[Federal Register Volume 85, Number 140 (Tuesday, July 21, 2020)]
[Notices]
[Pages 44135-44137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15690]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89320; File No. SR-MRX-2020-14]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its
Pricing Schedule at Options 7, Section 5, Other Options Fees and
Rebates, in Connection With the Pricing for Orders Entered Into the
Exchanges Price Improvement Mechanism
July 15, 2020.
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 July 1, 2020, 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 its Pricing Schedule at Options 7,
Section 5, Other Options Fees and Rebates, in connection with the
pricing for orders entered into the Exchange's Price Improvement
Mechanism (``PIM'').\3\ The Exchange also proposes an amendment to
Options 7, Section 1, General Provisions.
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\3\ PIM is a process by which an Electronic Access Member
(``EAM'') can provide price improvement opportunities for a
transaction wherein the EAM seeks to facilitate an order it
represents as agent, and/or a transaction wherein the EAM solicited
interest to execute against an order it represents as agent. See
Options 3, Section 13.
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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 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 its Pricing Schedule at Options 7,
Section 5, Other Options Fees and Rebates. Specifically, the Exchange
proposes to amend Options 7, Section 5E, PIM Pricing for Regular and
Complex Orders, to lower the Fees for PIM Contra-Side Orders, in both
Penny Symbols and Non-Penny Symbols, for all market participants. The
Exchange also proposes to eliminate note 1 within Options 7, Section
5E. Finally, the Exchange proposes to amend Options 7, Section 1,
General Provisions. These changes will be described in greater detail
below.
Options 7, Section 5E
For regular and complex PIM orders, the Exchange currently charges
a PIM originating fee in Penny and Non-Penny Symbols of $0.20 per
contract for Non-Priority Customers \4\ and $0.00 per contract for
Priority Customers.\5\ The Exchange also charges all market
participants a PIM contra-side fee in Penny and Non-Penny Symbols of
$0.05 per contract. Members that execute an average daily volume
(``ADV'') of 10,000 PIM originating contracts or greater within a month
are eligible for a reduced PIM contra-side fee of $0.02 per contract
(in lieu of $0.05 per contract). In addition, the Exchange presently
charges PIM response fees of $0.50 per contract in Penny Symbols and
$1.10 per contract in Non-Penny Symbols.
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\4\ Non-Priority Customers consist of Market Makers (including
Market Maker orders sent to the Exchange by EAMs), Non-Nasdaq MRX
Market Makers (FarMM), Firm Proprietary/Broker-Dealers, and
Professional Customers.
\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 Options 1,
Section 1(a)(36).
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The Exchange proposes to lower the current regular and complex Fees
for PIM Contra-Side Orders, for both Penny Symbols and Non-Penny
Symbols, from $0.05 per contract to $0.02 per contract, for all market
participants.\6\ In
[[Page 44136]]
connection with lowering this fee, the Exchange proposes to eliminate
note 1 within Options 7, Section 5E, which today provides, ``Members
that execute an ADV of 10,000 PIM originating contracts or greater
within a month will be assessed a fee of $0.02 per contract on the
contra-side of a PIM auction (in lieu of $0.05 per contract).'' This
incentive is no longer necessary as all market participants would be
entitled to receive the lower regular and complex Fee for PIM Contra-
Side Orders of $0.02 per contract for both Penny Symbols and Non-Penny
Symbols.
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\6\ Today, Market Makers, Non-Nasdaq MRX Market Makers (FarMM),
Firm Proprietary/Broker Dealers, Professional Customers and Priority
Customers are assessed the same regular and complex Fee for PIM
Contra-Side Orders, for both Penny Symbols and Non-Penny Symbols of
$0.05 per contract. These market participants have the opportunity
to lower that fee to $0.02 per contract, pursuant to note 1 of
Options 7, Section 5E, provided they execute the requisite volume.
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Options 7, Section 1
The Exchange proposes an amendment to Options 7, Section 1, General
Provisions. The Exchange proposes to replace the term ``Penny Pilot
Program'' with ``Penny Interval Program.'' On April 1, 2020 the
Commission approved the amendment to the OLPP to make permanent the
Pilot Program (the ``OLPP Program'').\7\ The Exchange recently filed a
proposal to amend MRX Options 3, Section 3 to conform the rule to
Section 3.1 of the Plan for the Purpose of Developing and Implementing
Procedures Designed to Facilitate the Listing and Trading of
Standardized Options (the ``OLPP'').\8\ The Exchange's proposal amended
MRX Options 3, Section 3 to refer to a Penny Interval Program instead
of a Penny Pilot Program. This proposed change to Options 7, Section 1
conforms the name of the program.
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\7\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval
Order'').
\8\ See Securities Exchange Act Release No. 89163 (June 26,
2020) (SR-MRX-2020-13).
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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. 78 f(b).
\10\ 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'. . . .'' \11\
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\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)).
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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.'' \12\
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\12\ 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.
Options 7, Section 5E
The Exchange's proposal to lower the current regular and complex
Fees for PIM Contra-Side Orders, for both Penny Symbols and Non-Penny
Symbols, from $0.05 per contract to $0.02 per contract for all market
participants, and eliminate note 1 \13\ within Options 7, Section 5E is
reasonable.\14\ Lowering the regular and complex Fees for PIM Contra-
Side Orders, for both Penny Symbols and Non-Penny Symbols, from $0.05
to $0.02 per contract, will incentivize Members to execute a greater
number of PIM contracts on the Exchange. All market participants will
benefit from a greater number of PIM contracts in that they will be
able to interact with that order flow either by responding directly to
a PIM or by submitting unrelated orders in the Order Book.
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\13\ Options 7, Section 5E at note 1 provides, ``Members that
execute an ADV of 10,000 PIM originating contracts or greater within
a month will be assessed a fee of $0.02 per contract on the contra-
side of a PIM auction (in lieu of $0.05 per contract).''
\14\ Today, Market Makers, Non-Nasdaq MRX Market Makers (FarMM),
Firm Proprietary/Broker Dealer, Professional Customer and Priority
Customers are assessed the same regular and complex Fee for PIM
Contra-Side Orders, for both Penny Symbols and Non-Penny Symbols of
$0.05 per contract.
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The Exchange's proposal to lower the current regular and complex
Fees for PIM Contra-Side Orders, for both Penny Symbols and Non-Penny
Symbols, from $0.05 per contract to $0.02 per contract for all market
participants, and eliminate note 1 within Options 7, Section 5E is
equitable and not unfairly discriminatory. All market participants will
be uniformly assessed a regular and complex Fee for PIM Contra-Side
Orders, for both Penny Symbols and Non-Penny Symbols, of $0.02 per
contract.
Options 7, Section 1
The Exchange's proposal to amend Options 7, Section 1 to replace
the term ``Penny Pilot Program'' with ``Penny Interval Program'' is
reasonable, equitable and not unfairly discriminatory. This amendment
seeks to conform the name of the program which governs the listing of
certain standardized options.
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 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
[[Page 44137]]
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.
Moreover, as noted above, price competition between exchanges is
fierce, with liquidity and market share moving freely between exchanges
in reaction to fee and rebate changes. In sum, if the changes proposed
herein are unattractive to market participants, it is likely that the
Exchange will lose market share as a result. Accordingly, the Exchange
does not believe that the proposed changes will impair the ability of
Members or competing order execution venues to maintain their
competitive standing in the financial markets.
Options 7, Section 5E
In terms of intra-market competition, the Exchange does not believe
that its proposal will place any category of Exchange market
participant at a competitive disadvantage. The proposed change is
designed to incentivize market participants to direct PIM order flow to
the Exchange. Specifically, the Exchange's proposal to lower the
current regular and complex Fees for PIM Contra-Side Orders, for both
Penny Symbols and Non-Penny Symbols, from $0.05 per contract to $0.02
per contract for all market participants, and eliminate note 1 within
Options 7, Section 5E does not impose an undue burden on competition.
All market participants would be uniformly assessed a regular and
complex Fee for PIM Contra-Side Orders, for both Penny Symbols and Non-
Penny Symbols, of $0.02 per contract.
Options 7, Section 1
The Exchange's proposal to amend Options 7, Section 1 to replace
the term ``Penny Pilot Program'' with ``Penny Interval Program'' does
not impose an undue burden on competition. This amendment seeks to
conform the name of the program which governs the listing of certain
standardized options.
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 \15\ and Rule 19b-4(f)(2) \16\ 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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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 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-2020-14 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-2020-14. 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-2020-14 and should be submitted on
or before August 11, 2020.
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. 2020-15690 Filed 7-20-20; 8:45 am]
BILLING CODE 8011-01-P