[Federal Register Volume 89, Number 98 (Monday, May 20, 2024)]
[Notices]
[Pages 43950-43954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10946]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100130; File No. SR-NASDAQ-2024-021]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Options 7, Section 3

May 14, 2024.
    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 May 1, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 Nasdaq Options Market LLC's 
(``NOM'') Rules at Options 7, Section 3, Nasdaq Options Market--Ports 
and Other Services.\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
November 28, 2023 (SR-NASDAQ-2023-050) to be effective on December 
1, 2023. On December 5, 2023, the Exchange withdrew SR-NASDAQ-2023-
050 and placed it with SR-NASDAQ-2023-054. On January 16, 2023, the 
Exchange withdrew SR-NASDAQ-2023-054 and submitted SR-NASDAQ-2024-
003. On March 7, 2024, the Exchange withdrew SR-NASDAQ-2024-003 and 
submitted SR-NASDAQ-2024-012. On May 1, 2024, the Exchange withdrew 
SR-NASDAQ-2024-012 and submitted this filing.
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    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

[[Page 43951]]

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 Options 7, Section 3, Nasdaq Options 
Market--Ports and Other Services.
    Today, NOM assesses SQF Ports and SQF Purge Ports a per port, per 
month fee based on a tiered fee schedule. Specifically, NOM assesses an 
SQF Port and an SQF Purge Port fee of $1,500 per port, per month for 
the first 5 ports (1-5), a $1,000 per port, per month fee for the next 
15 ports (6-20), and a $500 per port, per month fee for all ports over 
20 ports (21 and above).
    At this time, the Exchange proposes to establish an increased fee 
for SQF Ports and SQF Ports above 20 ports (21 and above) that do not 
provide a minimum amount of liquidity on NOM. This increased fee is 
intended to incentivize Market Makers to add liquidity on NOM for the 
benefit of other market participants. Specifically, NOM proposes an SQF 
Port Fee and an SQF Purge Port Fee of $750 per port for all ports above 
20 ports if a Market Maker did not transact 1.50% of Total Customer 
Volume in electronic simple orders that adds liquidity in a month.\4\ 
Market Makers who transact 1.50% of Total Customer Volume that adds 
liquidity in a month will continue to be assessed a $500 per port fee 
for SQF Ports and SQF Purge Ports for over 20 ports. The Exchange 
believes that Market Makers will add liquidity to NOM in order to 
decrease their costs of doing business on the Exchange by achieving the 
lower SQF Port Fee and SQF Purge Port Fee for more than 20 ports.
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    \4\ For purposes of this cap, ``Total Customer Volume'' shall be 
defined as a percentage of all cleared customer volume at The 
Options Clearing Corporation in Multiply Listed Equity Options and 
Exchange-Traded Products (``TCV'').
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    Pursuant to Options 3, Section 7(e)(1)(B), NOM Market Makers may 
only enter quotes into SQF in their assigned options series. Pursuant 
to Options 3, Section 7(e)(1)(B), the SQF interface allows NOM Market 
Makers to connect, send, and receive messages related to quotes, 
Immediate-or-Cancel Orders, and auction responses to the Exchange. An 
SQF Purge is a specific port for the SQF interface that only receives 
and notifies of purge requests from the Market Maker. A NOM Market 
Maker may submit all quotes through one SQF Port and utilize one SQF 
Purge Port to view its purge requests. While a NOM Market Maker may 
elect to obtain multiple SQF Ports and SQF Purge Ports to organize its 
business,\5\ only one SQF Port and SQF Purge Port is necessary for a 
NOM Market Maker to fulfill its regulatory quoting obligations.\6\
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    \5\ For example, a NOM Market Maker may desire to utilize 
multiple SQF Ports for accounting purposes, to measure performance, 
for regulatory reasons or other determinations that are specific to 
that NOM Participant. The Exchange notes that 78% of NOM Market 
Makers pay the $1,000 per port, per month fee for 6-20 ports and 39% 
pay the proposed $750 per port, per month fee for over 20 ports.
    \6\ NOM Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, NOM Market 
Makers have certain quoting requirements with respect to their 
assigned options series as provided in Options 2, Section 5. The 
Exchange notes that SQF Ports are the only quoting protocol 
available on NOM and only NOM Market Makers may utilize SQF Ports. 
The same is true for SQF Purge Ports.
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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 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 proposed pricing change to increase the SQF Port Fee and SQF 
Purge Port Fee for above 20 ports to $750 per port if a Market Maker 
does not transact 1.50% of Total Customer Volume that adds liquidity in 
a month is reasonable because it will incentivize Market Makers to add 
liquidity on NOM to lower their costs. Further, 1.50% of Total Customer 
Volume that adds liquidity in a month is an achievable number for 
Market Makers who currently add volume to the Exchange. The Exchange 
believes that increasing the SQF Port Fee and SQF Purge Port Fee for 
above 20 ports from $500 to $750 per port is reasonable because Market 
Makers are obligated, among other things, to maintain a two-sided 
market in those options in which the Market Maker is registered to 
trade, in a manner that enhances the depth, liquidity and 
competitiveness of the market and compete with other Market Makers in 
all options in all capacities in which the Market Maker is registered 
to trade.\9\ The Exchange believes that it is reasonable to increase 
the SQF Port Fee and SQF Purge Port Fee for above 20 ports from $500 to 
$750 per port for Market Makers that do not transact 1.50% of Total 
Customer Volume that adds liquidity in a month because the Exchange 
believes that Market Makers that do not contribute a minimum amount of 
liquidity on NOM should not be subject to the same opportunities to 
lower their costs as those Market Makers that do contribute to 
liquidity and therefore provide the ability for other market 
participants to engage with that order flow. The Exchange believes that 
the increase is modest and would serve to encourage Market Makers to 
submit order flow to NOM in order to lower their cost and would result 
in additional order competition. The Exchange believes this proposal 
promotes liquidity, quote competition, and trading opportunities.
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    \9\ See Options 2, Section 4(a)(1) and (3).
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    A NOM Market Maker requires only one SQF Port to submit quotes in 
its assigned options series into NOM. A NOM Market Maker may submit all 
quotes through one SQF Port and utilize one SQF Purge Port to view its 
purge requests. While a NOM Market Maker may elect to obtain multiple 
SQF Ports and SQF Purge Ports to organize its business,\10\ only one 
SQF Port and SQF Purge Port is necessary for a NOM Market Maker to 
fulfill its regulatory quoting obligations. For those Market Makers 
that elect to organize themselves by obtaining a greater number of SQF 
Ports and SQF Purge Ports they will be able to reduce their fees.\11\ 
Participants may choose a greater number of SQF Ports or SQF Purge 
Ports, beyond one port, depending on that Participant's particular 
business model.
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    \10\ For example, a NOM Market Maker may desire to utilize 
multiple SQF Ports for accounting purposes, to measure performance, 
for regulatory reasons or other determinations that are specific to 
that Participant.
    \11\ The number of ports that member organizations choose to 
purchase varies widely. Today, on Phlx, 2 Market Makers have 1 SQF 
Port, 5 Market Makers have 2-5 SQF Ports, 4 Market Makers have 
between 6-10 SQF Ports, and 11 Market Makers have more than 10 SQF 
Ports. Additionally, today, on Nasdaq GEMX, LLC no Market Makers 
have 1 SQF Port/SQF Purge Port, 1 Market Maker has 2-5 SQF Ports/SQF 
Purge Ports, 4 Market Makers have between 6-10 SQF Ports/SQF Purge 
Ports, and 8 Market Makers have more than 10 SQF Ports/SQF Purge 
Ports. Finally, on Nasdaq MRX LLC (``MRX''), 2 Market Makers have 1 
SQF Ports/SQF Purge Ports, no Market Makers have 2-5 SQF Ports/SQF 
Purge Ports, 2 Market Makers have between 6-10 SQF Ports/SQF Purge 
Ports, and 6 Market Makers have more than 10 SQF Ports/SQF Purge 
Ports.
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    The proposed pricing change to increase the SQF Port Fee and SQF 
Purge Port Fee for above 20 ports to $750 per port if a Market Maker 
does not transact 1.50% of Total Customer Volume that adds liquidity in 
a month is equitable and not unfairly discriminatory as the Exchange 
would

[[Page 43952]]

uniformly apply the criteria when assessing fees. The Exchange notes 
that unlike other market participants, Market Makers are required to 
quote intra-day.\12\ Further, unlike other market participants, Market 
Makers have obligations to the market to maintain a two-sided market in 
those options in which the Market Maker is registered to trade, in a 
manner that enhances the depth, liquidity and competitiveness of the 
market and compete with other Market Makers in all options in all 
capacities in which the Market Maker is registered to trade, among 
other obligations.\13\ These liquidity providers are critical market 
participants in that they are the only market participants that provide 
liquidity to NOM. Allowing Market Makers to manage their costs by 
lowering the SQF Port and SQF Purge Port Fees for above 20 ports 
enables these essential market participants to manage their business 
model more effectively and better allocate resources to other 
technologies that are necessary to manage risk and capacity to ensure 
that these market participants continue to compete effectively on NOM. 
The following chart represents the classification of NOM members and 
the percentage of Market Makers.
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    \12\ See Options 2, Section 5(d).
    \13\ See Options 2, Section 4(a)(1) and (3).
    [GRAPHIC] [TIFF OMITTED] TN20MY24.308
    
    The Exchange believes that Market Makers should be eligible for 
certain incentives because they fulfill a unique role on the Exchange 
and are the only market participants required to submit quotes to the 
Exchange. The proposed reduced fee for above 20 ports is designed to 
ensure that Market Makers that add a certain amount of liquidity on NOM 
could obtain lower fees for above 20 ports to reduce costs. The 
Exchange desires to reward Market Makers provided they are adding a 
certain amount of liquidity to NOM and would apply the criteria 
uniformly.
    Finally, the reduced SQF Port and SQF Purge Port fees for above 20 
ports is constrained by competitive forces and reasonably designed in 
consideration of the competitive environment in which the Exchange 
operates. This fee structure incents Market Makers to support increased 
liquidity, quote competition, and trading opportunities on the 
Exchange, for the benefit of all market participants.

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.
Intermarket Competition
    The proposal does not impose an undue burden on intermarket 
competition. The Exchange believes its proposal remains competitive 
with other options markets who also offer order entry protocols. 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. The chart below shows the 
February 2024 market share for multiply listed options by exchange. Of 
the 17 operating options exchanges, none currently has more than a 
17.6% market share. Customers widely distribute their transactions 
across exchanges according to their business needs and the ability of 
each exchange to meet those needs through technology, liquidity and 
functionality.

[[Page 43953]]

[GRAPHIC] [TIFF OMITTED] TN20MY24.309

    Market share is the percentage of volume on a particular exchange 
relative to the total volume across all exchanges, and indicates the 
amount of order flow directed to that exchange. High levels of market 
share enhance the value of trading and ports.
    In such an environment, the Exchange must continually adjust its 
fees to remain competitive with other 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.
Intramarket Competition
    The proposed pricing change to increase the SQF Port Fee and SQF 
Purge Port Fee for above 20 ports to $750 per port if a Market Maker 
does not transact 1.50% of Total Customer Volume that adds liquidity in 
a month does not impose an undue burden on competition as the Exchange 
would uniformly apply the criteria when assessing fees. The Exchange 
notes that unlike other market participants, Market Makers are required 
to quote intra-day.\14\ Further, unlike other market participants, 
Market Makers have obligations to the market to maintain a two-sided 
market in those options in which the Market Maker is registered to 
trade, in a manner that enhances the depth, liquidity and 
competitiveness of the market and compete with other Market Makers in 
all options in all capacities in which the Market Maker is registered 
to trade, among other obligations.\15\ These liquidity providers are 
critical market participants in that they are the only market 
participants that provide liquidity to NOM. Allowing Market Makers to 
manage their costs by lowering the SQF Port and SQF Purge Port Fees for 
above 20 ports enables these essential market participants to manage 
their business model more effectively and better allocate resources to 
other technologies that are necessary to manage risk and capacity to 
ensure that these market participants continue to compete effectively 
on NOM. The Exchange believes that Market Makers should be eligible for 
certain incentives because they fulfill a unique role on the Exchange 
and are the only market participants required to submit quotes to the 
Exchange. The proposed reduced fee for above 20 ports is designed to 
ensure that Market Makers that add a certain amount of liquidity on NOM 
could obtain lower fees for above 20 ports to reduce costs. The 
Exchange desires to reward Market Makers provided they are adding a 
certain amount of liquidity to NOM and would apply the criteria 
uniformly.
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    \14\ See Options 2, Section 5(d).
    \15\ See Options 2, Section 4(a)(1) and (3).
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    Finally, the reduced SQF Port and SQF Purge Port fees for above 20 
ports is constrained by competitive forces and reasonably designed in 
consideration of the competitive environment in which the Exchange 
operates. This fee structure incents Market Makers to support increased 
liquidity, quote competition, and trading opportunities on the 
Exchange, for the benefit of all market participants.

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\
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    \16\ 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:

[[Page 43954]]

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2024-021 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-2024-021. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2024-021 and should 
be submitted on or before June 10, 2024.

    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. 2024-10946 Filed 5-17-24; 8:45 am]
BILLING CODE 8011-01-P