Document ID: SEC-2023-0538-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2023-05-16T04:00Z

[Federal Register Volume 88, Number 94 (Tuesday, May 16, 2023)]
[Notices]
[Pages 31293-31296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10359]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97471; File No. SR-NASDAQ-2023-011]

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

May 10, 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 May 1, 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 and II 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.
    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(1), ``Nasdaq Options Market--Fees and Rebates.'' 
Specifically, the Exchange proposes to amend note 2 within Options 7, 
Section 2(1).
    Today, NOM Options 7, Section 2(1) provides for various fees and 
rebates applicable to NOM Participants. Specifically, the Exchange pays 
the following Rebates to Add Liquidity in Penny Symbols:

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                                       Tier 1       Tier 2       Tier 3       Tier 4       Tier 5       Tier 6
----------------------------------------------------------------------------------------------------------------
Customer..........................      ($0.20)      ($0.25)      ($0.43)      ($0.44)      ($0.45)  \7\ ($0.48)
Professional......................       (0.20)       (0.25)       (0.43)       (0.44)       (0.45)       (0.47)
Broker-Dealer.....................       (0.10)       (0.10)       (0.10)       (0.10)       (0.10)       (0.10)
Firm..............................       (0.10)       (0.10)       (0.10)       (0.10)       (0.10)       (0.10)
Non-NOM Market Maker..............       (0.10)       (0.10)       (0.10)       (0.10)       (0.10)       (0.10)
NOM Market Maker..................       (0.20)       (0.25)   \4\ (0.30)   \4\ (0.32)       (0.44)       (0.48)
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[[Page 31294]]

    Additionally, today, NOM pays and assesses the following Fees and 
Rebates to Add Liquidity in Non-Penny Symbols:

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------------------------------------------------------------------------
Customer...................................................      ($0.80)
Professional...............................................       (0.80)
Broker-Dealer..............................................         0.45
Firm.......................................................         0.45
Non-NOM Market Maker.......................................         0.45
NOM Market Maker...........................................  0.35/(0.30)
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Finally, the Exchange Assesses the Following Fees To Remove Liquidity in
 Penny and Non-Penny Symbols: Fees to Remove Liquidity in Penny and Non-
                              Penny Symbols
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                                                   Penny      Non-penny
                                                  symbols      symbols
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Customer......................................        $0.49        $0.85
Professional..................................         0.49         0.85
Broker-Dealer.................................         0.50         1.10
Firm..........................................         0.50         1.10
Non-NOM Market Maker..........................         0.50         1.10
NOM Market Maker..............................         0.50         1.10
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    Currently, the Non-NOM Market Makers \3\ and NOM Market Makers \4\ 
who remove liquidity in Penny Symbols and Non-Penny Symbols are subject 
to note 2 within NOM Options 7, Section 2(1), which provides,
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    \3\ The term ``Non-NOM Market Maker'' or (``O'') is a registered 
market maker on another options exchange that is not a NOM Market 
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market 
Maker designation to orders routed to NOM. See Options 7, Section 
1(a).
    \4\ 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).

    Participants that add 1.30% of Customer, Professional, Firm, 
Broker-Dealer or Non-NOM Market Maker liquidity in Penny Symbols 
and/or Non-Penny Symbols of total industry customer equity and ETF 
option ADV contracts per day in a month will be subject to the 
following pricing applicable to executions: a $0.48 per contract 
Penny Symbols Fee for Removing Liquidity when the Participant is (i) 
both the buyer and the seller or (ii) the Participant removes 
liquidity from another Participant under Common Ownership.
    Participants that add 1.50% of Customer, Professional, Firm, 
Broker-Dealer or Non-NOM Market Maker liquidity in Penny Symbols 
and/or Non-Penny Symbols of total industry customer equity and ETF 
option ADV contracts per day in a month and meet or exceed the cap 
for The Nasdaq Stock Market Opening Cross during the month will be 
subject to the following pricing applicable to executions less than 
10,000 contracts: a $0.32 per contract Penny Symbols Fee for 
Removing Liquidity when the Participant is (i) both the buyer and 
seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership.
    Participants that add 1.75% of Customer, Professional, Firm, 
Broker-Dealer or Non-NOM Market Maker liquidity in Penny Symbols 
and/or Non-Penny Symbols of total industry customer equity and ETF 
option ADV contracts per day in a month will be subject to the 
following pricing applicable to executions less than 10,000 
contracts: a $0.32 per contract Penny Symbols Fee for Removing 
Liquidity when the Participant is (i) both the buyer and seller or 
(ii) the Participant removes liquidity from another Participant 
under Common Ownership.

    At this time, the Exchange proposes to amend note 2 within NOM 
Options 7, Section 2(1) to increase the $0.32 per contract NOM Market 
Maker and Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees 
to Remove Liquidity to $0.38 per contract for executions less than 
10,000 contracts when the Participant is (i) both the buyer and seller 
or (ii) the Participant removes liquidity from another Participant 
under Common Ownership. In order to receive the lower NOM Market Maker 
and Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees to 
Remove Liquidity of $0.38 per contract, Participants would continue to 
either: (1) add 1.50% of Customer,\5\ Professional,\6\ Firm,\7\ Broker-
Dealer \8\ or Non-NOM Market Maker liquidity in Penny Symbols and/or 
Non-Penny Symbols of total industry customer equity and ETF option ADV 
contracts per day in a month and meet or exceed the cap for The Nasdaq 
Stock Market Opening Cross during the month; or (2) add 1.75% of 
Customer, Professional, Firm, Broker-Dealer or Non-NOM Market Maker 
liquidity in Penny Symbols and/or Non-Penny Symbols of total industry 
customer equity and ETF option ADV contracts per day in a month. The 
$0.38 per contract fee is in comparison to the $0.50 per contract Penny 
Symbol Fee to Remove Liquidity for NOM Market Makers and Non-NOM Market 
Makers and the $1.10 per contract Non-Penny Symbol Fee to Remove 
Liquidity for NOM Market Makers and Non-NOM Market Makers. Customers 
and Professionals would continue to pay a $0.49 per contract Penny 
Symbols Fee to Remove Liquidity and an $0.85 per contract Non-Penny 
Symbol Fee to Remove Liquidity. Broker-Dealers and Firms would continue 
to pay a $0.50 per contract Penny Symbols Fee to Remove Liquidity and 
an $1.10 per contract Non-Penny Symbol Fee to Remove Liquidity. Despite 
the increase to the Penny Symbol and Non-Penny Symbol Fees to Remove 
Liquidity for NOM Market Makers and Non-NOM Market Makers, the Exchange 
believes the incentive offered in note 2 within NOM Options 7, Section 
2(1) will continue to incentivize NOM Participants to direct liquidity 
to NOM for an opportunity to pay lower NOM Market Makers and Non-NOM 
Market Makers Penny Symbol or Non-Penny Symbol Fees to Remove 
Liquidity.
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    \5\ The term ``Customer'' or (``C'') applies to any transaction 
that is identified by a Participant for clearing in the Customer 
range at The Options Clearing Corporation (``OCC'') which is not for 
the account of broker or dealer or for the account of a 
``Professional'' (as that term is defined in Options 1, Section 
1(a)(47)). See Options 7, Section 1(a).
    \6\ The term ``Professional'' or (``P'') means any person or 
entity that (i) is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s) pursuant 
to Options 1, Section 1(a)(47). All Professional orders shall be 
appropriately marked by Participants. See Options 7, Section 1(a).
    \7\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC. See Options 7, Section 1(a).
    \8\ The term ``Broker-Dealer'' or (``B'') applies to any 
transaction which is not subject to any of the other transaction 
fees applicable within a particular category. See Options 7, Section 
1(a).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    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 \11\ 
(``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

[[Page 31295]]

of choices of where to route orders for execution'; [and] `no exchange 
can afford to take its market share percentages for granted' because 
`no exchange possesses a monopoly, regulatory or otherwise, in the 
execution of order flow from broker dealers'. . . .'' \12\
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    \11\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \12\ 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 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. 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.
    The Exchange's proposal to amend note 2 within NOM Options 7, 
Section 2(1) to increase the $0.32 per contract NOM Market Maker and 
Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees to Remove 
Liquidity to $0.38 per contract for executions less than 10,000 
contracts when the Participant is (i) both the buyer and seller or (ii) 
the Participant removes liquidity from another Participant under Common 
Ownership and they meet the requisite order flow requirements \13\ is 
reasonable because despite the increase to the NOM Market Maker and 
Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees to Remove 
Liquidity, the Exchange believes the incentive offered in note 2 within 
NOM Options 7, Section 2(1) will continue to incentivize NOM 
Participants to direct liquidity to NOM for an opportunity to pay lower 
NOM Market Maker and Non-NOM Market Maker Penny Symbol and Non-Penny 
Symbol Fees to Remove Liquidity. Participants would continue to be 
offered an opportunity to lower NOM Market Maker and Non-NOM Market 
Maker Penny Symbol and Non-Penny Symbol Fees to Remove Liquidity, 
thereby attracting order flow to the Exchange to the benefit of all 
other market participants.
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    \13\ In order to receive the lower fee of $0.38 per contract 
proposed in note 2 of Options 7, Section 2(1), Participants would 
continue to either: (1) add 1.50% of Customer, Professional, Firm, 
Broker-Dealer or Non-NOM Market Maker liquidity in Penny Symbols 
and/or Non-Penny Symbols of total industry customer equity and ETF 
option ADV contracts per day in a month and meet or exceed the cap 
for The Nasdaq Stock Market Opening Cross during the month; or (2) 
add 1.75% of Customer, Professional, Firm, Broker-Dealer or Non-NOM 
Market Maker liquidity in Penny Symbols and/or Non-Penny Symbols of 
total industry customer equity and ETF option ADV contracts per day 
in a month.
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    The Exchange's proposal to amend note 2 within NOM Options 7, 
Section 2(1) to increase the $0.32 per contract NOM Market Maker and 
Non-NOM Market Maker Penny Symbol and Non-Penny Symbol Fees to Remove 
Liquidity to $0.38 per contract for executions less than 10,000 
contracts when the Participant is (i) both the buyer and seller or (ii) 
the Participant removes liquidity from another Participant under Common 
Ownership and they meet the requisite order flow requirements is 
equitable and not unfairly discriminatory because the Exchange will 
uniformly pay the lower Non-NOM Marker Maker or NOM Market Maker Penny 
Symbol or Non-Penny Symbol Fees for Removing Liquidity to all 
qualifying NOM Participants. Offering these discounts to NOM Market 
Makers is equitable and not unfairly discriminatory because NOM Market 
Makers have obligations to the market and regulatory requirements which 
do not apply to other market participants.\14\ A NOM Market Maker has 
the obligation, for example, to make continuous markets, engage in a 
course of dealings reasonably calculated to contribute to the 
maintenance of a fair and orderly market, and not make bids or offers 
or enter into transactions that are inconsistent with a course of 
dealings. The proposed differentiation as between NOM Market Makers and 
other market participants recognizes the differing contributions of NOM 
Market Makers. For the above reasons, the Exchange believes that NOM 
Market Makers are entitled to discounted fees, provided they qualify 
for the discount. The Exchange believes it is equitable and not 
unfairly discriminatory to offer the fee discount to Non-NOM Market 
Makers because the Exchange is offering Participants flexibility in the 
manner in which they are submitting their orders. Non-NOM Market Makers 
have obligations on other exchanges to qualify as a market maker. Also, 
the Exchange believes that market makers not registered on NOM will be 
encouraged to send orders to NOM as an away market maker (Non-NOM 
Market Maker) with this incentive. Because the incentive is being 
offered to both market makers registered on NOM and those not 
registered on NOM, the Exchange believes that the proposal is equitable 
and not unfairly discriminatory because it encourages market makers to 
direct liquidity to NOM to the benefit of all Participants. This 
proposal recognizes the overall contributions made by market makers to 
a listed options market.
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    \14\ See NOM Options 2, Sections 4 and 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Inter-Market Competition
    The proposal does not impose an undue burden on inter-market 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where 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. In such an environment, the Exchange 
must continually adjust its fees and rebates to remain competitive with 
other exchanges. Because competitors are free 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.
Intra-Market Competition
    The proposed amendments do not impose an undue burden on intra-
market competition. In terms of intra-market competition, the Exchange 
does not believe that its proposals will place any category of market 
participant at a competitive disadvantage. The Exchange's proposal to 
amend note 2 within NOM Options 7, Section 2(1) to increase the $0.32 
per contract NOM Market Maker and Non-NOM Market Maker Penny Symbol and 
Non-Penny Symbol Fees to Remove Liquidity to $0.38 per contract for 
executions less than 10,000 contracts when the Participant is (i) both 
the buyer and seller or (ii) the Participant removes liquidity from 
another Participant under Common Ownership and they meet the requisite 
order flow requirements does not impose an undue burden on competition 
because the Exchange will uniformly pay the lower Non-NOM Marker Maker 
or NOM Market Maker Penny Symbol or Non-Penny Symbol Fees for Removing 
Liquidity to all qualifying NOM Participants. Offering

[[Page 31296]]

these discounts to NOM Market Makers does not impose an undue burden on 
competition because NOM Market Makers have obligations to the market 
and regulatory requirements which do not apply to other market 
participants.\15\ A NOM Market Maker has the obligation, for example, 
to make continuous markets, engage in a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and not make bids or offers or enter into transactions that are 
inconsistent with a course of dealings. The proposed differentiation as 
between NOM Market Makers and other market participants recognizes the 
differing contributions of NOM Market Makers. For the above reasons, 
the Exchange believes that NOM Market Makers are entitled to discounted 
fees, provided they qualify for the discount. Offering the fee discount 
to Non-NOM Market Makers does not impose an undue burden on competition 
because the Exchange is offering Participants flexibility in the manner 
in which they are submitting their orders. Non-NOM Market Makers have 
obligations on other exchanges to qualify as a market maker. Also, the 
Exchange believes that market makers not registered on NOM will be 
encouraged to send orders to NOM as an away market maker (Non-NOM 
Market Maker) with this incentive. Because the incentive is being 
offered to both market makers registered on NOM and those not 
registered on NOM, the Exchange believes that the proposal does not 
impose an undue burden on competition because it encourages market 
makers to direct liquidity to NOM to the benefit of all Participants. 
This proposal recognizes the overall contributions made by market 
makers to a listed options market.
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    \15\ See NOM Options 2, Sections 4 and 5.
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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) of the Act \16\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\17\ 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(2).
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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 [email protected]. Please include 
File Number SR-NASDAQ-2023-011 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-2023-011. 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. 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-2023-011, and should be submitted 
on or before June 6, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10359 Filed 5-15-23; 8:45 am]
BILLING CODE 8011-01-P