[Federal Register Volume 88, Number 54 (Tuesday, March 21, 2023)]
[Notices]
[Pages 17068-17071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05687]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97148; File No. SR-MRX-2023-07]


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

March 15, 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 March 1, 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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[[Page 17069]]

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. SR-MRX-2023-04 replaced the Market Maker growth 
incentive set forth in SR-MRX-2023-02. On March 1, 2023, the 
Exchange withdrew SR-MRX-2023-04 and submitted this filing.
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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 Tier  Maker fee Tier  Taker fee Tier  Taker fee Tier
               Market participant                        1               2               1               2
----------------------------------------------------------------------------------------------------------------
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 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\ As discussed below, the Exchange will sunset this incentive 
for new Market Makers on June 30, 2023 and will use this time period 
to evaluate the proposed growth tier criteria to determine whether 
the parameters are appropriately designed to incentivize Market 
Makers in the intended manner. The Exchange intends to come in with 
a future rule filing to adjust the growth tier parameters for new 
Market Makers.
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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 to $0.08 and their Tier 2 Maker Fee reduced to $0.04. 
In doing so, the Exchange is proposing to reduce the Tier 1 and Tier 2 
Maker Fees by 60% for qualifying Market Makers.
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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).
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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 may qualify for the 
reduced Tier 1 and Tier 2 Maker Fees described above by having any new 
volume considered as added volume. As such, new Market Makers that 
qualify for the Tier 1 or Tier 2 Maker Fee in a given month will have 
any new volume in the targeted segment qualify them for the proposed 
reduced fees. The Exchange also proposes to offer this incentive from 
January 3, 2023 until June 30, 2023 in order to encourage new Market 
Makers to join MRX, and will use this time period to evaluate the 
appropriate parameters going forward for market participants with no 
December 2022 volume in the targeted segment.
    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,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that it provides 
for the equitable allocation of

[[Page 17070]]

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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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' . . . .'' \9\
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    \9\ 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.'' \10\
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    \10\ 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 to $0.08 (Tier 1) and to $0.04 (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 the proposed reduced fees are reasonable because the 
Exchange is proposing to reduce the Tier 1 and Tier 2 maker fees by the 
same percentage amount (i.e., 60%) such that the reduced fees are 
commensurate with the base Tier 1 and Tier 2 maker fees that qualifying 
Market Makers receive for adding Penny Symbol liquidity. The Exchange 
similarly believes that it is reasonable 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 
during a temporary period between January 3, 2023 and June 30, 2023. 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. As discussed above, the 
Exchange intends for this incentive aimed at attracting new Market 
Makers to sunset after June 30, 2023 and will use this time to evaluate 
suitable growth tier parameters for such market participants with no 
December 2022 volume in the targeted segment, after which it will come 
in with a rule filing to adjust the growth incentive as appropriate.
    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.
    The Exchange believes that the proposed growth incentive is 
equitable and not unfairly because as discussed above, the Exchange is 
proposing to reduce the Tier 1 and Tier 2 maker fees by the same 
percentage amount (i.e., 60%) such that the reduced fees are 
commensurate with the base Tier 1 and Tier 2 maker fees that qualifying 
Market Makers receive for adding Penny Symbol liquidity. Furthermore, 
the Exchange 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. Furthermore, the 
proposed structure for new Market Makers with no December 2022 volume 
in the targeted segment will be temporary and sunset on June 30, 2023, 
after which the Exchange will come in with another rule filing to 
adjust the parameters for such market participants, as appropriate. To 
the extent the proposed maker fee attracts new Market Makers to the 
Exchange during this time period, the Exchange believes that its 
proposal will increase liquidity on MRX, which

[[Page 17071]]

benefits all market participants by providing more trading 
opportunities, tighter spreads, and increased order interaction.

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.
    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.\11\ 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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    \11\ 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-2023-07 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-2023-07. 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-2023-07 and should be submitted on 
or before April 11, 2023.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05687 Filed 3-20-23; 8:45 am]
BILLING CODE 8011-01-P


