[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10585-10588]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03483]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96924; File No. SR-MRX-2023-04]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchanges Pricing Schedule at Options 7, Section 3

February 14, 2023.
    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 January 30, 2023, 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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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 3 (Regular Order Fees and Rebates).
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/mrx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
Pricing Schedule at Options 7, Section 3 (Regular Order Fees and 
Rebates).\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
January 3, 2023 (SR-MRX-2023-01) to adopt a Market Maker growth 
incentive and to amend complex order fees. On January 17, 2023, the 
Exchange withdrew that filing and submitted SR-MRX-2023-02. On 
January 30, 2023, the Exchange withdrew that filing and submitted 
separate filings for the Market Maker growth incentive and complex 
order fees. This specific filing replaces the Market Maker growth 
incentive set forth in SR-MRX-2023-02.
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    Today, as set forth in Table 1 of Options 7, Section 3, the 
Exchange assesses the following fees for regular orders in Penny 
Symbols:

                                                  Penny Symbols
----------------------------------------------------------------------------------------------------------------
                                                     Maker fee       Maker fee       Taker fee       Taker fee
               Market participant                     tier 1          tier 2          tier 1          tier 2
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Market Maker....................................           $0.20           $0.10           $0.50           $0.50
Non-Nasdaq MRX Market Maker (FarMM).............            0.47            0.47            0.50            0.50
Firm Proprietary/Broker-Dealer..................            0.47            0.47            0.50            0.50
Professional Customer...........................            0.47            0.47            0.50            0.50
Priority Customer...............................            0.00            0.00            0.00            0.00
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    The Exchange now proposes to introduce a growth incentive in new 
note 6 that would allow Market Makers \4\ to reduce their maker fees 
described above. The proposed growth incentive will be aimed at 
rewarding new and existing Market Makers to grow the extent of their 
liquidity adding activity in Penny Symbols on the Exchange over time. 
Market Makers, including any new Market Makers, who did not have any 
volume in the Market Maker Penny add liquidity segment for the month of 
December 2022 (and therefore lack December 2022 baseline volume against 
which to measure subsequent growth) would meet the growth requirement 
through whatever volume of Market

[[Page 10586]]

Maker add liquidity activity in Penny Symbols during the first month of 
use.\5\
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    \4\ The term ``Market Makers'' refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively. See Options 1, 
Section 1(a)(21).
    \5\ The Exchange will continue to evaluate the proposed growth 
tier criteria to determine whether the parameters are appropriately 
designed to incentivize Market Makers in the intended manner. If the 
Exchange determines that the growth tier parameters need to be 
adjusted, it will do so in a future rule filing.
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    Specifically, Market Makers may qualify for a reduction in the Tier 
1 and Tier 2 Maker Fees described above if the Market Maker has 
increased its volume which adds liquidity in Penny Symbols as a 
percentage of Customer Total Consolidated Volume \6\ by at least 100% 
over the Member's December 2022 Market Maker volume which adds 
liquidity in Penny Symbols as a percentage of Customer Total 
Consolidated Volume. Market Makers that qualify will have their Tier 1 
Maker Fee reduced by $0.15 and their Tier 2 Market Fee reduced by 
$0.05. As a result, Market Makers that qualify for the growth incentive 
would pay a discounted maker fee of $0.05 per contract in Tier 1 and 
Tier 2.\7\
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    \6\ ``Customer Total Consolidated Volume'' means the total 
volume cleared at The Options Clearing Corporation in the Customer 
range in equity and ETF options in that month. See Options 7, 
Section 1(c).
    \7\ The Exchange notes that MIAX Pearl Options (``PEARL'') 
currently has a similarly structured growth incentive in place 
whereby it provides additional maker rebates to Market Makers in 
Non-Penny classes, which are applied to the Market Maker's base 
maker rebates for Non-Penny classes in Tiers 1 through 4 if the 
Market Maker increases their Non-Penny Class Maker TCV by 100% or 
more compared to that Market Maker's TCV for the month of July 2022. 
Today, PEARL Market Makers are provided base maker rebates in Non-
Penny classes of $0.30 (Tier 1), $0.30 (Tier 2), $0.60 (Tier 3), and 
$0.65 (Tier 4). PEARL Market Makers that qualify for the growth 
incentive would receive the following additional rebates: ($0.40) in 
Tier 1; ($0.40) in Tier 2; ($0.10) in Tier 3; and ($0.05) in Tier 4. 
As a result, qualifying PEARL Market Makers would receive total 
rebates of $0.70 per contract (i.e., base rebate plus additional 
rebate) in Tiers 1 through 4. See PEARL Fee Schedule at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_01012023_1.pdf. See also Securities 
Exchange Act Release No. 95886 (September 22, 2022), 87 FR 58843 
(September 28, 2022) (SR-PEARL-2022-40) (``Adopting Filing'').
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    As noted above, Market Makers, including any new Market Makers, who 
did not have any volume in the Market Maker Penny add liquidity segment 
for the month of December 2022 would meet the growth requirement 
through whatever volume of Market Maker add liquidity activity in Penny 
Symbols during the first month of use. The Exchange therefore proposes 
to also add that Market Makers with no volume in the Penny Symbol add 
liquidity segment for the month of December 2022 will have any new 
volume considered as added volume.\8\
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    \8\ The Exchange notes that PEARL has a substantially similar 
structure in place for its Market Maker growth incentive whereby it 
considers any new volume as added volume for PEARL Market Makers 
with no volume in the Non-Penny class maker segment for the month of 
July 2022. See supra note 7 for PEARL Fee Schedule and for Adopting 
Filing.
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    As noted above, the Exchange intends for this proposal to reward 
Market Makers that increase the extent to which they add Penny Symbol 
liquidity to the Exchange over time and specifically, relative to a 
recent benchmark month (December 2022). The Exchange believes that if 
the proposed incentive is effective, any ensuing increase in added 
liquidity in Penny Symbols will improve market quality, to the benefit 
of all market participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among members and issuers and other persons using any facility, 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its schedule of credits are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \11\
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    \11\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \12\
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    \12\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
sixteen options exchanges to which market participants may direct their 
order flow. Within this environment, market participants can freely and 
often do shift their order flow among the Exchange and competing venues 
in response to changes in their respective pricing schedules. As such, 
the proposal represents a reasonable attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.
    The Exchange believes that it is reasonable to establish a new 
growth incentive that would provide Market Makers with the opportunity 
to reduce their maker fees by $0.15 (Tier 1) and by $0.05 (Tier 2) if 
they increase their Market Maker volume which adds liquidity in Penny 
Symbols as a percentage of Customer Total Consolidated Volume by at 
least 100% over their December 2022 Market Maker volume which adds 
liquidity in Penny Symbols as a percentage of Customer Total 
Consolidated Volume. The proposal is reasonable because it will provide 
extra incentives to Market Makers to engage in substantial amounts of 
liquidity adding activity in Penny Symbols on the Exchange, as well as 
to grow substantially the extent to which they do so relative to a 
recent benchmark month. The Exchange believes that if the proposed 
incentive is effective, then any ensuing increase in liquidity adding 
activity on the Exchange will improve the quality of the market 
overall, to the benefit of all market participants. The Exchange also 
believes that it is reasonable to provide Market Makers with a higher 
discount in the base Tier 1 marker fee than in Tier 2 because the 
Exchange believes that the prospect of obtaining the higher discount in 
Tier 1 will attract Penny add liquidity volume from new Market Makers. 
The Exchange similarly believes that it is reasonable to consider any 
new Penny add liquidity volume for

[[Page 10587]]

Market Makers with no such volume for the month of December 2022 in 
order for those Market Makers to receive the proposed discounts to 
their maker fees because this is designed to attract additional Penny 
liquidity from new Market Makers to the Exchange. To the extent this 
proposal attracts new Market Maker Penny add liquidity volume to the 
Exchange, all market participants should benefit through more trading 
opportunities and tighter spreads. The Exchange notes that another 
options exchange employs a similarly structured growth incentive today 
that provides tiered incentives to Market Makers for increasing their 
add liquidity activity relative to a benchmark month, including 
providing higher incentives in the lower tiers versus the higher tiers 
and considering any new volume as added volume for Market Makers with 
no volume in the targeted segment for the benchmark month.\13\
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    \13\ See supra note 7.
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    The Exchange believes that the proposed growth incentive is 
equitable and not unfairly discriminatory for the reasons that follow. 
As a general matter, the Exchange believes that it is equitable and not 
unfairly discriminatory to provide the proposed growth incentive to 
only Market Makers because Market Makers have different requirements 
and additional obligations to the Exchange that other market 
participants do not (such as quoting requirements). As such, the 
Exchange's proposal is designed to increase Market Maker participation 
and reward Market Makers for the unique role they play in ensuring a 
robust market. As discussed above, the proposal is designed to 
encourage Market Makers to substantially add Penny Symbol liquidity to 
the Exchange. To the extent the Exchange succeeds in increasing the 
levels of liquidity and activity on the Exchange, the Exchange will 
experience improvements in market quality, which stands to benefit all 
market participants.
    Furthermore, the Exchange believes that it is equitable and not 
unfairly discriminatory to provide a higher discount to qualifying 
Market Makers in the base Tier 1 marker fee than in Tier 2 because as 
noted above, the Exchange is seeking to attract Penny add liquidity 
volume from new Market Makers by offering the opportunity of obtaining 
a higher discount in Tier 1. The Exchange similarly believes that it is 
equitable and not unfairly discriminatory to consider any new Penny add 
liquidity volume for Market Makers with no such volume for the month of 
December 2022 in order for those Market Makers to receive the proposed 
discounts to their maker fees because this is designed to attract 
additional Penny liquidity from new Market Makers to the Exchange. In 
turn, this additional Penny liquidity should benefit all market 
participants through increased liquidity and order interaction. To the 
extent the proposed maker fee attracts new Market Makers to the 
Exchange, the Exchange similarly believes that its proposal will 
increase liquidity on MRX, which benefits all market participants by 
providing more trading opportunities, tighter spreads, and increased 
order interaction. As discussed earlier, the proposed growth incentive 
is structured similarly to another options exchange.\14\
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    \14\ Id.
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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 proposals will place any category of market participant at a 
competitive disadvantage. The Exchange believes that the proposed 
Market Maker growth incentive should encourage the provision of 
liquidity from both existing and new Market Makers that enhances the 
quality of the Exchange's market and increases the number of trading 
opportunities on the Exchange for all market participants who will be 
able to compete for such 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 
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.
    As discussed above, the proposed growth incentive is pro-
competitive in that the Exchange intends for the changes to increase 
liquidity addition and activity on the Exchange, thereby rendering the 
Exchange a more attractive and vibrant venue to market participants. 
The Exchange also notes that its proposed incentive is structured 
similarly to a competing options exchange.\15\
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    \15\ See supra note 7.
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    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\16\ 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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    \16\ 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-2023-04 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-2023-04. This file 
number should be included on the

[[Page 10588]]

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-
2023-04 and should be submitted on or before March 14, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03483 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P


