Document ID: SEC-2023-1196-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2023-10-17T04:00Z

[Federal Register Volume 88, Number 199 (Tuesday, October 17, 2023)]
[Notices]
[Pages 71616-71619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22811]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98721; File No. SR-NASDAQ-2023-040]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Options 7, Section 2

October 11, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 29, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend The Nasdaq Options Market LLC 
(``NOM'') Pricing Schedule at Options 7, Section 2.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on October 2, 
2023.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend NOM's Pricing Schedule at Options 7, 
Section 2, Nasdaq Options Market--Fees and Rebates. Today, NOM Options 
7, Section 2(1) provides for various fees and rebates applicable to NOM 
Participants.
    Today, NOM Market Maker \3\ Rebates to Add Liquidity in Penny 
Symbols are paid per the highest tier achieved among the below tiers.
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    \3\ The term ``NOM Market Maker'' or (``M'') is a Participant 
that has registered as a Market Maker on NOM pursuant to Options 2, 
Section 1, and must also remain in good standing pursuant to Options 
2, Section 9. In order to receive NOM Market Maker pricing in all 
securities, the Participant must be registered as a NOM Market Maker 
in at least one security. See Options 7, Section 1(a).

                             Monthly Volume
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Tier 1.....................  Participant adds NOM Market Maker liquidity
                              in Penny Symbols and/or Non-Penny Symbols
                              of up to 0.10% of total industry customer
                              equity and ETF option average daily volume
                              (``ADV'') contracts per day in a month.
Tier 2.....................  Participant adds NOM Market Maker liquidity
                              in Penny Symbols and/or Non-Penny Symbols
                              above 0.10% of total industry customer
                              equity and ETF option ADV contracts per
                              day in a month.
Tier 3.....................  Participant: (a) adds NOM Market Maker
                              liquidity in Penny Symbols and/or Non-
                              Penny Symbols above 0.20% of total
                              industry customer equity and ETF option
                              ADV contracts per day in a month; or
                              (b)(1) adds NOM Market Maker liquidity in
                              Penny Symbols and/or Non-Penny Symbols
                              above 0.15% of total industry customer
                              equity and ETF option ADV contracts per
                              day in a month, (2) transacts in all
                              securities through one or more of its
                              Nasdaq Market Center MPIDs that represent
                              (i) 0.50% or more of Consolidated Volume
                              (``CV'') which adds liquidity in the same
                              month on The Nasdaq Stock Market or (ii)
                              50 million shares or more ADV which adds
                              liquidity in the same month on The Nasdaq
                              Stock Market, and (3) executes 1.5 million
                              shares or more ADV in the same month
                              utilizing the M-ELO order type on The
                              Nasdaq Stock Market.
Tier 4.....................  Participant adds NOM Market Maker liquidity
                              in Penny Symbols and/or Non-Penny Symbols
                              of above 0.60% of total industry customer
                              equity and ETF option ADV contracts per
                              day in a month.
Tier 5.....................  Participant adds NOM Market Maker liquidity
                              in Penny Symbols and/or Non-Penny Symbols
                              of above 0.40% of total industry customer
                              equity and ETF option ADV contracts per
                              day in a month and transacts in all
                              securities through one or more of its
                              Nasdaq Market Center MPIDs that represent
                              0.40% or more of Consolidated Volume
                              (``CV'') which adds liquidity in the same
                              month on The Nasdaq Stock Market.
Tier 6.....................  Participant: (a)(1) adds NOM Market Maker
                              liquidity in Penny Symbols and/or Non-
                              Penny Symbols above 0.95% of total
                              industry customer equity and ETF option
                              ADV contracts per day in a month, (2)
                              executes Total Volume of 250,000 or more
                              contracts per day in a month, of which
                              30,000 or more contracts per day in a
                              month must be removing liquidity, and (3)
                              adds Firm, Broker-Dealer and Non-NOM
                              Market Maker liquidity in Non-Penny
                              Symbols of 10,000 or more contracts per
                              day in a month; or (b)(1) adds NOM Market
                              Maker liquidity in Penny Symbols and/or
                              Non-Penny Symbols above 1.50% of total
                              industry customer equity and ETF option
                              ADV contracts per day in a month, and (2)
                              executes Total Volume of 250,000 or more
                              contracts per day in a month, of which
                              15,000 or more contracts per day in a
                              month must be removing liquidity.
------------------------------------------------------------------------

    ``Total Volume'' is defined as Customer, Professional, Firm, 
Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in 
Penny Symbols and/or Non-Penny Symbols which either adds or removes 
liquidity on NOM.
Proposal
    At this time, the Exchange proposes to amend Tiers 5 and 6 of the 
NOM Market

[[Page 71617]]

Maker Rebates to Add Liquidity in Penny Symbols.
NOM Market Maker Tier 5
    Currently, the NOM Market Maker Tier 5 Rebate to Add Liquidity in 
Penny Symbols provides:

    Participant adds NOM Market Maker liquidity in Penny Symbols 
and/or Non-Penny Symbols of above 0.40% of total industry customer 
equity and ETF option ADV contracts per day in a month and transacts 
in all securities through one or more of its Nasdaq Market Center 
MPIDs that represent 0.40% or more of Consolidated Volume (``CV'') 
which adds liquidity in the same month on The Nasdaq Stock Market.

    The Exchange proposes to amend the NOM Market Maker Tier 5 Rebate 
to Add Liquidity in Penny Symbols by adding an additional qualifier to 
achieve the rebate. The Exchange proposes to provide that a Participant 
may add NOM Market Maker liquidity in Penny Symbols and/or Non-Penny 
Symbols above 1.00% of total industry customer equity and ETF option 
ADV contracts per day in a month to qualify for the NOM Market Maker 
Tier 5 Rebate to Add Liquidity in Penny Symbols. In the alternative, as 
is the case today, a Participant may continue to add NOM Market Maker 
liquidity in Penny Symbols and/or Non-Penny Symbols of above 0.40% of 
total industry customer equity and ETF option ADV contracts per day in 
a month and transacts in all securities through one or more of its 
Nasdaq Market Center MPIDs that represent 0.40% or more of Consolidated 
Volume (``CV'') which adds liquidity in the same month on The Nasdaq 
Stock Market to qualify for the NOM Market Maker Tier 5 Rebate to Add 
Liquidity in Penny Symbols. Therefore, a Participant may qualify for 
the $0.44 per contract NOM Market Maker Tier 5 Rebate to Add Liquidity 
in Penny Symbols by either qualifying for the new tier qualifier that 
is denoted by an ``a'' or the current qualifier which is denoted by a 
``b.'' As proposed, the NOM Market Maker Tier 5 Rebate to Add Liquidity 
in Penny Symbols would provide:

    Participant: (a) adds NOM Market Maker liquidity in Penny 
Symbols and/or Non-Penny Symbols above 1.00% of total industry 
customer equity and ETF option ADV contracts per day in a month; or 
(b) adds NOM Market Maker liquidity in Penny Symbols and/or Non-
Penny Symbols of above 0.40% of total industry customer equity and 
ETF option ADV contracts per day in a month and transacts in all 
securities through one or more of its Nasdaq Market Center MPIDs 
that represent 0.40% or more of Consolidated Volume (``CV'') which 
adds liquidity in the same month on The Nasdaq Stock Market.

    The Exchange believes the additional proposed qualifier for the NOM 
Market Maker Tier 5 Rebate to Add Liquidity in Penny Symbols will 
provide Participants an additional way to achieve the Tier 5 rebate. 
The new qualification criteria is intended to attract additional order 
flow to NOM. Any Participant may interact with the additional liquidity 
attracted by this incentive.
NOM Market Maker Tier 6
    Currently, the NOM Market Maker Tier 6 Rebate to Add Liquidity in 
Penny Symbols provides:

    Participant: (a)(1) adds NOM Market Maker liquidity in Penny 
Symbols and/or Non-Penny Symbols above 0.95% of total industry 
customer equity and ETF option ADV contracts per day in a month, (2) 
executes Total Volume of 250,000 or more contracts per day in a 
month, of which 30,000 or more contracts per day in a month must be 
removing liquidity, and (3) adds Firm, Broker-Dealer and Non-NOM 
Market Maker liquidity in Non-Penny Symbols of 10,000 or more 
contracts per day in a month; or (b)(1) adds NOM Market Maker 
liquidity in Penny Symbols and/or Non-Penny Symbols above 1.50% of 
total industry customer equity and ETF option ADV contracts per day 
in a month, and (2) executes Total Volume of 250,000 or more 
contracts per day in a month, of which 15,000 or more contracts per 
day in a month must be removing liquidity.

    Currently, there are two ways to qualify for the $0.48 per contract 
NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols. A 
Participant may add NOM Market Maker liquidity in Penny Symbols and/or 
Non-Penny Symbols above 0.95% of total industry customer equity and ETF 
option ADV contracts per day in a month, (2) execute Total Volume of 
250,000 or more contracts per day in a month, of which 30,000 or more 
contracts per day in a month must be removing liquidity, and (3) add 
Firm, Broker-Dealer and Non-NOM Market Maker liquidity in Non-Penny 
Symbols of 10,000 or more contracts per day in a month to qualify for 
the NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols. 
This option is denoted as ``a.'' In the alternative, a Participant may 
add NOM Market Maker liquidity in Penny Symbols and/or Non-Penny 
Symbols above 1.50% of total industry customer equity and ETF option 
ADV contracts per day in a month, and (2) execute Total Volume of 
250,000 or more contracts per day in a month, of which 15,000 or more 
contracts per day in a month must be removing liquidity to qualify for 
the NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols. 
This option is denoted as ``b.''
    At this time, the Exchange proposes to amend the qualifier in ``b'' 
of the NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols 
by lowering the (b)(1) qualifier from 1.50% to 1.40%. The proposed 
amended (b)(1) qualifier would require a Participant to add NOM Market 
Maker liquidity in Penny Symbols and/or Non-Penny Symbols above 1.40% 
\4\ of total industry customer equity and ETF option ADV contracts per 
day in a month. As proposed, the amended NOM Market Maker Tier 6 Rebate 
to Add Liquidity in Penny Symbols would provide:
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    \4\ Of note, 1.50% equates to approximately 490,000 contracts 
per day adding liquidity and 1.40% equates to approximately 450,000 
contracts per day adding liquidity.

    Participant: (a)(1) adds NOM Market Maker liquidity in Penny 
Symbols and/or Non-Penny Symbols above 0.95% of total industry 
customer equity and ETF option ADV contracts per day in a month, (2) 
executes Total Volume of 250,000 or more contracts per day in a 
month, of which 30,000 or more contracts per day in a month must be 
removing liquidity, and (3) adds Firm, Broker-Dealer and Non-NOM 
Market Maker liquidity in Non-Penny Symbols of 10,000 or more 
contracts per day in a month; or (b)(1) adds NOM Market Maker 
liquidity in Penny Symbols and/or Non-Penny Symbols above 1.40% of 
total industry customer equity and ETF option ADV contracts per day 
in a month, and (2) executes Total Volume of 250,000 or more 
contracts per day in a month, of which 15,000 or more contracts per 
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day in a month must be removing liquidity.

    The Exchange believes that lowering part of the NOM Market Maker 
Tier 6 Rebate to Add Liquidity in Penny Symbols qualifier will attract 
additional order flow to NOM by allowing additional Participants to 
qualify for this tier.
2. Statutory Basis
    The proposed changes to its Pricing Schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for options transaction 
services that constrain its pricing determinations in that market. The 
fact that this market is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission \5\ 
(``NetCoalition''), the D.C. Circuit stated, ``[n]o one disputes that 
competition for order flow is `fierce.' . . . As the SEC explained, 
`[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can

[[Page 71618]]

afford to take its market share percentages for granted' because `no 
exchange possesses a monopoly, regulatory or otherwise, in the 
execution of order flow from broker dealers'. . . .'' \6\
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    \5\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \6\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is only one of seventeen 
options exchanges to which market participants may direct their order 
flow. Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. Within the 
foregoing context, the proposal represents a reasonable attempt by the 
Exchange to attract additional order flow to the Exchange and increase 
its market share relative to its competitors.
NOM Market Maker Tier 5
    The Exchange's proposal to amend the NOM Market Maker Tier 5 Rebate 
to Add Liquidity in Penny Symbols by adding an additional qualifier is 
reasonable because it will provide Participants another way to qualify 
for the Tier 5 rebate. NOM Participants that currently qualify for the 
NOM Market Maker Tier 5 Rebate to Add Liquidity in Penny Symbols will 
continue to qualify for this rebate because the current qualifications 
are not being amended. With this proposal, additional NOM Participants 
may be able to qualify for the NOM Market Maker Tier 5 Rebate to Add 
Liquidity in Penny Symbols utilizing the proposed new qualifier. The 
new qualification criteria is intended to attract additional order flow 
to NOM. Any Participant may interact with the additional liquidity 
attracted by this incentive.
    The Exchange's proposal to amend the NOM Market Maker Tier 5 Rebate 
to Add Liquidity in Penny Symbols by adding an additional qualifier is 
equitable and not unfairly discriminatory because the proposed tier 
qualifier will be applied uniformly to all qualifying NOM Participants.
NOM Market Maker Tier 6
    The Exchange's proposal to amend part ``b'' of the NOM Market Maker 
Tier 6 Rebate to Add Liquidity in Penny Symbols by lowering the (b)(1) 
qualifier from 1.50% to 1.40% is reasonable because it will attract 
additional order flow to NOM by allowing additional Participants to 
qualify for this tier. NOM Participants who currently qualify for the 
NOM Market Maker Tier 6 Rebate to Add Liquidity in Penny Symbols will 
continue to qualify for this rebate. With this proposal, additional 
Participants may be able to qualify for the NOM Market Maker Tier 6 
Rebate to Add Liquidity in Penny Symbols with the proposed lower (b)(1) 
qualifier. The proposed lower (b)(1) qualification criteria is intended 
to attract additional order flow to NOM. Any Participant may interact 
with the additional liquidity attracted by this incentive.
    The Exchange's proposal to amend part ``b'' of the NOM Market Maker 
Tier 6 Rebate to Add Liquidity in Penny Symbols by lowering the (b)(1) 
qualifier from 1.50% to 1.40% is equitable and not unfairly 
discriminatory because the proposed tier qualifier will be applied 
uniformly to all qualifying NOM Participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intermarket Competition
    The Exchange operates in a highly competitive market in which 
market participants can readily favor competing venues if they deem fee 
levels at a particular venue to be excessive, or rebate opportunities 
available at other venues to be more favorable. In such an environment, 
the Exchange must continually adjust its pricing to remain competitive 
with other exchanges. Because competitors are free to modify their 
pricing in response, and because market participants may readily adjust 
their order routing practices, the Exchange believes that the degree to 
which pricing changes in this market may impose any burden on 
competition is extremely limited because other options exchanges offer 
similar pricing.
    Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in reaction to fee and rebate changes. In sum, if the changes proposed 
herein are unattractive to market participants, it is likely that the 
Exchange will lose market share as a result. Accordingly, the Exchange 
does not believe that the proposed changes will impair the ability of 
members or competing order execution venues to maintain their 
competitive standing in the financial markets.
Intramarket Competition
    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
NOM Market Maker Tier 5
    The Exchange's proposal to amend the NOM Market Maker Tier 5 Rebate 
to Add Liquidity in Penny Symbols by adding an additional qualifier 
does not impose an undue burden on competition because the proposed 
tier qualifier will be applied uniformly to all qualifying NOM 
Participants.
NOM Market Maker Tier 6
    The Exchange's proposal to amend part ``b'' of the NOM Market Maker 
Tier 6 Rebate to Add Liquidity in Penny Symbols by lowering the (b)(1) 
qualifier from 1.50% to 1.40% does not impose an undue burden on 
competition because the proposed tier qualifier will be applied 
uniformly to all qualifying NOM Participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\7\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or

[[Page 71619]]

     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2023-040 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-NASDAQ-2023-040. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2023-040 and should 
be submitted on or before November 7, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22811 Filed 10-16-23; 8:45 am]
BILLING CODE 8011-01-P