[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36633-36637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12985]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89046; File No. SR-MRX-2020-11]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its
Pricing Schedule at Options 7
June 11, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 36634]]
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 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.
---------------------------------------------------------------------------
\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 amend its Pricing Schedule at Options 7 in
connection with the pricing for orders entered into the Exchange's
Price Improvement Mechanism (``PIM'').
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 Exchange's
Pricing Schedule at Options 7 to adopt separate fees for complex PIM
orders that will be identical to the current fees for regular PIM
orders. The Exchange also proposes to amend the PIM break-up rebates to
provide the rebate only for PIM orders that meet specified size
requirements. In connection with the foregoing changes, the Exchange
also proposes to amend its Pricing Schedule to set forth its PIM
pricing in a separate section for better readability. Each change is
discussed in detail below.
Background
For regular 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 \3\ and $0.00 per contract for Priority
Customers.\4\ 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.\5\
---------------------------------------------------------------------------
\3\ 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.
\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\ The PIM response fees are the same as the response fees
presently charged for all other Crossing Orders. See Options 7,
Section 3, Table 2.
---------------------------------------------------------------------------
The Exchange currently pays a regular PIM break-up rebate to an
originating Priority Customer PIM order that executes with a response
(order or quote), other than the PIM contra-side order, of $0.40 per
contract in Penny Symbols and $1.00 per contract in Non-Penny Symbols.
Notwithstanding the foregoing, Members that execute an ADV of 10,000
PIM originating contracts or greater within a month will receive a
break-up rebate of $1.05 per contract in Non-Penny Symbols (in lieu of
$1.00 per contract).
As it relates to complex PIM orders, the Exchange currently charges
Non-Priority Customers a uniform $0.15 per contract fee for all complex
orders, including complex orders submitted into the Complex PIM. The
$0.15 per contract fee applies to an originating order, contra-side
order and responses entered into MRX's Complex PIM. No complex order
fees are presently assessed to Priority Customers, including Priority
Customer complex PIM orders.
PIM Fees
The Exchange now proposes to adopt separate fees for complex PIM
orders within new Section 5.E of Options 7 that will be identical to
the current fees assessed for regular PIM orders. In particular, the
Exchange proposes to charge all complex Non-Priority Customer PIM
originating orders in Penny and Non-Penny Symbols the $0.20 per
contract PIM originating fee that it currently assesses to all regular
Non-Priority Customer PIM originating orders, and, for complex Priority
Customer PIM originating orders, the $0.00 per contract PIM originating
fee it currently assesses to regular Priority Customer PIM originating
orders. Likewise, the Exchange proposes to assess all market
participants $0.05 per contract for complex PIM contra-side orders in
Penny and Non-Penny Symbols, identical to how regular PIM contra-side
orders are charged today. The Exchange further proposes to offer market
participants an opportunity to lower the proposed complex PIM contra-
side fee from $0.05 to $0.02 per contract if they execute an ADV of
10,000 PIM originating contracts or greater within a month, identical
to the reduced regular PIM contra-side fee it currently offers market
participants today.\6\ In addition, the Exchange proposes to assess
responses entered into complex PIM at the same rate as the fees
currently assessed for regular PIM responses (i.e., $0.50 per contract
in Penny Symbols and $1.10 in Non-Penny Symbols).
---------------------------------------------------------------------------
\6\ See proposed note 1 in Options 7, Section 5.E.
---------------------------------------------------------------------------
PIM Break-up Rebate
The Exchange also proposes to adopt complex PIM break-up rebates
that are similar to the regular PIM break-up rebates described above,
with two differences. First, the Exchange proposes, for complex PIM
orders only, to pay a higher break-up rebate of $0.45 per contract (in
lieu of $0.40 per contract) with respect to a Priority Customer PIM
originating order in Penny Symbols for qualifying Members that execute
an ADV of 10,000 PIM originating contracts or greater within a
month.\7\ Currently for regular PIM orders, the Exchange only provides
a higher break-up rebate with respect to a Priority Customer PIM
originating order in Non-Penny Symbols ($1.05 per contract in lieu of
$1.00 per contract), not Penny Symbols, to qualifying Members that meet
this ADV threshold.\8\ Second, the Exchange proposes to provide break-
up rebates only for Priority Customer PIM originating orders that meet
specified size requirements. Specifically, the Exchange proposes to
apply the break-up rebates only to regular PIM orders of
[[Page 36635]]
500 or fewer contracts and to complex PIM orders where the largest leg
is 500 or fewer contracts.\9\ As such, the break-up rebates currently
offered to regular Priority Customer PIM originating orders of more
than 500 contracts will be eliminated under this proposal. The Exchange
is seeking to attract smaller and medium sized Priority Customer PIM
order flow to MRX with this change.
---------------------------------------------------------------------------
\7\ See proposed note 3 in Options 7, Section 5.E.
\8\ As discussed later in this filing, the Exchange's proposal
will offer this higher Non-Penny Symbol rebate of $1.05 per contract
for both regular and complex PIM orders. See proposed note 3 in
Options 7, Section 5.E.
\9\ See proposed note 2 in Options 7, Section 5.E.
---------------------------------------------------------------------------
Otherwise, the Exchange will apply the same break-up rebates to
complex Priority Customer PIM originating orders as the current rebates
applied to regular Priority Customer PIM originating orders, provided
that such PIM orders meet the proposed size requirement of 500 or fewer
contracts. Thus, the break-up rebates will be $0.40 per contract in
Penny Symbols and $1.00 per contract in Non-Penny Symbols, applicable
to Priority Customer PIM originating orders that are 500 or fewer
contracts (for regular orders) and where the largest leg is 500 or
fewer contracts (for complex orders). Furthermore, Members that execute
an ADV of 10,000 PIM originating contracts or greater within a month
will be eligible to receive, Exchange will apply the break-up rebate of
$1.05 per contract in Non-Penny Symbols (in lieu of $1.00 per contract)
Technical Changes
For better readability, the Exchange proposes to relocate the fees
and rebates for regular PIM orders currently within Table 2 of Options
7, Section 3 into new Section 5.E, titled ``PIM Pricing for Regular and
Complex Orders,'' to group them with the proposed pricing for complex
PIM orders. In connection with the foregoing changes, the Exchange also
proposes to amend Options 7, Sections 3 and 4 to clarify that regular
and complex PIM orders are subject to separate pricing in Options 7,
Section 5.E. Lastly, the Exchange is correcting a typo in note 1 of
Options 7, Section 4 to revise ``abovereferenced'' to ``above-
referenced.''
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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78 f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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)).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\13\ 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.
PIM Fees
The Exchange believes that the proposed fee structure for complex
PIM orders (i.e., originating, contra-side, and responses) is
reasonably designed because the proposed fees will be aligned with the
fees currently in place for regular PIM orders. The proposed fee
structure is designed to promote order flow through the complex PIM,
which benefits all market participants by providing additional trading
opportunities at improved prices. While the Exchange is increasing the
complex PIM originating fees for Non-Priority Customers \14\ and the
complex PIM response fees for all market participants \15\ under this
proposal, the proposed fees will harmonize the complex PIM fees with
the regular PIM fees assessed today. While the all market participants
will be charged higher complex PIM response fees than the fees
currently assessed, the Exchange believes that the increased fees are
appropriate to offset the significant break-up rebates to Priority
Customers who submit PIM orders as proposed herein.\16\
---------------------------------------------------------------------------
\14\ The complex PIM originating fees will increase from $0.15
to $0.20 per contract for Non-Priority Customers in all symbols. As
discussed above, this fee will remain at $0.00 for Priority
Customers.
\15\ The complex PIM response fees will increase (i) in Penny
Symbols, from $0.15 to $0.50 per contract for Non-Priority Customers
and from $0.00 to $0.50 per contract for Priority Customers, and
(ii) in Non-Penny Symbols, from $0.15 to $1.10 per contract for Non-
Priority Customers and from $0.00 to $1.10 per contract for Priority
Customers.
\16\ As discussed above, the Exchange proposes to offer break-up
rebates to Priority Customer PIM originating orders of 500 or fewer
contracts (regular PIM orders) or where the largest leg is 500 or
fewer contracts (complex PIM orders), which execute with any
response other than the PIM contra-side order. This rebate will be
(i) $0.40 per contract in Penny Symbols (or, for complex PIM orders
only, $0.45 for Members that execute an ADV of 10,000 PIM
originating contracts or greater within a month for complex PIM
orders only), and (ii) $1.00 per contract in Non-Penny Symbols (or,
for both regular and complex PIM orders, $1.05 for Members that
execute an ADV of 10,000 PIM originating contracts or greater within
a month).
---------------------------------------------------------------------------
As proposed, the Exchange will also charge complex PIM contra-side
orders at the same rate as regular PIM contra-side order today. The
proposed changes will decrease the complex PIM contra-side fee for
certain market participants while increasing the fee for others. In
particular, the Exchange believes that its proposal to assess Non-
Priority Customers a decreased complex PIM contra-side fee \17\ is
reasonable because the Exchange is seeking to encourage these market
participants to submit a greater amount of order flow to the MRX PIM
auction. The Exchange believes it is
[[Page 36636]]
reasonable to assess Priority Customers an increased complex PIM
contra-side fee \18\ because the Exchange will also offer Priority
Customers an opportunity to receive significant break-up rebates for
any originating Priority Customer PIM order that meets the requirements
described herein. In addition, Priority Customers will continue to
receive free executions on their complex PIM originating orders as is
the case today. Furthermore, all market participants will have the
opportunity to reduce their $0.05 contra-side PIM fees to $0.02 per
contract if they execute an ADV of 10,000 PIM originating contracts or
greater within a month, thereby incentivizing market participants to
send additional PIM order flow to MRX. Greater liquidity in the PIM
auction provides additional opportunities for price improvement. The
Exchange further notes that the proposed fees are generally within the
range of fees assessed by another exchange that employs a similar fee
structure for its price improvement mechanisms.\19\
---------------------------------------------------------------------------
\17\ The complex PIM contra-side fee will decrease from $0.20 to
$0.05 per contract for Non-Priority Customers in all symbols.
\18\ The complex PIM contra-side fee will increase from $0.00 to
$0.05 per contract for Priority Customers in all symbols.
\19\ See MIAX Options (``MIAX'') Fee Schedule, Section 1(a)(vi)
(MIAX Complex Price Improvement Mechanism (``cPRIME'') Fees), which
provides for comparable rates for similar originating (i.e., agency)
orders, contra-side orders and responses submitted into its cPRIME
auctions. For example, MIAX assesses all non-Priority Customers a
fee of $0.30 for cPRIME agency orders and $0.04 for cPRIME contra-
side orders. MIAX also assesses all market participants a fee of
$0.50 (Penny Classes) and $0.99 (Non-Penny Classes) for cPRIME
responses. As it relates to the Non-Penny response fee, while the
Exchange will charge a higher complex PIM response fee, the proposed
fee is intended to offset the proposed break-up rebates as discussed
below.
---------------------------------------------------------------------------
The Exchange believes that the proposed fees for complex PIM orders
(i.e., originating, contra-side, and responses) are equitable and not
unfairly discriminatory as the fees will be more standardized across
regular and complex PIM orders, and across market participant types,
with the exception that Priority Customers will continue to not be
charged a fee for PIM originating orders. The Exchange believes it is
equitable and not unfairly discriminatory to not charge Priority
Customers a complex PIM originating fee as the Exchange has
historically offered lower pricing or other incentives to Priority
Customer orders in order to incentivize such order flow to the
Exchange. Priority Customer order flow enhances liquidity on the
Exchange for the benefit of all market participants by providing more
trading opportunities, which in turn attracts Market Makers and other
market participants that may trade with this order flow.
PIM Break-up Rebate
The Exchange believes that the proposed PIM break-up rebates are
reasonable because these incentives will attract additional order flow
to PIM, particularly smaller to medium sized Priority Customer PIM
orders (i.e., 500 or fewer contracts). By providing break-up rebates of
$0.40 (Penny Symbols) and $1.00 (Non-Penny Symbols) to Priority
Customer PIM originating orders that execute with any response other
than the PIM contra-side order, and by offering these rebates only to
PIM orders of 500 or fewer contracts, the proposal is designed to
encourage Members to execute this order flow in the Exchange's PIM.
Additional PIM order flow provides all market participants with
additional trading opportunities at improved prices. The Exchange notes
that other exchanges, including its affiliate Nasdaq ISE (``ISE''),
impose size requirements for certain rebates and credits.\20\
Furthermore, the Exchange believes that providing higher break-up
rebates to Members that execute a higher ADV of PIM originating orders
as described above will encourage Members to send additional PIM order
flow to MRX in order to qualify for the higher rebates. The Exchange
also believes that the proposed break-up rebates are set at reasonable
rates because they are aligned with the rebates currently provided for
regular Priority Customer PIM originating orders.
---------------------------------------------------------------------------
\20\ See ISE Pricing Schedule, Options 7, Section 4, note 1,
which sets forth a Priority Customer complex rebate that is provided
to complex orders where the largest leg of the order is under fifty
contracts and trades with quotes and orders on the regular order
book; Cboe Options (``Cboe'') Fee Schedule, Volume Incentive Program
(``VIP''), which provides that VIP credits on orders executed
electronically in Cboe's Automated Improvement Mechanism (``AIM'')
will be capped at 1,000 contracts per order for simple executions
and 1,000 contracts per leg for complex executions; and MIAX Fee
Schedule, Section 1(a)(iii) (Priority Customer Rebate Program),
which provides that the per contract credit for cPRIME Agency Orders
is assessable to the first 1,000 contracts per leg for each cPRIME
Agency Order.
---------------------------------------------------------------------------
The Exchange believes that the proposed break-up rebates are
equitable and not unfairly discriminatory because the proposed rebates
will apply equally to all Priority Customer PIM originating orders that
execute against PIM responses. While Priority Customers will receive
the break-up rebate, as opposed to other market participants, the
Exchange believes that this application of the rebate is equitable and
not unfairly discriminatory because Priority Customer order flow
enhances liquidity on the Exchange. This, in turn, provides more
trading opportunities and attracts other market participants, thus
facilitating tighter spreads, increased order flow and trading
opportunities to the benefit of all market participants. Moreover, as
stated above, the Exchange has historically provided lower pricing or
other incentives to Priority Customers in order to attract such order
flow.
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 proposal will place any category of Exchange market
participant at a competitive disadvantage. The proposed changes to the
Exchange's PIM pricing program are all designed to incentivize market
participants to direct PIM order flow to the Exchange. While some
aspects of the proposal apply directly to Priority Customers (through
the free executions of PIM originating orders and application of the
break-up rebates), the Exchange believes that the proposed changes
taken together will fortify and encourage additional PIM order flow to
MRX. As noted above, all market participants will benefit from any
increase in market activity that the proposal effectuates.
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.
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
[[Page 36637]]
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,\21\ and Rule 19b-4(f)(2) \22\ 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.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(3)(A)(ii).
\22\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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-2020-11 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-2020-11. 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-2020-11 and should be submitted on
or before July 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12985 Filed 6-16-20; 8:45 am]
BILLING CODE 8011-01-P