[Federal Register Volume 87, Number 139 (Thursday, July 21, 2022)]
[Notices]
[Pages 43576-43578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15546]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95300; File No. SR-NASDAQ-2022-040]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Certain NOM Market Maker Non-Penny Discounts in Options 7, 
Section 2

July 15, 2022.
    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, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
Options 7, Section 2(1), which governs pricing for Nasdaq participants 
using The Nasdaq Options Market (``NOM''), Nasdaq's facility for 
executing and routing standardized equity and index options.
    The text of the proposed rule change is detailed below: proposed 
new language is underlined and proposed deletions are in brackets.[sic]
* * * * *
    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 places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of

[[Page 43577]]

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
    Pursuant to Options 7, Section 2(1), the Exchange currently 
assesses NOM Market Makers \3\ a $0.35 per contract Fee to Add 
Liquidity in Non-Penny Symbols. This fee applies unless Participants 
meet the volume thresholds set forth in note 5. Note 5 currently 
stipulates that Participants that add NOM Market Maker liquidity in 
Non-Penny Symbols of 10,000 to 14,999 average daily volume (``ADV'') 
contracts per day in a month will be assessed a $0.00 per contract Non-
Penny Options Fee for Adding Liquidity in that month. Participants that 
add NOM Market Maker liquidity in Non-Penny Symbols of 15,000 or more 
ADV contracts per day in a month will receive the Non-Penny Rebate to 
Add Liquidity (currently $0.30 per contract) for that month instead of 
paying the Non-Penny Fee for Adding Liquidity. Accordingly, qualifying 
Participants are offered an opportunity to reduce the $0.35 fee or earn 
a rebate if they meet the volume-based requirements under note 5.
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    \3\ 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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    The Exchange now proposes to replace the current ADV thresholds in 
note 5 with new thresholds that will be based on a percentage of total 
industry volume. Specifically, Participants will be eligible for free 
executions instead of paying the $0.35 per contract fee if they add NOM 
Market Maker liquidity in Non-Penny Symbols of 0.05% to 0.07% of total 
industry customer equity and ETF option ADV contracts (``TCV'') per day 
in a month (currently 10,000 to 14,999 ADV contracts per day in a 
month). Further, Participants will receive the $0.30 per contract 
rebate instead of paying the $0.35 per contract fee if they add NOM 
Market Maker liquidity in Non-Penny Symbols of above 0.07% TCV 
(currently 15,000 or more ADV contracts) per day in a month. As 
proposed, note 5 will state:

The NOM Market Maker Fee for Adding Liquidity in Non-Penny Symbols 
will apply unless Participants meet the volume thresholds set forth 
in this note. Participants that add NOM Market Maker liquidity in 
Non-Penny Symbols of 0.05% to 0.07% of total industry customer 
equity and ETF option ADV contracts per day in a month will be 
assessed a $0.00 per contract Non-Penny Options Fee for Adding 
Liquidity in that month. Participants that add NOM Market Maker 
liquidity in Non-Penny Symbols of above 0.07% of total industry 
customer equity and ETF option ADV contracts per day in a month will 
receive the Non-Penny Rebate to Add Liquidity for that month instead 
of paying the Non-Penny Fee for Adding Liquidity.

    Only the volume requirements for the note 5 incentives will be 
amended with this proposal, not the related fees or rebates. The 
Exchange notes that the new volume requirements are more stringent than 
the current ADV volume requirements.\4\ The Exchange is proposing to 
effectively raise the volume requirements to align with increasing 
Participant activity on the Exchange over time. While the proposed 
tiered requirements are more stringent, the Exchange believes that the 
note 5 incentives will continue to encourage NOM Market Makers to add 
Non-Penny Symbol liquidity on NOM to the benefit of all market 
participants.
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    \4\ For example, 0.05% TCV is currently representative of 
approximately 16,150 contracts ADV and 0.07% TCV is currently 
representative of approximately 22,610 contracts ADV.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to 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'. . . .'' \7\
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    \7\ 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.'' \8\
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    \8\ 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.
    The Exchange believes that its proposal to replace the current ADV 
thresholds in note 5 with the new TCV% thresholds described above is 
reasonable for the reasons that follow. The Exchange is proposing to 
base the note 5 incentives on a percentage of industry volume in 
recognition of the fact that the volume executed by a member may rise 
or fall with industry volume. A percentage of industry volume 
calculation allows the Exchange's tiers to be calibrated to current 
market volumes rather than requiring the same amount of volume 
regardless of market conditions. While the amount of volume required by 
the proposed tiers in note 5 may change in any given month due to 
increases or decreases in industry volume, the Exchange believes that 
the proposed tier requirements are set at appropriate levels. While the 
proposed TCV%

[[Page 43578]]

requirements are more stringent than the current ADV requirements, the 
Exchange is proposing to effectively raise the volume thresholds in 
note 5 to align with increased Participant activity over time.\9\ 
Furthermore, the Exchange believes that the more stringent volume 
requirements will encourage NOM Market Makers to add a greater amount 
of liquidity on NOM in order to receive the note 5 incentives. The 
Exchange believes that encouraging additional NOM Market Maker 
liquidity in this manner would increase overall liquidity and trading 
opportunities on NOM to the benefit of all market participants.
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    \9\ See supra note 4.
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    The Exchange believes that its proposal is equitable and not 
unfairly discriminatory. As described above, the proposed volume 
requirements will primarily impact NOM Market Makers that are eligible 
to receive the note 5 incentives for Non-Penny Symbols. The Exchange, 
however, anticipates minimal impact with the proposed changes as no NOM 
Market Maker would fall in or out of the new TCV% tiers as a result of 
this change. The Exchange further believes that the proposed changes to 
the volume requirements in note 5 is equitable and not unfairly 
discriminatory because the Exchange will apply the proposed 
requirements uniformly to all qualifying NOM Market Makers. The 
Exchange does not believe that it is unfairly discriminatory to offer 
the note 5 incentives to only NOM Market Makers because these market 
participants add value through continuous quoting and the commitment of 
capital.\10\ Because NOM 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 note 5 
incentives to only NOM Market Makers is equitable and not unfairly 
discriminatory in light of their obligations. Finally, encouraging NOM 
Market Makers to add greater liquidity benefits all market participants 
in the quality of order interaction.
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    \10\ 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 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 market participant at a 
competitive disadvantage. As discussed above, while the Exchange's 
proposal targets certain activity on NOM (i.e., NOM Market Makers 
adding liquidity in Non-Penny Symbols), 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.\11\
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    \11\ 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-2022-040 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-2022-040. 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-2022-040 and should be submitted 
on or before August 11, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15546 Filed 7-20-22; 8:45 am]
BILLING CODE 8011-01-P


