[Federal Register Volume 86, Number 82 (Friday, April 30, 2021)]
[Notices]
[Pages 22989-22996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09026]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91677; File No. SR-NASDAQ-2021-021]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend The Nasdaq Options Market's Pricing Schedule at Options 7,
Section 1, General Provisions, and Options 7, Section 2, Nasdaq Options
Market--Fees and Rebates
April 26, 2021.
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 April 13, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The
[[Page 22990]]
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 Nasdaq Options Market's
(``NOM'') Pricing Schedule at Options 7, Section 1, General Provisions,
and Options 7, Section 2, Nasdaq Options Market--Fees and Rebates.
The Exchange originally filed the proposed pricing changes on April
1, 2021 (SR-NASDAQ-2021-016). On April 9, 2021, the Exchange withdrew
SR-NASDAQ-2021-016 and filed SR-NASDAQ-2021-019. The Exchange is
withdrawing SR-NASDAQ-2021-019 and filing this rule change on April 13,
2021.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of 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 NOM's Pricing Schedule at Options 7,
Section 1, General Provisions. The Exchange proposes to relocate
certain rule text concerning equity tier calculations from current
Options 7, Section 2(4) to Options 7, Section 1 and add a new defined
term to Options 7, Section 1. The Exchange proposes to amend Options 7,
Section 2(1) to add rule text to make clear the applicable pricing and
also amend the Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny
Symbols. The Exchange proposes to amend Options 7, Section 2(2) to
amend a title. Finally, the Exchange proposes to amend Options 7,
Section 2(3) regarding Nasdaq BX Inc.'s (``BX'') Routing Fees. Each
change shall be described below.
Options 7, Section 1
The Exchange proposes to define the term ``Non-Customer'' within
Options 7, Section 1. The Exchange proposes to provide, ``The term
``Non-Customer'' applies to transactions for the accounts of NOM Market
Makers, Non-NOM Market Makers, Firms, Professionals, Broker-Dealers and
JBOs.'' This defined term will bring greater clarity to NOM's Options 7
Rules. The term ``Non-Customer'' is currently utilized within the fees
for routing at Options 7, Section 2(3). The addition of this defined
term does not amend the manner in which the Exchange currently applies
the term with respect to its Routing Fees. The term ``Customer'' \3\ is
currently defined and this term applies to Participants that are not
customers. This change would be non-substantive.
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\3\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(a)(47)).
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Options 7, Section 2
Currently, the below rule text is located within Options 7, Section
2(4).
(a) For purposes of determining equity tier calculations under this
section, any day that the market is not open for the entire trading day
will be excluded from such calculation.
(b) Removal of Days for Purposes of Options Pricing Tiers:
(i)
(A) Any day that the Exchange announces in advance that it will not
be open for trading will be excluded from the options tier calculations
set forth in its Pricing Schedule; and (B) any day with a scheduled
early market close (``Scheduled Early Close'') may be excluded from the
options tier calculations only pursuant to paragraph (iii) below.
(ii) The Exchange may exclude the following days (``Unanticipated
Events'') from the options tier calculations only pursuant to paragraph
(iii) below, specifically any day that: (A) The market is not open for
the entire trading day, (B) the Exchange instructs Participants in
writing to route their orders to other markets, (C) the Exchange is
inaccessible to Participants during the 30-minute period before the
opening of trade due to an Exchange system disruption, or (D) the
Exchange's system experiences a disruption that lasts for more than 60
minutes during regular trading hours.
(iii) If a day is to be excluded as a result of paragraph (i)(B) or
(ii) above, the Exchange will exclude the day from any Participant's
monthly options tier calculations as follows:
(A) the Exchange may exclude from the ADV calculation any Scheduled
Early Close or Unanticipated Event; and
(B) the Exchange may exclude from any other applicable options tier
calculation provided for in its Pricing Schedule (together with
(ii)(A), ``Tier Calculations'') any Scheduled Early Close or
Unanticipated Event.
Provided, in each case, that the Exchange will only remove the day
for Participants that would have a lower Tier Calculation with the day
included.
This rule text describes the equity tier calculations when
excluding certain days. The Exchange is relocating this rule text,
without change, to Options 7, Section 1, General Provisions. The
Exchange believes that this information is better suited to Section 1
along with other general information because the rule applies to
Options 7 pricing.
The Exchange proposes to amend the qualification for the Tier 3
Rebate to Add Liquidity in Penny Symbols. Fees and Rebates for
Execution of Contracts on The Nasdaq Options Market are as follows:
\3\ The NOM Market Maker Rebate to Add Liquidity in Penny Symbols
will be paid per the highest tier achieved below.
Monthly Volume
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Tier 1................... Participant adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols of
up to 0.10% of total industry customer
equity and ETF option average daily volume
(``ADV'') contracts per day in a month.
Tier 2................... Participant adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols
above 0.10% to 0.20% of total industry
customer equity and ETF option ADV contracts
per day in a month.
[[Page 22991]]
Tier 3................... Participant: (a) Adds NOM Market Maker
liquidity in Penny Symbols and/or Non-Penny
Symbols above 0.20% to 0.60% of total
industry customer equity and ETF option ADV
contracts per day in a month: Or (b)(1)
transacts in all securities through one or
more of its Nasdaq Market Center MPIDs that
represent 0.70% or more of Consolidated
Volume (``CV'') which adds liquidity in the
same month on The Nasdaq Stock Market, (2)
transacts in Tape B securities through one
or more of its Nasdaq Market Center MPIDs
that represent 0.18% or more of CV which
adds liquidity in the same month on The
Nasdaq Stock Market, and (3) executes
greater than 0.01% of CV via Market-on-Close/
Limit-on-Close (``MOC/LOC'') volume within
The Nasdaq Stock Market Closing Cross in the
same month.
Tier 4................... Participant adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols of
above 0.60% of total industry customer
equity and ETF option ADV contracts per day
in a month.
Tier 5................... Participant adds NOM Market Maker liquidity
in Penny Symbols and/or Non-Penny Symbols of
above 0.40% of total industry customer
equity and ETF option ADV contracts per day
in a month and transacts in all securities
through one or more of its Nasdaq Market
Center MPIDs that represent 0.40% or more of
Consolidated Volume (``CV'') which adds
liquidity in the same month on The Nasdaq
Stock Market.
Tier 6................... Participant: (a)(1) Adds NOM Market Maker
liquidity in Penny Symbols and/or Non-Penny
Symbols above 0.95% of total industry
customer equity and ETF option ADV contracts
per day in a month, (2) executes Total
Volume of 250,000 or more contracts per day
in a month, of which 30,000 or more
contracts per day in a month must be
removing liquidity, and (3) adds Firm,
Broker-Dealer and Non-NOM Market Maker
liquidity in Non-Penny Symbols of 10,000 or
more contracts per day in a month; or (b)(1)
adds NOM Market Maker liquidity in Penny
Symbols and/or Non-Penny Symbols above 1.50%
of total industry customer equity and ETF
option ADV contracts per day in a month, and
(2) executes Total Volume of 250,000 or more
contracts per day in a month, of which
15,000 or more contracts per day in a month
must be removing liquidity.
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* ``Total Volume'' shall be defined as Customer, Professional,
Firm, Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume
in Penny Symbols and/or Non-Penny Symbols which either adds or removes
liquidity on NOM.
NOM proposes to amend the qualification for the Tier 3 Market Maker
Rebate to Add Liquidity in Penny Symbols to require:
Participant: (a) Adds NOM Market Maker liquidity in Penny Symbols
and/or Non-Penny Symbols above 0.20% to 0.60% of total industry
customer equity and ETF option ADV contracts per day in a month: Or
(b)(1) transacts in all securities through one or more of its Nasdaq
Market Center MPIDs that represent 0.80% or more of Consolidated Volume
(``CV'') which adds liquidity in the same month on The Nasdaq Stock
Market, (2) transacts in Tape B securities through one or more of its
Nasdaq Market Center MPIDs that represent 0.15% or more of CV which
adds liquidity in the same month on The Nasdaq Stock Market, and (3)
executes greater than 0.01% of CV via Market-on-Close/Limit-on-Close
(``MOC/LOC'') volume within The Nasdaq Stock Market Closing Cross in
the same month.
This proposal would amend the second part of the qualification for
the Tier 3 Market Maker Rebate to Add Liquidity in Penny Symbols at
(b)(1) by requiring Market Makers to transact in all securities through
one or more of its Nasdaq Market Center MPIDs that represent 0.80% or
more of Consolidated Volume (``CV'') which adds liquidity in the same
month on The Nasdaq Stock Market, an increase from 0.70%. Also, this
proposal would amend the second part of the qualification for the Tier
3 Market Maker Rebate to Add Liquidity in Penny Symbols at (b)(2) by
requiring Market Makers to transact in Tape B securities through one or
more of its Nasdaq Market Center MPIDs that represent 0.15% or more of
CV which adds liquidity in the same month on The Nasdaq Stock Market, a
decrease from 0.18%. The final portion of the second part of the
qualification for the Tier 3 Market Maker Rebate to Add Liquidity in
Penny Symbols at (b)(3) \4\ is not being amended. Although the first
component of the qualification requiring Market Makers to transact in
all securities through one or more of its Nasdaq Market Center MPIDs is
being increased and the second component requiring Market Makers to
transact in Tape B securities through one or more of its Nasdaq Market
Center MPIDs is being decreased, the Exchange believes that these
amendments may incentivize additional Market Makers to transact greater
volume on The Nasdaq Stock Market in order to qualify for the Tier 3
Market Maker Rebate to Add Liquidity in Penny Symbols. The Exchange
believes that Tier 3 continues to incentivize Participants to direct
additional order flow to NOM and The Nasdaq Stock Market.
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\4\ Part (b)(3) of the qualification for the Tier 3 Market Maker
Rebate to Add Liquidity in Penny Symbols requires that Market Makers
execute greater than 0.01% of CV via Market-on-Close/Limit-on-Close
(``MOC/LOC'') volume within The Nasdaq Stock Market Closing Cross in
the same month.
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NOM is not proposing to amend the corresponding Tier 3 Market Maker
Rebate to Add Liquidity in Penny Symbols.
The Exchange proposes to amend Options 7, Section 2(1) to add rule
text after the title of Section 2(1), Fees and Rebates for Execution of
Contracts on The Nasdaq Options Market. Specifically, the Exchange
proposes to add the following note:
Orders executed in the Opening Cross per Options 3, Section 8 are
not subject to Options 7, Section 2(1) pricing, instead, these orders
are subject to the pricing within Options 7, Section 2(2).
This note ``*'' will explain at the beginning of Options 7, Section
2(1) the pricing applicable to the transaction fees within Section
2(1). The Exchange believes the addition of this rule text will bring
clarity to the Section 2 pricing and make clear that the transaction
fees within Options 7, Section 2(1) apply intra-day. This new note
``*'' does not represent a substantive change. The proposed new note
``*'' is intended to serve as a guidepost to Participants referring to
the NOM Pricing Schedule.
Currently, the Exchange's Opening Cross pricing is contained within
Options 7, Section 2(2). The Exchange proposes to add a citation to the
title of Options 7, Section 2(2) to the Opening Cross rule. Options 7,
Section 2(2) would state, ``Opening Cross per Options 3, Section 8.''
Current Options 7, Section 2(3) provides the Fees for routing
contracts to markets other than NOM. The Exchange proposes to amend the
BX Routing Fees.
Currently, Non-Customers \5\ are assessed a $0.99 per contract to
any options exchange. Customers \6\ are
[[Page 22992]]
currently assessed a Routing Fee to Phlx of $0.13 per contract (``Fixed
Fee'') in addition to the actual transaction fee assessed. Customers
are also currently assessed a Routing Fee to BX of $0.13 per contract.
In addition, as it relates to all other options exchanges, Customers
are currently assessed a Routing Fee of $0.23 per contract (``Fixed
Fee'') in addition to the actual transaction fee assessed. If the away
market pays a rebate, the Routing Fee is $0.13 per contract.
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\5\ As proposed within Options 7, Section 1, the term ``Non-
Customer'' applies to transactions for the accounts of NOM Market
Makers, Non-NOM Market Makers, Firms, Professionals, Broker-Dealers
and JBOs.
\6\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(a)(47)).
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The Exchange now proposes to amend the BX Routing Fee to include
the actual transaction fee assessed in addition to the ``Fixed Fee'' of
$0.13 per contract. The proposed changes will align BX's Routing Fee
with the current Phlx Routing Fee.
The Exchange is proposing to recoup the actual transaction fee (in
addition to the Fixed Fee) that is incurred by the Exchange in
connection with routing orders, on behalf of its Participants, to BX.
Previously, the Exchange retained the rebates paid by BX to recover the
costs associated with providing its routing services, did not assess
the actual transaction fees charged by BX for Customer orders, and only
assessed such orders the $0.13 per contract Fixed Fee. This is because
when orders are routed to BX, such orders are considered as removing
liquidity on BX, and BX previously assessed rebates to Customer orders
for removing liquidity. In particular, prior to the Recent Rule
Change,\7\ Customer orders executed on BX received Penny Symbol Rebates
to Remove Liquidity when trading against a Non-Customer, Lead Market
Maker, BX Options Market Maker, Customer or Firm that ranged from $0.00
to $0.35 per contract,\8\ depending on the volume tier achieved.
Customers also previously received Non-Penny Rebates to Remove
Liquidity of $0.80 per contract, regardless of tier and contra-party.
As part of the Recent Rule Change, the aforementioned rebates were
removed from the BX Pricing Schedule and replaced with a maker/taker
fee structure where market participants are assessed a rebate or fee
for adding liquidity to the market, or charged a fee for removing
liquidity from the market.\9\
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\7\ See Securities Exchange Act Release No. 91473 (April 5,
2021), 86 FR 18562 (April 9, 2021) (SR-BX-2021-009) (``Recent Rule
Change'').
\8\ Participants that executed less than 0.05% of total industry
customer equity and ETF option ADV contracts per month would receive
no Penny Symbol Rebate to Remove Liquidity in Tier 1. Participants
that execute 0.05% to less than 0.15% of total industry customer
equity and ETF option ADV contracts per month would receive a $0.25
per contract Penny Symbol Rebate to Remove Liquidity in Tier 2.
Participants that execute 0.15% or more of total industry customer
equity and ETF option ADV contracts per month will receive a $0.35
per contract Penny Symbol Rebate to Remove Liquidity in Tier 3.
\9\ See note 3 [sic] above.
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With this recent change in the structure of BX's Pricing Schedule,
the Exchange proposes to align the Routing Fees to BX with the current
Routing Fees to Phlx. With this proposal, the Exchange will no longer
retain rebates paid by BX as BX no longer provides rebates for Customer
orders removing liquidity on BX and instead charges a taker fee for
such orders. The Exchange will continue to assess the $0.13 per
contract Fixed Fee for routing Customer orders to BX, and will propose
to also charge the actual transaction fee assessed by BX.
Technical Amendments
The Exchange proposes to amend Options 7, Section 2(3) to lowercase
``PHLX'' and add a space that was missing within the Routing Fees to
Phlx. The Exchange also proposes to amend the name of the Exchange from
``BX Options'' to ``BX'' and add the words ``per contract'' within the
Routing Fee to all other options exchanges. This amendment is not a
substantive change, rather it is a clarification.
Finally, the Exchange proposes to renumber Options 7, Section 2(6),
Market Access and Routing Subsidy (``MARS''), to Options 7, Section
2(4). The Exchange notes that the Pricing Schedule did not contain a
Section 2(5).
Applicability to and Impact on Participants 10
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\10\ On May 21, 2019, the SEC Division of Trading and Markets
(the ``Division'') issued fee filing guidance titled ``Staff
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance'').
Within the Guidance, the Division noted, among other things, that
the purpose discussion should address ``how the fee may apply
differently (e.g., additional cost vs. additional discount) to
different types of market participants (e.g., market makers,
institutional brokers, retail brokers, vendors, etc.) and different
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees). The Guidance
also suggests that the purpose discussion should include numerical
examples. Where possible, the Exchange is including numerical
examples. In addition, the Exchange is providing data to the
Commission in support of its arguments herein. The Guidance covers
all aspects of a fee filing, which the Exchange has addressed
throughout this filing.
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With respect to the NOM Market Maker Tier 3 rebate within Options
7, Section 2(1), the Exchange believes that amending the second part of
the qualification \11\ will attract greater volume to both NOM and The
Nasdaq Stock Market.\12\ Any NOM Market Maker may obtain the Tier 3
rebate provided the qualifications are met. Furthermore, NOM Market
Maker Tier 3 provides two ways to achieve the NOM Tier 3 rebate of
$0.30 per contract.\13\
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\11\ With this proposal, the Exchange is amending the second
part of the tier qualification for the Tier 3 Market Maker Rebate to
Add Liquidity in Penny Symbols at (b)(1) by requiring Market Makers
to transact in all securities through one or more of its Nasdaq
Market Center MPIDs that represent 0.80% or more of Consolidated
Volume (``CV'') which adds liquidity in the same month on The Nasdaq
Stock Market, an increase from 0.70%. Also, the Exchange is
proposing to amend the second part of the qualification for the Tier
3 Market Maker Rebate to Add Liquidity in Penny Symbols at (b)(2) by
requiring Market Makers to transact in Tape B securities through one
or more of its Nasdaq Market Center MPIDs that represent 0.15% or
more of CV which adds liquidity in the same month on The Nasdaq
Stock Market, a decrease from 0.18%.
\12\ All NOM Participants are required to become members of The
Nasdaq Stock Market pursuant to General 3 Membership and Access
rules.
\13\ NOM Participants may also add NOM Market Maker liquidity in
Penny Symbols and/or Non-Penny Symbols above 0.20% to 0.60% of total
industry customer equity and ETF option ADV contracts per day in a
month to achieve the Tier 3 rebate. See Options 7, Section 2(1).
Also, Participants who achieve the Tier 3 rebate will receive $0.40
per contract to add liquidity in the following symbols: AAPL, SPY,
QQQ, IWM, and VXX. See Options 7, Section 2(1)
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Market Makers have certain obligations \14\ on NOM, unlike other
market participants. Market Maker [sic] are a source of liquidity. The
proposed amendments are generally designed to attract additional order
flow to the Exchange by incentivizing NOM Market Makers. Greater
liquidity benefits all market participants by providing more trading
opportunities and attracting greater participation by market makers. An
increase in the activity of these market participants in turn
facilitates tighter spreads. These incentives are intended to benefit
all NOM market participants who will be able to interact with
additional liquidity which this incentive attracts to the Exchange.
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\14\ See Options 2, Section 5. Also, transactions of a Market
Maker in its market making capacity must constitute a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and Market Makers should not make bids or
offers or enter into transactions that are inconsistent with such
course of dealings. See also Options 2, Section 4.
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Today, no NOM Market Maker has earned the Tier 3 NOM Market Maker
Rebate to Add Liquidity in Penny Symbols a Market Maker based on the
second part of the qualification in the last two months. The Exchange
notes that other NOM Market Makers could have qualified for this Tier 3
rebate, although they have qualified for different NOM Market Maker
Rebate to Add Liquidity in Penny Symbols. NOM Market Maker Rebate to
Add Liquidity in Penny Symbols are paid per the highest tier achieved,
so if a NOM
[[Page 22993]]
Market Maker qualifies for Tiers 4-6, that NOM Market Maker would
receive the highest rebate they qualify for even if they qualified for
Tier 3. With this proposal, the Exchange seeks to attract additional
NOM Market Maker order flow in Penny Symbols from Participants that
currently qualify for NOM Market Maker Rebate to Add Liquidity in Penny
Symbols Tiers 1 and 2.
With respect to the amendments to NOM's Routing Fees to BX, the
Exchange notes that the proposed Routing Fee would apply to all NOM
Participants uniformly.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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. The proposal is also
consistent with Section 11A of the Act relating to the establishment of
the national market system for securities. Moreover, the Exchange
believes that its proposal complies with Commission guidance on SRO fee
filings that the Commission Staff issued on May 21, 2019.\17\
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4) and (5).
\17\ See Guidance, supra note 7 [sic]. Although the Exchange
believes that this filing complies with the Guidance, the Exchange
does not concede that the standards set forth in the Guidance are
consistent with the Exchange Act and reserves its right to challenge
those standards through administrative and judicial review, as
appropriate.
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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'. . . .'' \18\
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\18\ 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.'' \19\
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\19\ 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.\20\
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\20\ The Exchange perceives no regulatory, structural, or cost
impediments to market participants shifting order flow away from it
as a result of this rule change.
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Options 7, Section 1
The Exchange's proposal to define the term ``Non-Customer'' within
Options 7, Section 1 is reasonable, equitable and not unfairly
discriminatory as the amendment will bring greater clarity to NOM's
Options 7 Rules. The term ``Non-Customer'' is currently utilized within
the fees for routing at Options 7, Section 2(3). The addition of this
defined term does not amend the manner in which the Exchange currently
applies the term with respect to its routing fees. The term
``Customer'' \21\ is currently defined and this term applies to
Participants that are not customers. This change would be non-
substantive.
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\21\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(a)(47)).
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The Exchange's proposal to relocate the rule text relating to tier
calculations from Options 7, Section 2(4), without change, to Options
7, Section 1, General Provisions is reasonable, equitable and not
unfairly discriminatory. The Exchange believes that this information is
better suited to Section 1 along with other general information because
the rule applies to Options 7 pricing and all Participants transacting
on BX.
Options 7, Section 2
The Exchange's proposal to amend the qualification for the Tier 3
Market Maker Rebate to Add Liquidity in Penny Symbols is reasonable.
Amending the second part of the qualification for the Tier 3 Market
Maker Rebate to Add Liquidity in Penny Symbols at (b)(1), by requiring
Market Makers to transact in all securities through one or more of its
Nasdaq Market Center MPIDs that represent 0.80% or more of Consolidated
Volume (``CV'') which adds liquidity in the same month on The Nasdaq
Stock Market, is an increase from 0.70%. Amending the second part of
the qualification for the Tier 3 Market Maker Rebate to Add Liquidity
in Penny Symbols at (b)(2), by requiring Market Makers to transact in
Tape B securities through one or more of its Nasdaq Market Center MPIDs
that represent 0.15% or more of CV which adds liquidity in the same
month on The Nasdaq Stock Market, is a decrease from 0.18%.\22\
Although the first component of the part (b) qualification requiring
Market Makers to transact in all securities through one or more of its
Nasdaq Market Center MPIDs is being increased and the second component
of the part (b) qualification requiring Market Makers to transact in
Tape B securities through one or more of its Nasdaq Market Center MPIDs
is being decreased, the Exchange believes that these amendments may
incentivize additional Market Makers to qualify for the Tier 3 Market
Maker Rebate to Add Liquidity in Penny Symbols by transact greater
volume on The Nasdaq Stock Market. The Tier 3 qualification requires
Market Makers to qualify for either Part (a) or (b) of the
qualification. The Exchange believes that the Tier 3 Market Maker
Rebate to Add Liquidity in Penny Symbols will continue to incentivize
Market Makers to direct additional order
[[Page 22994]]
flow to NOM and The Nasdaq Stock Market and, in turn, market
participants will benefit from the opportunity to interact with such
order flow. The Exchange notes that this proposal is designed as a
means to improve market quality by providing Participants with an
incentive to increase their provision of liquidity on the Exchange's
equity and options markets. Further, any NOM Market Maker may obtain
the Tier 3 rebate provided the qualifications are met. NOM Market Maker
Tier 3 provides two ways to achieve the NOM Tier 3 rebate of $0.30 per
contract.\23\ These incentives are intended to benefit all NOM market
participants who will be able to interact with additional liquidity
which this incentive attracts to the Exchange. Market Makers have
certain obligations \24\ on NOM, unlike other market participants.
Market Maker are a source of liquidity. The proposed amendments are
generally designed to attract additional order flow to the Exchange by
incentivizing NOM Market Makers. Greater liquidity benefits all market
participants by providing more trading opportunities and attracting
greater participation by market makers. An increase in the activity of
these market participants in turn facilitates tighter spreads.
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\22\ Part (b)(3) of the qualification for the Tier 3 Market
Maker Rebate to Add Liquidity in Penny Symbols requires that Market
Makers execute greater than 0.01% of CV via Market-on-Close/Limit-
on-Close (``MOC/LOC'') volume within The Nasdaq Stock Market Closing
Cross in the same month is not being amended.
\23\ NOM Participants may also add NOM Market Maker liquidity in
Penny Symbols and/or Non-Penny Symbols above 0.20% to 0.60% of total
industry customer equity and ETF option ADV contracts per day in a
month to achieve the Tier 3 rebate. See Options 7, Section 2(1).
Also, Participants who achieve the Tier 3 rebate will receive $0.40
per contract to add liquidity in the following symbols: AAPL, SPY,
QQQ, IWM, and VXX. See Options 7, Section 2(1).
\24\ See Options 2, Section 5. Also, transactions of a Market
Maker in its market making capacity must constitute a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and Market Makers should not make bids or
offers or enter into transactions that are inconsistent with such
course of dealings. See also Options 2, Section 4.
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The Exchange's proposal to amend the qualification for the Tier 3
Market Maker Rebate to Add Liquidity in Penny Symbols is equitable and
not unfairly discriminatory as the Exchange will uniformly pay the Tier
3 Market Maker Rebate to Add Liquidity in Penny Symbols to any
qualifying Market Maker. NOM Market Makers add value through continuous
quoting and the commitment of capital.\25\ Because NOM Market Makers
have these obligations to the market and regulatory requirements that
normally do not apply to other market participants, the Exchange
believes that offering these rebates to only NOM Market Makers is
equitable and not unfairly discriminatory in light of their
obligations. Finally, encouraging NOM Market Makers to add greater
liquidity benefits all market participants, on both NOM and The Nasdaq
Stock Market, in the quality of order interaction.
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\25\ See Options 2, Sections 4 and 5.
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The Exchange's proposal to amend Options 7, Section 2(1) to add
rule text after the title of Section 2(1), Fees and Rebates for
Execution of Contracts on The Nasdaq Options Market, which explains the
pricing applicable to the transaction fees within Section 2(1) is
reasonable, equitable and not unfairly discriminatory. The Exchange
believes the addition of this rule text will bring clarity to the
Options 7, Section 2 pricing by making clear that the transaction fees
within Options 7, Section 2(1) apply intra-day. This new note ``*''
does not represent a substantive change. The proposed new note ``*'' is
intended to serve as a guidepost to Participants referring to the NOM
Pricing Schedule.
The Exchange's proposal to add a citation to the title of Options
7, Section 2(2) to the Opening Cross rule is reasonable, equitable and
not unfairly discriminatory. This amendment will add clarity to the
rule text.
The Exchange's proposal to amend the BX Customer Routing Fee within
Options 7, Section 2(3) to start charging the actual transaction fee
assessed by BX in addition to the current $0.13 per contract Fixed Fee
is reasonable. As a general matter, the Exchange notes that use of the
Exchange's routing services is completely voluntary. In the
alternative, member organizations may submit orders to the Exchange as
ineligible for routing or ``DNR'' to avoid Routing Fees.\26\
Furthermore, the Exchange operates in a highly competitive market in
which market participants can readily select between various providers
of routing services with different pricing. In this instance, proposing
to assess the actual transaction fee, in addition to the current Fixed
Fee of $0.13 per contract, is reasonable in light of the Recent Rule
Change described above where BX no longer provides rebates to Customer
orders that are routed to and executed on BX, and instead charges them
a taker fee.\27\ As proposed, the Exchange would recoup the actual
transaction cost it incurs when routing Customer orders to BX in lieu
of collecting any rebate paid by BX. Today, the Exchange similarly
assesses orders routed to Phlx a Fixed Fee of $0.13 per contract plus
the actual transaction fee. As such, the proposal would align the BX
Routing Fee with the Phlx Routing Fee.
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\26\ See Options 5, Section 4(a)(iii)(A).
\27\ See note 7 above.
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The Exchange's proposal to amend the BX Customer Routing Fee within
Options 7, Section 2(3) is equitable and not unfairly discriminatory
because the Exchange would uniformly assess the same transaction fee
assessed by BX for the Customer order routed to BX plus a Fixed Fee of
$0.13 per contract.
The Exchange's proposal to amend Options 7, Section 2(3) to
lowercase ``PHLX,'' add a space that was missing within the Routing
Fees to Phlx, amend the name ``BX Options'' to ``BX,'' and add the
words ``per contract'' within the Routing Fee to all other options
exchanges and the proposal to renumber Options 7, Section 2(6), Market
Access and Routing Subsidy (``MARS''), to Options 7, Section 2(4) \28\
are reasonable, equitable and not unfairly discriminatory. These non-
substantive amendments will bring greater clarity to the Rulebook.
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\28\ The Exchange notes that the Pricing Schedule did not
contain a Section 2(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
In terms of 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. The Exchange believes that the proposed changes
will enable the Exchange to recover the costs it incurs to route orders
to away markets, particularly BX, while also passing along savings
realized by leveraging Nasdaq's infrastructure and scale to market
participants when those orders are routed to Nasdaq-affiliated options
markets, as further discussed above.
The Exchange also does not believe its proposal will impose an
undue burden on intra-market competition.
[[Page 22995]]
Options 7, Section 1
The Exchange's proposal to define the term ``Non-Customer'' within
Options 7, Section 1 does not impose an undue burden on competition as
the amendment will bring greater clarity to NOM's Options 7 Rules.
The Exchange's proposal to relocate the rule text from Options 7,
Section 2(4), without change, to Options 7, Section 1, General
Provisions does not impose an undue burden on competition. The Exchange
believes that this information is better suited to Section 1 along with
other general information because the rule applies to Options 7 pricing
and all Participants transacting on BX.
The Exchange's proposal to amend the qualification for the Tier 3
Market Maker Rebate to Add Liquidity in Penny Symbols does not impose
an undue burden on competition as the Exchange will uniformly pay the
Tier 3 Market Maker Rebate to Add Liquidity in Penny Symbols to any
qualifying Market Maker. NOM Market Makers add value through continuous
quoting and the commitment of capital.\29\ Because NOM Market Makers
have these obligations to the market and regulatory requirements that
normally do not apply to other market participants, the Exchange
believes that offering these rebates to only NOM Market Makers is
equitable and not unfairly discriminatory in light of their
obligations. Finally, encouraging NOM Market Makers to add greater
liquidity benefits all market participants, on both NOM and The Nasdaq
Stock Market, in the quality of order interaction.
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\29\ See Options 2, Sections 4 and 5.
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Options 7, Section 2
The Exchange's proposal to amend Options 7, Section 2(1) to add
rule text after the title of Section 2(1), Fees and Rebates for
Execution of Contracts on The Nasdaq Options Market, which explains the
pricing applicable to the transaction fees within Section 2(1) does not
impose an undue burden on competition. The Exchange believes the
addition of this rule text will bring clarity to the Section 2 pricing,
which is applicable to all Participants.
The Exchange's proposal to add a citation to the title of Options
7, Section 2(2) to the Opening Cross rule does not impose an undue
burden on competition. This amendment will add clarity to the rule
text.
The Exchange's proposal to amend the BX Customer Routing Fee within
Options 7, Section 2(3) does not impose an undue burden on competition.
In this instance, the Exchange is proposing to charge Customer orders
that are routed to BX the actual transaction fee assessed by BX in
addition to the current Fixed Fee of $0.13 per contract in light of the
fee changes under the Recent Rule Change described above where BX no
longer provides rebates to Customer orders that are routed to and
executed on BX, and instead charges them a taker fee.\30\ The proposed
changes reflect the need to recover the Exchange's costs associated
with providing its routing services. Furthermore, as noted above, the
use of the Exchange's routing services is completely voluntary and
optional, and the Exchange operates in a highly competitive market in
which market participants can readily select between various providers
of routing services with different pricing. As such, it is likely that
the Exchange will lose market share as a result of the changes proposed
herein if they are unattractive to market participants.
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\30\ See note 7 above.
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The Exchange also does not believe its proposal will impose an
undue burden on intra-market competition. As discussed above, the
Exchange would uniformly assess the same transaction fee assessed by BX
for the Customer order routed to BX plus a Fixed Fee of $0.13 per
contract. Under this proposal, Non-Customer orders would continue to be
assessed the $0.99 per contract routing fee and not be assessed the
actual BX transaction fee. The Exchange does not believe its pricing
proposal will place any market participant at a relative disadvantage
compared to other market participants because the proposed routing fee
for Customer orders will actually narrow the difference between the
routing fees assessed to Customer and Non-Customer orders routed to BX.
The Exchange's proposal to amend Options 7, Section 2(3) to
lowercase ``PHLX,'' add a space that was missing within the Routing
Fees to Phlx, amend the name ``BX Options'' to ``BX,'' and add the
words ``per contract'' within the Routing Fee to all other options
exchanges and the proposal to renumber Options 7, Section 2(6), Market
Access and Routing Subsidy (``MARS''), to Options 7, Section 2(4) do
not impose an undue burden on competition. These non-substantive
amendments will bring greater clarity to the Rulebook.
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.\31\
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\31\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2021-021 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2021-021. 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,
[[Page 22996]]
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2021-021, and should
be submitted on or before May 21, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09026 Filed 4-29-21; 8:45 am]
BILLING CODE 8011-01-P