Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees To Introduce a New Pricing Model, 3784-3789 [2018-01353]
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Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices
not significantly affect any securities
clearing operations of OCC or any rights
or obligations of OCC with respect to
securities clearing or persons using such
securities clearing services.
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 necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.17
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
OCC–2018–003 on the subject line.
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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–OCC–2018–003. 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
certificate, certificate of deposit for a security, any
put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of
securities (including any interest therein or based
on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national
securities exchange relating to foreign currency, or
in general, any instrument commonly known as a
‘security’; or any certificate of interest or
participation in, temporary or interim certificate for,
receipt for, or warrant or right to subscribe to or
purchase, any of the foregoing; but shall not include
currency or any note, draft, bill of exchange, or
banker’s acceptance which has a maturity at the
time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof
the maturity of which is likewise limited.’’ 15
U.S.C. 77b(a)(1). Section 3(a)(55) of the Exchange
Act defines ‘‘security future’’ as ‘‘a contract of sale
for future delivery of a single security or of a
narrow-based security index, including any interest
therein or based on the value thereof, except an
exempted security.’’ 15 U.S.C. 78c(a)(55). An option
on a futures contract that is not a security future
does not meet the definition of ‘‘security’’ and
therefore is a product that is subject to the exclusive
jurisdiction of the CFTC.
17 Notwithstanding its immediate effectiveness,
implementation of this rule change will be delayed
until this change is deemed certified under CFTC
Rule 40.6.
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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
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of OCC and on OCC’s website at
https://www.theocc.com/about/
publications/bylaws.jsp.
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–OCC–2018–003 and should
be submitted on or before February 16,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–01358 Filed 1–25–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82537; File No. SR–MRX–
2018–01]
Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the Schedule
of Fees To Introduce a New Pricing
Model
January 19, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 4,
2018, Nasdaq MRX, LLC (‘‘MRX’’ or
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Schedule of Fees to introduce a new
pricing model on MRX that is designed
to reward members that bring order flow
to the Exchange and thereby increase
liquidity and trading opportunities for
all members.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqmrx.cchwallstreet.com/, 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 Schedule of Fees
to introduce a new pricing model on
MRX that is designed to reward
members that bring order flow to the
Exchange and thereby increase liquidity
and trading opportunities for all
members. The Exchange believes that
the proposed pricing model will
encourage additional order flow to be
sent to the Exchange, and contribute to
a more active and quality market in
MRX-listed options to the benefit of all
market participants that trade on the
Exchange.
I. Member Volume Program
Currently, the Exchange operates
using a pricing schedule that rewards
members that execute a higher average
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daily volume (‘‘ADV’’) of order flow on
the Exchange by providing tiered
rebates and fee discounts to market
participants. Specifically, under the
Member Volume Program (‘‘MVP’’),
members can qualify for higher tiers
based on Total Affiliated 3 and/or
Appointed 4 Priority Customer 5 ADV as
follows: 0 to 19,999 contracts (Tier 1),
20,000 to 39,999 contracts (Tier 2),
40,000 to 59,999 contracts (Tier 3),
60,000 to 79,999 contracts (Tier 4), and
80,000 or more contracts (Tier 5).6
Based on the tier achieved, the
Exchange provides tiered rebates to
Priority Customer orders and tiered fee
discounts to Market Maker 7 orders. In
particular, in both Penny Symbols and
Non-Penny Symbols, Priority Customer
orders are provided a rebate that is
$0.05 per contract (Tier 1), $0.10 per
contract (Tier 2), $0.15 per contract
(Tier 3), $0.21 per contract (Tier 4), and
$0.24 per contract (Tier 5); and Market
Maker orders are charged a fee that is
3 The Total Affiliated Priority Customer ADV
category includes all Priority Customer volume
executed on the Exchange in all symbols and order
types, including volume executed in the PIM,
Facilitation, and QCC mechanisms. All eligible
volume from affiliated Members will be aggregated
in determining applicable tiers, provided there is at
least 75% common ownership between the
Members as reflected on the Member’s Form BD,
Schedule A.
4 A Nasdaq MRX Appointed Market Maker is
eligible to receive and aggregate volume credit from
both their affiliated Members and their Nasdaq
MRX Appointed Order Flow Provider. A Nasdaq
MRX Appointed Order Flow Provider will not
receive volume credit from its Nasdaq MRX
Appointed Market Maker or the Nasdaq MRX
Appointed Market Maker’s affiliates in determining
its applicable tiers. Designating a Nasdaq MRX
Appointed Market Maker/Appointed Order Flow
Provider: An Nasdaq MRX Market Maker appoints
an Electronic Access Member as its Appointed
Order Flow Provider and an Electronic Access
Member appoints an Nasdaq MRX Market Maker as
its Appointed Market Maker, for the purposes of the
Fee Schedule, by each sending an email to bizdev@
ise.com. These corresponding emails will be viewed
as acceptance of the appointment. The Exchange
will recognize one such designation for each party.
A party may make a designation not more than once
every 6 months, which designation shall remain in
effect until the Exchange receives an email from
either party indicating that the appointment has
been terminated.
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
Rule 100(a)(37A).
6 The highest tier threshold attained applies
retroactively in a given month to all eligible traded
contracts and applies to all eligible market
participants. Any day that the market is not open
for the entire trading day or the Exchange instructs
Members in writing to route their orders to other
markets may be excluded from the ADV calculation;
provided that the Exchange will only remove the
day for members that would have a lower ADV with
the day included.
7 The term Market Makers refers to ‘‘Competitive
Market Makers’’ and ‘‘Primary Market Makers’’
collectively.
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$0.25 per contract (Tier 1), $0.22 per
contract (Tier 2), $0.18 per contract
(Tier 3), $0.15 per contract (Tier 4), and
$0.10 per contract (Tier 5).8 Regardless
of the tier achieved, Non-Nasdaq MRX
Market Makers,9 Firm Proprietary,10
Broker-Dealer,11 and Professional
Customer 12 orders pay a flat fee that is
$0.47 per contract in Penny Symbols
and $0.90 per contract in Non-Penny
Symbols.
The Exchange now proposes to
eliminate the MVP structure 13 and
introduce a new pricing model that the
Exchange believes will encourage
members to bring more order flow to the
Exchange. Specifically, the Exchange
proposes to adopt a maker/taker fee
model where all market participants are
charged a fee (or are eligible for free
executions) with potentially discounted
fees based on ADV, whether the market
participant is adding or removing
liquidity, and whether both sides of the
transaction belong to a member and its
affiliated or appointed members.
With the proposed changes to the
pricing model, the Exchange proposes to
replace the current MVP tiers with a
simple two tier structure based on Total
Affiliated and/or Appointed Member
ADV. Specifically, members would be
able to qualify for higher tiers based on
Total Affiliated and/or Appointed
Member ADV as follows: 0 to 49,999
contracts (Tier 1), and 50,000 or more
contracts (Tier 2). In order to attract
order flow from all market participants,
the Total Affiliated Member ADV
category includes all volume executed
on the Exchange in all symbols and
order types, rather than only Priority
Customer volume.14 The Exchange will
8 This fee also applies to Nasdaq MRX Market
Maker orders sent to the Exchange by Electronic
Access Members. Market Makers will receive a
$0.05 per contract discount when trading against a
non-Priority Customer.
9 A ‘‘Non-Nasdaq MRX Market Maker’’ is a market
maker as defined in Section 3(a)(38) of the
Securities Exchange Act of 1934, as amended,
registered in the same options class on another
options exchange.
10 A ‘‘Firm Proprietary’’ order is an order
submitted by a member for its own proprietary
account.
11 A ‘‘Broker-Dealer’’ order is an order submitted
by a member for a broker-dealer account that is not
its own proprietary account.
12 A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer.
13 Although the Exchange proposes to adopt a
new structure it will keep the footnotes in the
Qualifying Tier Threshold section as these will still
apply to the calculation of ADV under the proposed
structure.
14 The Exchange proposes to add a definition of
Total Affiliated Member ADV to the Schedule of
Fees to describe how this is calculated. The other
footnotes to the Qualifying Tier Threshold language
will remain as discussed above, and will be in
addition to this proposed footnote.
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3785
also continue to permit members to
designate Nasdaq MRX Appointed
Market Makers and Nasdaq MRX
Appointed Order Flow Providers, and
will aggregate order flow based on that
designation in determining the
member’s tier. The Exchange already
has language in its Schedule of Fees
about designating Nasdaq MRX
Appointed Market Makers and Nasdaq
MRX Appointed Order Flow Providers
and this language will remain a part of
the Schedule of Fees.15
With respect to pricing, Market Maker
orders would be charged a maker fee
that is $0.20 per contract for Tier 1 and
$0.00 per contract for Tier 2 in both
Penny and Non-Penny Symbols, and a
taker fee that is $0.50 per contract for
Penny Symbols and $0.90 per contract
for Non-Penny Symbols, regardless of
the tier achieved.16 In addition, as an
incentive for bringing order flow to the
Exchange, Market Maker orders that
take liquidity would also be eligible for
ADV-based fee discounts in both Penny
and Non-Penny Symbols when trading
with Priority Customer orders entered
by an affiliated or appointed member.
The discounted fee would be $0.05 per
contract if the member has a Total
Affiliated and/or Appointed Priority
Customer ADV of 5,000 contracts or
more, or $0.00 per contract if the
member has a Total Affiliated and/or
Appointed Priority Customer ADV of
50,000 contracts or more. Regardless of
the member’s tier, Non-Nasdaq MRX
Market Maker, Firm Proprietary, BrokerDealer, and Professional Customer
orders would pay a fee in Penny
Symbols that is $0.47 per contract for
maker transactions and $0.50 per
contract for taker transactions, and both
a maker and taker fee of $0.90 per
contract in Non-Penny Symbols. Priority
Customer orders would not be charged
a fee for regular executions in either
Penny or Non-Penny Symbols.
II. Marketing Fees
Currently, Market Makers are charged
a marketing fee of $0.25 per contract in
Penny Symbols and $0.70 per contract
in Non-Penny Symbols for each regular
15 Currently, the footnotes describing the process
for designating a Nasdaq MRX Appointed Market
Maker or Appointed Order Flow Provider indicate
that members should email bizdev@ise.com. The
Exchange proposes to change this to the appropriate
Nasdaq email address, which is sales@nasdaq.com.
The language describing the aggregation of eligible
volume also contains an outdated reference to the
Exchange’s previous name, which the Exchange
proposes to update to reflect its current name—i.e.,
Nasdaq MRX.
16 The fees charged to Market Makers will apply
to Nasdaq MRX Market Maker orders sent to the
Exchange by Electronic Access Members.
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Priority Customer contract executed.17
This marketing fee is waived for Flash
Order Responses. In connection with
the fee changes described in Section I
above, the Exchange also proposes to
waive marketing fees for Market Maker
orders that take liquidity from the order
book. The Exchange believes that this
change will ensure that Market Makers
can benefit from the proposed fee
incentives described above for taking
liquidity, without the benefits provided
thereunder being eroded by charging a
marketing fee, which may or may not go
into the marketing fee pool
administered by the executing Market
Maker. Furthermore, in connection with
the changes to Crossing Order fees
described in Section IV below, the
Exchange proposes to waive marketing
fees for Crossing Orders and Responses
to Crossing Orders, which will ensure
that the total fee paid by Market Makers
that trade with this order flow will
remain at a level the Exchange believes
is appropriate.
III. Flash Orders
With the introduction of a maker/
taker fee structure, the Exchange also
proposes to introduce language
clarifying how Flash Orders will be
charged. A ‘‘Flash Order’’ is an order
that is exposed at the National Best Bid
or Offer by the Exchange to all members
for execution, as provided under
Supplementary Material .02 to Nasdaq
MRX Rule 1901. Because a Flash Order
being exposed to the market is entered
prior to Responses to that order, the
Exchange proposes to charge the
applicable maker fee to all Flash Orders,
which is similar to how pricing would
be determined had the order rested on
the order book. Similarly, because
Responses that trade with a Flash Order
are benefiting from the execution of a
prior order, the Exchange proposes to
charge the applicable taker fee for all
Responses that trade against a Flash
Order.
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IV. Crossing Orders
Currently, the Exchange charges a fee
for Crossing Orders (except PIM orders
of 500 or fewer contracts) 18 in Penny
17 The marketing fee will be rebated
proportionately to the members that paid the fee
such that on a monthly basis the marketing fee fund
balance administered by a Primary Market Maker
for a Group of options established under Rule
802(b) does not exceed $100,000 and the marketing
fee fund balance administered by a preferenced
Competitive Market Maker for such a Group does
not exceed $100,000. A preferenced Competitive
Market Maker that elects not to administer a fund
will not be charged the marketing fee. The
Exchange assesses an administrative fee of .45% on
the total amount of the funds collected each month.
18 PIM orders of more than 500 contracts will pay
the Fee for Crossing Orders.
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and Non-Penny Symbols that is $0.20
per contract for Market Maker,19 NonNasdaq MRX Market Maker, Firm
Proprietary, Broker-Dealer, and
Professional Customer orders, and $0.00
per contract for Priority Customer
Orders.20 The Exchange also charges a
fee in all symbols for PIM orders of 500
or fewer contracts that is $0.05 per
contract for Market Maker, Non-Nasdaq
MRX Market Maker, Firm Proprietary,
Broker-Dealer, and Professional
Customer orders. Priority Customers
receive a rebate for PIM orders of 500 or
fewer contracts that is tiered based on
the MVP tiers described above.
Specifically, Priority Customer orders
receive a rebate of $0.11 per contract for
Tiers 1–2 and $0.13 per contract for
Tiers 3–5. Priority Customer orders on
the contra-side of a PIM auction for 500
or fewer contracts pay no fee and
receive no rebate. The Exchange now
proposes to eliminate the special fees
described above for PIM orders of 500
contracts or fewer and apply the fee for
Crossing Orders described above to all
Crossing Orders, including PIM orders
of 500 contracts or fewer.
In addition, the Exchange charges a
fee for Responses to Crossing Orders
that is $0.50 per contract for NonNasdaq MRX Market Maker, Firm
Proprietary, Broker-Dealer, Professional
Customer, and Priority Customer orders
in Penny Symbols, and $0.95 per
contract for the above market
participant types in Non-Penny
Symbols. Market Makers are charged a
fee for Responses to Crossing Orders in
Penny and Non-Penny Symbols that is
$0.25 per contract, subject to a discount
whereby Market Makers that achieve
Tier 2 or higher under the MVP are
charged the discounted fee charged to
regular executions for the tier reached—
i.e., from $0.22 per contract for Tier 2
to $0.10 per contract for Tier 5, as
discussed in more detail in the MVP
section above. The Exchange now
proposes to charge Market Makers the
same fee for Responses to Crossing
Orders as is currently charged to other
market participants. As such, Market
Maker orders will be charged a fee for
Responses to Crossing Orders that is
$0.50 per contract in Penny Symbols
and $0.95 per contract in Non-Penny
Symbols, similar to the other market
participants described above. Market
Makers would not be eligible for any fee
discounts based on the MVP tiers that
are being discontinued.
19 Market Maker fees discussed in this section
also apply to Market Maker orders sent to the
Exchange by Electronic Access Members.
20 Except as otherwise noted herein, the fees
described in this paragraph apply to the originating
and contra orders.
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,21 in general, and
furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,22 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 Exchange is adopting a new pricing
model for MRX and believes that the
proposed changes will be attractive to
market participants, and will encourage
additional liquidity and trading
opportunities on the Exchange to the
benefit of all members.
I. Member Volume Program
The Exchange believes that the
proposed fee change is reasonable,
equitable, and not unfairly
discriminatory as it is designed to
increase liquidity and opportunities for
all members to trade on the Exchange.
The proposed fee structure being
adopted represents a substantial change
in the fee model for MRX that the
Exchange believes will be attractive to
market participants, and will assist the
Exchange in competing in today’s
competitive environment. Generally, the
proposed fee change would eliminate
the current MVP structure and adopt a
new maker/taker fee structure where
market participants other than Priority
Customers are charged a fee based on
whether the market participant adds or
removes liquidity. Priority Customer
orders, meanwhile, would be eligible for
free executions, and Market Makers
would be eligible to qualify for
substantially lower or no fees based on
their contribution to the market.
Qualifying tier thresholds for members
would be based on Total Affiliated and/
or Appointed Member ADV in two tiers
that are designed to encourage members
to bring order flow to the Exchange to
qualify for higher tiers. For the reasons
described in the following paragraphs,
the Exchange believes that the proposed
fee structure will be beneficial to market
participants and will encourage an
active and liquid market on MRX.
With respect to the proposed
qualifying tier thresholds, the Exchange
believes that the proposed ADV
requirements are reasonable and
equitable because they are set at levels
that the Exchange believes will
encourage market participants, and, in
particular, Market Makers to execute
21 15
22 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
26JAN1
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more volume on the Exchange. As
proposed, the qualifying tier thresholds
would also reference Total Affiliated
and/or Appointed Member ADV instead
of Total Affiliated and/or Appointed
Priority Customer ADV, which the
Exchange believes will benefit firms that
bring a wider range of order flow to the
Exchange. The Exchange is also
proposing to introduce new fee
incentives (described in the paragraphs
below) that specifically target Priority
Customer order flow, thereby retaining
the ability to attract those orders to the
Exchange. The Exchange believes that
the proposed changes will be attractive
to market participants that trade on
MRX. Furthermore, the Exchange
believes that the qualifying tier
thresholds are equitable and not
unfairly discriminatory as all market
participants can qualify for a higher tier
by executing the required volume of
contracts, either through the member, its
affiliates, or an appointed member, as is
the case today.
Under the proposed pricing structure,
Priority Customer orders would be
eligible for free executions. Although
the Exchange will no longer provide
rebates to Priority Customer orders, the
Exchange believes that increased Market
Maker participation would increase the
opportunities for these orders to trade
and therefore encourage members to
bring this order flow to the Exchange. In
addition, by receiving free executions
Priority Customer orders would
continue to be provided the most
favorable rates on the Exchange. Only
one other market participant type (i.e.,
Market Makers) would be eligible to
trade for free and only in specified
circumstances. The Exchange believes
that it is appropriate and not unfairly
discriminatory to provide free
executions to Priority Customer orders
as the Exchange is seeking to attract this
order flow. The Exchange believes that
attracting more volume from Priority
Customers will benefit all market
participants that trade on MRX. In
addition, the Exchange believes that it is
equitable and not unfairly
discriminatory to charge a lower fee for
Priority Customer orders as a Priority
Customer is by definition not a broker
or 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). This limitation does not
apply to market participants whose
behavior is substantially similar to that
of market professionals, and who will
generally submit a higher number of
orders than Priority Customers.
Market Makers would also benefit
from a strong mix of incentives that are
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designed to create an active and liquid
market for MRX-listed options. First,
Market Makers would pay a base fee
that is equal to or lower than that
charged to all market participants other
than Priority Customers, with the
potential to further lower those fees by
qualifying for additional pricing
incentives. The Exchange believes that
charging lower fees to Market Maker
orders is reasonable and equitable as
doing so increases Market Maker
activity and thereby creates additional
opportunities for other market
participants to trade. Furthermore, the
Exchange believes that it is equitable
and not unfairly discriminatory to
charge lower fees to Market Makers
because Market Makers have different
requirements and obligations to the
Exchange that other market participants
do not (such as quoting requirements).
For this reason, the Exchange also
believes that the other incentives
described below, which may further
decrease execution costs for Market
Makers, are also equitable and not
unfairly discriminatory. These
incentives are designed to increase
Market Maker participation and reward
Market Makers for the unique role that
they play in ensuring a robust market.
Second, Market Makers would be
rewarded for providing liquidity with a
lower base rate for adding liquidity as
opposed to taking liquidity, and the
possibility for free executions if the
Market Maker achieves a higher tier
based on Total Affiliated and/or
Appointed Member ADV. The Exchange
believes that it is reasonable and
equitable to charge a lower base rate for
Market Maker orders that add liquidity
because Market Makers provide an
important function to the market when
they provide liquidity to other market
participants through their displayed
quotes. The Exchange believes that
incentivizing Market Makers to provide
liquidity through lower maker fees will
create additional displayed liquidity
and opportunities for market
participants to trade. Furthermore,
providing an additional discount when
the Market Maker meets the qualifying
tier threshold for a higher ADV tier will
encourage the member to transact
additional business on the Exchange,
and thereby create a more active market.
The Exchange also believes that tying
execution fees to whether the Market
Maker is adding or removing liquidity,
and based on ADV, is equitable and not
unfairly discriminatory as all Market
Makers will be treated uniformly based
on these factors.
Third, although Market Makers would
pay the same base rate for removing
liquidity as other market participants,
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3787
Market Makers would be eligible for a
discounted taker fee when trading with
Priority Customer orders entered by an
affiliated or appointed member. Market
Makers would qualify for this
discounted taker fee if the member has
reached a threshold level of Total
Affiliated and/or Appointed Priority
Customer ADV, and would be eligible
for free executions if the member
executes a higher volume of contracts.
The Exchange believes that it is
reasonable and equitable to charge a
lower fee to Market Makers when
trading against Priority Customer orders
that originate from affiliated or
appointed members as this incentive is
designed to encourage firms to bring
additional Priority Customer order flow
to the Exchange. For the same reason,
the proposed ADV requirements are also
based on ADV in Priority Customer
contracts executed by affiliated or
appointed members.
This discounted fee structure is
similar to one in place on the
Exchange’s affiliate, the Nasdaq Options
Market (‘‘NOM’’), where participants
that meet specified volume
requirements can qualify for discounted
fees if the participant is: (i) Both the
buyer and the seller or (ii) the
participant removes liquidity from
another participant under common
ownership.23 Similar to NOM, the
Exchange believes that this structure
will encourage additional order flow
both from Market Makers and their
affiliated and/or appointed members.
This will benefit those members through
reduced fees, and will also benefit other
market participants that will have an
opportunity to trade with the order flow
that these firms bring to the market.
When a Priority Customer order is
entered on the Exchange, a Market
Maker that wishes to interact with that
order flow does not typically know
whether that order originated from one
of its affiliated or appointed members.
The Exchange therefore believes that
Market Makers would continue to
aggressively pursue order flow in order
to receive the benefit of the fee discount.
Discounting fees in this manner will
reward firms that bring more order flow
to the Exchange. This is the case both
because sending additional order flow
would increase the chances of a firm
qualifying for a reduced fee (i.e.,
because it increases the chances that a
contra-side order is entered by an
affiliated or appointed member), and
because a higher ADV is required to
23 See NOM Rules, Chapter XV Options Pricing,
Sec. 2 Nasdaq Options Market—Fees and Rebates,
(1) Fees for Execution of Contracts on The Nasdaq
Options Market.
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daltland on DSKBBV9HB2PROD with NOTICES
3788
Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices
qualify for free executions under the
proposed pricing structure.
The Exchange also believes that the
proposed fee discount described above
is equitable and not unfairly
discriminatory. As mentioned before,
Market Makers have special obligations
to the market that other market
participants do not. The Exchange
therefore believes that it is appropriate
to reward those members with
potentially lower fees. Furthermore,
providing an incentive specifically to
Market Makers whose affiliated and/or
appointed members bring Priority
Customer order flow to the Exchange
encourages firms to bring more of this
order flow to the Exchange. All Market
Makers can benefit from this incentive
either by interacting with order flow
sent to the Exchange by its affiliates or
by designating a Nasdaq MRX
Appointed Order Flow Provider, who
would be treated similar to an affiliate.
Moreover, rewarding members that
bring a more substantial investment of
order flow is beneficial to all market
participants, who are free to interact
with such order flow.
Finally, Non-Nasdaq MRX Market
Maker, Firm Proprietary, Broker-Dealer,
and Professional Customer orders would
be subject to maker/taker fees at rates
that are similar to those currently
charged on the Exchange. In Penny
Symbols, these market participants
would pay a maker fee that is the same
as the fee charged today, and a taker fee
that is modestly higher. For the reasons
discussed above with respect to Market
Maker orders, the Exchange believes
that it is appropriate to charge higher
fees for executions that remove liquidity
than those that provide liquidity to
other market participants—i.e., because
this encourages more displayed
liquidity and opportunities for market
participants to trade on the Exchange. In
Non-Penny Symbols, these market
participants will be charged the same
fee as today, regardless of whether the
order is executed as maker or taker.
Although these market participants
would continue to be charged fees that
are higher than the fees charged to
Priority Customer and Market Maker
orders, the Exchange believes that this
is equitable and not unfairly
discriminatory for the reasons discussed
in the paragraphs above on Priority
Customer and Market Maker fees.
Furthermore, although these market
participants would be charged a
modestly increased fee in the one
instance described above, the Exchange
believes that the effect of this fee
increase is justified by the potential for
the new fee structure to encourage
additional liquidity and opportunities
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20:14 Jan 25, 2018
Jkt 244001
for trading due to the incentives being
provided to Market Maker and Priority
Customer orders.
II. Marketing Fees
The Exchange believes that it is
reasonable and equitable to eliminate
the marketing fees charged to Market
Maker orders that take liquidity from
the order book as charging a marketing
fee in these instances would frustrate
the Exchange’s incentives for firms that
bring Priority Customer orders to the
Exchange and receive a fee discount
(including potentially free executions)
when trading with that order flow.
Furthermore, the marketing fee is
designed to assist Market Makers in
establishing marketing fee arrangements
with Electronic Access Members in
exchange for those members routing
some or all of their order flow to such
Market Makers. This purpose is not
advanced when the Priority Customer
order on the other side of the
transaction is providing liquidity and is
not routed to access displayed liquidity
being provided by a Market Maker
quoting on the Exchange. Furthermore,
the Exchange has proposed changes to
its Crossing Order fees that would result
in Market Makers paying a higher
Response fee that is the same as the fee
charged to other market participants.
The Exchange believes that it is
reasonable and equitable to eliminate
the marketing fee charged for Crossing
Orders and Responses to Crossing
Orders as this change will keep total
execution costs down when Market
Makers trade with Crossing Order flow.
The Exchange also believes that both of
the proposed changes to the marketing
fee described above are not unfairly
discriminatory as no Market Makers
would be charged a marketing fee when
removing liquidity or when executing
Crossing Orders or Responses to
Crossing Orders.
III. Flash Orders
The Exchange believes that the
proposed pricing for Flash Orders is
reasonable and equitable as the
proposed changes clarify how the
Exchange will charge members for Flash
Orders with the introduction of maker/
taker pricing. Without this change
members would not be aware of how
Flash Orders are charged because Flash
Orders do not rest on the book and
therefore could be treated as either
maker or taker for purposes of pricing.
The Exchange is proposing to charge the
applicable maker fee for Flash Orders,
and the applicable taker rebate for
Responses that trade against a Flash
Order. The Exchange believes that it is
reasonable and equitable to charge the
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Fmt 4703
Sfmt 4703
applicable maker fee to a Flash Order as
the order being exposed is entered first,
and maker pricing would therefore
apply the same as it would had that
order rested on the order book.
Similarly, the Exchange believes that it
is reasonable and equitable to charge the
applicable taker fee to Responses as
these Responses are benefiting from the
execution of a prior order. Furthermore,
the Exchange believes the proposed
Flash Order language is not unfairly
discriminatory because Flash Orders
entered by all market participants will
be treated as maker and all Responses
that trade against a Flash Order will be
treated as taker.
IV. Crossing Order Fees
The Exchange believes that it is
reasonable, equitable, and not unfairly
discriminatory to eliminate the special
incentive for PIM orders of 500 or fewer
contracts as the proposed fees charged
would now be consistent for all
Crossing Orders. The Exchange
currently has in place a fee structure
that was implemented to encourage PIM
orders for 500 or fewer contracts by
charging lower fees to the originating
and contra-side of those orders. The
Exchange no longer believes that this
incentive is necessary and is therefore
removing it. With this change, members
will be charged the same fees for all
Crossing Orders, regardless of whether
the order is executed in the PIM or
another crossing mechanism, and
regardless of the size of the order. The
Exchange also believes that it is
reasonable and equitable to increase the
fees charged to Market Maker Responses
to Crossing Orders as with this change
Market Makers would be charged the
same fees as other market participants.
The Exchange also believes that the
Crossing Order changes are equitable
and not unfairly discriminatory as the
proposed fees would be more
standardized across the various Crossing
Order mechanisms, and across market
participant types, with the exception
that Priority Customer orders would
continue to not be charged a fee for
Crossing Orders.24 As explained earlier
in this proposed rule change, a Priority
Customer is by definition not a broker
or 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). This limitation does not
apply to participants whose behavior is
substantially similar to that of market
24 Priority Customer orders would continue to
pay a fee for Responses to Crossing Orders that is
the same as the fee charged to other market
participants.
E:\FR\FM\26JAN1.SGM
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Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices
professionals who will generally submit
a higher number of orders than Priority
Customers. The Exchange therefore
believes that it is equitable and not
unfairly discriminatory to provide more
favorable pricing to Priority Customer
orders in the one instance described
above.
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. The
proposed fee change is an overhaul of
the Exchange’s pricing model that is
designed to incentivize members to
bring additional order flow to the
Exchange, and create a more active and
quality market in MRX-listed options.
The Exchange therefore believes that the
proposed rule change is a product of the
competitive environment in the options
industry. The Exchange 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
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.
daltland on DSKBBV9HB2PROD with NOTICES
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,25 and Rule
19b–4(f)(2) 26 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
25 15
26 17
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
VerDate Sep<11>2014
20:14 Jan 25, 2018
Jkt 244001
3789
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.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Eduardo A. Aleman,
Assistant Secretary.
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:
[FR Doc. 2018–01353 Filed 1–25–18; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MRX–2018–01 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–2018–01. 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
10:00 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–2018–01 and should
be submitted on or before February 16,
2018.
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Sfmt 9990
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82561; File No. SR–
CboeBZX–2017–021]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of
Withdrawal of a Proposed Rule Change
To List and Trade Shares of the First
Trust Bitcoin Strategy ETF and the
First Trust Inverse Bitcoin Strategy
ETF, Each a Series of the First Trust
Exchange-Traded Fund VII, Under Rule
14.11(i), Managed Fund Shares
January 22, 2018.
On December 19, 2017, Cboe BZX
Exchange, Inc. (‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Exchange
Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to list and trade
shares of the First Trust Bitcoin Strategy
ETF and the First Trust Inverse Bitcoin
Strategy ETF, each a series of the First
Trust Exchange-Traded Fund VII, under
Rule 14.11(i), Managed Fund Shares.
The proposed rule change was
published for comment in the Federal
Register on January 8, 2018.3 The
Commission received three comment
letters on the proposed rule change.4
On January 19, 2018, the Exchange
withdrew the proposed rule change
(SR–CboeBZX–2017–021).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.5
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–01416 Filed 1–25–18; 8:45 am]
BILLING CODE 8011–01–P
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 82429
(Jan. 2, 2018), 83 FR 929 (Jan. 8, 2018).
4 See Letters from Anita Desai (Jan. 4, 2018); Carl
Summersett (Jan. 4, 2018); and Stephen Knell (Jan.
9, 2018). All comments on the proposed rule change
are available on the Commission’s website at:
https://www.sec.gov/comments/sr-cboebzx-2017021/cboebzx2017021.htm.
5 17 CFR 200.30–3(a)(12).
1 15
E:\FR\FM\26JAN1.SGM
26JAN1
]]>Agencies
[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3784-3789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01353]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82537; File No. SR-MRX-2018-01]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Schedule of Fees To Introduce a New Pricing Model
January 19, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 4, 2018, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Schedule of Fees to introduce a
new pricing model on MRX that is designed to reward members that bring
order flow to the Exchange and thereby increase liquidity and trading
opportunities for all members.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqmrx.cchwallstreet.com/, 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 Schedule of
Fees to introduce a new pricing model on MRX that is designed to reward
members that bring order flow to the Exchange and thereby increase
liquidity and trading opportunities for all members. The Exchange
believes that the proposed pricing model will encourage additional
order flow to be sent to the Exchange, and contribute to a more active
and quality market in MRX-listed options to the benefit of all market
participants that trade on the Exchange.
I. Member Volume Program
Currently, the Exchange operates using a pricing schedule that
rewards members that execute a higher average
[[Page 3785]]
daily volume (``ADV'') of order flow on the Exchange by providing
tiered rebates and fee discounts to market participants. Specifically,
under the Member Volume Program (``MVP''), members can qualify for
higher tiers based on Total Affiliated \3\ and/or Appointed \4\
Priority Customer \5\ ADV as follows: 0 to 19,999 contracts (Tier 1),
20,000 to 39,999 contracts (Tier 2), 40,000 to 59,999 contracts (Tier
3), 60,000 to 79,999 contracts (Tier 4), and 80,000 or more contracts
(Tier 5).\6\
---------------------------------------------------------------------------
\3\ The Total Affiliated Priority Customer ADV category includes
all Priority Customer volume executed on the Exchange in all symbols
and order types, including volume executed in the PIM, Facilitation,
and QCC mechanisms. All eligible volume from affiliated Members will
be aggregated in determining applicable tiers, provided there is at
least 75% common ownership between the Members as reflected on the
Member's Form BD, Schedule A.
\4\ A Nasdaq MRX Appointed Market Maker is eligible to receive
and aggregate volume credit from both their affiliated Members and
their Nasdaq MRX Appointed Order Flow Provider. A Nasdaq MRX
Appointed Order Flow Provider will not receive volume credit from
its Nasdaq MRX Appointed Market Maker or the Nasdaq MRX Appointed
Market Maker's affiliates in determining its applicable tiers.
Designating a Nasdaq MRX Appointed Market Maker/Appointed Order Flow
Provider: An Nasdaq MRX Market Maker appoints an Electronic Access
Member as its Appointed Order Flow Provider and an Electronic Access
Member appoints an Nasdaq MRX Market Maker as its Appointed Market
Maker, for the purposes of the Fee Schedule, by each sending an
email to [email protected]. These corresponding emails will be viewed
as acceptance of the appointment. The Exchange will recognize one
such designation for each party. A party may make a designation not
more than once every 6 months, which designation shall remain in
effect until the Exchange receives an email from either party
indicating that the appointment has been terminated.
\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 Rule
100(a)(37A).
\6\ The highest tier threshold attained applies retroactively in
a given month to all eligible traded contracts and applies to all
eligible market participants. Any day that the market is not open
for the entire trading day or the Exchange instructs Members in
writing to route their orders to other markets may be excluded from
the ADV calculation; provided that the Exchange will only remove the
day for members that would have a lower ADV with the day included.
---------------------------------------------------------------------------
Based on the tier achieved, the Exchange provides tiered rebates to
Priority Customer orders and tiered fee discounts to Market Maker \7\
orders. In particular, in both Penny Symbols and Non-Penny Symbols,
Priority Customer orders are provided a rebate that is $0.05 per
contract (Tier 1), $0.10 per contract (Tier 2), $0.15 per contract
(Tier 3), $0.21 per contract (Tier 4), and $0.24 per contract (Tier 5);
and Market Maker orders are charged a fee that is $0.25 per contract
(Tier 1), $0.22 per contract (Tier 2), $0.18 per contract (Tier 3),
$0.15 per contract (Tier 4), and $0.10 per contract (Tier 5).\8\
Regardless of the tier achieved, Non-Nasdaq MRX Market Makers,\9\ Firm
Proprietary,\10\ Broker-Dealer,\11\ and Professional Customer \12\
orders pay a flat fee that is $0.47 per contract in Penny Symbols and
$0.90 per contract in Non-Penny Symbols.
---------------------------------------------------------------------------
\7\ The term Market Makers refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively.
\8\ This fee also applies to Nasdaq MRX Market Maker orders sent
to the Exchange by Electronic Access Members. Market Makers will
receive a $0.05 per contract discount when trading against a non-
Priority Customer.
\9\ A ``Non-Nasdaq MRX Market Maker'' is a market maker as
defined in Section 3(a)(38) of the Securities Exchange Act of 1934,
as amended, registered in the same options class on another options
exchange.
\10\ A ``Firm Proprietary'' order is an order submitted by a
member for its own proprietary account.
\11\ A ``Broker-Dealer'' order is an order submitted by a member
for a broker-dealer account that is not its own proprietary account.
\12\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer.
---------------------------------------------------------------------------
The Exchange now proposes to eliminate the MVP structure \13\ and
introduce a new pricing model that the Exchange believes will encourage
members to bring more order flow to the Exchange. Specifically, the
Exchange proposes to adopt a maker/taker fee model where all market
participants are charged a fee (or are eligible for free executions)
with potentially discounted fees based on ADV, whether the market
participant is adding or removing liquidity, and whether both sides of
the transaction belong to a member and its affiliated or appointed
members.
---------------------------------------------------------------------------
\13\ Although the Exchange proposes to adopt a new structure it
will keep the footnotes in the Qualifying Tier Threshold section as
these will still apply to the calculation of ADV under the proposed
structure.
---------------------------------------------------------------------------
With the proposed changes to the pricing model, the Exchange
proposes to replace the current MVP tiers with a simple two tier
structure based on Total Affiliated and/or Appointed Member ADV.
Specifically, members would be able to qualify for higher tiers based
on Total Affiliated and/or Appointed Member ADV as follows: 0 to 49,999
contracts (Tier 1), and 50,000 or more contracts (Tier 2). In order to
attract order flow from all market participants, the Total Affiliated
Member ADV category includes all volume executed on the Exchange in all
symbols and order types, rather than only Priority Customer volume.\14\
The Exchange will also continue to permit members to designate Nasdaq
MRX Appointed Market Makers and Nasdaq MRX Appointed Order Flow
Providers, and will aggregate order flow based on that designation in
determining the member's tier. The Exchange already has language in its
Schedule of Fees about designating Nasdaq MRX Appointed Market Makers
and Nasdaq MRX Appointed Order Flow Providers and this language will
remain a part of the Schedule of Fees.\15\
---------------------------------------------------------------------------
\14\ The Exchange proposes to add a definition of Total
Affiliated Member ADV to the Schedule of Fees to describe how this
is calculated. The other footnotes to the Qualifying Tier Threshold
language will remain as discussed above, and will be in addition to
this proposed footnote.
\15\ Currently, the footnotes describing the process for
designating a Nasdaq MRX Appointed Market Maker or Appointed Order
Flow Provider indicate that members should email [email protected]. The
Exchange proposes to change this to the appropriate Nasdaq email
address, which is [email protected]. The language describing the
aggregation of eligible volume also contains an outdated reference
to the Exchange's previous name, which the Exchange proposes to
update to reflect its current name--i.e., Nasdaq MRX.
---------------------------------------------------------------------------
With respect to pricing, Market Maker orders would be charged a
maker fee that is $0.20 per contract for Tier 1 and $0.00 per contract
for Tier 2 in both Penny and Non-Penny Symbols, and a taker fee that is
$0.50 per contract for Penny Symbols and $0.90 per contract for Non-
Penny Symbols, regardless of the tier achieved.\16\ In addition, as an
incentive for bringing order flow to the Exchange, Market Maker orders
that take liquidity would also be eligible for ADV-based fee discounts
in both Penny and Non-Penny Symbols when trading with Priority Customer
orders entered by an affiliated or appointed member. The discounted fee
would be $0.05 per contract if the member has a Total Affiliated and/or
Appointed Priority Customer ADV of 5,000 contracts or more, or $0.00
per contract if the member has a Total Affiliated and/or Appointed
Priority Customer ADV of 50,000 contracts or more. Regardless of the
member's tier, Non-Nasdaq MRX Market Maker, Firm Proprietary, Broker-
Dealer, and Professional Customer orders would pay a fee in Penny
Symbols that is $0.47 per contract for maker transactions and $0.50 per
contract for taker transactions, and both a maker and taker fee of
$0.90 per contract in Non-Penny Symbols. Priority Customer orders would
not be charged a fee for regular executions in either Penny or Non-
Penny Symbols.
---------------------------------------------------------------------------
\16\ The fees charged to Market Makers will apply to Nasdaq MRX
Market Maker orders sent to the Exchange by Electronic Access
Members.
---------------------------------------------------------------------------
II. Marketing Fees
Currently, Market Makers are charged a marketing fee of $0.25 per
contract in Penny Symbols and $0.70 per contract in Non-Penny Symbols
for each regular
[[Page 3786]]
Priority Customer contract executed.\17\ This marketing fee is waived
for Flash Order Responses. In connection with the fee changes described
in Section I above, the Exchange also proposes to waive marketing fees
for Market Maker orders that take liquidity from the order book. The
Exchange believes that this change will ensure that Market Makers can
benefit from the proposed fee incentives described above for taking
liquidity, without the benefits provided thereunder being eroded by
charging a marketing fee, which may or may not go into the marketing
fee pool administered by the executing Market Maker. Furthermore, in
connection with the changes to Crossing Order fees described in Section
IV below, the Exchange proposes to waive marketing fees for Crossing
Orders and Responses to Crossing Orders, which will ensure that the
total fee paid by Market Makers that trade with this order flow will
remain at a level the Exchange believes is appropriate.
---------------------------------------------------------------------------
\17\ The marketing fee will be rebated proportionately to the
members that paid the fee such that on a monthly basis the marketing
fee fund balance administered by a Primary Market Maker for a Group
of options established under Rule 802(b) does not exceed $100,000
and the marketing fee fund balance administered by a preferenced
Competitive Market Maker for such a Group does not exceed $100,000.
A preferenced Competitive Market Maker that elects not to administer
a fund will not be charged the marketing fee. The Exchange assesses
an administrative fee of .45% on the total amount of the funds
collected each month.
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III. Flash Orders
With the introduction of a maker/taker fee structure, the Exchange
also proposes to introduce language clarifying how Flash Orders will be
charged. A ``Flash Order'' is an order that is exposed at the National
Best Bid or Offer by the Exchange to all members for execution, as
provided under Supplementary Material .02 to Nasdaq MRX Rule 1901.
Because a Flash Order being exposed to the market is entered prior to
Responses to that order, the Exchange proposes to charge the applicable
maker fee to all Flash Orders, which is similar to how pricing would be
determined had the order rested on the order book. Similarly, because
Responses that trade with a Flash Order are benefiting from the
execution of a prior order, the Exchange proposes to charge the
applicable taker fee for all Responses that trade against a Flash
Order.
IV. Crossing Orders
Currently, the Exchange charges a fee for Crossing Orders (except
PIM orders of 500 or fewer contracts) \18\ in Penny and Non-Penny
Symbols that is $0.20 per contract for Market Maker,\19\ Non-Nasdaq MRX
Market Maker, Firm Proprietary, Broker-Dealer, and Professional
Customer orders, and $0.00 per contract for Priority Customer
Orders.\20\ The Exchange also charges a fee in all symbols for PIM
orders of 500 or fewer contracts that is $0.05 per contract for Market
Maker, Non-Nasdaq MRX Market Maker, Firm Proprietary, Broker-Dealer,
and Professional Customer orders. Priority Customers receive a rebate
for PIM orders of 500 or fewer contracts that is tiered based on the
MVP tiers described above. Specifically, Priority Customer orders
receive a rebate of $0.11 per contract for Tiers 1-2 and $0.13 per
contract for Tiers 3-5. Priority Customer orders on the contra-side of
a PIM auction for 500 or fewer contracts pay no fee and receive no
rebate. The Exchange now proposes to eliminate the special fees
described above for PIM orders of 500 contracts or fewer and apply the
fee for Crossing Orders described above to all Crossing Orders,
including PIM orders of 500 contracts or fewer.
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\18\ PIM orders of more than 500 contracts will pay the Fee for
Crossing Orders.
\19\ Market Maker fees discussed in this section also apply to
Market Maker orders sent to the Exchange by Electronic Access
Members.
\20\ Except as otherwise noted herein, the fees described in
this paragraph apply to the originating and contra orders.
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In addition, the Exchange charges a fee for Responses to Crossing
Orders that is $0.50 per contract for Non-Nasdaq MRX Market Maker, Firm
Proprietary, Broker-Dealer, Professional Customer, and Priority
Customer orders in Penny Symbols, and $0.95 per contract for the above
market participant types in Non-Penny Symbols. Market Makers are
charged a fee for Responses to Crossing Orders in Penny and Non-Penny
Symbols that is $0.25 per contract, subject to a discount whereby
Market Makers that achieve Tier 2 or higher under the MVP are charged
the discounted fee charged to regular executions for the tier reached--
i.e., from $0.22 per contract for Tier 2 to $0.10 per contract for Tier
5, as discussed in more detail in the MVP section above. The Exchange
now proposes to charge Market Makers the same fee for Responses to
Crossing Orders as is currently charged to other market participants.
As such, Market Maker orders will be charged a fee for Responses to
Crossing Orders that is $0.50 per contract in Penny Symbols and $0.95
per contract in Non-Penny Symbols, similar to the other market
participants described above. Market Makers would not be eligible for
any fee discounts based on the MVP tiers that are being discontinued.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\21\ in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\22\ 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
Exchange is adopting a new pricing model for MRX and believes that the
proposed changes will be attractive to market participants, and will
encourage additional liquidity and trading opportunities on the
Exchange to the benefit of all members.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(4) and (5).
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I. Member Volume Program
The Exchange believes that the proposed fee change is reasonable,
equitable, and not unfairly discriminatory as it is designed to
increase liquidity and opportunities for all members to trade on the
Exchange. The proposed fee structure being adopted represents a
substantial change in the fee model for MRX that the Exchange believes
will be attractive to market participants, and will assist the Exchange
in competing in today's competitive environment. Generally, the
proposed fee change would eliminate the current MVP structure and adopt
a new maker/taker fee structure where market participants other than
Priority Customers are charged a fee based on whether the market
participant adds or removes liquidity. Priority Customer orders,
meanwhile, would be eligible for free executions, and Market Makers
would be eligible to qualify for substantially lower or no fees based
on their contribution to the market. Qualifying tier thresholds for
members would be based on Total Affiliated and/or Appointed Member ADV
in two tiers that are designed to encourage members to bring order flow
to the Exchange to qualify for higher tiers. For the reasons described
in the following paragraphs, the Exchange believes that the proposed
fee structure will be beneficial to market participants and will
encourage an active and liquid market on MRX.
With respect to the proposed qualifying tier thresholds, the
Exchange believes that the proposed ADV requirements are reasonable and
equitable because they are set at levels that the Exchange believes
will encourage market participants, and, in particular, Market Makers
to execute
[[Page 3787]]
more volume on the Exchange. As proposed, the qualifying tier
thresholds would also reference Total Affiliated and/or Appointed
Member ADV instead of Total Affiliated and/or Appointed Priority
Customer ADV, which the Exchange believes will benefit firms that bring
a wider range of order flow to the Exchange. The Exchange is also
proposing to introduce new fee incentives (described in the paragraphs
below) that specifically target Priority Customer order flow, thereby
retaining the ability to attract those orders to the Exchange. The
Exchange believes that the proposed changes will be attractive to
market participants that trade on MRX. Furthermore, the Exchange
believes that the qualifying tier thresholds are equitable and not
unfairly discriminatory as all market participants can qualify for a
higher tier by executing the required volume of contracts, either
through the member, its affiliates, or an appointed member, as is the
case today.
Under the proposed pricing structure, Priority Customer orders
would be eligible for free executions. Although the Exchange will no
longer provide rebates to Priority Customer orders, the Exchange
believes that increased Market Maker participation would increase the
opportunities for these orders to trade and therefore encourage members
to bring this order flow to the Exchange. In addition, by receiving
free executions Priority Customer orders would continue to be provided
the most favorable rates on the Exchange. Only one other market
participant type (i.e., Market Makers) would be eligible to trade for
free and only in specified circumstances. The Exchange believes that it
is appropriate and not unfairly discriminatory to provide free
executions to Priority Customer orders as the Exchange is seeking to
attract this order flow. The Exchange believes that attracting more
volume from Priority Customers will benefit all market participants
that trade on MRX. In addition, the Exchange believes that it is
equitable and not unfairly discriminatory to charge a lower fee for
Priority Customer orders as a Priority Customer is by definition not a
broker or 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). This limitation does not apply to market
participants whose behavior is substantially similar to that of market
professionals, and who will generally submit a higher number of orders
than Priority Customers.
Market Makers would also benefit from a strong mix of incentives
that are designed to create an active and liquid market for MRX-listed
options. First, Market Makers would pay a base fee that is equal to or
lower than that charged to all market participants other than Priority
Customers, with the potential to further lower those fees by qualifying
for additional pricing incentives. The Exchange believes that charging
lower fees to Market Maker orders is reasonable and equitable as doing
so increases Market Maker activity and thereby creates additional
opportunities for other market participants to trade. Furthermore, the
Exchange believes that it is equitable and not unfairly discriminatory
to charge lower fees to Market Makers because Market Makers have
different requirements and obligations to the Exchange that other
market participants do not (such as quoting requirements). For this
reason, the Exchange also believes that the other incentives described
below, which may further decrease execution costs for Market Makers,
are also equitable and not unfairly discriminatory. These incentives
are designed to increase Market Maker participation and reward Market
Makers for the unique role that they play in ensuring a robust market.
Second, Market Makers would be rewarded for providing liquidity
with a lower base rate for adding liquidity as opposed to taking
liquidity, and the possibility for free executions if the Market Maker
achieves a higher tier based on Total Affiliated and/or Appointed
Member ADV. The Exchange believes that it is reasonable and equitable
to charge a lower base rate for Market Maker orders that add liquidity
because Market Makers provide an important function to the market when
they provide liquidity to other market participants through their
displayed quotes. The Exchange believes that incentivizing Market
Makers to provide liquidity through lower maker fees will create
additional displayed liquidity and opportunities for market
participants to trade. Furthermore, providing an additional discount
when the Market Maker meets the qualifying tier threshold for a higher
ADV tier will encourage the member to transact additional business on
the Exchange, and thereby create a more active market. The Exchange
also believes that tying execution fees to whether the Market Maker is
adding or removing liquidity, and based on ADV, is equitable and not
unfairly discriminatory as all Market Makers will be treated uniformly
based on these factors.
Third, although Market Makers would pay the same base rate for
removing liquidity as other market participants, Market Makers would be
eligible for a discounted taker fee when trading with Priority Customer
orders entered by an affiliated or appointed member. Market Makers
would qualify for this discounted taker fee if the member has reached a
threshold level of Total Affiliated and/or Appointed Priority Customer
ADV, and would be eligible for free executions if the member executes a
higher volume of contracts. The Exchange believes that it is reasonable
and equitable to charge a lower fee to Market Makers when trading
against Priority Customer orders that originate from affiliated or
appointed members as this incentive is designed to encourage firms to
bring additional Priority Customer order flow to the Exchange. For the
same reason, the proposed ADV requirements are also based on ADV in
Priority Customer contracts executed by affiliated or appointed
members.
This discounted fee structure is similar to one in place on the
Exchange's affiliate, the Nasdaq Options Market (``NOM''), where
participants that meet specified volume requirements can qualify for
discounted fees if the participant is: (i) Both the buyer and the
seller or (ii) the participant removes liquidity from another
participant under common ownership.\23\ Similar to NOM, the Exchange
believes that this structure will encourage additional order flow both
from Market Makers and their affiliated and/or appointed members. This
will benefit those members through reduced fees, and will also benefit
other market participants that will have an opportunity to trade with
the order flow that these firms bring to the market. When a Priority
Customer order is entered on the Exchange, a Market Maker that wishes
to interact with that order flow does not typically know whether that
order originated from one of its affiliated or appointed members. The
Exchange therefore believes that Market Makers would continue to
aggressively pursue order flow in order to receive the benefit of the
fee discount. Discounting fees in this manner will reward firms that
bring more order flow to the Exchange. This is the case both because
sending additional order flow would increase the chances of a firm
qualifying for a reduced fee (i.e., because it increases the chances
that a contra-side order is entered by an affiliated or appointed
member), and because a higher ADV is required to
[[Page 3788]]
qualify for free executions under the proposed pricing structure.
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\23\ See NOM Rules, Chapter XV Options Pricing, Sec. 2 Nasdaq
Options Market--Fees and Rebates, (1) Fees for Execution of
Contracts on The Nasdaq Options Market.
---------------------------------------------------------------------------
The Exchange also believes that the proposed fee discount described
above is equitable and not unfairly discriminatory. As mentioned
before, Market Makers have special obligations to the market that other
market participants do not. The Exchange therefore believes that it is
appropriate to reward those members with potentially lower fees.
Furthermore, providing an incentive specifically to Market Makers whose
affiliated and/or appointed members bring Priority Customer order flow
to the Exchange encourages firms to bring more of this order flow to
the Exchange. All Market Makers can benefit from this incentive either
by interacting with order flow sent to the Exchange by its affiliates
or by designating a Nasdaq MRX Appointed Order Flow Provider, who would
be treated similar to an affiliate. Moreover, rewarding members that
bring a more substantial investment of order flow is beneficial to all
market participants, who are free to interact with such order flow.
Finally, Non-Nasdaq MRX Market Maker, Firm Proprietary, Broker-
Dealer, and Professional Customer orders would be subject to maker/
taker fees at rates that are similar to those currently charged on the
Exchange. In Penny Symbols, these market participants would pay a maker
fee that is the same as the fee charged today, and a taker fee that is
modestly higher. For the reasons discussed above with respect to Market
Maker orders, the Exchange believes that it is appropriate to charge
higher fees for executions that remove liquidity than those that
provide liquidity to other market participants--i.e., because this
encourages more displayed liquidity and opportunities for market
participants to trade on the Exchange. In Non-Penny Symbols, these
market participants will be charged the same fee as today, regardless
of whether the order is executed as maker or taker. Although these
market participants would continue to be charged fees that are higher
than the fees charged to Priority Customer and Market Maker orders, the
Exchange believes that this is equitable and not unfairly
discriminatory for the reasons discussed in the paragraphs above on
Priority Customer and Market Maker fees. Furthermore, although these
market participants would be charged a modestly increased fee in the
one instance described above, the Exchange believes that the effect of
this fee increase is justified by the potential for the new fee
structure to encourage additional liquidity and opportunities for
trading due to the incentives being provided to Market Maker and
Priority Customer orders.
II. Marketing Fees
The Exchange believes that it is reasonable and equitable to
eliminate the marketing fees charged to Market Maker orders that take
liquidity from the order book as charging a marketing fee in these
instances would frustrate the Exchange's incentives for firms that
bring Priority Customer orders to the Exchange and receive a fee
discount (including potentially free executions) when trading with that
order flow. Furthermore, the marketing fee is designed to assist Market
Makers in establishing marketing fee arrangements with Electronic
Access Members in exchange for those members routing some or all of
their order flow to such Market Makers. This purpose is not advanced
when the Priority Customer order on the other side of the transaction
is providing liquidity and is not routed to access displayed liquidity
being provided by a Market Maker quoting on the Exchange. Furthermore,
the Exchange has proposed changes to its Crossing Order fees that would
result in Market Makers paying a higher Response fee that is the same
as the fee charged to other market participants. The Exchange believes
that it is reasonable and equitable to eliminate the marketing fee
charged for Crossing Orders and Responses to Crossing Orders as this
change will keep total execution costs down when Market Makers trade
with Crossing Order flow. The Exchange also believes that both of the
proposed changes to the marketing fee described above are not unfairly
discriminatory as no Market Makers would be charged a marketing fee
when removing liquidity or when executing Crossing Orders or Responses
to Crossing Orders.
III. Flash Orders
The Exchange believes that the proposed pricing for Flash Orders is
reasonable and equitable as the proposed changes clarify how the
Exchange will charge members for Flash Orders with the introduction of
maker/taker pricing. Without this change members would not be aware of
how Flash Orders are charged because Flash Orders do not rest on the
book and therefore could be treated as either maker or taker for
purposes of pricing. The Exchange is proposing to charge the applicable
maker fee for Flash Orders, and the applicable taker rebate for
Responses that trade against a Flash Order. The Exchange believes that
it is reasonable and equitable to charge the applicable maker fee to a
Flash Order as the order being exposed is entered first, and maker
pricing would therefore apply the same as it would had that order
rested on the order book. Similarly, the Exchange believes that it is
reasonable and equitable to charge the applicable taker fee to
Responses as these Responses are benefiting from the execution of a
prior order. Furthermore, the Exchange believes the proposed Flash
Order language is not unfairly discriminatory because Flash Orders
entered by all market participants will be treated as maker and all
Responses that trade against a Flash Order will be treated as taker.
IV. Crossing Order Fees
The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to eliminate the special incentive for PIM
orders of 500 or fewer contracts as the proposed fees charged would now
be consistent for all Crossing Orders. The Exchange currently has in
place a fee structure that was implemented to encourage PIM orders for
500 or fewer contracts by charging lower fees to the originating and
contra-side of those orders. The Exchange no longer believes that this
incentive is necessary and is therefore removing it. With this change,
members will be charged the same fees for all Crossing Orders,
regardless of whether the order is executed in the PIM or another
crossing mechanism, and regardless of the size of the order. The
Exchange also believes that it is reasonable and equitable to increase
the fees charged to Market Maker Responses to Crossing Orders as with
this change Market Makers would be charged the same fees as other
market participants.
The Exchange also believes that the Crossing Order changes are
equitable and not unfairly discriminatory as the proposed fees would be
more standardized across the various Crossing Order mechanisms, and
across market participant types, with the exception that Priority
Customer orders would continue to not be charged a fee for Crossing
Orders.\24\ As explained earlier in this proposed rule change, a
Priority Customer is by definition not a broker or 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). This limitation does not apply to participants whose
behavior is substantially similar to that of market
[[Page 3789]]
professionals who will generally submit a higher number of orders than
Priority Customers. The Exchange therefore believes that it is
equitable and not unfairly discriminatory to provide more favorable
pricing to Priority Customer orders in the one instance described
above.
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\24\ Priority Customer orders would continue to pay a fee for
Responses to Crossing Orders that is the same as the fee charged to
other 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. The proposed fee change is an
overhaul of the Exchange's pricing model that is designed to
incentivize members to bring additional order flow to the Exchange, and
create a more active and quality market in MRX-listed options. The
Exchange therefore believes that the proposed rule change is a product
of the competitive environment in the options industry. The Exchange
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
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.
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,\25\ and Rule 19b-4(f)(2) \26\ 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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\25\ 15 U.S.C. 78s(b)(3)(A)(ii).
\26\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MRX-2018-01 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-2018-01. 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 10:00 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-2018-01 and should be submitted on
or before February 16, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01353 Filed 1-25-18; 8:45 am]
BILLING CODE 8011-01-P
