Document ID: SEC-2022-0089-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2022-01-24T05:00Z

[Federal Register Volume 87, Number 15 (Monday, January 24, 2022)]
[Notices]
[Pages 3610-3613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01219]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93987; File No. SR-NASDAQ-2022-001]

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

January 18, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on January 3, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' 
or ``Exchange'') filed with the Securities and Exchange Commission (the 
``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\ 15 U.S.C. 78a.
    \3\ 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 (``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

[[Page 3611]]

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 NOM's Pricing 
Schedule at Options 7, Section 2 to: (1) Increase the Fee to Remove 
Liquidity in Penny Symbols for Customers \4\ and Professionals,\5\ and 
(2) amend the qualifications for the Tier 3 NOM Market Maker \6\ Rebate 
to Add Liquidity in Penny Symbols to allow an alternative way to 
qualify for the rebate. Each change is further discussed below.
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    \4\ 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)).
    \5\ 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.
    \6\ 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.
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Customer and Professional Fee To Remove Liquidity
    Today, the Exchange charges Customers and Professionals a $0.48 per 
contract Fee to Remove Liquidity in Penny Symbols. The Exchange 
proposes to increase this fee to $0.49 per contract for Customers and 
Professionals.
NOM Market Maker Rebate To Add Liquidity
    Today, the Exchange offers tiered NOM Market Maker Rebates to Add 
Liquidity in Penny Symbols that are $0.20 (Tier 1), $0.25 (Tier 2), 
$0.30 (Tier 3),\7\ $0.32 (Tier 4),\8\ $0.44 (Tier 5), and $0.48 (Tier 
6). These rebates are paid per the highest tier achieved below.
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    \7\ This rebate is $0.40 per contract in the following symbols: 
AAPL, SPY, QQQ, IWM, and VXX. See Options 7, Section 2(1), note 4.
    \8\ Id.

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       Monthly volume
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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% to 0.20% 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% to 0.60% 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 0.07% to 0.20% 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 0.70% or more of
                              Consolidated Volume (``CV'') which adds
                              liquidity in the same month on The Nasdaq
                              Stock Market, (3) transacts in Tape B
                              securities through one or more of its
                              Nasdaq Market Center MPIDs that represent
                              0.10% or more of CV which adds liquidity
                              in the same month on The Nasdaq Stock
                              Market, and (4) executes greater than
                              0.01% of CV via Market-on- Close/Limit-on-
                              Close (``MOC/LOC'') volume within The
                              Nasdaq Stock Market Closing Cross in the
                              same month.
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.
------------------------------------------------------------------------

    As set forth above, the Exchange currently offers two different 
paths in (a) and (b) for Participants to achieve the Tier 3 Market 
Maker rebate. The Exchange now proposes to amend the Tier 3 
qualifications in (b) as follows:

    Participant . . . (b)(1) adds NOM Market Maker liquidity in 
Penny Symbols and/or Non-Penny Symbols above 0.07% to 0.20% 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) 0.70% or more of 
Consolidated Volume (``CV'') which adds liquidity in the same month 
on The Nasdaq Stock Market or (ii) 70 million shares or more ADV 
which adds liquidity in the same month on The Nasdaq Stock Market, 
(3) transacts in Tape B securities through one or more of its Nasdaq 
Market Center MPIDs that represent 0.10% or more of CV which adds 
liquidity in the same month on The Nasdaq Stock Market, and (4) 
executes greater than 0.01% of CV via Market-on- Close/Limit-on-
Close (``MOC/LOC'') volume within The Nasdaq Stock Market Closing 
Cross in the same month

    The proposal adds an alternative route to achieve the equity 
component in (b)(2), namely by introducing an alternative volume-based 
requirement in new (b)(2)(ii) that requires Market Makers to transact 
in all securities through one or more of its Nasdaq Market Center MPIDs 
that represent 70 million shares or more ADV which adds liquidity in 
the same month on The Nasdaq Stock Market.\9\ The options component in 
(b)(1) and the other equity components in (b)(3) and (b)(4) to qualify 
for the Tier 3 rebate will remain unchanged. The Exchange will also 
make a related change to renumber the existing volume requirement in 
(b)(2) as (b)(2)(i).
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    \9\ All NOM Participants are required to be members of The 
Nasdaq Stock Market pursuant to General 3 (Membership and Access).

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[[Page 3612]]

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's 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 
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 of order flow from broker 
dealers' . . . .'' \12\
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    \12\ 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)).
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    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.'' \13\
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    \13\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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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 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.
Customer and Professional Fee To Remove Liquidity
    The Exchange believes that its proposal to increase the Fee to 
Remove Liquidity in Penny Symbols for Customers and Professionals from 
$0.48 to $0.49 per contract is reasonable. While this fee is 
increasing, Customers and Professionals will continue to be assessed 
the lowest Fee to Remove Liquidity in Penny Symbols compared to all 
other market participants.\14\ Accordingly, the Exchange believes that 
the proposed fee will continue to attract Customer and Professional 
order flow to NOM to the benefit of all market participants.
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    \14\ The Exchange currently charges all other market 
participants (i.e., Broker-Dealers, Firms, Non-NOM Market Makers, 
and NOM Market Makers) a $0.50 per contract Fee to Remove Liquidity 
in Penny Symbols.
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    The Exchange further believes that its proposal is equitable and 
not unfairly discriminatory because it will apply uniformly to all 
similarly situated Participants. With the proposed changes, Customers 
and Professionals will continue to be assessed a lower Fee to Remove 
Liquidity in Penny Symbols compared to all other market participants. 
The Exchange does not believe it is inequitable or unfairly 
discriminatory to assess a lower fee to Customers and Professionals, 
and not to other market participants. Customer order flow offers unique 
benefits to the market by providing more trading opportunities, which 
attracts specialists and market makers. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause a corresponding increase in order flow from other market 
participants. The Exchange believes that encouraging Professional order 
flow is similarly beneficial, as the lower fee may cause market 
participants to select NOM as a venue to send Professional order flow, 
which benefits all market participants by attracting valuable liquidity 
to the market and thereby enhancing the trading quality and efficiency 
for all.
NOM Market Maker Rebate To Add Liquidity
    The Exchange believes that its proposal to amend the qualifications 
for the Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny 
Symbols represents a reasonable attempt to incentivize market 
participants to increase the number and variety of orders sent to the 
Exchange for execution. Specifically, the Exchange proposes to 
introduce an alternative volume-based requirement in new subsection 
(b)(2)(ii) that requires Market Makers to transact in all securities 
through one or more of its Nasdaq Market Center MPIDs that represent 70 
million shares or more ADV which adds liquidity in the same month on 
The Nasdaq Stock Market. By introducing an alternative method to 
qualify for the Tier 3 rebate, the Exchange will create an additional 
opportunity for Market Makers to increase their liquidity adding 
activity on the Exchange's equity market. Taken together with existing 
options and equity components that comprise the Tier 3 rebate 
qualifications in (b), the Exchange believes that the amended 
qualifying criteria will continue to incentivize participation in 
greater volume from cross asset activity, which would improve the 
overall quality of the Exchange's marketplace to the benefit of all 
market participants, both on NOM and The Nasdaq Stock Market.
    The Exchange also believes that the proposed changes to the 
qualifications for the Tier 3 Market Maker Rebate to Add Liquidity in 
Penny Symbols is equitable and not unfairly discriminatory because the 
Exchange will pay the Tier 3 rebate uniformly to any qualifying Market 
Makers. Market Makers add value through continuous quoting and the 
commitment of capital.\15\ Because Market Makers have these obligations 
to the market and regulatory requirements that normally do not apply to 
other market participants, the Exchange believes that offering the 
rebate to only Market Makers is equitable and not unfairly 
discriminatory in light of their obligations. Finally, encouraging 
Market Makers to add greater liquidity benefits all market 
participants, both on NOM and The Nasdaq Stock Market, in the quality 
of order interaction.
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    \15\ See 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

[[Page 3613]]

necessary or appropriate in furtherance of the purposes of the Act.
    In terms of intra-market competition, the Exchange does not that 
its proposals will place any category of market participant at a 
competitive disadvantage. As discussed above, while the Exchange's 
proposals target certain order flow and activity on the Exchange (i.e., 
Customer, Professional, and Market Maker activity), the proposed 
changes are ultimately aimed at attracting greater order flow to the 
Exchange, which benefits all market participants by providing more 
trading opportunities.
    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 
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. 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 
Participants or competing exchanges 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\
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    \16\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2022-001 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-2022-001. 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-NASDAQ-2022-001, and should be submitted 
on or before February 14, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01219 Filed 1-21-22; 8:45 am]
BILLING CODE 8011-01-P