Document ID: SEC-2019-0313-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq MRX, LLC
Posted Date: 2019-03-20T04:00Z

[Federal Register Volume 84, Number 54 (Wednesday, March 20, 2019)]
[Notices]
[Pages 10357-10359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05212]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85313; File No. SR-MRX-2019-05]

Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change Relating to PIM 
Fees and Rebates

March 14, 2019.
    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 March 7, 2019, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``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 Pricing Schedule at Options 7, 
Section 3, entitled ``Regular Order Fees and Rebates.''
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqmrx.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Pricing Schedule at Options 7, 
Section 3, entitled ``Regular Order Fees and Rebates'' at Table 2 to 
(1) lower PIM Fees for Crossing Orders \3\ for both Penny and Non-Penny 
Symbols provided certain criteria is met; and (2) increase the PIM 
rebate in Non-Penny Symbols Fees for Reponses to Crossing Orders 
provided certain criteria is met. The Exchange will describe each 
amendment below.
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    \3\ A ``Crossing Order'' is an order executed in the Exchange's 
Facilitation Mechanism, Solicited Order Mechanism, Price Improvement 
Mechanism (``PIM'') or submitted as a Qualified Contingent Cross 
order. For purposes of this Pricing Schedule, orders executed in the 
Block Order Mechanism are also considered Crossing Orders.
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PIM Fees for Crossing Orders
    Today, MRX assesses an originating PIM Fee for Crossing Orders in 
Penny and Non-Penny Symbols of $0.20 per contract for Market Maker,\4\ 
Non-Nasdaq MRX Market Maker,\5\ Firm Proprietary,\6\ Broker-Dealer,\7\ 
and Professional Customer \8\ orders, and $0.00 per contract for 
Priority Customer Orders.\9\ MRX assesses a contra-side PIM Fee for 
Crossing Orders in all symbols of $0.05 per contract. MRX proposes to 
offer market participants an opportunity to lower the contra-side Fee 
for Crossing Orders. Members that execute 10,000 PIM originating 
contracts or greater, per day, within a month will be assessed a 
contra-side Fee for Crossing Orders of $0.02 per contract instead of 
the $0.05 per contract fee.
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    \4\ A ``Market Maker'' is a market maker as defined in Nasdaq 
MRX Rule 100(a)(30). Market Maker fees discussed in this section 
also apply to Market Maker orders sent to the Exchange by Electronic 
Access Members.
    \5\ A ``Non-Nasdaq MRX Market Maker'' is a market maker as 
defined in Section 3(a)(38) of the Securities Exchange Act of 1934, 
as amended, registered in the same options class on another options 
exchange.
    \6\ A ``Firm Proprietary'' order is an order submitted by a 
Member for its own proprietary account.
    \7\ A ``Broker-Dealer'' order is an order submitted by a Member 
for a broker-dealer account that is not its own proprietary account.
    \8\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
    \9\ A ``Priority Customer'' is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s), as defined in Nasdaq MRX Rule 
100(a)(37A).
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    The Exchange assesses Fees for Reponses to Crossing Order of $0.50 
per contract in Penny Symbols and $1.10 per contract in Non-Penny 
Symbols. These fees are not being amended with this proposal.
PIM Rebate
    Today, MRX pays a rebate to an originating Priority Customer PIM 
Order that executes with a response (an order or quote), other than the 
PIM contra-side order, of $0.40 per contract in Penny Symbols and $1.00 
per contract in Non-Penny Symbols. MRX proposes to offer market 
participants an opportunity to increase the PIM rebate for an 
originating Priority Customer PIM Order. Members that execute 10,000 
PIM originating contracts or greater, per day, within a month will 
receive a rebate of $1.05 per contract in Non-Penny Symbols instead of 
$1.00 per contract.
    The Exchange believes that this proposal will encourage Members to 
send additional PIM orders to MRX and cause the origination of PIM 
auctions. In turn the increased liquidity that may be obtained on MRX 
in PIM auctions will allow MRX Members the ability to interact with 
these orders by responding to PIM auctions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees, and other charges among members and issuers and 
other persons using any facility, and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers. The 
Exchange believes that the proposed changes will attract PIM order flow 
to MRX, which will create trading opportunities on MRX which benefits 
all Members.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that its proposal to assess contra-side PIM 
Orders a reduced Fee for Crossing Orders in both Penny and Non-Penny 
Symbols of $0.02 per contract provided a Member executes 10,000 PIM 
originating contracts or greater, per day, within a month is reasonable 
because the Exchange proposes to encourage theses market participants 
to submit a greater amount of order flow to the MRX PIM auction. The 
Exchange's proposal

[[Page 10358]]

to pay a higher PIM rebate of $1.05 per contract in Non-Penny Symbols 
to Members that execute 10,000 PIM originating contracts or greater, 
per day, within a month is reasonable because it will incentivize 
market participants to send additional PIM order flow to MRX. Greater 
liquidity in the PIM auction provides additional opportunities for 
price improvement.
    As an example, if an MRX Member submits a Non-Penny Symbol paired 
order to the PIM auction with an originating Priority Customer Order, 
the originating Priority Customer Order would pay no Fee for Crossing 
Orders. The contra-side PIM order would pay a Fee for Crossing Orders 
of $0.05 per contract.\12\ With this proposal the maximum fee for the 
contra-side of the PIM order could be reduced to $0.02 per contract 
provided the Member submitting the paired PIM order executed 10,000 PIM 
originating contracts or greater, per day, within a month. This 
proposal offers MRX Members an opportunity initiate PIM auctions at a 
total maximum cost of $0.02 per contract provided they met the 
requisite quantity of originating side execution in a PIM auction for 
the month.\13\
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    \12\ All market participants on the contra-side of a PIM auction 
are assessed a Fee for Crossing Orders of $0.05 per contract.
    \13\ MRX assesses PIM fees on a monthly basis and the fees would 
be applied per day, within a month, subject to any business day 
exclusions. The Exchange notes that this fee is calculated by 
averaging volume across the month per business day.
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    If an MRX Member responds to the PIM order, breaking-up the paired 
order, the responding Member would be assessed a fee of $1.10 per 
contract.\14\ Because in this example the originating Priority Customer 
PIM Order executed with a response (order or quote), other than the PIM 
contra-side order, the Member that entered the paired order would 
receive a rebate of $0.40 per contract in Penny Symbols and $1.00 per 
contract in Non-Penny Symbols. With this proposal, the Member that 
submitted the paired order could achieve the higher rebate of $1.05 per 
contract, provided the Member executed 10,000 PIM originating contracts 
or greater, per day in Non-Penny Symbols. The PIM fee paid by the 
responder assists the Exchange in funding the rebate to encourage 
Members to submit PIM order flow to the Exchange, which all Members may 
interact with and respond to within the PIM auction.
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    \14\ All market participants responding to a PIM auction pay 
either a $0.50 per contract Penny Symbol or $1.10 Non-Penny Symbol 
Fee for Reponses to PIM auctions.
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    The Exchange believes that its proposal to assess contra-side PIM 
Orders a reduced Fee for Crossing Orders in both Penny and Non-Penny 
Symbols of $0.02 per contract, provided a Member executes 10,000 PIM 
originating contracts or greater, per day, within a month, is equitable 
and not unfairly discriminatory because all Members may achieve this 
reduced PIM fee provided they execute the requisite quantity of PIM 
originating contracts. The Exchange's proposal to pay a higher PIM 
rebate of $1.05 per contract in Non-Penny Symbols to Members that 
execute 10,000 PIM originating contracts or greater, per day, within a 
month is equitable and not unfairly discriminatory because all Members 
may achieve a higher rebate in Non-Penny Symbols provided they execute 
10,000 PIM originating contracts or greater, per day, within a month.

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's proposal does 
not impose a burden on inter-market competition because the proposed 
fee structure for PIM Orders remains competitive with other options 
exchanges.\15\ MRX 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.
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    \15\ See Cboe EDGX Exchange, Inc.'s Fee Schedule, specifically 
the BAM Pricing.
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    The Exchange believes that its proposal to assess contra-side PIM 
Orders a reduced Fee for Crossing Orders in both Penny and Non-Penny 
Symbols of $0.02 per contract, provided a Member executes 10,000 PIM 
originating contracts or greater, per day, within a month, does not 
impose an undue burden on competition because all Members may achieve 
this reduced PIM fee provided they execute the requisite quantity of 
PIM originating contracts. The Exchange's proposal to pay a higher PIM 
rebate of $1.05 per contract in Non-Penny Symbols to Members that 
execute 10,000 PIM originating contracts or greater, per day, within a 
month does not impose an undue burden on competition because all 
Members may achieve a higher rebate in Non-Penny Symbols provided they 
execute 10,000 PIM originating contracts or greater, per day, within a 
month.
    The Exchange believes that the proposed fees do not impact intra-
market competition notwithstanding that the proposed per contract fees 
assessed to Members that respond to a PIM auction pay a greater per 
contract fee ($0.50 per contract for Penny and $1.10 per contract for 
Non-Penny) than Members that are contra to a PIM Order ($0.05 or $0.02, 
as proposed, per contract for all options series). The Exchange notes 
that Members who commence a PIM auction guarantee the execution of the 
agency order. Members may choose to respond to a PIM auction if they 
desire to participate in the auction and potentially improve the price 
and execute against the agency order. Initiators assume a greater risk 
when they guarantee the trade. Initiators provide liquidity when they 
initiate a PIM auction and provide an opportunity for any Member to 
interact with the order flow within the PIM auction. All Members that 
operate an agency business may initiate a PIM Order, and all Members 
are able to participate by responding to PIM auctions. The Exchange 
believes assessing responders a higher fee as compared to an initiator 
does not impose an undue burden on intra-market competition because 
Members that initiate PIM auctions bring order flow to ISE [sic] for 
all Members to interact with by responding to a PIM auction. The 
Exchange desires to incentivize these Members for bringing order flow 
and initiating PIM auctions. Responders are assessed a higher fee to 
respond to these PIM auctions because they are not required to 
participate in the PIM auction and also because they may respond during 
the final millisecond of the auction timer and assume less risk by 
obtaining more certainty with respect to price. If no one responds to 
the PIM auction, the initiator will execute the paired order.

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 10359]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\16\ 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MRX-2019-05 on the subject line.

Paper Comments

     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-2019-05. 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-2019-05 and should be submitted on 
or before April 10, 2019.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05212 Filed 3-19-19; 8:45 am]
BILLING CODE 8011-01-P