Document ID: SEC-2023-0205-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq MRX, LLC
Posted Date: 2023-02-21T05:00Z

[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10611-10614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03484]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96925; File No. SR-MRX-2023-03]

Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Pricing Schedule at Options 7, Section 4 (Complex Order Fees)

February 14, 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 January 30, 2023, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to a proposal to amend the Exchange's Pricing 
Schedule at Options 7, Section 4 (Complex Order Fees).
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/mrx/rules, at the 
principal

[[Page 10612]]

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 Exchange's 
Pricing Schedule at Options 7, Section 4 (Complex Order Fees).\3\
---------------------------------------------------------------------------

    \3\ The Exchange initially filed the proposed pricing changes on 
January 3, 2023 (SR-MRX-2023-01) to adopt a Market Maker growth 
incentive and to amend complex order fees. On January 17, 2023, the 
Exchange withdrew that filing and submitted SR-MRX-2023-02. On 
January 30, 2023, the Exchange withdrew that filing and submitted 
separate filings for the Market Maker growth incentive and complex 
order fees. This specific filing replaces the complex order fees set 
forth in SR-MRX-2023-02.
---------------------------------------------------------------------------

    As set forth in Options 7, Section 4, the Exchange presently 
assesses all market participants except Priority Customers \4\ a 
uniform $0.15 per contract fee for all complex order transactions in 
all symbols.\5\ Priority Customers are presently assessed no fees for 
complex order transactions. In addition, the Exchange currently reduces 
this $0.15 per contract fee to $0.00 for Market Makers \6\ when a 
Market Maker trades against Priority Customer orders that originate 
from an Affiliated Member \7\ or Affiliated Entity.\8\ This incentive 
is designed to encourage Market Makers, Affiliated Members, and/or 
Affiliated Entities to direct additional Priority Customer order flow 
to the Exchange.
---------------------------------------------------------------------------

    \4\ 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 Options 1, 
Section 1(a)(36).
    \5\ With the exception of complex PIM orders, which are subject 
to separate pricing in Options 7, Section 3.A.
    \6\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \7\ An ``Affiliated Member'' is a Member that shares at least 
75% common ownership with a particular Member as reflected on the 
Member's Form BD, Schedule A.
    \8\ An ``Affiliated Entity'' is a relationship between an 
Appointed Market Maker and an Appointed OFP for purposes of 
qualifying for certain pricing specified in the Pricing Schedule. 
Market Makers and OFPs are required to send an email to the Exchange 
to appoint their counterpart, at least 3 business days prior to the 
last day of the month to qualify for the next month. The Exchange 
will acknowledge receipt of the emails and specify the date the 
Affiliated Entity is eligible for applicable pricing, as specified 
in the Pricing Schedule. Each Affiliated Entity relationship will 
commence on the 1st of a month and may not be terminated prior to 
the end of any month. An Affiliated Entity relationship will 
automatically renew each month until or unless either party 
terminates earlier in writing by sending an email to the Exchange at 
least 3 business days prior to the last day of the month to 
terminate for the next month. Affiliated Members may not qualify as 
a counterparty comprising an Affiliated Entity. Each Member may 
qualify for only one (1) Affiliated Entity relationship at any given 
time.
---------------------------------------------------------------------------

    The Exchange now proposes to differentiate complex order pricing 
between Penny and Non-Penny Symbols as follows:

------------------------------------------------------------------------
                                             Fee per          Fee per
     Capacity of market participant      contract--penny  contract--non-
                                             symbols       penny symbols
------------------------------------------------------------------------
Market Maker...........................            $0.35           $0.85
Non-Nasdaq MRX Market Maker (FarMM)....             0.35            0.85
Firm Proprietary/Broker-Dealer.........             0.35            0.85
Professional Customer..................             0.35            0.85
Priority Customer......................             0.00            0.00
------------------------------------------------------------------------

    With the proposed changes, the complex order fee for all non-
Priority Customers will increase from $0.15 to $0.35 per contract in 
Penny Symbols. In Non-Penny Symbols, this fee will increase from $0.15 
to $0.85 per contract for all non-Priority Customers. Priority 
Customers will continue to receive free executions in all symbols under 
this proposal.
    In addition, the Exchange will continue to provide Market Makers 
with the reduced fee described above for their complex orders in both 
Penny and Non-Penny Symbols when the Market Maker trades against 
Priority Customer orders that originate from an Affiliated Member or 
Affiliated Entity. Accordingly, the Exchange proposes to clarify note 2 
in Options 7, Section 4 to reflect the proposed changes. In particular, 
note 2 will provide that a complex order Market Maker fee of $0.00 per 
contract applies instead of the above-referenced complex order fee in 
Penny and Non-Penny Symbols, when the Market Maker trades against 
Priority Customer orders that originate from an Affiliated Member or an 
Affiliated Entity.
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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange's proposed changes to its schedule of credits are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities 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, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution

[[Page 10613]]

of order flow from broker dealers'. . . .'' \11\
---------------------------------------------------------------------------

    \11\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \12\
---------------------------------------------------------------------------

    \12\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
sixteen options exchanges to which market participants may direct their 
order flow. Within this environment, market participants can freely and 
often do shift their order flow among the Exchange and competing venues 
in response to changes in their respective pricing schedules. As such, 
the proposal represents a reasonable attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.
    The Exchange believes that the proposed changes to its complex 
order fee schedule in Options 7, Section 4 are reasonable. As discussed 
above, the proposed complex order fee for all non-Priority Customers 
will increase from $0.15 to $0.35 per contract in Penny Symbols. In 
Non-Penny Symbols, this fee will increase from $0.15 to $0.85 per 
contract for all non-Priority Customers. Priority Customers will 
continue to receive free executions in all symbols under this proposal. 
While the non-Priority Customer complex fees are increasing across the 
board for all symbols, the Exchange believes that the proposing pricing 
will remain competitive and in line with other options exchanges that 
charge complex order fees.\13\ When the Exchange first adopted complex 
functionality and related fees back in 2019, it initially set non-
Priority Customer complex fees at $0.15 per contract (i.e., the current 
rate).\14\ The Exchange adopted this initial pricing structure (which 
was lower than certain options exchanges that had comparable complex 
pricing) to enable it to effectively compete with other exchanges by 
attracting complex order flow to the Exchange, thereby helping the 
Exchange to gain market share for complex executions. After more than 
three years, the Exchange now believes that it is appropriate and 
reasonable to adjust these fees in order to bring them in line with 
complex fees charged at other options exchanges.
---------------------------------------------------------------------------

    \13\ For example, MIAX Emerald charges complex order fees in 
Penny Classes that range from $0.10 to $0.50 per contract for all 
origin types except Priority Customers, depending on whether the 
market participant is a maker or taker. In Non-Penny Classes, those 
fees range from $0.20 to $0.88 per contract for all origin types 
except Priority Customer, depending on whether the market 
participant is a maker or taker. See MIAX Emerald Fee Schedule, 
Section 1)a)i) at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_1_9_2023.pdf.
    \14\ See Securities Exchange Act Release No. 86326 (July 8, 
2019), 84 FR 33300 (July 12, 2019) (SR-MRX-2019-14).
---------------------------------------------------------------------------

    Furthermore, the Exchange believes that the proposed fee structure 
for non-Priority Customer complex orders is equitable and not unfairly 
discriminatory because it will apply uniformly to all similarly 
situated participants. The Exchange believes that it is equitable and 
not unfairly discriminatory to continue to offer Priority Customers 
free executions in complex orders in all symbols. Priority Customer 
liquidity benefits all market participants by providing more trading 
opportunities, which attracts Market Makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants.
    Lastly, the Exchange believes that the proposed changes to note 2 
in Options 7, Section 4 are reasonable, equitable, and not unfairly 
discriminatory because these are clarifying changes to reflect that the 
Exchange will continue to provide Market Makers with the reduced fee 
described above for their complex orders in all symbols when the Market 
Maker trades against Priority Customer orders that originate from an 
Affiliated Member or Affiliated Entity.

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.
    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. As noted above, the proposed changes will 
apply uniformly to all similarly situated market participants.
    In terms of inter-market competition, 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 to remain competitive with other 
options 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. As discussed above for the proposed non-Priority 
Customer complex fee structure, the Exchange notes that its proposal 
will bring this pricing in line with other options exchanges that offer 
similar complex functionality.\15\
---------------------------------------------------------------------------

    \15\ See supra note 13.
---------------------------------------------------------------------------

    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.

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.\16\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is: (i) necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings

[[Page 10614]]

to determine whether the proposed rule should be approved or 
disapproved.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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-2023-03 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-2023-03. 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-2023-03 and should be submitted on 
or before March 14, 2023.
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03484 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P