[Federal Register Volume 87, Number 136 (Monday, July 18, 2022)]
[Notices]
[Pages 42780-42791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15223]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95262; File No. SR-MRX-2022-09]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend MRX's 
Pricing Schedule at Options 7, Section 6 To Add Port Fees

July 12, 2022.
    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, 2022, Nasdaq MRX, LLC (``MRX'' 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 MRX's Pricing Schedule at Options 7, 
Section 6.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/mrx/rules, at the 
principal

[[Page 42781]]

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
    MRX proposes to amend its Pricing Schedule at Options 7, Section 6, 
Ports and Other Services, to assess port fees, which are not assessed 
today, and which have not been assessed since MRX's inception in 
2016.\3\ The proposed changes are designed to update fees for MRX's 
services to reflect their current value--rather than their value when 
it was a new exchange six years ago--based on MRX's ability to deliver 
value to its customers through technology, liquidity and functionality. 
Newly-opened exchanges often charge no fees for certain services, such 
as ports, in order to attract order flow to an exchange, and later 
amend their fees to reflect the true value of those services.\4\ 
Allowing newly-opened exchanges time to build and sustain market share 
before charging non-transactional fees encourages market entry and 
promotes competition. The proposed port fees within Options 7, Section 
6, Ports and Other Services, are described below.
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    \3\ The Exchange initially filed the proposed pricing changes on 
May 2, 2022 (SR-MRX-2022-04) instituting fees for membership, ports 
and market data. On June 29, 2022, the Exchange withdrew that 
filing, and submitted separate filings for membership, ports and 
market data. SR-MRX-2022-06 replaced the port fees set forth in SR-
MRX-2022-04. The instant filing replaces SR-MRX-2022-06.
    \4\ See, e.g., Securities Exchange Act Release No 90076 (October 
2, 2020), 85 FR 63620 (October 8, 2020) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Adopt the 
Initial Fee Schedule and Other Fees for MEMX LLC).
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    This proposal reflects MRX's assessment that it has gained 
sufficient market share to compete effectively against the other 15 
options exchanges without waiving fees for ports. These types of fees 
are assessed by options exchanges that compete with MRX in the sale of 
exchange services. New exchanges commonly waive connectivity fees to 
attract market participants, facilitating their entry into the market 
and, once there is sufficient depth and breadth of liquidity, 
``graduate'' to compete against established exchanges and charge fees 
that reflect the value of their services.\5\ If MRX is incorrect in 
this assessment, that error will be reflected in MRX's ability to 
compete with other options exchanges.\6\
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    \5\ For example, MIAX Emerald commenced operations as a national 
securities exchange registered on March 1, 2019. See Securities 
Exchange Act Release No. 84891 (December 20, 2018), 83 FR 67421 
(December 28, 2018) (File No. 10-233) (order approving application 
of MIAX Emerald, LLC for registration as a national securities 
exchange). MIAX Emerald filed to adopt its transaction fees and 
certain of its non-transaction fees in its filing SR-EMERALD-2019-
15. See Securities Exchange Act Release No. 85393 (March 21, 2019), 
84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Establish 
the MIAX Emerald Fee Schedule). MIAX Emerald waived its one-time 
application fee and monthly Trading Permit Fees assessable to EEMs 
and Market Makers among other fees within SR-EMERALD-2019-15.
    \6\ Nasdaq recently announced that, beginning in 2022, Nasdaq 
plans to migrate its North American markets to Amazon Web Services 
in a phased approach, starting with Nasdaq MRX, a U.S. options 
market. The proposed fee changes are entirely unrelated to this 
effort.
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    The Exchange proposes to amend fees for the following ports within 
Options 7, Section 6: (1) FIX,\7\ (2) SQF; \8\ (3) SQF Purge; \9\ (4) 
OTTO; \10\ (5) CTI; \11\ (6) FIX DROP; \12\ and Disaster Recovery 
Ports.\13\ Currently, no fees are being assessed for these ports.
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    \7\ ``Financial Information eXchange'' or ``FIX'' is an 
interface that allows Members and their Sponsored Customers to 
connect, send, and receive messages related to orders and auction 
orders to the Exchange. Features include the following: (1) 
execution messages; (2) order messages; (3) risk protection triggers 
and cancel notifications; and (4) post trade allocation messages. 
See Supplementary Material .03(a) to Options 3, Section 7.
    \8\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Market Makers to connect, send, and receive messages related 
to quotes, Immediate-or-Cancel Orders, and auction responses to the 
Exchange. Features include the following: (1) options symbol 
directory messages (e.g., underlying and complex 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; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. 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. See Supplementary Material .03(c) to Options 3, 
Section 7.
    \9\ SQF Purge is a specific port for the SQF interface that only 
receives and notifies of purge requests from the Market Maker. 
Dedicated SQF Purge Ports enable Market Makers to seamlessly manage 
their ability to remove their quotes in a swift manner.
    \10\ ``Ouch to Trade Options'' or ``OTTO'' is an interface that 
allows Members and their Sponsored Customers to connect, send, and 
receive messages related to orders, auction orders, and auction 
responses to the Exchange. Features include the following: (1) 
options symbol directory messages (e.g., underlying and complex 
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) order 
messages; (6) risk protection triggers and cancel notifications; (7) 
auction notifications; (8) auction responses; and (9) post trade 
allocation messages. See Supplementary Material .03(b) to Options 3, 
Section 7.
    \11\ Clearing Trade Interface (``CTI'') is a real-time cleared 
trade update message that is sent to a Member after an execution has 
occurred and contains trade details specific to that Member. The 
information includes, among other things, the following: (i) The 
Clearing Member Trade Agreement (``CMTA'') or The Options Clearing 
Corporation (``OCC'') number; (ii) badge or mnemonic; (iii) account 
number; (iv) information which identifies the transaction type 
(e.g., auction type) for billing purposes; and (v) market 
participant capacity. See Options 3, Section 23(b)(1).
    \12\ FIX DROP is a real-time order and execution update message 
that is sent to a Member after an order been received/modified or an 
execution has occurred and contains trade details specific to that 
Member. The information includes, among other things, the following: 
(i) executions; (ii) cancellations; (iii) modifications to an 
existing order; and (iv) busts or post-trade corrections. See 
Options 3, Section 23(b)(3).
    \13\ Disaster Recovery ports provide connectivity to the 
Exchange's disaster recovery data center, to be utilized in the 
event the Exchange should failover during a trading day.
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    The Exchange proposes to assess no fee for the first FIX Port 
obtained by an Electronic Access Member \14\ or the first SQF Port 
obtained by a Market Maker.\15\

[[Page 42782]]

The Exchange proposes to assess a FIX Port Fee of $650 per port, per 
month, per account number for each subsequent port beyond the first 
port.\16\ The Exchange proposes to assess an SQF Port Fee of $1,250 per 
port, per month for each subsequent port beyond the first port.\17\ The 
Exchange proposes to assess an SQF Purge Port Fee of $1,250 per port, 
per month. The Exchange proposes to assess an OTTO Port Fee of $650 per 
port, per month, per account number. The Exchange proposes to assess a 
CTI Port Fee and a FIX Drop Port Fee of $650 per port, per month.
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    \14\ One free FIX Port would be provided to each Electronic 
Access Member. The term ``Electronic Access Member'' or ``EAM'' 
means a Member that is approved to exercise trading privileges 
associated with EAM Rights. See General 1, Section 1(a)(6). Also, 
one free SQF Port would be provided to each Market Maker. The term 
``Market Makers'' refers to ``Competitive Market Makers'' and 
``Primary Market Makers'' collectively. See Options 1, Section 
1(a)(21). The term ``Competitive Market Maker'' means a Member that 
is approved to exercise trading privileges associated with CMM 
Rights. See Options 1, Section 1(a)(12). The term ``Primary Market 
Maker'' means a Member that is approved to exercise trading 
privileges associated with PMM Rights. See Options 1, Section 
1(a)(35).
    \15\ One free SQF Port would be provided to each Market Maker. 
The term ``Market Makers'' refers to ``Competitive Market Makers'' 
and ``Primary Market Makers'' collectively. See Options 1, Section 
1(a)(21). The term ``Competitive Market Maker'' means a Member that 
is approved to exercise trading privileges associated with CMM 
Rights. See Options 1, Section 1(a)(12). The term ``Primary Market 
Maker'' means a Member that is approved to exercise trading 
privileges associated with PMM Rights. See Options 1, Section 
1(a)(35).
    \16\ An ``account number'' shall mean a number assigned to a 
Member. Members may have more than one account number. See Options 
1, Section 1(a)(1).
    \17\ SQF's Port Fees are assessed a higher dollar fee as 
compared to FIX and OTTO ports ($1,250 vs. $650) because the 
Exchange has to maintain options assignments within SQF and manage 
quoting traffic. Market Makers may utilize SQF Ports in their 
assigned options series. Market Maker badges are assigned to 
specific SQF ports to manage the option series in which a Market 
Maker may quote. Additionally, because of quoting obligations 
provided for within Options 2, Section 5, Market Makers are required 
to provide liquidity in their assigned options series which 
generates quote traffic. The Exchange notes because of the higher 
fee, SQF ports are billed per port, per month while FIX and OTTO 
ports are billed per port, per month, per account number. Members 
may have more than one account number.
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    The Exchange proposes to assess no fee for the first FIX Disaster 
Recovery Port obtained by an Electronic Access Member \18\ or the first 
SQF Disaster Recovery Port obtained by a Market Maker.\19\ The Exchange 
proposes to assess each additional FIX Disaster Recovery Port and each 
additional SQF Disaster Recovery Port a fee of $50 per port, per month, 
per account number. Additionally, the Exchange proposes to assess a 
Disaster Recovery Fee for SQF Purge and OTTO Ports of $50 per port, per 
month, per account number. Finally, the Exchange proposes to assess a 
Disaster Recovery Fee for CTI Ports and FIX DROP Ports of $50 per port, 
per month.
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    \18\ One free FIX Port would be provided to each Electronic 
Access Member. The term ``Electronic Access Member'' or ``EAM'' 
means a Member that is approved to exercise trading privileges 
associated with EAM Rights. See General 1, Section 1(a)(6). Also, 
one free SQF Port would be provided to each Market Maker. The term 
``Market Makers'' refers to ``Competitive Market Makers'' and 
``Primary Market Makers'' collectively. See Options 1, Section 
1(a)(21). The term ``Competitive Market Maker'' means a Member that 
is approved to exercise trading privileges associated with CMM 
Rights. See Options 1, Section 1(a)(12). The term ``Primary Market 
Maker'' means a Member that is approved to exercise trading 
privileges associated with PMM Rights. See Options 1, Section 
1(a)(35).
    \19\ One free SQF Port would be provided to each Market Maker. 
The term ``Market Makers'' refers to ``Competitive Market Makers'' 
and ``Primary Market Makers'' collectively. See Options 1, Section 
1(a)(21). The term ``Competitive Market Maker'' means a Member that 
is approved to exercise trading privileges associated with CMM 
Rights. See Options 1, Section 1(a)(12). The term ``Primary Market 
Maker'' means a Member that is approved to exercise trading 
privileges associated with PMM Rights. See Options 1, Section 
1(a)(35).
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    The OTTO Port, CTI Port, FIX Port, FIX Drop Port and all Disaster 
Recovery Ports \20\ are available to all Electronic Access Members, and 
will be subject to a monthly cap of $7,500.
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    \20\ This includes FIX, SQF, SQF Purge, OTTO, CTI and FIX Drop 
Disaster Recovery Ports.
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    The SQF Port and the SQF Purge Port are available to all Market 
Makers, and will be subject to a monthly cap of $17,500.\21\
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    \21\ Only Market Makers may quote on MRX. The Exchange is 
proposing non-substantive technical amendments to add commas within 
the ``Production'' column of the proposed rule text to separate 
terms.
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    The Exchange is not amending the TradeInfo MRX Interface \22\ or 
the Nasdaq MRX Depth of Market, Nasdaq MRX Order Feed, Nasdaq MRX Top 
Quote Feed, Nasdaq MRX Trades Feed, or Nasdaq MRX Spread Feed Ports; 
all of these aforementioned ports will continue to be assessed no fees. 
Additionally, as is the case today, the Disaster Recovery Ports for 
TradeInfo and the Nasdaq MRX Depth of Market, Nasdaq MRX Order Feed, 
Nasdaq MRX Top Quote Feed, Nasdaq MRX Trades Feed and Nasdaq MRX Spread 
Feed Ports will not be assessed a fee.
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    \22\ TradeInfo is a user interface that permits a Member to: (i) 
search all orders submitted in a particular security or all orders 
of a particular type, regardless of their status (open, canceled, 
executed, etc.); (ii) view orders and executions; and (iii) download 
orders and executions for recordkeeping purposes. TradeInfo users 
may also cancel open orders at the order, port or firm mnemonic 
level through TradeInfo. See Options 3, Section 23(b)(2).
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Order and Quote Entry Protocols
    Only one order protocol is required for an MRX Member to submit 
orders into MRX. The Exchange will provide each Electronic Access 
Member one FIX Port at no cost to submit orders into MRX. Only one 
quote protocol is required for an MRX Market Maker to submit quotes 
into MRX. The Exchange will provide each Market Maker one SQF Port at 
no cost to submit quotes into MRX. A quoting protocol, such as SQF, is 
only required to the extent an MRX Member has been appointed as a 
Market Maker in an options series pursuant to Options 2, Section 1.
    Only MRX Members may utilize ports on MRX. Any market participant 
that sends orders to a Member would not need to utilize a port. The 
Member can send all orders, proprietary and agency, through one port to 
MRX. Members may elect to obtain multiple account numbers to organize 
their business, however only one account number and one port for orders 
and one port for quotes is necessary for a Member to trade on MRX.
    MRX also offers an OTTO protocol. Unlike FIX, which offers routing 
capability, OTTO does not permit routing. Depending on a Member's 
business model, Members may elect to purchase an OTTO Port in addition 
to the one FIX Port offered at no cost. Members may prefer one protocol 
as compared to another protocol, for example, the ability to route may 
cause a Member to utilize FIX and a Member that desires to execute an 
order locally may utilize OTTO. Also, the OTTO Port offers lower 
latency as compared to the FIX Port, which may be attractive to Members 
depending on their trading behavior. MRX Members utilizing the one FIX 
Port offered at no cost do not need to purchase an OTTO Port. However, 
Members may elect to utilize both order entry protocols, depending on 
how they organize their business. Because the Exchange is providing one 
FIX Port at no cost, the use of an OTTO Port is optional. OTTO provides 
MRX Members with an additional choice as to the type of protocol that 
they may use to submit orders to the Exchange. Today, Nasdaq Phlx LLC 
(``Phlx'') and Nasdaq BX, Inc. (``BX'') offer only a FIX Port to submit 
orders on those options markets.\23\
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    \23\ See Phlx and BX Options 3, Section 7 for a list of 
protocols.
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    Further, while only one protocol is necessary to submit orders into 
MRX, Members may choose to purchase a greater number of order entry 
ports, depending on that Member's business model.\24\ To the extent 
that Electronic Access Members chose to utilize more than one FIX Port, 
the Electronic Access Member would be assessed $650 per port, per 
month, per account number for each subsequent optional port beyond the 
first port. To the extent that Market Makers chose to utilize more than 
one SQF Port, the Market Maker would be assessed $1,250 per port, per 
month for each subsequent optional port beyond the first port. 
Additionally, to the extent a Member expended more than $7,500 for FIX 
Ports or more than $17,500 for SQF Ports, the Exchange would not charge 
an MRX Member for additional FIX or SQF Ports, respectively, beyond the 
cap.
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    \24\ For example, a Member may desire to utilize multiple FIX or 
OTTO Ports for accounting purposes, to measure performance, for 
regulatory reasons or other determinations that are specific to that 
Member.
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Other Protocols
    The Exchange's proposal to offer an SQF Purge Port for $1,250 per 
port, per month is optional. The SQF Purge Port

[[Page 42783]]

is designed to assist Market Makers in the management of, and risk 
control over, their quotes. Market Makers may utilize a purge port to 
reduce uncertainty and to manage risk by purging all quotes in their 
assigned options series. Of note, Market Makers may only enter interest 
into SQF in their assigned options series. Additionally, the SQF Purge 
Port may be utilized by a Market Maker in the event that the Member has 
a system issue and determines to purge from the order book. The SQF 
Purge Port is optional as Market Makers have various ways of purging 
their quotes from the order book. First of all, a Market Maker may 
cancel quotes through SQF in their assigned option series. Second, 
TradeInfo permits the cancellation of open orders at the order, port or 
firm mnemonic level.\25\ Third, in the event of a loss of communication 
with the Exchange, MRX offers the ability to cancel all of a Member's 
open quotes via a cancel-on-disconnect control.\26\ Fourth, MRX offers 
Market Makers the ability, with respect to simple orders, to establish 
pre-determined levels of risk exposure which would be utilized to 
automatically remove quotes in all series of an options class.\27\ 
Accordingly, the Exchange believes that the SQF Purge Port provides an 
efficient option to other available services which allow a Market Maker 
to cancel quotes.
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    \25\ TradeInfo is free.
    \26\ See MRX Options 3, Section 18, Detection of Loss. This risk 
protection is free.
    \27\ See MRX Options 3, Section 15(a)(3)(B). Thresholds may be 
set by Members based on percentage, volume, delta or vega. This risk 
protection is free.
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    CTI Ports and FIX DROP Ports are optional as Members have various 
ways of receiving information concerning open orders and executed 
transactions. First, FIX and OTTO provide Members with real-time order 
executions similar to the Clearing Trade Interface and FIX DROP. 
Second, TradeInfo provides Members with the ability to query open 
orders and order executions real-time, at no cost, similar to the 
Clearing Trade Interface and FIX DROP. Third, Members receive free 
daily reports listing open orders and trade executions from the 
Exchange. While not real-time, the Open Orders Report and Trade Detail 
Report provides Members with information similar to the Clearing Trade 
Interface and FIX DROP.
Disaster Recovery
    With respect to Disaster Recovery Ports, the Exchange proposes to 
assess no fee for the first FIX Disaster Recovery Port obtained by an 
Electronic Access Member or the first SQF Disaster Recovery Port 
obtained by a Market Maker. The Exchange proposes to assess no fees for 
these ports to provide Members with continuous access to MRX in the 
event of a failover at no cost. Electronic Access Members only require 
one FIX Disaster Recovery Port to submit orders in the event of a 
failover. Market Makers only require one SQF Disaster Recovery Port to 
submit quotes in the event of a failover. Electronic Access Members may 
elect to purchase additional optional FIX Disaster Recovery Ports for 
$50 per port, per month, per account number. Market Makers may elect to 
purchase additional optional SQF Disaster Recovery Ports for $50 per 
port, per month, per account number. The additional FIX and SQF 
Disaster Recovery Ports are not necessary to connect to the Exchange in 
the event of a failover because the Exchange has provided Members with 
a FIX Disaster Recovery Port and an SQF Disaster Recovery Port at no 
cost.
    Further, the Exchange's proposal to offer Disaster Recovery Ports 
for SQF Purge Ports and OTTO Ports for $50 per port, per month, per 
account number and Disaster Recovery Ports for CTI Ports and FIX DROP 
Ports for $50 per port, per month is optional. As noted herein, today, 
there are other alternatives for these ports. The purchase of an SQF 
Purge Port, OTTO Port, CTI Port, and FIX DROP Port in production is 
optional and, therefore, so is the purchase of Disaster Recovery Ports 
for these ports. The proposed Disaster Recovery Port fees are intended 
to encourage Members to be efficient when purchasing Disaster Recovery 
Ports. Similar to all other ports, Disaster Recovery Ports need to be 
maintained by the Exchange.\28\
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    \28\ The Exchange maintains ports in a number of ways to ensure 
that ports are properly connected to the Exchange at all times. This 
includes offering testing, ensuring all ports are up-to-date with 
the latest code releases, as well as ensuring that all ports meet 
the Exchange's information security specifications.
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    Finally, in the event that an MRX Member elects to subscribe to 
multiple ports, the Exchange offers a monthly cap beyond which a Member 
would be assessed no additional fees in a given month. As noted above, 
the SQF Port and the SQF Purge Port are subject to a monthly cap of 
$17,500 and the OTTO Port, CTI Port, FIX Port, FIX Drop Port and all 
Disaster Recovery Ports are subject to a monthly cap of $7,500.
    As noted herein, these different protocols are not all necessary to 
conduct business on MRX; a Member may choose among protocols based on 
their business workflow. The proposed port fees are similar to fees 
assessed by GEMX.\29\
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    \29\ See GEMX Options 7, Section 6.C. (Ports and Other 
Services).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\30\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\31\ 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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    \30\ See 15 U.S.C. 78f(b).
    \31\ See 15 U.S.C. 78f(b)(4) and (5).
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    The proposed changes to the Pricing Schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for order flow, which 
constrains its pricing determinations. The fact that the market for 
order flow is competitive has long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, 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'. . . .'' \32\
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    \32\ See NetCoalition, 615 F.3d at 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 to determine 
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.'' \33\
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    \33\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Congress directed the Commission to ``rely on `competition, 
whenever

[[Page 42784]]

possible, in meeting its regulatory responsibilities for overseeing the 
SROs and the national market system.' '' \34\ As a result, the 
Commission has historically relied on competitive forces to determine 
whether a fee proposal is equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory. ``If competitive forces are 
operative, the self-interest of the exchanges themselves will work 
powerfully to constrain unreasonable or unfair behavior.'' \35\ 
Accordingly, ``the existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \36\ In its 2019 guidance on fee proposals, 
Commission staff indicated that they would look at factors beyond the 
competitive environment, such as cost, only if a ``proposal lacks 
persuasive evidence that the proposed fee is constrained by significant 
competitive forces.'' \37\
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    \34\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \35\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \36\ Id.
    \37\ See U.S. Securities and Exchange Commission, ``Staff 
Guidance on SRO Rule filings Relating to Fees'' (May 21, 2019), 
available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
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History of MRX Operations
    Over the years, MRX has amended its transactional pricing to remain 
competitive and attract order flow to the Exchange.\38\
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    \38\ See e.g. Securities Exchange Act Release Nos. 77292 (March 
4, 2016), 81 FR 12770 (March 10, 2016) (SR-ISEMercury-2016-02) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Establish the Schedule of Fees); 77409 (March 21, 2016), 
81 FR 16240 (March 25, 2016) (SR-ISEMercury-2016-05) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Schedule of Fees); 81 FR 16238 (March 21, 2016), 81 FR 16238 
(March 25, 2016) (SR-ISEMercury-2016-06) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees); 77841 (May 16, 2016), 81 FR 31986 (SR-ISEMercury-
2016-11) (Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend the Schedule of Fees); 82537 (January 19, 
2018), 83 FR 3784 (January 26, 2018) (SR-MRX-2018-01) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Schedule of Fees To Introduce a New Pricing Model); 82990 (April 
4, 2018), 83 FR 15434 (April 10, 2018) (SR-MRX-2018-10) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Chapter IV of the Exchange's Schedule of Fees); 28677 (June 14, 
2018), 83 FR 28677 (June 20, 2018) (SR-MRX-2018-19) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To 
Increase Certain Route-Out Fees Set Forth in Section II.A of the 
Schedule of Fees); 84113 (September 13, 2018), 83 FR 47386 
(September 19, 2018) (SR-MRX-2018-27) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Relocate the 
Exchange's Schedule of Fees); 85143 (February 14, 2019), 84 FR 5508 
(February 21, 2019) (SR-MRX-2019-02) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend the Pricing 
Schedule at Options 7, Section 3); 85313 (March 14, 2019), 84 FR 
10357 (March 20, 2019) (SR-MRX-2019-05) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Relating to PIM 
Fees and Rebates); 86326 (July 8, 2019), 84 FR 33300 (July 12, 2019) 
(SR-MRX-2019-14) (Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Adopt Complex Order Pricing); 88022 (January 
23, 2020), 85 FR 5263 (January 29, 2020) (SR-MRX-2020-02) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
MRX Pricing Schedule); 89046 (June 11, 2020), 85 FR 36633 (June 17, 
2020) (SR-MRX-2020-11) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend Its Pricing Schedule at Options 7); 
89320 (July 15, 2020), 85 FR 44135 (July 21, 2020) (SR-MRX-2020-14) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend Its Pricing Schedule at Options 7, Section 5, Other 
Options Fees and Rebates, in Connection With the Pricing for Orders 
Entered Into the Exchanges Price Improvement Mechanism); 90503 
(November 24, 2020), 85 FR 77317 (December 1, 2020) (SR-MRX-2020-18) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend Its Pricing Schedule at Options 7 for Orders Entered 
Into the Exchange's Price Improvement Mechanism); 90434 (November 
16, 2020), 85 FR 74473 (November 20, 2020) (SR-MRX-2020-19) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To the 
Exchange's Pricing Schedule at Options 7 To Amend Taker Fees for 
Regular Orders); 90455 (November 18, 2020), 85 FR 75064 (November 
24, 2020) (SR-MRX-2020-21) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend the Pricing 
Schedule); and 91687 (April 27, 2021), 86 FR 23478 (May 3, 2021) 
(SR-MRX-2021-04) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend the Exchange's Pricing Schedule at 
Options 7). Note that ISE Mercury is an earlier name for MRX.
---------------------------------------------------------------------------

    In June 2019, MRX commenced offering complex orders.\39\ With the 
addition of complex order functionality, MRX offered Members certain 
order types, an opening process, auction capabilities and other trading 
functionality that was nearly identical to functionality available on 
ISE.\40\ By way of comparison, ISE assessed fees for ports \41\ in 2019 
while offering the same suite of functionality as MRX, with a limited 
exception.\42\
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    \39\ See Securities Exchange Act Release No. 86326 (July 8, 
2019), 84 FR 33300 (July 12, 2019) (SR-MRX-2019-14) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Adopt Complex Order Pricing).
    \40\ One distinction is that ISE offered its Members access to 
Nasdaq Precise in 2019 and since that time. MRX has never offered 
Precise. ``Nasdaq Precise'' or ``Precise'' is a front-end interface 
that allows EAMs and their Sponsored Customers to send orders to the 
Exchange and perform other related functions. Features include the 
following: (1) order and execution management: enter, modify, and 
cancel orders on the Exchange, and manage executions (e.g., parent/
child orders, inactive orders, and post-trade allocations); (2) 
market data: access to real-time market data (e.g., NBBO and 
Exchange BBO); (3) risk management: set customizable risk parameters 
(e.g., kill switch); and (4) book keeping and reporting: 
comprehensive audit trail of orders and trades (e.g., order history 
and done away trade reports). See ISE Supplementary Material .03(d) 
of Options 3, Section 7. Precise is also available on GEMX.
    \41\ Since 2019, ISE has assessed the following port fees: a FIX 
Port Fee of $300 per port, per month, per mnemonic, an SQF Port Fee 
and SQF Purge Port Fee of $1,100 per port, per month, an OTTO Port 
Fee of $400 per port, per month, per mnemonic with a monthly cap of 
$4,000, a CTI Port Fee and FIX DROP Port Fee of $500 per port, per 
month, per mnemonic. See Securities Exchange Act Release No. 82568 
(January 23, 2018), 83 FR 4086 (January 29, 2018) (SR-ISE-2018-07) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Assess Fees for OTTO Port, CTI Port, FIX Port, FIX Drop 
Port and Disaster Recovery Port Connectivity). Of note, ISE assessed 
port fees prior to 2019 as well.
    \42\ See note 40, supra.
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Ports Are Subject to Significant Substitution-Based Competitive Forces
    An exchange can show that a product is ``subject to significant 
substitution-based competitive forces'' by introducing evidence that 
customers can substitute the product for products offered by other 
exchanges.
    Chart 1 below shows the January 2022 market share for multiply-
listed options by exchange. Of the 16 operating options exchanges, none 
currently has more than a 13.1% market share, and MRX has the smallest 
market share at 1.8%. Customers widely distribute their transactions 
across exchanges according to their business needs and the ability of 
each exchange to meet those needs through technology, liquidity and 
functionality. Average market share for the 16 options exchanges is 
6.26 percent, with the median at 5.8, and a range between 1.8 and 13.1 
percent.

[[Page 42785]]

[GRAPHIC] [TIFF OMITTED] TN18JY22.004

    Market share is the percentage of volume on a particular exchange 
relative to the total volume across all exchanges, and indicates the 
amount of order flow directed to that exchange. High levels of market 
share enhance the value of trading and ports.
    Chart 2 below compares the number of firms purchasing FIX and SQF 
Ports from MRX to the number of firms purchasing such services from the 
four MRX-affiliated options exchanges, GEMX, ISE, The Nasdaq Stock 
Market LLC (``NOM'') and Phlx.
[GRAPHIC] [TIFF OMITTED] TN18JY22.005

    Chart 2 shows that fewer firms purchased MRX ports in March 2022 
than the ports of its options exchange affiliates. As described in 
detail below, only one order protocol is required to submit orders to 
MRX. Quoting protocols are only required to the extent an MRX Member 
has been appointed as a Market Maker in an options series pursuant to 
Options 2, Section 1, and only one quoting protocol is necessary to 
quote on MRX. Members may choose a greater number of order or quote 
entry ports, beyond the first FIX Port and the first SQF Port which are 
proposed to be offered at no cost, depending on that Member's 
particular business model.\43\

[[Page 42786]]

However, Members do not need more than one order entry port and one 
quote port to submit interest to MRX.
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    \43\ For example, a Member may desire to utilize multiple FIX 
ports for accounting purposes, to measure performance, for 
regulatory reasons or other determinations that are specific to that 
Member.
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    The experience of MRX's affiliates shows that the number of ports 
that members choose to purchase varies widely. For example, a review of 
the Phlx exchange in April 2022 shows that, among its member 
organizations that purchase ports, approximately 26 percent purchased 1 
SQF or FIX port, another 26 percent purchased between 2 and 5 ports, 21 
percent purchased between 6 and 10 ports, and 28 percent purchased more 
than 11 ports. This means that any MRX Member has the option of 
reducing its purchase of port services without purchasing a substitute 
product by, for example, reconfiguring its systems to change the number 
of ports from 16 to 14.\44\
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    \44\ As noted above, one port would be required to submit orders 
and one port would be required to submit quotes.
---------------------------------------------------------------------------

    By way of comparison, the number of ports that MRX Members 
purchased in April 2022 also varies widely. For example, approximately 
23 percent purchased 1 SQF, FIX or OTTO Port,\45\ another 43 percent 
purchased between 2 and 5 ports, 13 percent purchased between 6 and 10 
ports, and 20 percent purchased more than 11 ports. MRX Members, 
similar to Phlx member organizations, have the option of reducing their 
port purchases without purchasing a substitute product.
---------------------------------------------------------------------------

    \45\ Phlx only offers FIX and SQF ports while MRX offers FIX, 
OTTO and SQF ports for order and quote entry.
---------------------------------------------------------------------------

    All of these statistics must be viewed in the context of a field 
with relatively low barriers to entry. MRX, like many new entrants to 
the field, offered ports for free to establish itself and gain market 
share. As new entrants enter the field, MRX can also expect competition 
from these new entrants. Those new entrants, like MRX, are likely to 
set port, or other fees to zero, increasing marketplace competition. 
Chart 3 below demonstrates that since the inception of its membership, 
port and market data fees, MRX volumes declined.
---------------------------------------------------------------------------

    \46\ The chart displays the log volume for MRX and all other 
options exchanges combined. It is ``normalized'' by subtracting each 
day's value from the first trading day of the year (January 3, 
2022). The straight lines represent the average normalized log 
volumes from January 3, 2022 through April 29, 2022 and from May 2, 
2022 through June 23, 2022, respectively.
[GRAPHIC] [TIFF OMITTED] TN18JY22.006

    Specifically, since May 2, 2022, MRX saw a larger drop in its 
average daily volume (-11%) than all other options exchanges (-5%) 
since MRX's fees were added on May 2, 2022 when compared to their 
respective year-to-date volumes through April 29, 2022. This pattern 
indicates that the adoption of MRX membership, port, and market data 
fees impacted MRX's volume negatively.
    In summary, MRX port fees are subject to significant substitution-
based competitive forces due to its consistently low percentage of 
market share, the relatively small number of purchasers for each 
product, and the purchasers that either cancelled or are reviewing 
their subscriptions. Implementation of the proposed fees is therefore 
consistent with the Act.
    The Exchange believes that there are many factors that may cause a 
market participant to decide to become a member of a particular 
exchange. Among various factors, the Exchange believes market 
participants consider: (i) an exchange's available liquidity in options 
series; (ii) trading functionality offered on a particular market; 
(iii) product offerings; (iv) customer service on an exchange; and (v) 
transactional pricing. The Exchange believes that the decision to 
become a member of an exchange, particularly as a registered market 
maker, is a complex one that is not solely based on non-transactional 
costs assessed by an exchange. Market participants weigh the tradeoff 
between where they choose to deploy liquidity versus where trading 
opportunities exist. Of course, the cost of ports may factor into a 
decision to become a member of a certain exchange, but the Exchange 
believes it is by no means the only factor when comparing exchanges.
Market Makers
    Market makers play an important role on options exchanges as they 
provide

[[Page 42787]]

liquidity. In options markets, registered market makers are assigned 
options series \47\ and are required to quote in those options series 
for a specified time period during the day.\48\ Typically, a lead or 
primary market maker \49\ will be required to quote for a longer period 
of time during the day as compared to other market makers registered on 
an exchange.\50\ Additionally, market makers are typically required to 
quote within a certain width on options markets.\51\ Greater liquidity 
on options markets benefits all market participants by providing more 
trading opportunities and attracting greater participation by market 
makers. An increase in the activity of market makers in turn 
facilitates tighter spreads. Market participants are attracted to 
options markets that have ample liquidity and tighter spreads in 
options series.
---------------------------------------------------------------------------

    \47\ See Phlx, ISE, GEMX, MRX, BX and NOM Options 2, Section 3; 
Cboe Exchange, Inc. (``Cboe'') Rule 5.50; BOX Exchange LLC (``BOX'') 
Rule 8030; MIAX Rule 602; and NYSE Arca, Inc. (``NYSE Arca'') Rule 
6.35-O.
    \48\ See ISE, GEMX and MRX, Phlx, BX and NOM Options 2, Section 
5; Cboe Rule 5.52; BOX Rule 8050; MIAX Rule 604; and NYSE Arca Rule 
6.37A-O.
    \49\ Options markets refer to the primary market maker on an 
exchange in several ways.
    \50\ See BX Options 2, Section 4; ISE, GEMX and MRX, and Phlx 
Options 2, Section 5; BOX Rule 8055; MIAX Rule 604; and NYSE Arca 
Rule 6.37A-O.
    \51\ See BX Options 2, Section 4; ISE, GEMX and MRX, Phlx and 
NOM Options 2, Section 5; and Cboe Rule 5.52; BOX Rule 8040.
---------------------------------------------------------------------------

Trading Functionality
    An exchange's trading functionality attracts market participants 
who may elect, for example, to submit an order into a price improving 
auction,\52\ enter a complex order,\53\ or utilize a particular order 
type.\54\ Different options exchanges offer different trading 
functionality to their members. For example, with respect to priority 
and allocation of an order book, some options exchanges have price/time 
allocation,\55\ some have a size pro-rata allocation,\56\ while other 
exchanges offer both allocation models.\57\ The allocation methodology 
on a particular options exchange's order book may attract certain 
market participants. Also, the manner in which some options markets 
structure their solicitation auction,\58\ or opening process,\59\ may 
be attractive to certain market participants. Finally, some exchanges 
have trading floors \60\ which may accommodate trading for certain 
market participants or trading firms.\61\
---------------------------------------------------------------------------

    \52\ See ISE, GEMX, MRX, Phlx and BX Options 3, Section 13; MIAX 
Rule 515A; Cboe Rule 5.37; and BOX Rules 7150 and 7245.
    \53\ See Phlx and ISE Options 3, Section 14; MIAX Rule 518; Cboe 
Rule 5.33; BOX Rule 7240; and NYSE Arca Rule 6.91-O.
    \54\ See ISE, GEMX, MRX, Phlx, BX and NOM Options 3, Section 7; 
MIAX Rule 615; Cboe Rule 5.6; BOX Rule 7110; and NYSE Arca Rule 
6.62-O.
    \55\ See Cboe Rule 5.85; BOX Rule 7130; and NYSE Arca Rule 6.76-
O.
    \56\ See Phlx, ISE, GEMX and MRX Options 3, Section 10; and BOX 
Rule 7135.
    \57\ See BX Options 3, Section 10. While BX's rule permits both 
price/time and size pro-rata allocation, all symbols on BX are 
currently designated as Price/Time. See also BOX Rules 7130 and 
7135. MIAX's rule permits both Price-Time and Pro-Rata allocation. 
See also MIAX Rule 514.
    \58\ See ISE, GEMX and MRX Options 3, Section 11; NYSE American 
Rules 971.1NY and 971.2NY; and Cboe Rule 5.39.
    \59\ See ISE, GEMX, MRX, Phlx, BX and NOM Options 3, Section 8; 
Cboe Rule 5.31, MIAX Rule 503, BOX Rule 7070, and NYSE Arca Rule 
6.64-O.
    \60\ Today, Phlx, Cboe, BOX, NYSE Arca, and NYSE American LLC 
have an options trading floor. Trading floors require an on-floor 
presence to execute options transactions.
    \61\ There are certain features of open outcry trading that are 
difficult to replicate in an electronic trading environment. The 
Exchange has observed, and understands from various market 
participants, that they have difficulty executing certain orders, 
such as larger orders and high-risk and complicated strategies, in 
an all-electronic trading configuration without the element of human 
interaction to negotiate pricing for these orders.
---------------------------------------------------------------------------

Product Offerings
    Introducing new and innovative products to the marketplace designed 
to meet customer demands may attract market participants to a 
particular options venue. New products in the options industry may 
allow market participants greater trading and hedging opportunities, as 
well as new avenues to manage risks. The listing of new options 
products enhances competition among market participants by providing 
investors with additional investment vehicles, as well as competitive 
alternatives, to existing investment products. An exchange's 
proprietary product offering may attract order flow to a particular 
exchange to trade a particular options product.\62\
---------------------------------------------------------------------------

    \62\ See e.g., options on the Nasdaq-100 Index[supreg] available 
on ISE, GEMX and Phlx as well as Cboe's Market Volatility 
Index[supreg]. Currently, MRX does not list any proprietary 
products.
---------------------------------------------------------------------------

Transaction Pricing
    The pricing available on a particular exchange may impact a market 
participant's decision to submit order flow to a particular options 
venue. The options industry is competitive. Clear substitutes to the 
Exchange exist in the market for options security 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.
Fees for Ports
    The proposed port fees described below are in line with those of 
other markets. Setting a fee above competitors is likely to drive away 
customers, so the most efficient price-setting strategy is to set 
prices at the same level as other firms.
    As noted above, market participants may choose to become a member 
of one or more options exchanges based on the market participant's 
business model. A very small number of market participants choose to 
become a member of all sixteen options exchanges. It is not a 
requirement for market participants to become members of all options 
exchanges, in fact, certain market participants conduct an options 
business as a member of only one options market. Most firms that 
actively trade on options markets are not currently Members of MRX and 
do not purchase port services at MRX. Ports are only available to MRX 
Members or service bureaus, and only an MRX Member may utilize a 
port.\63\
---------------------------------------------------------------------------

    \63\ Service bureaus may obtain ports on behalf of Members. The 
Exchange would only assign a badge and/or mnemonic to a Member to be 
utilized to submit quotes and/or orders to the Exchange.
---------------------------------------------------------------------------

    Using options markets that Nasdaq operates as points of comparison, 
less than a third of the firms that are members of at least one of the 
options markets that Nasdaq operates are also Members of MRX 
(approximately 29%). The Exchange notes that no firm is a Member of MRX 
only. Few, if any, firms have purchased port services at MRX, 
notwithstanding the fact that ports are currently free, because MRX 
currently has less liquidity than other options markets. As explained 
above, MRX has the smallest market share of the 16 options exchanges, 
representing only approximately 1.8% of the market, and, for certain 
market participants, the current levels of liquidity may be 
insufficient to justify the costs associated with becoming a Member and 
connecting to the Exchange, notwithstanding the fact that ports are 
currently free.
    The decision to become a member of an exchange, particularly for 
registered market makers, is complex, and not solely based on the non-
transactional costs assessed by an exchange. As noted herein, specific 
factors include, but are not limited to: (i) an exchange's available 
liquidity in options series; (ii) trading functionality offered on a 
particular market; (iii) product offerings; (iv) customer service on an 
exchange;

[[Page 42788]]

and (v) transactional pricing. Becoming a member of the exchange does 
not ``lock'' a potential member into a market or diminish the overall 
competition for exchange services. The decision to become a member of 
an exchange is made at the beginning of the relationship, and is no 
less subject to competition than trading fees or ports.
    In lieu of becoming a member at each options exchange, a market 
participant may join one exchange and elect to have their orders routed 
in the event that a better price is available on an away market. 
Nothing in the Order Protection Rule requires a firm to become a Member 
at MRX.\64\ If MRX is not at the NBBO, MRX will route an order to any 
away market that is at the NBBO to prevent a trade-through and also 
ensure that the order was executed at a superior price.\65\
---------------------------------------------------------------------------

    \64\ See Options Order Protection and Locked/Crossed Market Plan 
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \65\ MRX Members may elect to not route their orders by marking 
an order as ``do-not-route.'' In this case, the order would not be 
routed. See Options 3, Section 7(m).
---------------------------------------------------------------------------

    With respect to the submission of orders, Members may also choose 
not to purchase any port at all from the Exchange, and instead rely on 
the port of a third party to submit an order.\66\ For example, a third-
party broker-dealer Member of MRX may be utilized by a retail investor 
to submit orders into an Exchange. An institutional investor may 
utilize a broker-dealer, a service bureau,\67\ or request sponsored 
access \68\ through a member of an exchange in order to submit a trade 
directly to an options exchange.\69\ A market participant may either 
pay the costs associated with becoming a member of an exchange or, in 
the alternative, a market participant may elect to pay commissions to a 
broker-dealer, pay fees to a service bureau to submit trades, or pay a 
member to sponsor the market participant in order to submit trades 
directly to an exchange. Market participants may elect any of the above 
models and weigh the varying costs when determining how to submit 
trades to an exchange. Depending on the number of orders to be 
submitted, technology, ability to control submission of orders, and 
projected revenues, a market participant may determine one model is 
more cost efficient as compared to the alternatives.
---------------------------------------------------------------------------

    \66\ Market Makers on MRX are required to obtain one SQF port to 
submit quotes into MRX.
    \67\ Service bureaus provide access to market participants to 
submit and execute orders on an exchange. On MRX, a Service Bureau 
may be a Member. Some MRX Members utilize a Service Bureau for 
connectivity and that Service Bureau may not be a Member. Some 
market participants utilize a Service Bureau who is a Member to 
submit orders. As noted herein only MRX Members may submit orders or 
quotes through ports.
    \68\ Sponsored Access is an arrangement whereby a member permits 
its customers to enter orders into an exchange's system that bypass 
the member's trading system and are routed directly to the Exchange, 
including routing through a service bureau or other third-party 
technology provider.
    \69\ This may include utilizing a Floor Broker and submitting 
the trade to one of the five options trading floors.
---------------------------------------------------------------------------

    Only if a market participant elects to become a Member of MRX will 
the market participant need to utilize a port to submit orders and/or 
quotes into MRX. Once an applicant is approved for membership on MRX 
and becomes a Member, the Exchange assigns the Member a badge \70\ and/
or mnemonic \71\ to submit quotes and/or orders to the Exchange through 
the applicable port. An MRX Member may have one or more accounts 
numbers and may assign badges or mnemonics to those account numbers. 
Membership approval grants a Member a right to exercise trading 
privileges on MRX, which includes the submission of orders and/or 
quotes into the Exchange through a secure port by utilizing the badge 
and/or mnemonic assigned to a specific Member by the Exchange. The 
Exchange utilizes ports as a secure method for Members to submit orders 
and/or quotes into the Exchange's match engine and for the Exchange to 
send messages related to those orders and/or quotes to its Members.
---------------------------------------------------------------------------

    \70\ A ``badge'' shall mean an account number, which may contain 
letters and/or numbers, assigned to Market Makers. A Market Maker 
account may be associated with multiple badges. See MRX Options 1, 
Section 1(a)(5).
    \71\ A ``mnemonic'' shall mean an acronym comprised of letters 
and/or numbers assigned to Electronic Access Members. An Electronic 
Access Member account may be associated with multiple mnemonics. See 
MRX Options 1, Section 1(a)(23).
---------------------------------------------------------------------------

    MRX is obligated to regulate its Members and secure access to its 
environment. In order to properly regulate its Members and secure the 
trading environment, MRX takes measures to ensure access is monitored 
and maintained with various controls. Ports are a method utilized by 
the Exchange to grant Members secure access to communicate with the 
Exchange and exercise trading rights. When a market participant elects 
to be a Member of MRX, and is approved for membership by MRX, the 
Member is granted trading rights to enter orders and/or quotes into MRX 
through secure ports.
    As noted herein, there is no legal or regulatory requirement that a 
market participant become a Member of MRX, or, if it is a Member, to 
purchase port services beyond the one quoting protocol or one order 
entry protocol necessary to quote or submit orders on MRX, which the 
Exchange proposes to provide at no cost in addition to one FIX Disaster 
Recovery Port and one SQF Disaster Recovery Port, which are also being 
provided at no cost.\72\ As noted above, Members may freely choose to 
rely on one or many ports, depending on their business model.
---------------------------------------------------------------------------

    \72\ Only Members and service bureaus may request ports on MRX, 
and only Members may utilize ports on MRX through their assigned 
badge or mnemonic. See Options 1, Section 1(a)(5) and (23).
---------------------------------------------------------------------------

    The Exchange's proposal to amend port fees is reasonable, equitable 
and not unfairly discriminatory as MRX is providing MRX Electronic 
Access Members one FIX Port to submit orders and MRX Market Makers one 
SQF Port to submit quotes to MRX, at no cost, in addition to providing 
one FIX Disaster Recovery Port and one SQF Disaster Recovery Port at no 
cost; all other ports offered by MRX are optional.
    The proposed fees reflect the ongoing services provided to maintain 
and support the ports. In order to submit orders into MRX, only one 
order protocol is required, and MRX is providing Electronic Access 
Members one FIX Port at no cost. Quoting protocols are only required to 
the extent an MRX Member has been appointed as a Market Maker in an 
options series pursuant to Options 2, Section 1. Similarly, only one 
quoting protocol is necessary to quote on MRX and MRX is providing 
Market Makers one SQF Port at no cost. As noted above, only Members may 
utilize ports. A Member can send all orders, proprietary and agency, 
through one port to MRX and all quotes through one port. Therefore, for 
the foregoing reasons, it is reasonable to assess no fee for the first 
FIX Port obtained by an Electronic Access Member or the first SQF Port 
obtained by a Market Maker. Further it is equitable and not unfairly 
discriminatory to assess no fee for the first FIX Port to Electronic 
Access Members as all Electronic Access Members would be entitled to 
one FIX Port at no cost. Also, it is equitable and not unfairly 
discriminatory to assess no fee for the first SQF Port to Market Makers 
as all Market Makers would be entitled to one SQF Port at no cost.
    The Exchange's proposal to assess Members $650 per port, per month, 
per account number for FIX Ports beyond the first port and $1,250 per 
port, per month for SQF Ports beyond the first port is reasonable 
because these ports are optional and Members only require one FIX Port 
to submit orders to MRX

[[Page 42789]]

and one SQF Port to submit quotes to MRX. Additionally, to the extent a 
Member expended more than $7,500 for FIX Ports or more than $17,500 for 
SQF Ports, the Exchange would not charge an MRX Member for additional 
FIX or SQF Ports beyond the cap. The fees for the proposed additional 
FIX and SQF Ports are equitable and not unfairly discriminatory because 
any Member may elect additional ports. Electronic Access Members would 
be subject to the same fees for FIX Ports and Market Makers would be 
subject to the same fees for SQF Ports. Unlike other market 
participants, Market Makers are required to provide continuous two-
sided quotes on a daily basis,\73\ and are subject to various 
obligations associated with providing liquidity.\74\ Also, account 
numbers are free on MRX.
---------------------------------------------------------------------------

    \73\ See MRX Options 2, Section 5.
    \74\ See MRX Options 2, Section 4.
---------------------------------------------------------------------------

    The Exchange's proposal to assess $650 per port, per month, per 
account number for an OTTO Port is reasonable because OTTO is optional. 
The Exchange is offering a FIX Port at no cost to submit orders to MRX. 
In addition to the FIX Port, all Members may elect to purchase OTTO to 
submit orders to MRX. Unlike FIX, which offers routing capability, OTTO 
does not permit routing. Depending on a Member's business model, 
Members may elect to purchase an OTTO Port in addition to the FIX Port, 
which is being provided at no cost. Members may prefer one protocol as 
compared to another protocol. For example, the ability to route may 
cause a Member to utilize FIX and a Member that desires to execute an 
order locally may utilize OTTO. Also, the OTTO Port offers lower 
latency as compared to the FIX Port, which may be attractive to Members 
depending on their trading behavior. MRX Members utilizing the FIX Por, 
which is offered at no cost, do not need to utilize OTTO. Members may 
elect to utilize both order entry protocols, depending on how they 
organize their business. OTTO provides MRX Members with an additional 
choice as to the type of protocol that they may use to submit orders to 
the Exchange. Today, Phlx and BX offer only a FIX Port to submit orders 
on those options markets.\75\ The proposed OTTO fee is equitable and 
not unfairly discriminatory because any Member may elect to purchase an 
optional OTTO Port and would be subject to the same fee.
---------------------------------------------------------------------------

    \75\ See Phlx and BX Options 3, Section 7 for a list of 
protocols.
---------------------------------------------------------------------------

    The Exchange's proposal to offer an SQF Purge Port for $1,250 per 
port, per month is reasonable because this port is optional. The SQF 
Purge Port is designed to assist Market Makers in the management of, 
and risk control over, their quotes. Market Makers may utilize a purge 
port to reduce uncertainty and to manage risk by purging all quotes in 
their assigned options series. Of note, Market Makers may only enter 
interest into SQF in their assigned options series. Additionally, the 
SQF Purge Port may be utilized by a Market Maker in the event that the 
Member has a system issue and determines to purge from the order book. 
The SQF Purge Port is optional as Market Makers have various ways of 
purging their quotes from the order book. First of all, a Market Maker 
may cancel quotes through SQF in their assigned options series in the 
same manner as they may cancel quotes with an SQF Purge Port. Second, 
TradeInfo permits the cancellation of open orders at the order, port or 
firm mnemonic level.\76\ Third, in the event of a loss of communication 
with the Exchange, MRX offers the ability to cancel all of a Member's 
open quotes via a cancel-on-disconnect control.\77\ Fourth, MRX offers 
Market Makers the ability, with respect to simple orders, to establish 
pre-determined levels of risk exposure which would be utilized to 
automatically remove quotes in all series of an options class.\78\ 
Accordingly, the Exchange believes that the SQF Purge Port provides an 
efficient alternative to other available services which allow a Market 
Maker to cancel quotes. The proposed SQF Purge Port is equitable and 
not unfairly discriminatory because any Member may elect to purchase an 
optional SQF Purge Port and would be subject to the same fee.
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    \76\ TradeInfo is free.
    \77\ See MRX Options 3, Section 18, Detection of Loss. This risk 
protection is free.
    \78\ See MRX Options 3, Section 15(a)(3)(B). Thresholds may be 
set by Members based on percentage, volume, delta or vega. This risk 
protection is free.
---------------------------------------------------------------------------

    The Exchange's proposal to assess $650 per port, per month for CTI 
Ports and FIX DROP Ports is reasonable because these ports are optional 
because Members have various ways of receiving information concerning 
open orders and executed transactions. First, FIX and OTTO provide 
Members with real-time order executions similar to the Clearing Trade 
Interface and FIX DROP. Second, TradeInfo provides Members with the 
ability to query open orders and order executions real-time, at no 
cost, similar to the Clearing Trade Interface and FIX DROP. Third, 
Members receive free daily reports listing open orders and trade 
executions, while not real-time, the Open Orders Report and Trade 
Detail Report provides Members with information similar to the Clearing 
Trade Interface and FIX DROP. The proposed CTI and FIX DROP Ports are 
equitable and not unfairly discriminatory because any Member may elect 
to purchase an optional CTI Port or FIX DROP Port and would be subject 
to the same fee.
    The Exchange's proposal to assess no fee for the first FIX Disaster 
Recovery Port or the first SQF Disaster Recovery Port is reasonable 
because it will provide Members with continuous access to MRX in the 
event of a failover, at no cost. Further it is equitable and not 
unfairly discriminatory to assess no fee for the first FIX Disaster 
Recovery Port to Electronic Access Members as all Electronic Access 
Members would be entitled to one FIX Disaster Recovery Port at no cost. 
Also, it is equitable and not unfairly discriminatory to assess no fee 
for the first SQF Disaster Recovery Port to Market Makers as all Market 
Makers would be entitled to one SQF Disaster Recovery Port at no cost.
    The Exchange's proposal to assess Members $50 per port, per month, 
per account number for optional FIX Disaster Recovery Ports beyond the 
first port offered at no cost and $50 per port, per month, per account 
number for optional SQF Disaster Recovery Ports beyond the first port 
offered at no cost is reasonable because these ports are optional and 
Members only require one FIX Disaster Recovery Port to submit orders to 
MRX in the event of a failover and one SQF Disaster Recovery Port to 
submit quotes to MRX in the event of a failover. Additionally, to the 
extent a Member expended more than $7,500 for Disaster Recovery Ports, 
the Exchange would not charge an MRX Member for additional Disaster 
Recovery Ports beyond the cap. The fees for the proposed additional FIX 
and SQF Disaster Recovery Ports are equitable and not unfairly 
discriminatory because any Member may elect additional ports and would 
be subject to the same fees.
    The Exchange's proposal to offer Disaster Recovery Ports for SQF 
Purge Ports, and OTTO Ports at $50 per port, per month, per account 
number and CTI Ports, and FIX DROP Ports for $50 per port, per month is 
reasonable because these ports are optional. As noted herein, there are 
other alternatives for all of these ports today, the purchase of an SQF 
Purge Port, OTTO Port, CTI Port, and FIX DROP Port in production is 
optional and, therefore, so is the purchase of Disaster Recovery Ports 
for these ports. The proposed Disaster Recovery Port fees are intended 
to encourage Members to be efficient when

[[Page 42790]]

purchasing Disaster Recovery Ports. The proposed Disaster Recovery 
Ports are equitable and not unfairly discriminatory because any Member 
may elect to purchase an optional Disaster Recovery Port and would be 
subject to the same fee, depending on the port.
    Finally, in the event that an MRX Member elects to subscribe to 
multiple ports, the Exchange offers a monthly cap beyond which a Member 
would be assessed no additional fees for month. As noted above, the SQF 
Port and the SQF Purge Port are subject to a monthly cap of $17,500 and 
the OTTO Port, CTI Port, FIX Port, FIX Drop Port and all Disaster 
Recovery Ports are subject to a monthly cap of $7,500. These caps are 
reasonable because they allow Members to cap their fees beyond a 
certain level if they elect to purchase multiple ports in a given 
month. The caps are also equitable and not unfairly discriminatory 
because any Member will be subject to the cap, provided they exceeded 
the appropriate dollar amount in a given month.
    The proposed port fees are similar to the fees assessed by 
GEMX.\79\
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    \79\ See GEMX Options 7, Section 6.C. (Ports and Other 
Services).
---------------------------------------------------------------------------

    After 6 years, MRX proposes to commence assessing port fees, just 
as all other options exchanges. The introduction of these fees will not 
impede a Member's access to MRX, but rather will allow MRX to continue 
to compete and grow its marketplace so that it may continue to offer a 
robust trading architecture, a quality opening process, an array of 
simple and complex order types and auctions, and competitive 
transaction pricing. If MRX is incorrect in its assessment of the value 
of its services, that assessment will be reflected in MRX's ability to 
compete with other options exchanges.

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.
    The Exchange believes its proposal remains competitive with other 
options markets, and will offer market participants with another choice 
of venue to transact options. The Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
favor competing venues if they deem fee levels at a particular venue to 
be excessive, or rebate opportunities available at other venues to be 
more favorable. 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.
    By way of example, today, with the exception of Precise, ISE has 
identical functionality to MRX. Market participants may elect to become 
members of ISE instead of MRX if those market participants believe that 
the order flow on ISE provides more value than the order flow on MRX. 
ISE has more market share (6.2%) as compared to MRX (1.8%). A market 
participant may evaluate the fees assessed by ISE, its market share, 
and proprietary products, among other things, and determine to become a 
member of ISE instead of MRX if it determines the proposed fees to be 
unreasonable.
    The proposed port fees are similar to port fees assessed by GEMX 
\80\ for similar connectivity. As a consequence, competition will not 
be burdened by the proposed fees. Only one order protocol is required 
to submit orders to MRX, and the Exchange proposes to offer one FIX 
Port and one FIX Disaster Recovery Port to Electronic Access Members at 
no cost. This would provide Members with the ability to continuously 
submit orders to MRX, even in the event of a failover. Likewise, only 
one quoting protocol is required to submit quotes to MRX, and the 
Exchange proposes to offer one SQF Port and one SQF Disaster Recovery 
Port to Market Makers at no cost. This would provide Market Makers with 
the ability to continuously submit quotes to MRX, even in the event of 
a failover.
---------------------------------------------------------------------------

    \80\ See GEMX Options 7, Section 6.C. (Ports and Other 
Services).
---------------------------------------------------------------------------

    Only one account number is necessary per Member and account numbers 
are free.
    The remainder of the proposed port fees are for optional ports 
(additional FIX and SQF Ports, additional FIX and SQF Disaster Recovery 
Ports, SQF Purge Port, OTTO Port, CTI Port, FIX DROP Port and Disaster 
Recovery Ports for SQF Purge Ports, OTTO Ports, CTI Ports, and FIX DROP 
Ports). These different protocols are not all necessary to conduct 
business on MRX. Members choose among the protocols based on their 
business workflow. The proposed fees do not impose an undue burden on 
competition because the Exchange would uniformly assess the port fees 
to all Members and would uniformly apply monthly caps. Market 
participants may also connect to third parties instead of directly to 
the Exchange.
    With respect to the higher fees assessed for SQF Ports and SQF 
Purge Ports, the Exchange notes that only Market Makers may utilize 
these ports. Market Makers are required to provide continuous two-sided 
quotes on a daily basis,\81\ and are subject to various obligations 
associated with providing liquidity.\82\ As a result of these quoting 
obligations, the SQF Port and SQF Purge Port are designed to handle 
higher throughput to permit Market Makers to bundle orders to meet 
their obligations. The technology to permit Market Makers to submit a 
greater number of quotes, in addition to the various risk protections 
\83\ afforded to these market participants when quoting, accounts for 
the higher SQF Port and SQF Purge Port fees. Greater liquidity benefits 
all market participants by providing more trading opportunities and 
attracting greater participation by Market Makers. Also, an increase in 
the activity of Market Makers in turn facilitates tighter spreads.
---------------------------------------------------------------------------

    \81\ See MRX Options 2, Section 5.
    \82\ See MRX Options 2, Section 4.
    \83\ See MRX Options 3, Section 15(a)(3). Market Makers are 
offered risk protections to permit them to manage their risk more 
effectively.
---------------------------------------------------------------------------

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.\84\ 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.
---------------------------------------------------------------------------

    \84\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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.

[[Page 42791]]

Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4e3c3b222b632d2123232b203a3d0e3d2b2d60292138"><span class="__cf_email__" data-cfemail="e795928b82ca84888a8a82899394a7948284c9808891">[email protected]</span></a>. Please include 
File Number SR-MRX-2022-09 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-MRX-2022-09. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MRX-2022-09 and should be submitted on 
or before August 8, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\85\
---------------------------------------------------------------------------

    \85\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15223 Filed 7-15-22; 8:45 am]
BILLING CODE 8011-01-P


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