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
[[Page 58229]]
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.\9\
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\9\ 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#bccec9d0d991dfd3d1d1d9d2c8cffccfd9df92dbd3ca"><span class="__cf_email__" data-cfemail="fa888f969fd7999597979f948e89ba899f99d49d958c">[email protected]</span></a>. Please include
file number SR-NASDAQ-2024-033 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-2024-033. 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-2024-033 and should
be submitted on or before August 7, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-15668 Filed 7-16-24; 8:45 am]
BILLING CODE 8011-01-P
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