[Federal Register Volume 85, Number 140 (Tuesday, July 21, 2020)]
[Notices]
[Pages 44135-44137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15690]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89320; File No. SR-MRX-2020-14]


Self-Regulatory Organizations; Nasdaq MRX, LLC; 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

July 15, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 1, 2020, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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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 its Pricing Schedule at Options 7, 
Section 5, Other Options Fees and Rebates, in connection with the 
pricing for orders entered into the Exchange's Price Improvement 
Mechanism (``PIM'').\3\ The Exchange also proposes an amendment to 
Options 7, Section 1, General Provisions.
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    \3\ PIM is a process by which an Electronic Access Member 
(``EAM'') can provide price improvement opportunities for a 
transaction wherein the EAM seeks to facilitate an order it 
represents as agent, and/or a transaction wherein the EAM solicited 
interest to execute against an order it represents as agent. See 
Options 3, Section 13.
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    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 Exchange proposes to amend its Pricing Schedule at Options 7, 
Section 5, Other Options Fees and Rebates. Specifically, the Exchange 
proposes to amend Options 7, Section 5E, PIM Pricing for Regular and 
Complex Orders, to lower the Fees for PIM Contra-Side Orders, in both 
Penny Symbols and Non-Penny Symbols, for all market participants. The 
Exchange also proposes to eliminate note 1 within Options 7, Section 
5E. Finally, the Exchange proposes to amend Options 7, Section 1, 
General Provisions. These changes will be described in greater detail 
below.
Options 7, Section 5E
    For regular and complex PIM orders, the Exchange currently charges 
a PIM originating fee in Penny and Non-Penny Symbols of $0.20 per 
contract for Non-Priority Customers \4\ and $0.00 per contract for 
Priority Customers.\5\ The Exchange also charges all market 
participants a PIM contra-side fee in Penny and Non-Penny Symbols of 
$0.05 per contract. Members that execute an average daily volume 
(``ADV'') of 10,000 PIM originating contracts or greater within a month 
are eligible for a reduced PIM contra-side fee of $0.02 per contract 
(in lieu of $0.05 per contract). In addition, the Exchange presently 
charges PIM response fees of $0.50 per contract in Penny Symbols and 
$1.10 per contract in Non-Penny Symbols.
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    \4\ Non-Priority Customers consist of Market Makers (including 
Market Maker orders sent to the Exchange by EAMs), Non-Nasdaq MRX 
Market Makers (FarMM), Firm Proprietary/Broker-Dealers, and 
Professional Customers.
    \5\ A ``Priority Customer'' is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s), as defined in Nasdaq MRX Options 1, 
Section 1(a)(36).
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    The Exchange proposes to lower the current regular and complex Fees 
for PIM Contra-Side Orders, for both Penny Symbols and Non-Penny 
Symbols, from $0.05 per contract to $0.02 per contract, for all market 
participants.\6\ In

[[Page 44136]]

connection with lowering this fee, the Exchange proposes to eliminate 
note 1 within Options 7, Section 5E, which today provides, ``Members 
that execute an ADV of 10,000 PIM originating contracts or greater 
within a month will be assessed a fee of $0.02 per contract on the 
contra-side of a PIM auction (in lieu of $0.05 per contract).'' This 
incentive is no longer necessary as all market participants would be 
entitled to receive the lower regular and complex Fee for PIM Contra-
Side Orders of $0.02 per contract for both Penny Symbols and Non-Penny 
Symbols.
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    \6\ Today, Market Makers, Non-Nasdaq MRX Market Makers (FarMM), 
Firm Proprietary/Broker Dealers, Professional Customers and Priority 
Customers are assessed the same regular and complex Fee for PIM 
Contra-Side Orders, for both Penny Symbols and Non-Penny Symbols of 
$0.05 per contract. These market participants have the opportunity 
to lower that fee to $0.02 per contract, pursuant to note 1 of 
Options 7, Section 5E, provided they execute the requisite volume.
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Options 7, Section 1
    The Exchange proposes an amendment to Options 7, Section 1, General 
Provisions. The Exchange proposes to replace the term ``Penny Pilot 
Program'' with ``Penny Interval Program.'' On April 1, 2020 the 
Commission approved the amendment to the OLPP to make permanent the 
Pilot Program (the ``OLPP Program'').\7\ The Exchange recently filed a 
proposal to amend MRX Options 3, Section 3 to conform the rule to 
Section 3.1 of the Plan for the Purpose of Developing and Implementing 
Procedures Designed to Facilitate the Listing and Trading of 
Standardized Options (the ``OLPP'').\8\ The Exchange's proposal amended 
MRX Options 3, Section 3 to refer to a Penny Interval Program instead 
of a Penny Pilot Program. This proposed change to Options 7, Section 1 
conforms the name of the program.
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    \7\ See Securities Exchange Act Release No. 88532 (April 1, 
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval 
Order'').
    \8\ See Securities Exchange Act Release No. 89163 (June 26, 
2020) (SR-MRX-2020-13).
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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. 78 f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its Pricing Schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \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.
Options 7, Section 5E
    The Exchange's proposal to lower the current regular and complex 
Fees for PIM Contra-Side Orders, for both Penny Symbols and Non-Penny 
Symbols, from $0.05 per contract to $0.02 per contract for all market 
participants, and eliminate note 1 \13\ within Options 7, Section 5E is 
reasonable.\14\ Lowering the regular and complex Fees for PIM Contra-
Side Orders, for both Penny Symbols and Non-Penny Symbols, from $0.05 
to $0.02 per contract, will incentivize Members to execute a greater 
number of PIM contracts on the Exchange. All market participants will 
benefit from a greater number of PIM contracts in that they will be 
able to interact with that order flow either by responding directly to 
a PIM or by submitting unrelated orders in the Order Book.
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    \13\ Options 7, Section 5E at note 1 provides, ``Members that 
execute an ADV of 10,000 PIM originating contracts or greater within 
a month will be assessed a fee of $0.02 per contract on the contra-
side of a PIM auction (in lieu of $0.05 per contract).''
    \14\ Today, Market Makers, Non-Nasdaq MRX Market Makers (FarMM), 
Firm Proprietary/Broker Dealer, Professional Customer and Priority 
Customers are assessed the same regular and complex Fee for PIM 
Contra-Side Orders, for both Penny Symbols and Non-Penny Symbols of 
$0.05 per contract.
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    The Exchange's proposal to lower the current regular and complex 
Fees for PIM Contra-Side Orders, for both Penny Symbols and Non-Penny 
Symbols, from $0.05 per contract to $0.02 per contract for all market 
participants, and eliminate note 1 within Options 7, Section 5E is 
equitable and not unfairly discriminatory. All market participants will 
be uniformly assessed a regular and complex Fee for PIM Contra-Side 
Orders, for both Penny Symbols and Non-Penny Symbols, of $0.02 per 
contract.
Options 7, Section 1
    The Exchange's proposal to amend Options 7, Section 1 to replace 
the term ``Penny Pilot Program'' with ``Penny Interval Program'' is 
reasonable, equitable and not unfairly discriminatory. This amendment 
seeks to conform the name of the program which governs the listing of 
certain standardized options.

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 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

[[Page 44137]]

available at other venues to be more favorable. In such an environment, 
the Exchange must continually adjust its fees to remain competitive 
with other options exchanges. Because competitors are free to modify 
their own fees in response, and because market participants may readily 
adjust their order routing practices, the Exchange believes that the 
degree to which fee changes in this market may impose any burden on 
competition is extremely limited.
    Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in reaction to fee and rebate changes. In sum, if the changes proposed 
herein are unattractive to market participants, it is likely that the 
Exchange will lose market share as a result. Accordingly, the Exchange 
does not believe that the proposed changes will impair the ability of 
Members or competing order execution venues to maintain their 
competitive standing in the financial markets.
Options 7, Section 5E
    In terms of intra-market competition, the Exchange does not believe 
that its proposal will place any category of Exchange market 
participant at a competitive disadvantage. The proposed change is 
designed to incentivize market participants to direct PIM order flow to 
the Exchange. Specifically, the Exchange's proposal to lower the 
current regular and complex Fees for PIM Contra-Side Orders, for both 
Penny Symbols and Non-Penny Symbols, from $0.05 per contract to $0.02 
per contract for all market participants, and eliminate note 1 within 
Options 7, Section 5E does not impose an undue burden on competition. 
All market participants would be uniformly assessed a regular and 
complex Fee for PIM Contra-Side Orders, for both Penny Symbols and Non-
Penny Symbols, of $0.02 per contract.
Options 7, Section 1
    The Exchange's proposal to amend Options 7, Section 1 to replace 
the term ``Penny Pilot Program'' with ``Penny Interval Program'' does 
not impose an undue burden on competition. This amendment seeks to 
conform the name of the program which governs the listing of certain 
standardized options.

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 \15\ and Rule 19b-4(f)(2) \16\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is: (i) Necessary or 
appropriate in the public interest; (ii) for the protection of 
investors; or (iii) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
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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-2020-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-MRX-2020-14. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MRX-2020-14 and should be submitted on 
or before August 11, 2020.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15690 Filed 7-20-20; 8:45 am]
BILLING CODE 8011-01-P