Document ID: SEC-2018-0159-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq MRX, LLC
Posted Date: 2018-01-26T05:00Z

[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3784-3789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01353]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82537; File No. SR-MRX-2018-01]

Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees To Introduce a New Pricing Model

January 19, 2018.
    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 January 4, 2018, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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 Schedule of Fees to introduce a 
new pricing model on MRX that is designed to reward members that bring 
order flow to the Exchange and thereby increase liquidity and trading 
opportunities for all members.
    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 purpose of the proposed rule change is to amend the Schedule of 
Fees to introduce a new pricing model on MRX that is designed to reward 
members that bring order flow to the Exchange and thereby increase 
liquidity and trading opportunities for all members. The Exchange 
believes that the proposed pricing model will encourage additional 
order flow to be sent to the Exchange, and contribute to a more active 
and quality market in MRX-listed options to the benefit of all market 
participants that trade on the Exchange.
I. Member Volume Program
    Currently, the Exchange operates using a pricing schedule that 
rewards members that execute a higher average

[[Page 3785]]

daily volume (``ADV'') of order flow on the Exchange by providing 
tiered rebates and fee discounts to market participants. Specifically, 
under the Member Volume Program (``MVP''), members can qualify for 
higher tiers based on Total Affiliated \3\ and/or Appointed \4\ 
Priority Customer \5\ ADV as follows: 0 to 19,999 contracts (Tier 1), 
20,000 to 39,999 contracts (Tier 2), 40,000 to 59,999 contracts (Tier 
3), 60,000 to 79,999 contracts (Tier 4), and 80,000 or more contracts 
(Tier 5).\6\
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    \3\ The Total Affiliated Priority Customer ADV category includes 
all Priority Customer volume executed on the Exchange in all symbols 
and order types, including volume executed in the PIM, Facilitation, 
and QCC mechanisms. All eligible volume from affiliated Members will 
be aggregated in determining applicable tiers, provided there is at 
least 75% common ownership between the Members as reflected on the 
Member's Form BD, Schedule A.
    \4\ A Nasdaq MRX Appointed Market Maker is eligible to receive 
and aggregate volume credit from both their affiliated Members and 
their Nasdaq MRX Appointed Order Flow Provider. A Nasdaq MRX 
Appointed Order Flow Provider will not receive volume credit from 
its Nasdaq MRX Appointed Market Maker or the Nasdaq MRX Appointed 
Market Maker's affiliates in determining its applicable tiers. 
Designating a Nasdaq MRX Appointed Market Maker/Appointed Order Flow 
Provider: An Nasdaq MRX Market Maker appoints an Electronic Access 
Member as its Appointed Order Flow Provider and an Electronic Access 
Member appoints an Nasdaq MRX Market Maker as its Appointed Market 
Maker, for the purposes of the Fee Schedule, by each sending an 
email to [email protected]. These corresponding emails will be viewed 
as acceptance of the appointment. The Exchange will recognize one 
such designation for each party. A party may make a designation not 
more than once every 6 months, which designation shall remain in 
effect until the Exchange receives an email from either party 
indicating that the appointment has been terminated.
    \5\ 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).
    \6\ The highest tier threshold attained applies retroactively in 
a given month to all eligible traded contracts and applies to all 
eligible market participants. Any day that the market is not open 
for the entire trading day or the Exchange instructs Members in 
writing to route their orders to other markets may be excluded from 
the ADV calculation; provided that the Exchange will only remove the 
day for members that would have a lower ADV with the day included.
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    Based on the tier achieved, the Exchange provides tiered rebates to 
Priority Customer orders and tiered fee discounts to Market Maker \7\ 
orders. In particular, in both Penny Symbols and Non-Penny Symbols, 
Priority Customer orders are provided a rebate that is $0.05 per 
contract (Tier 1), $0.10 per contract (Tier 2), $0.15 per contract 
(Tier 3), $0.21 per contract (Tier 4), and $0.24 per contract (Tier 5); 
and Market Maker orders are charged a fee that is $0.25 per contract 
(Tier 1), $0.22 per contract (Tier 2), $0.18 per contract (Tier 3), 
$0.15 per contract (Tier 4), and $0.10 per contract (Tier 5).\8\ 
Regardless of the tier achieved, Non-Nasdaq MRX Market Makers,\9\ Firm 
Proprietary,\10\ Broker-Dealer,\11\ and Professional Customer \12\ 
orders pay a flat fee that is $0.47 per contract in Penny Symbols and 
$0.90 per contract in Non-Penny Symbols.
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    \7\ The term Market Makers refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively.
    \8\ This fee also applies to Nasdaq MRX Market Maker orders sent 
to the Exchange by Electronic Access Members. Market Makers will 
receive a $0.05 per contract discount when trading against a non-
Priority Customer.
    \9\ 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.
    \10\ A ``Firm Proprietary'' order is an order submitted by a 
member for its own proprietary account.
    \11\ A ``Broker-Dealer'' order is an order submitted by a member 
for a broker-dealer account that is not its own proprietary account.
    \12\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer.
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    The Exchange now proposes to eliminate the MVP structure \13\ and 
introduce a new pricing model that the Exchange believes will encourage 
members to bring more order flow to the Exchange. Specifically, the 
Exchange proposes to adopt a maker/taker fee model where all market 
participants are charged a fee (or are eligible for free executions) 
with potentially discounted fees based on ADV, whether the market 
participant is adding or removing liquidity, and whether both sides of 
the transaction belong to a member and its affiliated or appointed 
members.
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    \13\ Although the Exchange proposes to adopt a new structure it 
will keep the footnotes in the Qualifying Tier Threshold section as 
these will still apply to the calculation of ADV under the proposed 
structure.
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    With the proposed changes to the pricing model, the Exchange 
proposes to replace the current MVP tiers with a simple two tier 
structure based on Total Affiliated and/or Appointed Member ADV. 
Specifically, members would be able to qualify for higher tiers based 
on Total Affiliated and/or Appointed Member ADV as follows: 0 to 49,999 
contracts (Tier 1), and 50,000 or more contracts (Tier 2). In order to 
attract order flow from all market participants, the Total Affiliated 
Member ADV category includes all volume executed on the Exchange in all 
symbols and order types, rather than only Priority Customer volume.\14\ 
The Exchange will also continue to permit members to designate Nasdaq 
MRX Appointed Market Makers and Nasdaq MRX Appointed Order Flow 
Providers, and will aggregate order flow based on that designation in 
determining the member's tier. The Exchange already has language in its 
Schedule of Fees about designating Nasdaq MRX Appointed Market Makers 
and Nasdaq MRX Appointed Order Flow Providers and this language will 
remain a part of the Schedule of Fees.\15\
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    \14\ The Exchange proposes to add a definition of Total 
Affiliated Member ADV to the Schedule of Fees to describe how this 
is calculated. The other footnotes to the Qualifying Tier Threshold 
language will remain as discussed above, and will be in addition to 
this proposed footnote.
    \15\ Currently, the footnotes describing the process for 
designating a Nasdaq MRX Appointed Market Maker or Appointed Order 
Flow Provider indicate that members should email [email protected]. The 
Exchange proposes to change this to the appropriate Nasdaq email 
address, which is [email protected]. The language describing the 
aggregation of eligible volume also contains an outdated reference 
to the Exchange's previous name, which the Exchange proposes to 
update to reflect its current name--i.e., Nasdaq MRX.
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    With respect to pricing, Market Maker orders would be charged a 
maker fee that is $0.20 per contract for Tier 1 and $0.00 per contract 
for Tier 2 in both Penny and Non-Penny Symbols, and a taker fee that is 
$0.50 per contract for Penny Symbols and $0.90 per contract for Non-
Penny Symbols, regardless of the tier achieved.\16\ In addition, as an 
incentive for bringing order flow to the Exchange, Market Maker orders 
that take liquidity would also be eligible for ADV-based fee discounts 
in both Penny and Non-Penny Symbols when trading with Priority Customer 
orders entered by an affiliated or appointed member. The discounted fee 
would be $0.05 per contract if the member has a Total Affiliated and/or 
Appointed Priority Customer ADV of 5,000 contracts or more, or $0.00 
per contract if the member has a Total Affiliated and/or Appointed 
Priority Customer ADV of 50,000 contracts or more. Regardless of the 
member's tier, Non-Nasdaq MRX Market Maker, Firm Proprietary, Broker-
Dealer, and Professional Customer orders would pay a fee in Penny 
Symbols that is $0.47 per contract for maker transactions and $0.50 per 
contract for taker transactions, and both a maker and taker fee of 
$0.90 per contract in Non-Penny Symbols. Priority Customer orders would 
not be charged a fee for regular executions in either Penny or Non-
Penny Symbols.
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    \16\ The fees charged to Market Makers will apply to Nasdaq MRX 
Market Maker orders sent to the Exchange by Electronic Access 
Members.
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II. Marketing Fees
    Currently, Market Makers are charged a marketing fee of $0.25 per 
contract in Penny Symbols and $0.70 per contract in Non-Penny Symbols 
for each regular

[[Page 3786]]

Priority Customer contract executed.\17\ This marketing fee is waived 
for Flash Order Responses. In connection with the fee changes described 
in Section I above, the Exchange also proposes to waive marketing fees 
for Market Maker orders that take liquidity from the order book. The 
Exchange believes that this change will ensure that Market Makers can 
benefit from the proposed fee incentives described above for taking 
liquidity, without the benefits provided thereunder being eroded by 
charging a marketing fee, which may or may not go into the marketing 
fee pool administered by the executing Market Maker. Furthermore, in 
connection with the changes to Crossing Order fees described in Section 
IV below, the Exchange proposes to waive marketing fees for Crossing 
Orders and Responses to Crossing Orders, which will ensure that the 
total fee paid by Market Makers that trade with this order flow will 
remain at a level the Exchange believes is appropriate.
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    \17\ The marketing fee will be rebated proportionately to the 
members that paid the fee such that on a monthly basis the marketing 
fee fund balance administered by a Primary Market Maker for a Group 
of options established under Rule 802(b) does not exceed $100,000 
and the marketing fee fund balance administered by a preferenced 
Competitive Market Maker for such a Group does not exceed $100,000. 
A preferenced Competitive Market Maker that elects not to administer 
a fund will not be charged the marketing fee. The Exchange assesses 
an administrative fee of .45% on the total amount of the funds 
collected each month.
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III. Flash Orders
    With the introduction of a maker/taker fee structure, the Exchange 
also proposes to introduce language clarifying how Flash Orders will be 
charged. A ``Flash Order'' is an order that is exposed at the National 
Best Bid or Offer by the Exchange to all members for execution, as 
provided under Supplementary Material .02 to Nasdaq MRX Rule 1901. 
Because a Flash Order being exposed to the market is entered prior to 
Responses to that order, the Exchange proposes to charge the applicable 
maker fee to all Flash Orders, which is similar to how pricing would be 
determined had the order rested on the order book. Similarly, because 
Responses that trade with a Flash Order are benefiting from the 
execution of a prior order, the Exchange proposes to charge the 
applicable taker fee for all Responses that trade against a Flash 
Order.
IV. Crossing Orders
    Currently, the Exchange charges a fee for Crossing Orders (except 
PIM orders of 500 or fewer contracts) \18\ in Penny and Non-Penny 
Symbols that is $0.20 per contract for Market Maker,\19\ Non-Nasdaq MRX 
Market Maker, Firm Proprietary, Broker-Dealer, and Professional 
Customer orders, and $0.00 per contract for Priority Customer 
Orders.\20\ The Exchange also charges a fee in all symbols for PIM 
orders of 500 or fewer contracts that is $0.05 per contract for Market 
Maker, Non-Nasdaq MRX Market Maker, Firm Proprietary, Broker-Dealer, 
and Professional Customer orders. Priority Customers receive a rebate 
for PIM orders of 500 or fewer contracts that is tiered based on the 
MVP tiers described above. Specifically, Priority Customer orders 
receive a rebate of $0.11 per contract for Tiers 1-2 and $0.13 per 
contract for Tiers 3-5. Priority Customer orders on the contra-side of 
a PIM auction for 500 or fewer contracts pay no fee and receive no 
rebate. The Exchange now proposes to eliminate the special fees 
described above for PIM orders of 500 contracts or fewer and apply the 
fee for Crossing Orders described above to all Crossing Orders, 
including PIM orders of 500 contracts or fewer.
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    \18\ PIM orders of more than 500 contracts will pay the Fee for 
Crossing Orders.
    \19\ Market Maker fees discussed in this section also apply to 
Market Maker orders sent to the Exchange by Electronic Access 
Members.
    \20\ Except as otherwise noted herein, the fees described in 
this paragraph apply to the originating and contra orders.
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    In addition, the Exchange charges a fee for Responses to Crossing 
Orders that is $0.50 per contract for Non-Nasdaq MRX Market Maker, Firm 
Proprietary, Broker-Dealer, Professional Customer, and Priority 
Customer orders in Penny Symbols, and $0.95 per contract for the above 
market participant types in Non-Penny Symbols. Market Makers are 
charged a fee for Responses to Crossing Orders in Penny and Non-Penny 
Symbols that is $0.25 per contract, subject to a discount whereby 
Market Makers that achieve Tier 2 or higher under the MVP are charged 
the discounted fee charged to regular executions for the tier reached--
i.e., from $0.22 per contract for Tier 2 to $0.10 per contract for Tier 
5, as discussed in more detail in the MVP section above. The Exchange 
now proposes to charge Market Makers the same fee for Responses to 
Crossing Orders as is currently charged to other market participants. 
As such, Market Maker orders will be charged a fee for Responses to 
Crossing Orders that is $0.50 per contract in Penny Symbols and $0.95 
per contract in Non-Penny Symbols, similar to the other market 
participants described above. Market Makers would not be eligible for 
any fee discounts based on the MVP tiers that are being discontinued.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\21\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\22\ 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 is adopting a new pricing model for MRX and believes that the 
proposed changes will be attractive to market participants, and will 
encourage additional liquidity and trading opportunities on the 
Exchange to the benefit of all members.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4) and (5).
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I. Member Volume Program
    The Exchange believes that the proposed fee change is reasonable, 
equitable, and not unfairly discriminatory as it is designed to 
increase liquidity and opportunities for all members to trade on the 
Exchange. The proposed fee structure being adopted represents a 
substantial change in the fee model for MRX that the Exchange believes 
will be attractive to market participants, and will assist the Exchange 
in competing in today's competitive environment. Generally, the 
proposed fee change would eliminate the current MVP structure and adopt 
a new maker/taker fee structure where market participants other than 
Priority Customers are charged a fee based on whether the market 
participant adds or removes liquidity. Priority Customer orders, 
meanwhile, would be eligible for free executions, and Market Makers 
would be eligible to qualify for substantially lower or no fees based 
on their contribution to the market. Qualifying tier thresholds for 
members would be based on Total Affiliated and/or Appointed Member ADV 
in two tiers that are designed to encourage members to bring order flow 
to the Exchange to qualify for higher tiers. For the reasons described 
in the following paragraphs, the Exchange believes that the proposed 
fee structure will be beneficial to market participants and will 
encourage an active and liquid market on MRX.
    With respect to the proposed qualifying tier thresholds, the 
Exchange believes that the proposed ADV requirements are reasonable and 
equitable because they are set at levels that the Exchange believes 
will encourage market participants, and, in particular, Market Makers 
to execute

[[Page 3787]]

more volume on the Exchange. As proposed, the qualifying tier 
thresholds would also reference Total Affiliated and/or Appointed 
Member ADV instead of Total Affiliated and/or Appointed Priority 
Customer ADV, which the Exchange believes will benefit firms that bring 
a wider range of order flow to the Exchange. The Exchange is also 
proposing to introduce new fee incentives (described in the paragraphs 
below) that specifically target Priority Customer order flow, thereby 
retaining the ability to attract those orders to the Exchange. The 
Exchange believes that the proposed changes will be attractive to 
market participants that trade on MRX. Furthermore, the Exchange 
believes that the qualifying tier thresholds are equitable and not 
unfairly discriminatory as all market participants can qualify for a 
higher tier by executing the required volume of contracts, either 
through the member, its affiliates, or an appointed member, as is the 
case today.
    Under the proposed pricing structure, Priority Customer orders 
would be eligible for free executions. Although the Exchange will no 
longer provide rebates to Priority Customer orders, the Exchange 
believes that increased Market Maker participation would increase the 
opportunities for these orders to trade and therefore encourage members 
to bring this order flow to the Exchange. In addition, by receiving 
free executions Priority Customer orders would continue to be provided 
the most favorable rates on the Exchange. Only one other market 
participant type (i.e., Market Makers) would be eligible to trade for 
free and only in specified circumstances. The Exchange believes that it 
is appropriate and not unfairly discriminatory to provide free 
executions to Priority Customer orders as the Exchange is seeking to 
attract this order flow. The Exchange believes that attracting more 
volume from Priority Customers will benefit all market participants 
that trade on MRX. In addition, the Exchange believes that it is 
equitable and not unfairly discriminatory to charge a lower fee for 
Priority Customer orders as a Priority Customer is by definition not a 
broker or 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). This limitation does not apply to market 
participants whose behavior is substantially similar to that of market 
professionals, and who will generally submit a higher number of orders 
than Priority Customers.
    Market Makers would also benefit from a strong mix of incentives 
that are designed to create an active and liquid market for MRX-listed 
options. First, Market Makers would pay a base fee that is equal to or 
lower than that charged to all market participants other than Priority 
Customers, with the potential to further lower those fees by qualifying 
for additional pricing incentives. The Exchange believes that charging 
lower fees to Market Maker orders is reasonable and equitable as doing 
so increases Market Maker activity and thereby creates additional 
opportunities for other market participants to trade. Furthermore, the 
Exchange believes that it is equitable and not unfairly discriminatory 
to charge lower fees to Market Makers because Market Makers have 
different requirements and obligations to the Exchange that other 
market participants do not (such as quoting requirements). For this 
reason, the Exchange also believes that the other incentives described 
below, which may further decrease execution costs for Market Makers, 
are also equitable and not unfairly discriminatory. These incentives 
are designed to increase Market Maker participation and reward Market 
Makers for the unique role that they play in ensuring a robust market.
    Second, Market Makers would be rewarded for providing liquidity 
with a lower base rate for adding liquidity as opposed to taking 
liquidity, and the possibility for free executions if the Market Maker 
achieves a higher tier based on Total Affiliated and/or Appointed 
Member ADV. The Exchange believes that it is reasonable and equitable 
to charge a lower base rate for Market Maker orders that add liquidity 
because Market Makers provide an important function to the market when 
they provide liquidity to other market participants through their 
displayed quotes. The Exchange believes that incentivizing Market 
Makers to provide liquidity through lower maker fees will create 
additional displayed liquidity and opportunities for market 
participants to trade. Furthermore, providing an additional discount 
when the Market Maker meets the qualifying tier threshold for a higher 
ADV tier will encourage the member to transact additional business on 
the Exchange, and thereby create a more active market. The Exchange 
also believes that tying execution fees to whether the Market Maker is 
adding or removing liquidity, and based on ADV, is equitable and not 
unfairly discriminatory as all Market Makers will be treated uniformly 
based on these factors.
    Third, although Market Makers would pay the same base rate for 
removing liquidity as other market participants, Market Makers would be 
eligible for a discounted taker fee when trading with Priority Customer 
orders entered by an affiliated or appointed member. Market Makers 
would qualify for this discounted taker fee if the member has reached a 
threshold level of Total Affiliated and/or Appointed Priority Customer 
ADV, and would be eligible for free executions if the member executes a 
higher volume of contracts. The Exchange believes that it is reasonable 
and equitable to charge a lower fee to Market Makers when trading 
against Priority Customer orders that originate from affiliated or 
appointed members as this incentive is designed to encourage firms to 
bring additional Priority Customer order flow to the Exchange. For the 
same reason, the proposed ADV requirements are also based on ADV in 
Priority Customer contracts executed by affiliated or appointed 
members.
    This discounted fee structure is similar to one in place on the 
Exchange's affiliate, the Nasdaq Options Market (``NOM''), where 
participants that meet specified volume requirements can qualify for 
discounted fees if the participant is: (i) Both the buyer and the 
seller or (ii) the participant removes liquidity from another 
participant under common ownership.\23\ Similar to NOM, the Exchange 
believes that this structure will encourage additional order flow both 
from Market Makers and their affiliated and/or appointed members. This 
will benefit those members through reduced fees, and will also benefit 
other market participants that will have an opportunity to trade with 
the order flow that these firms bring to the market. When a Priority 
Customer order is entered on the Exchange, a Market Maker that wishes 
to interact with that order flow does not typically know whether that 
order originated from one of its affiliated or appointed members. The 
Exchange therefore believes that Market Makers would continue to 
aggressively pursue order flow in order to receive the benefit of the 
fee discount. Discounting fees in this manner will reward firms that 
bring more order flow to the Exchange. This is the case both because 
sending additional order flow would increase the chances of a firm 
qualifying for a reduced fee (i.e., because it increases the chances 
that a contra-side order is entered by an affiliated or appointed 
member), and because a higher ADV is required to

[[Page 3788]]

qualify for free executions under the proposed pricing structure.
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    \23\ See NOM Rules, Chapter XV Options Pricing, Sec. 2 Nasdaq 
Options Market--Fees and Rebates, (1) Fees for Execution of 
Contracts on The Nasdaq Options Market.
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    The Exchange also believes that the proposed fee discount described 
above is equitable and not unfairly discriminatory. As mentioned 
before, Market Makers have special obligations to the market that other 
market participants do not. The Exchange therefore believes that it is 
appropriate to reward those members with potentially lower fees. 
Furthermore, providing an incentive specifically to Market Makers whose 
affiliated and/or appointed members bring Priority Customer order flow 
to the Exchange encourages firms to bring more of this order flow to 
the Exchange. All Market Makers can benefit from this incentive either 
by interacting with order flow sent to the Exchange by its affiliates 
or by designating a Nasdaq MRX Appointed Order Flow Provider, who would 
be treated similar to an affiliate. Moreover, rewarding members that 
bring a more substantial investment of order flow is beneficial to all 
market participants, who are free to interact with such order flow.
    Finally, Non-Nasdaq MRX Market Maker, Firm Proprietary, Broker-
Dealer, and Professional Customer orders would be subject to maker/
taker fees at rates that are similar to those currently charged on the 
Exchange. In Penny Symbols, these market participants would pay a maker 
fee that is the same as the fee charged today, and a taker fee that is 
modestly higher. For the reasons discussed above with respect to Market 
Maker orders, the Exchange believes that it is appropriate to charge 
higher fees for executions that remove liquidity than those that 
provide liquidity to other market participants--i.e., because this 
encourages more displayed liquidity and opportunities for market 
participants to trade on the Exchange. In Non-Penny Symbols, these 
market participants will be charged the same fee as today, regardless 
of whether the order is executed as maker or taker. Although these 
market participants would continue to be charged fees that are higher 
than the fees charged to Priority Customer and Market Maker orders, the 
Exchange believes that this is equitable and not unfairly 
discriminatory for the reasons discussed in the paragraphs above on 
Priority Customer and Market Maker fees. Furthermore, although these 
market participants would be charged a modestly increased fee in the 
one instance described above, the Exchange believes that the effect of 
this fee increase is justified by the potential for the new fee 
structure to encourage additional liquidity and opportunities for 
trading due to the incentives being provided to Market Maker and 
Priority Customer orders.
II. Marketing Fees
    The Exchange believes that it is reasonable and equitable to 
eliminate the marketing fees charged to Market Maker orders that take 
liquidity from the order book as charging a marketing fee in these 
instances would frustrate the Exchange's incentives for firms that 
bring Priority Customer orders to the Exchange and receive a fee 
discount (including potentially free executions) when trading with that 
order flow. Furthermore, the marketing fee is designed to assist Market 
Makers in establishing marketing fee arrangements with Electronic 
Access Members in exchange for those members routing some or all of 
their order flow to such Market Makers. This purpose is not advanced 
when the Priority Customer order on the other side of the transaction 
is providing liquidity and is not routed to access displayed liquidity 
being provided by a Market Maker quoting on the Exchange. Furthermore, 
the Exchange has proposed changes to its Crossing Order fees that would 
result in Market Makers paying a higher Response fee that is the same 
as the fee charged to other market participants. The Exchange believes 
that it is reasonable and equitable to eliminate the marketing fee 
charged for Crossing Orders and Responses to Crossing Orders as this 
change will keep total execution costs down when Market Makers trade 
with Crossing Order flow. The Exchange also believes that both of the 
proposed changes to the marketing fee described above are not unfairly 
discriminatory as no Market Makers would be charged a marketing fee 
when removing liquidity or when executing Crossing Orders or Responses 
to Crossing Orders.
III. Flash Orders
    The Exchange believes that the proposed pricing for Flash Orders is 
reasonable and equitable as the proposed changes clarify how the 
Exchange will charge members for Flash Orders with the introduction of 
maker/taker pricing. Without this change members would not be aware of 
how Flash Orders are charged because Flash Orders do not rest on the 
book and therefore could be treated as either maker or taker for 
purposes of pricing. The Exchange is proposing to charge the applicable 
maker fee for Flash Orders, and the applicable taker rebate for 
Responses that trade against a Flash Order. The Exchange believes that 
it is reasonable and equitable to charge the applicable maker fee to a 
Flash Order as the order being exposed is entered first, and maker 
pricing would therefore apply the same as it would had that order 
rested on the order book. Similarly, the Exchange believes that it is 
reasonable and equitable to charge the applicable taker fee to 
Responses as these Responses are benefiting from the execution of a 
prior order. Furthermore, the Exchange believes the proposed Flash 
Order language is not unfairly discriminatory because Flash Orders 
entered by all market participants will be treated as maker and all 
Responses that trade against a Flash Order will be treated as taker.
IV. Crossing Order Fees
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to eliminate the special incentive for PIM 
orders of 500 or fewer contracts as the proposed fees charged would now 
be consistent for all Crossing Orders. The Exchange currently has in 
place a fee structure that was implemented to encourage PIM orders for 
500 or fewer contracts by charging lower fees to the originating and 
contra-side of those orders. The Exchange no longer believes that this 
incentive is necessary and is therefore removing it. With this change, 
members will be charged the same fees for all Crossing Orders, 
regardless of whether the order is executed in the PIM or another 
crossing mechanism, and regardless of the size of the order. The 
Exchange also believes that it is reasonable and equitable to increase 
the fees charged to Market Maker Responses to Crossing Orders as with 
this change Market Makers would be charged the same fees as other 
market participants.
    The Exchange also believes that the Crossing Order changes are 
equitable and not unfairly discriminatory as the proposed fees would be 
more standardized across the various Crossing Order mechanisms, and 
across market participant types, with the exception that Priority 
Customer orders would continue to not be charged a fee for Crossing 
Orders.\24\ As explained earlier in this proposed rule change, a 
Priority Customer is by definition not a broker or 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). This limitation does not apply to participants whose 
behavior is substantially similar to that of market

[[Page 3789]]

professionals who will generally submit a higher number of orders than 
Priority Customers. The Exchange therefore believes that it is 
equitable and not unfairly discriminatory to provide more favorable 
pricing to Priority Customer orders in the one instance described 
above.
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    \24\ Priority Customer orders would continue to pay a fee for 
Responses to Crossing Orders that is the same as the fee charged to 
other market participants.
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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. The proposed fee change is an 
overhaul of the Exchange's pricing model that is designed to 
incentivize members to bring additional order flow to the Exchange, and 
create a more active and quality market in MRX-listed options. The 
Exchange therefore believes that the proposed rule change is a product 
of the competitive environment in the options industry. 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 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.

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,\25\ and Rule 19b-4(f)(2) \26\ thereunder. 
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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    \25\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \26\ 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-MRX-2018-01 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-2018-01. 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-2018-01 and should be submitted on 
or before February 16, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01353 Filed 1-25-18; 8:45 am]
 BILLING CODE 8011-01-P