[Federal Register Volume 87, Number 200 (Tuesday, October 18, 2022)]
[Notices]
[Pages 63131-63140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22558]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96047; File No. SR-MRX-2022-19)


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend MRX's 
Pricing Schedule at Options 7, Section 5 Related to Membership Fees

October 12, 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 October 5, 2022, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 63132]]

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

    The Exchange proposes to amend MRX's Pricing Schedule at Options 7, 
section 5 related to Membership 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 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
    MRX proposes to amend its Pricing Schedule at Options 7, section 5, 
Other Options Fees and Rebates, to assess membership fees, which were 
not assessed until this year. Prior to this year, MRX did not assess 
its Members any membership fees. MRX launched its options market in 
2016 and Members did not pay any membership fees until 2022.\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
May 2, 2022 (SR-MRX-2022-04) instituting fees for membership, ports 
and market data. On June 29, 2022, the Exchange withdrew that 
filing, and submitted separate filings for membership, ports and 
market data. SR-MRX-2022-07 replaced the membership fees set forth 
in SR-MRX-2022-04. Thereafter, SR-MRX-2022-13 replaced the 
membership fees set forth in SR-MRX-2022-07. The instant filing 
replaces SR-MRX-2022-13 which was withdrawn on October 5, 2022.
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    The proposed changes are designed to update fees for MRX's services 
to reflect their current value--rather than their value when it was a 
new exchange six years ago--based on MRX's ability to deliver value to 
its customers through technology, liquidity and functionality. Newly-
opened exchanges often charge no fees for certain services such as 
membership, in order to attract order flow to an exchange, and later 
amend their fees to reflect the true value of those services.\4\ 
Allowing newly-opened exchanges time to build and sustain market share 
before charging non-transactional fees encourages market entry and 
promotes competition. The proposed changes to membership fees within 
Options 7, section 5; Other Options Fees and Rebates, are described 
below.
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    \4\ See also Securities Exchange Act Release No. 93927 (January 
7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) 
(introduction of membership fees by MEMX).
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    This proposal reflects MRX's assessment that it has gained 
sufficient market share to compete effectively against the other 15 
options exchanges without waiving fees for membership. These types of 
fees are assessed by options exchanges that compete with MRX in the 
sale of exchange services--indeed, as of the date of the initial filing 
of these membership fees, MRX was the only options exchange (out of the 
16 current options exchanges) not assessing membership fees today. New 
exchanges commonly waive membership fees to attract market 
participants, facilitating their entry into the market and, once there 
is sufficient depth and breadth of liquidity, ``graduate'' to compete 
against established exchanges and charge fees that reflect the value of 
their services.\5\ If MRX is incorrect in this assessment, that error 
will be reflected in MRX's ability to compete with other options 
exchanges.\6\
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    \5\ For example, MIAX Emerald commenced operations as a national 
securities exchange registered on March 1, 2019. See Securities 
Exchange Act Release No. 84891 (December 20, 2018), 83 FR 67421 
(December 28, 2018) (File No. 10-233) (order approving application 
of MIAX Emerald, LLC for registration as a national securities 
exchange). MIAX Emerald filed to adopt its transaction fees and 
certain of its non-transaction fees in its filing SR-EMERALD-2019-
15. See Securities Exchange Act Release No. 85393 (March 21, 2019), 
84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Establish 
the MIAX Emerald Fee Schedule). MIAX Emerald waived its one-time 
application fee and monthly Trading Permit Fees assessable to EEMs 
and Market Makers among other fees within SR-EMERALD-2019-15.
    \6\ Nasdaq announced that, beginning in 2022, it plans to 
migrate its North American markets to Amazon Web Services in a 
phased approach, starting with MRX. The MRX migration will take 
place in November 2022. The proposed fee changes are entirely 
unrelated to this effort.
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Access Fees

    As noted above, MRX Members were not assessed fees for membership 
until this year. Under the proposed fee change, MRX Members will pay a 
monthly Access Fee, which entitles MRX Members to trade on the Exchange 
based on their membership type. Specifically, MRX proposes to assess 
Electronic Access Members \7\ an Access Fee of $200 per month, per 
membership. The Exchange proposes to assess Market Makers \8\ Access 
Fees depending on whether they are a Primary Market Maker (``PMM'') or 
a Competitive Market Maker (``CMM''). A PMM would be assessed an Access 
Fee of $200 per month, per membership. A CMM would be assessed an 
Access Fee of $100 per month, per membership.\9\ The proposed fees are 
identical to access fees on Nasdaq GEMX, LLC (``GEMX'').\10\ Of note, a 
Member would pay each applicable fee (an Electronic Access Fee or a 
Market Maker Access Fee). For example, a Competitive Market Maker who 
does not enter orders would only pay the $100 per month, per membership 
Access Fee.
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    \7\ The term ``Electronic Access Member'' or ``EAM'' means a 
Member that is approved to exercise trading privileges associated 
with EAM Rights. See General 1, Section 1(a)(6).
    \8\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21). The term ``Competitive Market Maker'' means a 
Member that is approved to exercise trading privileges associated 
with CMM Rights. See Options 1, Section 1(a)(12). The term ``Primary 
Market Maker'' means a Member that is approved to exercise trading 
privileges associated with PMM Rights. See Options 1, Section 
1(a)(35).
    \9\ In the case where a single Member has multiple MRX 
memberships, the monthly access fee is charged for each membership. 
For example, if a single member firm is both an EAM and a CMM, or 
owns multiple CMM memberships, the firm is subject to the access fee 
for each of those memberships.
    \10\ See GEMX Options 7, Section 6.A. (Access Fees).
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CMM Trading Rights Fee

    In order to receive market making appointments to quote in any 
options class, CMMs will also be assessed a CMM Trading Right Fee 
identical to GEMX.\11\ CMM trading rights entitle a CMM to enter quotes 
in options symbols that comprise a certain percentage of industry 
volume. On a quarterly basis, the Exchange assigns points to each 
options class equal to its percentage of overall industry volume (not 
including exclusively traded index options), rounded down to the 
nearest one hundredth of a percentage with a maximum of 15 points 
(``CMM Trading Right''). A new listing is assigned a point value of 
zero for the remainder of the quarter in which it was listed. CMMs may 
seek appointments to options classes that total 20 points for the first 
CMM Trading Right it holds, and 10 points for the second and each 
subsequent CMM Trading Right it holds.\12\ In order to encourage CMMs 
to

[[Page 63133]]

quote on the Exchange, MRX launched CMM Trading Rights without any 
fees, allowing CMMs to freely quote in all options classes.
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    \11\ See GEMX Options 7, Section 6.B. (CMM Trading Rights Fees).
    \12\ A CMM may request changes to its appointments at any time 
upon advance notification to the Exchange in a form and manner 
prescribed by the Exchange. See MRX Options 2, Section 3(c)(3).
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    The Exchange is now proposing to adopt a monthly CMM Trading Right 
Fee. Under the proposed fee structure, CMMs will be assessed a CMM 
Trading Right Fee of $850 per month for the first trading right, which 
will entitle the CMM to quote in 20 percent of industry volume. Each 
additional CMM Trading Right will cost $500 per month, and will entitle 
the CMM to quote an additional 10 percent of volume. Similar to GEMX's 
trading rights fee,\13\ a new CMM would pay $850 for the first CMM 
Trading Right and all CMMs would thereafter pay $500 for each 
additional CMM Trading Right. For example, if a CMM desired to quote in 
all options series listed on MRX, the CMM would need to obtain 9 CMM 
Trading Rights at a cost of $4,850. The Exchange is proposing this 
pricing model to encourage CMMs to obtain a greater number of CMM 
Trading Rights in order that they may add more liquidity on MRX. With 
this model, each subsequent CMM Trading Right of $500 per month costs 
less than the initial CMM Trading Right of $850 per month. As noted, 
the maximum expense would be $4,850 for a CMM to obtain the ability to 
quote in all option series listed on MRX. All CMMs have the opportunity 
to purchase additional CMM Trading Rights beyond the initial CMM 
Trading Right in order to quote in some or all options series on MRX. 
With this proposal, PMMs would not be assessed a Trading Rights Fee.
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    \13\ See GEMX Options 7, Section 6.B.
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    PMMs have additional obligations on MRX as compared to CMMs. PMMs 
are required to open options series in which they are assigned each day 
on MRX. Specifically, PMMs must submit a Valid Width Quote each day to 
open their assigned options series.\14\ PMMs are integral to providing 
liquidity during MRX's Opening Process.\15\ Intra-day, PMMs must 
provide two-sided quotations in a certain percentage of their assigned 
options series.\16\ In contrast, a CMM is not required to enter 
quotations in the options classes to which it is appointed; however, if 
a CMM initiates quoting in an options class, the CMM is required to 
provide two-sided quotations in a certain of their assigned options 
class, which percentage is less than that required of PMMs (60% for 
CMMs compared to 90% for PMMs).\17\ While there can be multiple CMMs in 
an options series, there is only one PMM assigned per options series. 
The Exchange desires to encourage Market Makers to compete for 
appointments as PMMs in an options series. The Exchange believes that 
PMMs serve an important role on MRX in opening an option series and 
ensuring liquidity in that option series throughout the trading day. 
This liquidity benefits the market through, for example, more robust 
quoting. Additionally, all market participants may interact with the 
liquidity.
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    \14\ See Options 3, Section 8(c)(1) and 8(c)(3).
    \15\ The Exchange notes that most options markets do not require 
their primary or lead market maker to open their assigned options 
series.
    \16\ See Options 2, Section 5(e)(2) which states, ``Primary 
Market Makers, associated with the same Member, are collectively 
required to provide two-sided quotations in 90% of the cumulative 
number of seconds, or such higher percentage as the Exchange may 
announce in advance, for which that Member's assigned options class 
is open for trading. Primary Market Makers shall be required to make 
two-sided markets pursuant to this Rule in any Quarterly Options 
Series, any Adjusted Options Series, and any option series with an 
expiration of nine months or greater for options on equities and 
ETFs or with an expiration of twelve months or greater for index 
options.''
    \17\ See Options 2, Section 5(e)(1) which states, that ``On any 
given day, a Competitive Market Maker is not required to enter 
quotations in the options classes to which it is appointed. A 
Competitive Market Maker may initiate quoting in options classes to 
which it is appointed intra-day. If a Competitive Market Maker 
initiates quoting in an options class, the Competitive Market Maker, 
associated with the same Member, is collectively required to provide 
two-sided quotations in 60% of the cumulative number of seconds, or 
such higher percentage as the Exchange may announce in advance, for 
which that Member's assigned options class is open for trading . . 
.''.
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    Finally, the Exchange is proposing only to charge the $200 access 
fee to EAMs, and no trading rights fee, as the technical, regulatory, 
and administrative services associated with an EAM's use of the 
Exchange are not as comprehensive as those associated with Market 
Makers' use.\18\ As noted above, a Member would pay each applicable fee 
(an Electronic Access Fee or a Market Maker Access Fee). A Competitive 
Market Maker or Primary Market Maker who does not enter orders would 
only pay the $100 or $200 per month, respectively, per membership 
Access Fee.
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    \18\ The Exchange notes that all MRX Members may submit orders; 
however, only Market Makers may submit quotes. The Exchange surveils 
Market Maker quoting to ensure these participants have met their 
obligations. The regulatory oversight for Market Makers is in 
addition to the regulatory oversight which is administered for all 
EAMs.
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    MRX believes that its membership fees, which have been in effect 
since May 2, 2022, are in line with or less than those of other options 
exchanges. The Exchange believes it is notable that during this time, 
there have been no comment letters submitted to the Commission arguing 
that the Exchange's new fees are unreasonable. The membership fees are 
constrained by competition. For example, since the inception of the 
membership fees on May 2, 2022, one firm cancelled nine CMM trading 
rights as well as their membership on MRX.\19\ Also, another firm 
decreased their CMM trading rights from nine to four CMM trading 
rights.
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    \19\ The Exchange notes that this Member was not active on MRX 
prior to the cancellation.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\20\ in general, and furthers the objectives of 
sections 6(b)(4) and 6(b)(5) of the Act,\21\ 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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    \20\ See 15 U.S.C. 78f(b).
    \21\ See 15 U.S.C. 78f(b)(4) and (5).
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    The proposed changes to the Pricing Schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for order flow, which 
constrains its pricing determinations. The fact that the market for 
order flow is competitive has long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated, ``[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' . . . .'' \22\
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    \22\ See NetCoalition, 615 F.3d at 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 to determine 
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

[[Page 63134]]

``has been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \23\
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    \23\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Congress directed the Commission to ``rely on `competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \24\ As a 
result, the Commission has historically relied on competitive forces to 
determine whether a fee proposal is equitable, fair, reasonable, and 
not unreasonably or unfairly discriminatory. ``If competitive forces 
are operative, the self-interest of the exchanges themselves will work 
powerfully to constrain unreasonable or unfair behavior.'' \25\ 
Accordingly, ``the existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \26\ In its 2019 guidance on fee proposals, 
Commission staff indicated that they would look at factors beyond the 
competitive environment, such as cost, only if a ``proposal lacks 
persuasive evidence that the proposed fee is constrained by significant 
competitive forces.'' \27\
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    \24\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \25\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \26\ Id.
    \27\ See U.S. Securities and Exchange Commission, ``Staff 
Guidance on SRO Rule filings Relating to Fees'' (May 21, 2019), 
available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
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History of MRX Operations

    Over the years, MRX has amended its transactional pricing to remain 
competitive and attract order flow to the Exchange.\28\
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    \28\ See e.g. Securities Exchange Act Release Nos. 77292 (March 
4, 2016), 81 FR 12770 (March 10, 2016) (SR-ISEMercury-2016-02) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Establish the Schedule of Fees); 77409 (March 21, 2016), 
81 FR 16240 (March 25, 2016) (SR-ISEMercury-2016-05) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Schedule of Fees); 81 FR 16238 (March 21, 2016), 81 FR 16238 
(March 25, 2016) (SR-ISEMercury-2016-06) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees); 77841 (May 16, 2016), 81 FR 31986 (SR-ISEMercury-
2016-11) (Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend the Schedule of Fees); 82537 (January 19, 
2018), 83 FR 3784 (January 26, 2018) (SR-MRX-2018-01) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Schedule of Fees To Introduce a New Pricing Model); 82990 (April 
4, 2018), 83 FR 15434 (April 10, 2018) (SR-MRX-2018-10) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Chapter IV of the Exchange's Schedule of Fees); 28677 (June 14, 
2018), 83 FR 28677 (June 20, 2018) (SR-MRX-2018-19) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To 
Increase Certain Route-Out Fees Set Forth in Section II.A of the 
Schedule of Fees); 84113 (September 13, 2018), 83 FR 47386 
(September 19, 2018) (SR-MRX-2018-27) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Relocate the 
Exchange's Schedule of Fees); 85143 (February 14, 2019), 84 FR 5508 
(February 21, 2019) (SR-MRX-2019-02) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend the Pricing 
Schedule at Options 7, Section 3); 85313 (March 14, 2019), 84 FR 
10357 (March 20, 2019) (SR-MRX-2019-05) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Relating to PIM 
Fees and Rebates); 86326 (July 8, 2019), 84 FR 33300 (July 12, 2019) 
(SR-MRX-2019-14) (Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Adopt Complex Order Pricing); 88022 (January 
23, 2020), 85 FR 5263 (January 29, 2020) (SR-MRX-2020-02) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
MRX Pricing Schedule); 89046 (June 11, 2020), 85 FR 36633 (June 17, 
2020) (SR-MRX-2020-11) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend Its Pricing Schedule at Options 7); 
89320 (July 15, 2020), 85 FR 44135 (July 21, 2020) (SR-MRX-2020-14) 
(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); 90503 
(November 24, 2020), 85 FR 77317 (December 1, 2020) (SR-MRX-2020-18) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend Its Pricing Schedule at Options 7 for Orders Entered 
Into the Exchange's Price Improvement Mechanism); 90434 (November 
16, 2020), 85 FR 74473 (November 20, 2020) (SR-MRX-2020-19) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To the 
Exchange's Pricing Schedule at Options 7 To Amend Taker Fees for 
Regular Orders); 90455 (November 18, 2020), 85 FR 75064 (November 
24, 2020) (SR-MRX-2020-21) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend the Pricing 
Schedule); and 91687 (April 27, 2021), 86 FR 23478 (May 3, 2021) 
(SR-MRX-2021-04) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend the Exchange's Pricing Schedule at 
Options 7). Note that ISE Mercury is an earlier name for MRX.
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    In June 2019, MRX commenced offering complex orders.\29\ With the 
addition of complex order functionality, MRX offered Members certain 
order types, an opening process, auction capabilities, and other 
trading functionality that was nearly identical to functionality 
available on ISE.\30\ By way of comparison, ISE, unlike MRX, assessed 
membership fees in 2019 \31\ while offering the same suite of 
functionality as MRX, with a limited exception.\32\
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    \29\ See Securities Exchange Act Release No. 86326 (July 8, 
2019), 84 FR 33300 (July 12, 2019) (SR-MRX-2019-14) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Adopt Complex Order Pricing).
    \30\ One distinction is that ISE offered its Members access to 
Nasdaq Precise in 2019 and since that time. MRX has never offered 
Precise. ``Nasdaq Precise'' or ``Precise'' is a front-end interface 
that allows EAMs and their Sponsored Customers to send orders to the 
Exchange and perform other related functions. Features include the 
following: (1) order and execution management: enter, modify, and 
cancel orders on the Exchange, and manage executions (e.g., parent/
child orders, inactive orders, and post-trade allocations); (2) 
market data: access to real-time market data (e.g., NBBO and 
Exchange BBO); (3) risk management: set customizable risk parameters 
(e.g., kill switch); and (4) book keeping and reporting: 
comprehensive audit trail of orders and trades (e.g., order history 
and done away trade reports). See ISE Supplementary Material .03(d) 
of Options 3, Section 7. Precise is also available on GEMX.
    \31\ In 2019, ISE assessed the following Access Fees: $500 per 
month, per membership to an Electronic Access Member, $5,000 per 
month, per membership to a Primary Market Maker and $2,500 per 
month, per membership to a Competitive Market Maker. ISE does not 
assess Trading Rights Fees to Competitive Market Makers. See 
Securities Exchange Act Release No. 82446 (January 5, 2018), 83 FR 
1446 (January 11, 2018) (SR-ISE-2017-112) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend Certain 
Non-Transaction Fees in the Exchange's Schedule of Fees). Of note, 
ISE assessed Access Fees prior to 2019 as well.
    \32\ Unlike ISE, MRX does not offer Precise. See note 30, supra.
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Membership Is Subject to Significant Substitution-Based Competitive 
Forces

    An exchange can show that a product is ``subject to significant 
substitution-based competitive forces'' by introducing evidence that 
customers can substitute the product for products offered by other 
exchanges.
    Chart 1 below shows the January 2022 market share for multiply-
listed options by exchange. Of the 16 operating options exchanges, none 
currently has more than a 13.1% market share, and MRX has the smallest 
market share at 1.8%. Customers widely distribute their transactions 
across exchanges according to their business needs and the ability of 
each exchange to meet those needs through technology, liquidity and 
functionality. Average market share for the 16 options exchanges is 
6.26 percent, with the median at 5.8, and a range between 1.8 and 13.1 
percent.

[[Page 63135]]

[GRAPHIC] [TIFF OMITTED] TN18OC22.020

    Market share is the percentage of volume on a particular exchange 
relative to the total volume across all exchanges, and indicates the 
amount of order flow directed to that exchange. High levels of market 
share enhance the value of trading and membership. MRX has the smallest 
number of Members relative to its GEMX, ISE, NOM and Phlx affiliates, 
with approximately 40 members. This demonstrates that customers can and 
will choose where to become members, need not become members of all 
exchanges, and do not need to become Members of MRX and instead may 
utilize a third party.\33\
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    \33\ Of course, that third party must itself become a Member of 
MRX, so at least some market participants must become Members of MRX 
for any trading to take place at all. Nevertheless, because some 
firms would be able to exercise the option of not becoming Members, 
excessive membership fees would cause the Exchange to lose members.
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    The Exchange established these lower (when compared to other 
options exchanges in the industry) membership fees in order to 
encourage market participants to become MRX Members and register as MRX 
Market Makers. As noted above, MRX has grown its market share since 
inception and seeks to continue to grow its membership base. The 
Exchange believes that there are many factors that may cause a market 
participant to decide to become a member of a particular exchange in 
addition to its pricing.
    As noted herein, MRX filed its membership fees on May 2, 2022 and 
has not received a comment with respect to the proposed membership fee 
changes. MRX Members may elect to cancel their membership on MRX. Since 
the inception of the membership fees on May 2, 2022, one firm cancelled 
nine CMM trading rights as well as their membership on MRX. Also, 
another firm decreased their CMM trading rights from nine to four CMM 
trading rights. Also, no MRX Member is required by rule, regulation, or 
competitive forces to be a Member on the Exchange.

Fees for Membership

    The proposed membership fees described below are in line with or 
less than those of other markets. Setting a fee above competitors is 
likely to drive away customers, so the most efficient price-setting 
strategy is to set prices at the same level as other firms. The 
Exchange's proposal to adopt membership fees is reasonable, equitable 
and not unfairly discriminatory. As a self-regulatory organization, 
MRX's membership department reviews applicants to ensure that each 
application complies with the rules specified within MRX General 3 \34\ 
as well as other requirements for membership.\35\ Applicants must meet 
the Exchange's qualification criteria prior to approval. The membership 
review includes, but is not limited to, the registration and 
qualification of associated persons, financial health, the validity of 
the required clearing relationship, and the history of disciplinary 
matters. Approved Members would be required to comply with MRX's By-
Laws and Rules and would be subject to regulation by MRX. The proposed 
membership fees are identical to membership fees on GEMX,\36\ and are 
in line with or lower than similar fees assessed on other options 
markets.\37\
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    \34\ MRX General 3, Membership and Access, incorporates by 
reference Nasdaq General 3.
    \35\ The Exchange's Membership Department must ensure, among 
other things, that an applicant is not statutorily disqualified.
    \36\ See GEMX Options 7, Section 6A (Access Fees).
    \37\ See Cboe's Fees Schedule. Cboe assesses permit fees as 
follows: Market-Maker Electronic Access Permit of $5,000 per month; 
Electronic Access Permits of $3,000 per month; and Clearing TPH 
Permit of $2,000 per month. See also Miami International Securities 
Exchange, LLC's (``MIAX'') Fee Schedule. MIAX assesses an Electronic 
Exchange Member Fee of $1,500 per month.
---------------------------------------------------------------------------

Access Fees

    MRX's flat rate Access Fee to Electronic Access Members of $200 per 
month, per membership is reasonable because the Exchange notes that the 
technical, regulatory, and administrative services associated with an 
EAM's use of the Exchange are not as comprehensive as those associated 
with Market Makers.\38\ Any Member entering orders on MRX would pay the 
same $200 per month Access Fee. MRX's flat rate Access Fee to 
Electronic Access Members of $200 per month, per membership is 
equitable and not unfairly discriminatory as all Members transacting 
orders on MRX would be subject to this same fee. The Electronic

[[Page 63136]]

Access Member Feeis identical to GEMX.\39\
---------------------------------------------------------------------------

    \38\ The Exchange notes that all MRX Members may submit orders; 
however, only Market Makers may submit quotes. The Exchange surveils 
Market Maker quoting to ensure these participants have met their 
obligations. The regulatory oversight for Market Makers is in 
addition to the regulatory oversight which is administered for all 
EAMs.
    \39\ See GEMX Options 7, Section 6.B. (CMM Trading Rights Fees).
---------------------------------------------------------------------------

    With respect to Market Makers submitting quotes on MRX, the 
Exchange's proposal to assess Primary Market Makers a slightly higher 
flat rate Access Fee of $200 per month, per membership as compared to 
Competitive Market Makers who would be assessed a flat rate Access Fee 
of $100 per month, per membership is reasonable because Primary Market 
Makers have higher regulatory obligations and require more technical, 
regulatory, and administrative services as compared to Competitive 
Market Makers. For PMMs on MRX, the fees required to access the 
Exchange are substantially lower than those of competing exchanges. For 
example, a PMM could quote on the Exchange for only $200 (i.e., the 
access fee), compared with the minimum $6,000 per month trading permit 
fee charged by NYSE Arca.
    The Exchange does not believe that it is unfairly discriminatory to 
assess different fees for EAMS, PMMs, and CMMs. While PMMs would pay 
lower membership fees as compared to CMMs, PMMs have additional 
obligations on MRX as compared to CMMs. PMMs are required to open 
options series in which they are assigned each day on MRX. 
Specifically, PMMs must submit a Valid Width Quote each day to open 
their assigned options series.\40\ PMMs are integral to providing 
liquidity during MRX's Opening Process.\41\ Intra-day, PMMs must 
provide two-sided quotations in a certain percentage of their assigned 
options series.\42\ In contrast, a CMM is not required to enter 
quotations in the options classes to which it is appointed; however, if 
a CMM initiates quoting in an options class, the CMM is required to 
provide two-sided quotations in a certain of their assigned options 
class, which percentage is less than that required of PMMs.\43\ While 
there can be multiple CMMs in an options series, there is only one PMM 
assigned per options series. The Exchange desires to encourage Members 
to compete for appointments as PMMs in an options series. The Exchange 
believes that PMMs serve an important role on MRX in opening an option 
series and ensuring liquidity in that option series throughout the 
trading day. This liquidity benefits the market through, for example, 
more robust quoting.
---------------------------------------------------------------------------

    \40\ See Options 3, Section 8(c)(1) and 8(c)(3).
    \41\ The Exchange notes that most options markets do not require 
their primary or lead market maker to open their assigned options 
series.
    \42\ See Options 2, Section 5(e)(2) which states, ``Primary 
Market Makers, associated with the same Member, are collectively 
required to provide two-sided quotations in 90% of the cumulative 
number of seconds, or such higher percentage as the Exchange may 
announce in advance, for which that Member's assigned options class 
is open for trading. Primary Market Makers shall be required to make 
two-sided markets pursuant to this Rule in any Quarterly Options 
Series, any Adjusted Options Series, and any option series with an 
expiration of nine months or greater for options on equities and 
ETFs or with an expiration of twelve months or greater for index 
options.''
    \43\ See Options 2, Section 5(e)(1) which states, that ``On any 
given day, a Competitive Market Maker is not required to enter 
quotations in the options classes to which it is appointed. A 
Competitive Market Maker may initiate quoting in options classes to 
which it is appointed intra-day. If a Competitive Market Maker 
initiates quoting in an options class, the Competitive Market Maker, 
associated with the same Member, is collectively required to provide 
two-sided quotations in 60% of the cumulative number of seconds, or 
such higher percentage as the Exchange may announce in advance, for 
which that Member's assigned options class is open for trading . . 
.''.
---------------------------------------------------------------------------

    Further, with respect to the higher fees for Market Makers 
generally, MRX notes that Market Makers: (1) consume the most bandwidth 
and resources of the network; (2) transact a majority of the volume on 
the Exchange; and (3) require the high touch network support services 
provided by the Exchange and its staff. Other non-Market Maker market 
participants take up significantly less Exchange resources as discussed 
further below. Further, the Exchange notes that Market Makers account 
for greater than 99% of message traffic over the network, while other 
non-Market Maker market participants account for less than 1% of 
message traffic over the network. Most Members do not have a business 
need for the high performance network solutions generally required by 
Market Makers. The Exchange's high performance network solutions and 
supporting infrastructure (including employee support), provides 
unparalleled system throughput and the capacity to handle approximately 
3 million quote messages per second. On an average day, MRX handles 
over 6.10 billion total messages. Of those 6.10 billion daily messages, 
Market Makers generate 6.08 billion of those messages, while other non-
Market Maker market participants generate approximately 20 million 
messages. Additionally, in order to achieve consistent, premium network 
performance, MRX must build out and maintain a network that has the 
capacity to handle the message rate requirements beyond those 6.08 
billion daily messages. These billions of messages per day consume the 
Exchange's resources and significantly contribute to the overall 
expense for storage and network transport capabilities. Given this 
difference in network utilization rate, the Exchange believes that it 
is reasonable, equitable, and not unfairly discriminatory that Market 
Makers are assessed different Access Fees as compared to EAMs.
    MRX notes that while Market Makers continue to account for a vast 
majority of resources placed on MRX and its System (as discussed 
herein), Market Makers continue to be valuable market participants on 
the exchanges as the options market is a quote driven industry. MRX 
recognizes the value that Market Makers bring to the Exchange. For 
certain transactions, MRX also assesses a lower fee for Market Makers 
compared to other non-Priority Customer market participants to attract 
liquidity to the Exchange.\44\ Finally, the Exchange notes that PMMs 
are entitled to certain enhanced allocations as a result of providing 
liquidity on MRX.\45\ The proposed membership fees are meant to strike 
a balance between resources consumed by Market Makers on MRX and 
continuing to incentivize Market Makers to access and make a market on 
MRX.
---------------------------------------------------------------------------

    \44\ See MRX's Pricing Schedule at Options 7.
    \45\ See Options 3, Section 10.
---------------------------------------------------------------------------

    Additionally, the Exchange believes that the proposed change will 
better align MRX's membership fees with rates charged by competing 
options exchanges. Further, the Exchange believes that the proposal is 
reasonably designed to continue to compete with other options exchanges 
by incentivizing market participants to register as Market Makers on 
MRX in a manner than enables MRX to improve its overall competitiveness 
and strengthen market quality for all market participants.

CMM Trading Right Fee

    The Exchange believes that it is reasonable to assess CMMs a CMM 
Trading Right Fee because these Market Makers are not required to enter 
quotations in the options classes to which it is appointed unless the 
CMM initiates quoting in an options class.\46\ With respect to the CMM 
Trading Rights Fee, the proposed fees compare favorably with those of 
other options exchanges. For example, a market maker on MIAX is 
assessed a $3,000 one-time fee and then a tiered monthly fee from 
$7,000 for up to 10 classes to $22,000 for over 100 classes.\47\ By 
comparison,

[[Page 63137]]

under the proposed fee structure, a CMM can be granted access on the 
Exchange for as little as $950 per month (i.e., a $100 access fee and 
an $850 trading right), and could quote in all options classes on the 
Exchange by paying the access fee and obtaining nine CMM trading rights 
for a total of $4,950 per month. The Exchange notes that its tiered 
model for CMM trading rights is consistent with the pricing practices 
of other exchanges, such as NYSE Arca, which charges $6,000 per month 
for the first market maker trading permit, down to $1,000 per month for 
the fifth and additional trading permits, with various tiers in-
between. Like other options exchanges, the Exchange is proposing a 
tiered pricing model because it may encourage CMM firms to purchase 
additional trading rights and quote more options series because 
subsequent CMM Trading Rights are priced lower than the initial CMM 
Trading Right.
---------------------------------------------------------------------------

    \46\ See Options 2, Section 5(e)(2).
    \47\ See Miami International Securities Exchange, LLC Fee 
Schedule at 20 and 21: https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_03012022.pdf.
---------------------------------------------------------------------------

    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess only CMMs a CMM Trading Right Fee. While there 
can be multiple CMMs in an options series, there is only one PMM 
assigned per options series. Unlike PMMs who must open each option 
series to which they are assigned,\48\ CMMs have no opening 
obligations. Intra-day, unlike PMMs, a CMM is not required to enter 
quotations in the options classes to which it is appointed; however, if 
a CMM initiates quoting in an options class, the CMM is required to 
provide two-sided quotations in a certain of their assigned options 
class, which percentage is less than that required of PMMs.\49\
---------------------------------------------------------------------------

    \48\ See Options 3, Section 8(c)(1) and 8(c)(3).
    \49\ See Options 2, Section 5(e)(1) which states, that ``On any 
given day, a Competitive Market Maker is not required to enter 
quotations in the options classes to which it is appointed. A 
Competitive Market Maker may initiate quoting in options classes to 
which it is appointed intra-day. If a Competitive Market Maker 
initiates quoting in an options class, the Competitive Market Maker, 
associated with the same Member, is collectively required to provide 
two-sided quotations in 60% of the cumulative number of seconds, or 
such higher percentage as the Exchange may announce in advance, for 
which that Member's assigned options class is open for trading . . . 
''.
---------------------------------------------------------------------------

    Similar to recent proposal by BOX Exchange LLC (``BOX''),\50\ the 
Exchange notes that there is no regulatory requirement that market 
makers connect and access any one options exchange. Moreover, a Market 
Maker membership is not a requirement to participate on the Exchange 
and participation on an exchange is completely voluntary. BOX noted in 
its rule change that it reviewed membership details at three options 
exchanges and found that there are 62 market making firms across these 
three exchanges.\51\ Further, BOX found that 42 of the 62 market making 
firms access only one of the three exchanges.\52\ Additionally, BOX 
identified numerous market makers that are members of other options 
exchanges, but not BOX.\53\ Not only is there not an actual regulatory 
requirement to connect to every options exchange, the Exchange believes 
there is also no ``de facto'' or practical requirement as well, as 
further evidenced by the market maker membership analysis by BOX of 
three options exchanges discussed above. Indeed, Market Makers choose 
if and how to access a particular exchange and because it is a choice, 
MRX must set reasonable pricing, otherwise prospective market makers 
would not connect and existing Market Makers would disconnect from the 
Exchange.
---------------------------------------------------------------------------

    \50\ See Securities and Exchange Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the 
Fee Schedule on the BOX Options Market LLC Facility To Adopt 
Electronic Market Maker Trading Permit Fees). BOX amended its fees 
on January 3, 2022 to adopt an electronic market maker trading 
permit fee.
    \51\ Id.
    \52\ Id.
    \53\ Id. For example, BOX identified 47 market makers that are 
members of Cboe Exchange Inc. (an exchange that only lists options), 
but not the Exchange (which also lists only options).
---------------------------------------------------------------------------

    As noted above, one MRX Member cancelled their membership on MRX as 
well as nine CMM Trading Rights.\54\ Also, another MRX Member decreased 
their CMM Trading Rights from nine to four CMM Trading Rights. The 
Exchange believes the Commission has a sufficient basis to determine 
that MRX was subject to significant competitive forces in setting the 
terms of its proposed fees. Moreover, the Commission has found that, if 
an exchange meets the burden of demonstrating it was subject to 
significant competitive forces in setting its fees, the Commission 
``will find that its fee rule is consistent with the Act unless `there 
is a substantial countervailing basis to find that the terms' of the 
rule violate the Act or the rules thereunder.'' \55\ The Exchange is 
not aware of, nor has the Commission articulated, a substantial 
countervailing basis for finding the proposal violates the Act or the 
rules thereunder.
---------------------------------------------------------------------------

    \54\ The Exchange notes that this Member was not active on MRX 
prior to the cancellation.
    \55\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74781 (December 9, 2008) (``2008 ArcaBook 
Approval Order'') (approving proposed rule change to establish fees 
for a depth-of-book market data product).
---------------------------------------------------------------------------

    Membership fees were charged by all options exchanges except MRX 
until May 2, 2022. In 2022, similar to MRX, MEMX LLC (``MEMX'') 
commenced assessing a monthly membership fee.\56\ MEMX reasoned in that 
rule change that there is value in becoming a member of the 
exchange.\57\ MEMX stated that it believed that its proposed membership 
fee ``is not unfairly discriminatory because no broker-dealer is 
required to become a member of the Exchange.'' \58\ Moreover, ``neither 
the trade-through requirements under Regulation NMS nor broker-dealers' 
best execution obligations require a broker-dealer to become a member 
of every exchange.'' \59\ In this respect, MEMX is correct; a monthly 
membership fee is reasonable, equitably allocated and not unfairly 
discriminatory. Market participants may choose to become a member of 
one or more options exchanges based on the market participant's 
business model. A very small number of market participants choose to 
become a member of all sixteen options exchanges. It is not a 
requirement for market participants to become members of all options 
exchanges, in fact, certain market participants conduct an options 
business as a member of only one options market.
---------------------------------------------------------------------------

    \56\ See Securities Exchange Act Release No. 93927 (January 7, 
2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19). The Monthly 
Membership Fee is assessed to each active Member at the close of 
business on the first day of each month.
    \57\ Id.
    \58\ Id.
    \59\ Id.
---------------------------------------------------------------------------

    MRX makes the same arguments herein as were proposed by MEMX in 
similarly adopting membership fees. The Exchange notes that MRX's 
ability to assess membership fees similar to MEMX and all other options 
markets permits it to compete with other options markets on an equal 
playing field. MRX is the only options market that does not have 
membership fees. Most firms that actively trade on options markets are 
not currently Members of MRX. Using options markets that Nasdaq 
operates as points of comparison, less than a third of the firms that 
are members of at least one of the options markets that Nasdaq operates 
are also Members of MRX (approximately 29%). The Exchange notes that no 
firm is a Member of MRX only. Few, if any, firms have become Members at 
MRX, notwithstanding the fact that MRX membership is currently free, 
because MRX currently has less liquidity than other options markets. As 
explained above, MRX has the smallest market share of the 16 options 
exchanges, representing only approximately 1.8% of the market, and, for 
certain market participants, the current levels of liquidity may be 
insufficient to justify the costs

[[Page 63138]]

associated with becoming a Member and connecting to the Exchange, 
notwithstanding the fact that membership is free.
    The decision to become a member of an exchange, particularly for 
registered market makers, is complex, and not solely based on the non-
transactional costs assessed by an exchange. Becoming a member of an 
exchange does not ``lock'' a potential member into a market or diminish 
the overall competition for exchange services. The decision to become a 
member of an exchange is made at the beginning of the relationship, and 
is no less subject to competition than trading fees.
    In lieu of becoming a member at each options exchange, a market 
participant may join one exchange and elect to have their orders routed 
in the event that a better price is available on an away market. 
Nothing in the Order Protection Rule requires a firm to become a Member 
at MRX.\60\ If MRX is not at the NBBO, MRX will route an order to any 
away market that is at the NBBO to prevent a trade-through and also 
ensure that the order was executed at a superior price.\61\
---------------------------------------------------------------------------

    \60\ See Options Order Protection and Locked/Crossed Market Plan 
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \61\ MRX Members may elect to not route their orders by marking 
an order as ``do-not-route.'' In this case, the order would not be 
routed. See Options 3, Section 7(m).
---------------------------------------------------------------------------

    In lieu of joining an exchange, a third-party may be utilized to 
execute an order on an exchange. For example, a third-party broker-
dealer Member of MRX may be utilized by a retail investor to submit 
orders into an Exchange. An institutional investor may utilize a 
broker-dealer, a service bureau,\62\ or request sponsored access \63\ 
through a member of an exchange in order to submit a trade directly to 
an options exchange.\64\ A market participant may either pay the costs 
associated with becoming a member of an exchange or, in the 
alternative, a market participant may elect to pay commissions to a 
broker-dealer, pay fees to a service bureau to submit trades, or pay a 
member to sponsor the market participant in order to submit trades 
directly to an exchange. Market participants may elect any of the above 
models and weigh the varying costs when determining how to submit 
trades to an exchange. Depending on the number of orders to be 
submitted, technology, ability to control submission of orders, and 
projected revenues, a market participant may determine one model is 
more cost efficient as compared to the alternatives.
---------------------------------------------------------------------------

    \62\ Service bureaus provide access to market participants to 
submit and execute orders on an exchange. On MRX, a Service Bureau 
may be a Member. Some MRX Members utilize a Service Bureau for 
connectivity and that Service Bureau may not be a Member. Some 
market participants utilize a Service Bureau who is a Member to 
submit orders. As noted herein only MRX Members may submit orders or 
quotes through ports.
    \63\ Sponsored Access is an arrangement whereby a member permits 
its customers to enter orders into an exchange's system that bypass 
the member's trading system and are routed directly to the Exchange, 
including routing through a service bureau or other third-party 
technology provider.
    \64\ This may include utilizing a Floor Broker and submitting 
the trade to one of the five options trading floors.
---------------------------------------------------------------------------

    After 6 years, MRX proposes to commence assessing membership fees, 
just as all other options exchanges.\65\ The introduction of these fees 
will not impede a Member's access to MRX, but rather will allow MRX to 
continue to compete and grow its marketplace so that it may continue to 
offer a robust trading architecture, a quality opening process, an 
array of simple and complex order types and auctions, and competitive 
transaction pricing. If MRX is incorrect in its assessment of the value 
of its services, that assessment will be reflected in MRX's ability to 
compete with other options exchanges.
---------------------------------------------------------------------------

    \65\ Today, MRX is the only options exchange that does not 
assess membership fees.
---------------------------------------------------------------------------

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.
    The Exchange believes its proposal remains competitive with other 
options markets, and will offer market participants with another choice 
of venue to transact options. 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. 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.
    The Exchange notes that other options markets have adopted 
membership fees. MEMX recently reasoned that it should be permitted to 
adopt membership fees because MEMX's proposed membership fees would be 
lower than the cost of membership on other exchanges, and therefore,

. . . may stimulate intramarket competition by attracting additional 
firms to become Members on the Exchange or at least should not deter 
interested participants from joining the Exchange. In addition, 
membership fees are subject to competition from other exchanges. 
Accordingly, if the changes proposed herein are unattractive to 
market participants, it is likely the Exchange will see a decline in 
membership as a result. The proposed fee change will not impact 
intermarket competition because it will apply to all Members 
equally. The Exchange operates in a highly competitive market in 
which market participants can determine whether or not to join the 
Exchange based on the value received compared to the cost of joining 
and maintaining membership on the Exchange.'' \66\
---------------------------------------------------------------------------

    \66\ See Securities Exchange Act Release No. 93927 (January 7, 
2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19).

    The Exchange also notes that Cboe Exchange, Inc. (``Cboe'') amended 
access fees \67\ in a fee change that was filed subsequent to the D.C. 
Circuit decision in Susquehanna Int'l Grp., LLC v. SEC, 866 F.3d 442 
(D.C. Cir. 2017), meaning that such fee filings were subject to the 
same (and current) standard for SEC review and approval as the instant 
filing. The Commission permitted Cboe to amend their trading permit 
fees \68\ based on competitive arguments. Cboe stated in its proposal 
that,
---------------------------------------------------------------------------

    \67\ See Securities Exchange Act Release No. 90333 (November 4, 
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105).
    \68\ Pre-migration, the Exchange issued the following three 
types of Trading Permits: (1) Market-Maker Trading Permits, which 
were assessed a monthly fee of $5,000 per permit; (2) Floor Broker 
Trading Permits, which were assessed a monthly fee of $9,000 per 
permit; and (3) Electronic Access Permits (``EAPs''), which were 
assessed a monthly fee of $1,600 per permit. The Exchange also 
offered separate Market-Maker and Electronic Access Permits for the 
Global Trading Hours (``GTH'') session, which were assessed a 
monthly fee of $1,000 per permit and $500 per permit respectively. 
In connection with the migration, the Exchange adopted separate on-
floor and off-floor Trading Permits for Market-Makers and Floor 
Brokers, adopted a new Clearing TPH Permit, and proposes to modify 
the corresponding fees and discounts. Among other fees, Cboe amended 
its Electronic Access Permit to a monthly fee of $3,000, and amended 
its Clearing TPH Permit, for TPHs acting solely as a Clearing TPH, 
to a monthly fee of $2,000. Also, Cboe adopted progressive monthly 
fees for MM Appointment Units.

The rule structure for options exchanges are also fundamentally 
different from those of equities exchanges. In particular, options 
market participants are not forced to connect to (and purchase 
market data from) all options exchanges. For example, there are many 
order types that are available in the equities markets that are not 
utilized in the options markets, which relate to mid-point pricing 
and pegged pricing which require connection to the SIPs and each of 
the

[[Page 63139]]

equities exchanges in order to properly execute those orders in 
compliance with best execution obligations. Additionally, in the 
options markets, the linkage routing and trade through protection 
are handled by the exchanges, not by the individual members. Thus 
not connecting to an options exchange or disconnecting from an 
options exchange does not potentially subject a broker-dealer to 
violate order protection requirements. Gone are the days when the 
retail brokerage firms (such as Fidelity, Schwab, and eTrade) were 
members of the options exchanges--they are not members of the 
Exchange or its affiliates, they do not purchase connectivity to the 
Exchange, and they do not purchase market data from the Exchange. 
Accordingly, not only is there not an actual regulatory requirement 
to connect to every options exchange, the Exchange believes there is 
also no ``de facto'' or practical requirement as well, as further 
evidenced by the recent significant reduction in the number of 
broker-dealers that are members of all options exchanges.\69\
---------------------------------------------------------------------------

    \69\ Id. at 71677.

    The Cboe proposal also referenced the National Market System Plan 
Governing the Consolidated Audit Trail (``CAT NMS Plan''),\70\ wherein 
the Commission discussed the existence of competition in the 
marketplace generally, and particularly for exchanges with unique 
business models. In that filing, the Commission acknowledged that, even 
if an exchange were to exit the marketplace due to its proposed fee-
related change, it would not significantly impact competition in the 
market for exchange trading services because these markets are served 
by multiple competitors.\71\ Further, the Commission explicitly stated 
that ``[c]onsequently, demand for these services in the event of the 
exit of a competitor is likely to be swiftly met by existing 
competitors.'' \72\ Finally, the Commission recognized that while some 
exchanges may have a unique business model that is not currently 
offered by competitors, a competitor could create similar business 
models if demand were adequate, and if a competitor did not do so, the 
Commission believes it would be likely that new entrants would do so if 
the exchange with that unique business model was otherwise 
profitable.\73\
---------------------------------------------------------------------------

    \70\ See Securities Exchange Act Release No. 86901 (September 9, 
2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
    \71\ Id.
    \72\ Id.
    \73\ Id.
---------------------------------------------------------------------------

    Cboe concluded in its fee filing that the Exchange is subject to 
significant substitution-based competitive forces in pricing its 
connectivity and access fees.\74\ Cboe stressed that the proof of 
competitive constraints does not depend on showing that members walked 
away, or threatened to walk away, from a product due to a pricing 
change. Rather, the very absence of such negative feedback (in and of 
itself, and particularly when coupled with positive feedback) is 
indicative that the proposed fees are, in fact, reasonable and 
consistent with the Exchange being subject to competitive forces in 
setting fees.\75\
---------------------------------------------------------------------------

    \74\ See Securities Exchange Act Release No. 90333 (November 4, 
2020), 85 FR 71666 at 71669 (November 10, 2020) (SR-CBOE-2020-105).
    \75\ Id. at 71680.
---------------------------------------------------------------------------

    MRX requests the Commission apply the same standard of review to 
its proposed fee change that was applied to the Cboe fee filing which 
permitted Cboe to amend its membership fees. If the Commission were to 
apply a different standard of review to MRX's membership fee filing 
than it applied to other exchange fee filings it would create a burden 
on competition such that it would impair MRX's ability to compete among 
other options markets. MRX's ability to assess membership fees, similar 
to MEMX, Cboe and all other options markets, would permit it to compete 
with other options markets on an equal playing field. As noted herein, 
MRX is the only options market that does not have membership fees until 
May 2, 2022.
    Further, the proposed membership fees are identical to membership 
fees assessed by GEMX.\76\ The proposed fees are designed to reflect 
the benefits of the technical, regulatory, and administrative services 
provided to a Member by the Exchange, and the fees remain competitive 
with similar fees offered on other options exchanges. The Exchange does 
not believe that assessing different fees for EAMs, PMMs, and CMMs, 
creates an undue burden on competition.
---------------------------------------------------------------------------

    \76\ See GEMX Options 7, Section 6.A. (Access Fees) and Section 
6.B. (CMM Trading Rights Fees).
---------------------------------------------------------------------------

    With respect to the CMM Trading Rights Fee, the proposed fees 
compare favorably with those of other options exchanges.\77\ Like other 
options exchanges, the Exchange is proposing a tiered pricing model 
because it may encourage CMM firms to purchase additional Trading 
Rights and quote more issues because subsequent trading rights are 
priced lower than the initial Trading Right. The Exchange notes that it 
is not proposing Trading Right Fees for PMMs. As compared to CMMs, PMMs 
have additional obligations on MRX. PMMs are required to open options 
series in which they are assigned each day on MRX. Specifically, PMMs 
must submit a Valid Width Quote each day to open their assigned options 
series.\78\ PMMs are integral to providing liquidity during MRX's 
Opening Process.\79\ Intra-day, PMMs must provide two-sided quotations 
in a certain percentage of their assigned options series.\80\ In 
contrast, a CMM is not required to enter quotations in the options 
classes to which it is appointed; however, if a CMM initiates quoting 
in an options class, the CMM is required to provide two-sided 
quotations in a certain of their assigned options class, which 
percentage is less than that required of PMMs.\81\ While there can be 
multiple CMMs in an options series, there is only one PMM assigned per 
options series. The Exchange desires to encourage Members to compete 
for appointments as PMMs in an options series. The Exchange believes 
that PMMs serve an important role on MRX in opening an option series 
and ensuring liquidity in that option series throughout the trading 
day. This liquidity benefits the market through, for example, more 
robust quoting.
---------------------------------------------------------------------------

    \77\ See NYSE Arca Fees and Charges, General Options and Trading 
Permit (OTP) Fees (comparing CMM Trading Rights Fees to the Arca 
Market Maker fees).
    \78\ See Options 3, Section 8(c)(1) and 8(c)(3).
    \79\ The Exchange notes that most options markets do not require 
their primary or lead market maker to open their assigned options 
series.
    \80\ See Options 2, Section 5(e)(2) which states, ``Primary 
Market Makers, associated with the same Member, are collectively 
required to provide two-sided quotations in 90% of the cumulative 
number of seconds, or such higher percentage as the Exchange may 
announce in advance, for which that Member's assigned options class 
is open for trading. Primary Market Makers shall be required to make 
two-sided markets pursuant to this Rule in any Quarterly Options 
Series, any Adjusted Options Series, and any option series with an 
expiration of nine months or greater for options on equities and 
ETFs or with an expiration of twelve months or greater for index 
options.''
    \81\ See Options 2, Section 5(e)(1) which states, that ``On any 
given day, a Competitive Market Maker is not required to enter 
quotations in the options classes to which it is appointed. A 
Competitive Market Maker may initiate quoting in options classes to 
which it is appointed intra-day. If a Competitive Market Maker 
initiates quoting in an options class, the Competitive Market Maker, 
associated with the same Member, is collectively required to provide 
two-sided quotations in 60% of the cumulative number of seconds, or 
such higher percentage as the Exchange may announce in advance, for 
which that Member's assigned options class is open for trading . . 
.''.
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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

[[Page 63140]]

19(b)(3)(A)(ii) of the Act.\82\ 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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    \82\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2022-19 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-2022-19. 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-2022-19 and should be submitted on 
or before November 8, 2022.
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    \83\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\83\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22558 Filed 10-17-22; 8:45 am]
BILLING CODE 8011-01-P


