Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Complex Order Pricing, 33300-33306 [2019-14812]
Download as PDF
<![CDATA[
33300
Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b–
4(f)(6) thereunder.8
A proposed rule change filed under
Rule 19b–4(f)(6) 9 normally does not
become operative for 30 days after the
date of the filing. However, pursuant to
Rule 19b–4(f)(6)(iii),10 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. In
its filing with the Commission, FINRA
has asked the Commission to waive the
30-day operative delay to allow FINRA
to immediately implement the proposed
conforming and corrective changes,
including restoring the text of
Incorporated NYSE Rule 409.10 to the
consolidated FINRA rulebook as
Temporary Dual FINRA–NYSE Rule
409T.10. The Commission notes that
FINRA has stated that the proposed rule
change is non-substantive in that it
would correct a technical error and
update a rule reference. For this reason,
the Commission believes that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest and hereby waives the
30-day operative delay and designates
the proposed rule change operative
upon filing.11
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
jbell on DSK3GLQ082PROD with NOTICES
8 In
addition, Rule 19b–4(f)(6)(iii) requires a selfregulatory organization to give the Commission
written notice of its intent to file the proposed rule
change at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
FINRA has satisfied this requirement.
9 17 CFR 240.19b–4(f)(6).
10 17 CFR 240.19b–4(f)(6)(iii).
11 For purposes only of waiving the operative
delay, the Commission has considered the proposed
rule’s impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
VerDate Sep<11>2014
16:55 Jul 11, 2019
Jkt 247001
investors, or otherwise in furtherance of
the purposes of the Act.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–14814 Filed 7–11–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–86326; File No. SR–MRX–
2019–14]
• 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–
FINRA–2019–018 on the subject line.
Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Adopt Complex Order
Pricing
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–FINRA–2019–018. 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 such filing
also will be available for inspection and
copying at the principal office of
FINRA. 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–FINRA–
2019–018 and should be submitted on
or before August 2, 2019.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
July 8, 2019.
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 June 24,
2019, Nasdaq MRX, LLC (‘‘MRX’’ 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt
Complex Order pricing. Specifically,
MRX proposes to amend MRX’s Pricing
Schedule at Options 7, Section 1, titled
‘‘General Provisions,’’ and adopt a new
Section 4, titled ‘‘Complex Order Fees.’’
The Exchange proposes to renumber
current Section 4, titled ‘‘Other Options
Fees and Rebates’’ as well as amend that
section and relocate Section 5, titled
‘‘Legal and Regulatory’’.
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
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\12JYN1.SGM
12JYN1
Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices
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
MRX recently received approval to
adopt rules to provide for the trading of
Complex Orders.3 MRX proposes to
adopt Complex Order pricing.
Specifically, the Exchange proposes to:
(1) Amend MRX’s Pricing Schedule at
Options 7, Section 1, ‘‘General
Provisions’’ to define a Complex Order;
and (2) adopt Complex Order pricing
within new Section 4, titled ‘‘Complex
Order Fees’’. The Exchange proposes to
amend current Options 7, Section 4, B,
‘‘Marketing Fee’’ to waive this fee for
Complex Orders. In addition, the
Exchange proposes other technical
amendments to renumber current
Section 4, ‘‘Other Options Fees and
Rebates’’ and combine that rule with
Section 5, ‘‘Legal and Regulatory’’. Each
amendment is described below.
Description of Proposed Complex Order
Pricing
The purpose of the proposed rule
change is to adopt Complex Order
Pricing. The Exchange proposes to
define the term ‘‘Complex Order’’
within Options 7, Section 1, ‘‘General
Provisions’’. The Exchange proposes to
state at Options 7, Section 1(c), a
‘‘Complex Order’’ is any order involving
the simultaneous purchase and/or sale
of two or more different options series
in the same underlying security, as
provided in Nasdaq MRX Rule 722, as
well as Stock-Option Orders.4 This
proposed description of the term
‘‘Complex Order’’ is intended to bring
greater transparency to the proposed
Complex Order fees.
There are four fee proposals with
respect to Complex Orders.
jbell on DSK3GLQ082PROD with NOTICES
(1) Complex Order Fees
The Exchange proposes to adopt a
new Options 7, Section 4, titled
‘‘Complex Order Fees.’’ The Exchange
proposes to assess a Complex Order fee
3 Securities Exchange Act Release No. 85935 (May
24, 2019), 84 FR 16907 (April 17, 2019) (SR–MRX–
2019–08) (Order Approving a Proposed Rule
Change To Adopt Complex Order Functionality).
4 A Stock-Option Order is a Stock-Option
Strategies with only one option leg and one stock
leg. See MRX Rule 722(a)(2).
VerDate Sep<11>2014
16:55 Jul 11, 2019
Jkt 247001
of $0.15 per contract for orders
submitted as a Market Maker,5 NonNasdaq MRX Market Maker (FarMM),6
Firm Proprietary,7 Broker-Dealer 8 and
Professional Customer.9 Specifically,
these proposed fees would be assessed
for Complex Order transactions in the
Complex Order Book as well as
Complex Orders submitted into the
Complex Facilitation Mechanism,10
Complex Solicited Order Mechanism,11
Complex Price Improvement
Mechanism (‘‘PIM’’) 12 or an order
submitted as a Complex Customer Cross
Order,13 Complex Qualified Contingent
Cross (‘‘QCC’’) Order 14 or a Complex
QCC with Stock Order.15 These
Complex Order fees apply to an
originating order, contra-side order and
responses entered into MRX’s Complex
Facilitation Mechanism, Complex
Solicited Order Mechanism, Complex
PIM and orders entered as a Complex
Customer Cross Order, Complex QCC
Order or Complex QCC with Stock
Order. The Exchange proposes to assess
no Complex Order fee to Priority
Customers.16 The Exchange notes that
interest on the Regular Order Book that
interacts with a Complex Order is
subject to Regular Order 17 Book fees
within Options 7, Section 3. The
Exchange further notes that a Member
will be assessed the applicable Complex
Order fee on those Complex Orders that
interact with the Regular Order Book.
(2) Stock Handling Fee
The Exchange proposes to assess a
Stock Handling Fee of $0.0010 per share
5 A ‘‘Market Maker’’ is a market maker as defined
in Nasdaq MRX Rule 100(a)(30). See MRX Options
7, Section 1(c).
6 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. See MRX Options 7, Section 1(c).
7 A ‘‘Firm Proprietary’’ order is an order
submitted by a Member for its own proprietary
account. See MRX Options 7, Section 1(c).
8 A ‘‘Broker-Dealer’’ order is an order submitted
by a Member for a broker-dealer account that is not
its own proprietary account. See MRX Options 7,
Section 1(c).
9 A ‘‘Professional Customer’’ is a person or entity
that is not a broker/dealer and is not a Priority
Customer. See MRX Options 7, Section 1(c).
10 See MRX Rule 716(c).
11 See MRX Rule 716(e).
12 See MRX Rule 723(e).
13 See MRX Rule 721(b).
14 See MRX Rule 721(d).
15 See MRX Rule 721(f).
16 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). See MRX Options 7, Section 1(c).
17 A ‘‘Regular Order’’ is an order that consists of
only a single option series and is not submitted
with a stock leg. See MRX Options 7, Section 1(c).
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
33301
(capped at a maximum of $50 per trade)
for the stock leg of Stock-Option Orders
executed against other Stock-Option
Orders in the Complex Order Book. This
fee would be in addition to the abovereferenced fees for Complex Orders.
Nasdaq ISE, LLC (‘‘ISE’’) assesses a
similar Stock Handling Fee of $0.0010
per share (capped at a maximum of $50
per trade) 18 and Cboe Exchange, Inc.
(‘‘Cboe’’) assesses a Stock-Portion of
Stock-Option Strategy Orders fee of
$0.0010 per share.19 In order to offer
Members the ability to execute StockOption Orders on MRX, the Exchange
outsources the function of printing the
stock portion of the trade to a third
party venue so that MRX Members may
simultaneously execute options and
stock to achieve their desired strategy.
The Exchange has developed its
Complex Order System to process the
stock leg of a Stock-Option Order and
match these Stock-Option Orders
against other Stock-Option Orders on
the Complex Order Book. The Exchange
believes offering this service to
Members adds value in permitting
Stock-Option Order executions on MRX.
In addition, the Exchange believes that
the process adds efficiency to a
Member’s workflow. As stated above,
the Exchange would assess a maximum
of $50 per trade.20 The cap would
provide Members with the total dollar
that would be assessed per trade. No
charges would be assessed above the
cap.
(3) Reduced Market Maker Complex
Order Fee
The Exchange also proposes to offer
Market Makers a reduced Complex
Order fee. Specifically, MRX proposes
to reduce the proposed $0.15 per
contract Complex Order Market Maker
fee to $0.00 per contract when a Market
Maker trades against Priority Customer
orders that originate from its Affiliated
18 See ISE’s Pricing Schedule at Options 7,
Section 4.
19 See Cboe’s Fees Schedule. Cboe notes, ‘‘The
Exchange shall assess a fee of $0.0010 per share for
the stock portion, which Cboe Options must route
to an outside venue, of stock option orders executed
via the Complex Order Auction (‘‘COA’’), the
Complex Order Book (‘‘COB’’), AIM, SAM, and the
splitting mechanism which is used for certain
market orders pursuant to Interpretation .06(d) of
Rule 6.53C. This fee applies in addition to the fees
assessed by the outside venue to which the stock
portion of the order is routed if an exchange
destination is specified on the original order (with
such fees to be passed on to the market participant).
A maximum of $50.00 per order will be assessed
under this fee.’’
20 The equivalent of a $50 cap in terms of shares
is 50,000 shares on a singular execution.
E:\FR\FM\12JYN1.SGM
12JYN1
33302
Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices
Member 21 or its Appointed Member.22
This incentive is designed to encourage
Market Makers, Affiliated Members and/
or Appointed Members to direct
additional Priority Customer order flow
to the Exchange. Priority Customer
order flow is unique in that it attracts
valuable liquidity from Market Makers
to the market, which in turn benefits all
market participants by providing more
trading opportunities. This increased
activity from all market participants
attracts Market Makers and in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants. Market Makers will benefit
from this incentive through reduced
fees, and other market participants will
benefit because they will have an
opportunity to trade with the order flow
that Marker Makers, their Affiliated
Member and/or Appointed Member
bring to MRX. When a Priority Customer
order is submitted to MRX, a Market
Maker that wishes to interact with that
order flow does not know whether that
order originated from one of its
Affiliated Members and/or Appointed
Members. The Exchange believes this
incentive will cause Market Makers to
aggressively pursue order flow in order
to receive the benefit of the reduced fee
when the Market Maker executes a
Complex Order contra a Priority
Customer. Discounting fees in this
manner will reward Market Makers that
bring more order flow to the Exchange.
This is the case because a Market Maker
through its Affiliated Member or its
Appointed Member directing additional
order flow would increase the chances
of a Market Maker qualifying for a
reduced Complex Order fee of $0.00
(i.e., because it increases the chances
that a contra-side order is entered by the
Market Maker or its Affiliated Member
and/or Appointed Member).
jbell on DSK3GLQ082PROD with NOTICES
(4) Marketing Fee
The Exchange proposes to waive the
Marketing Fee within Options 7, Section
4, B which applies to MRX Market
Makers. Today, MRX assesses Market
Makers a Marketing Fee of $0.25 per
contract in Penny Symbols and $0.70
per contract in Non-Penny Symbols for
21 An ‘‘Affiliated Member’’ is a Member that
shares at least 75% common ownership with a
particular Member as reflected on the Member’s
Form BD, Schedule A. See Options 7, Section 1(c).
22 An ‘‘Appointed Member’’ is either an
Appointed Market Maker or Appointed Order Flow
Provider. An ‘‘Appointed Market Maker’’ is a
Market Maker who has been appointed by an
Electronic Access Member pursuant to Section 3,
Table 3. An ‘‘Appointed Order Flow Provider’’ is
an Electronic Access Member who has been
appointed by a Market Maker pursuant to Section
3, Table 3. See Options 7, Section 1(c).
VerDate Sep<11>2014
16:55 Jul 11, 2019
Jkt 247001
each Regular Priority Customer contract
executed.23 Today, the Marketing Fee is
waived for: (i) Flash Order 24 Responses;
(ii) Market Maker Orders that take
liquidity from the Order Book; and (iii)
Crossing Orders 25 and Responses to
Crossing Orders.
In connection with the adoption of
Complex Order Fees, the Exchange
proposes to amend current Options 7,
Section 4 to waive the Marketing Fee for
Complex Orders. The Exchange believes
that waiving the Marketing Fee will
ensure that Market Makers can benefit
from the proposed fee incentives
proposed herein with respect to
Complex Orders. This proposal would
ensure that the total fee assessed to a
Market Maker with respect to Complex
Orders would be a transaction fee of
either $0.15 or $0.00 per contract
(provided the Market Maker executed
against Priority Customer orders that
originate from an Affiliated Member or
its Appointed Member) plus a Stock
Handling Fee of $0.0010 per share. With
this proposal, Market Makers will be
able to lower total execution costs when
executing Complex Orders.
Applicability to and Impact on
Participants 26
The proposed Complex Order fees
would be applied uniformly to all
23 The Marketing Fee is 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.
Preferenced Orders. An Electronic Access Member
may designate a ‘‘Preferred Market Maker’’ on
orders it enters into the System (‘‘Preferenced
Orders’’). See MRX Rule 713 at Supplementary
Material .01.
24 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. For all Flash Orders, the Exchange will charge
the applicable maker fee and for responses that
trade against a Flash Order, the Exchange will
provide the applicable taker fee. See MRX Options
7, Section 1(c).
25 See MRX Rule 721.
26 On May 21, 2019, the SEC Division of Trading
and Markets (the ‘‘Division’’) issued fee filing
guidance titled ‘‘Staff Guidance on SRO Rule
Filings Relating to Fees’’ (‘‘Guidance’’). Within the
Guidance, the Division noted, among other things,
that the purpose discussion should address ‘‘how
the fee may apply differently (e.g., additional cost
vs. additional discount) to different types of market
participants (e.g., market makers, institutional
brokers, retail brokers, vendors, etc.) and different
sizes of market participants.’’ See Guidance
(available at https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees). The Guidance also suggests
that the purpose discussion should include
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
market participant capacities ($0.15 per
contract), except for Priority Customers
($0.00 per contract). Priority Customer
interest brings valuable liquidity to the
market, which liquidity benefits other
market participants. Priority Customer
liquidity benefits all market participants
by providing more trading
opportunities, which attracts Market
Makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants. Priority Customers have
traditionally received more favorable
pricing as compared to other market
participants.27 The Exchange notes that
any Member may transact Complex
Orders on MRX or submit a response
into MRX’s Complex Facilitation
Mechanism, Complex Solicited Order
Mechanism, Complex PIM or enter an
order as a Complex Customer Cross
Order, Complex QCC Order or Complex
QCC with Stock Order.
Complex Order Fees
The Exchange believes that assessing
all non-Priority Customers a $0.15 per
contract fee will attract Complex Order
flow to MRX. Today, there are 9 options
markets that offer complex order
functionality.28 The complex order
functionality offerings differ by options
market.29 Some options markets have
offered complex order functionality for
a number of years and other options
markets are new entrants in recent years
with their complex order offerings.30
MRX will be the newest options market
to offer market participants another
venue on which to transact Complex
Orders. The Exchange believes its
proposed fees are reasonable and well
within the range of fees assessed for
complex orders among other
exchanges.31 The Exchange believes the
numerical examples. Where possible, the Exchange
is including numerical examples. In addition, the
Exchange is providing data to the Commission in
support of its arguments herein. The Guidance
covers all aspects of a fee filing, which the
Exchange has addressed throughout this filing.
27 Priority Customers pay no fees for certain
Select Symbols and Non-Select Symbols for Regular
Order Fees. See MRX’s Pricing Schedule at Options
7, Section 3.
28 ISE, Nasdaq PHLX LLC, Cboe, Cboe C2
Exchange, Inc., Cboe EDGX Exchange, Inc. Miami
International Securities Exchange, LLC, BOX
Exchange LLC, NYSE Arca, Inc. and NYSE
American LLC.
29 For example, the various options markets have
different complex order auctions.
30 Cboe EDGX Exchange, Inc. and MIAX
EMERALD, LLC were the last two markets to
receive approval for complex order rules prior to
MRX.
31 MIAX EMERALD, LLC’s pricing schedule
assesses complex order fees that range from $0.10
to $0.88 per contract for all origin types except
E:\FR\FM\12JYN1.SGM
12JYN1
Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices
proposed fees will encourage Members
to submit order flow to MRX,
particularly orders that may otherwise
remain unfilled on other venues. The
Exchange believes the proposed rates
are competitive for all multiply-listed
options and will offer market
participants with another choice of
where to transact Complex Orders. New
entrants, such as MRX, may increase
competition as to a particular offering,
in this case Complex Orders, and
encourage competitive pricing among
options markets competing for such
Complex Order flow. The proposed
MRX offering and pricing may benefit
market participants with certain
business models. The Exchange believes
that market participants determine
where to direct their Complex Order
flow by considering, among other
factors, a market’s functionality, pricing
and the market participant’s needs
arising from its particular business
model.
jbell on DSK3GLQ082PROD with NOTICES
Stock Handling Fee
The proposed Stock Handling Fee of
$0.0010 per share (capped at a
maximum of $50 per trade) for the stock
leg of Stock-Option Orders executed
against other Stock-Option Orders in the
Complex Order Book would be applied
uniformly to all market participants.
This fee, which is in addition to a
Complex Order fee, would be applied to
any market participant who executes a
Complex Order.
Reduced Market Maker Complex Order
Fee
With this proposal, only Market
Makers are offered an incentive that
would reduce their Complex Order fee
to $0.00 per contract. Priority Customers
do not pay a Complex Order fee as
proposed herein. Other market
participants, such as a Non-Nasdaq
MRX Market Maker (FarMM), a Firm
Proprietary, a Broker-Dealer and a
Professional Customer, would not be
entitled to the same fee reduction as a
Market Maker. The Exchange notes that
Market Makers, their Affiliated
Members and their Appointed Members
are being incentivized to direct Priority
Customer order flow to MRX. Other
market participants benefit because they
may interact with this order flow.
Unlike other participants, Market
Makers add value to MRX through
quoting obligations 32 and their
commitment of capital. Encouraging
priority customer (of which, MIAX EMERALD pays
rebates of $0.25 to $0.87 per contract for priority
customer complex orders), whether the participant
is a maker or taker and whether the transaction was
in a Penny or non-Penny Pilot Symbol.
32 See MRX Rule 804.
VerDate Sep<11>2014
16:55 Jul 11, 2019
Jkt 247001
Market Makers to add greater liquidity
benefits all market participants in the
quality of order interaction because the
Exchange believes that Market Makers
will be incentivized to aggressively
pursue order flow in order to receive the
benefit of the reduced fee.
Marketing Fee
Finally, with respect to the waiver of
the Marketing Fee for Complex Orders,
the Exchange notes that the Marketing
Fee applies only to Market Makers. The
Exchange’s proposal to waive the
Marketing Fee for Complex Orders
would apply to uniformly to all Market
Makers. As proposed, no market
participant would be assessed a
Marketing Fee for Complex Orders.
Relocation Options 7 Sections
The Exchange proposes technical
amendments to the Pricing Schedule to
relocate certain rule text within Options
7. The Exchange proposes to re-number
current Options 7, Section 4, titled
‘‘Other Options Fees and Rebates’’ as
new Section 5. The Exchange proposes
to delete the title to current Section 5,
‘‘Legal and Regulatory’’ and re-letter the
rule text within that section. Current
Options 7, Section 5, ‘‘A’’ titled
‘‘Options Regulatory Fee’’ would be relettered as ‘‘C’’ and current Options 7,
Section 5, ‘‘B’’ titled ‘‘FINRA Web CRD
Fees’’ would be re-lettered as ‘‘D’’.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,33 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,34 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers. The
proposal is also consistent with Section
11A of the Act relating to the
establishment of the national market
system for securities. Moreover, the
Exchange believes that its proposal
complies with Commission guidance on
SRO fee filings that the Commission
Staff issued on May 21, 2019.35
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
35 See Guidance, supra note 3. Although the
Exchange believes that this filing complies with the
Guidance, the Exchange does not concede that the
standards set forth in the Guidance are consistent
with the Exchange Act and reserves its right to
challenge those standards through administrative
and judicial review, as appropriate.
PO 00000
33 15
34 15
Frm 00086
Fmt 4703
Sfmt 4703
33303
The Proposal is Reasonable
The Exchange’s proposed new
Complex Order fees are reasonable in
several respects. As a threshold matter,
the Exchange is subject to significant
competitive forces in the market for
options transaction services that
constrain its pricing determinations in
that market. The fact that this market is
competitive has long been recognized by
the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C.
Circuit stated as follows: ‘‘[n]o one
disputes that competition for order flow
is ‘fierce.’ . . . As the SEC explained,
‘[i]n the U.S. national market system,
buyers and sellers of securities, and the
broker-dealers that act as their orderrouting agents, have a wide range of
choices of where to route orders for
execution’; [and] ‘no exchange can
afford to take its market share
percentages for granted’ because ‘no
exchange possesses a monopoly,
regulatory or otherwise, in the
execution of order flow from broker
dealers’. . . .’’ 36
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for options
transaction services. The Exchange is
one of several options venues to which
market participants may direct their
order flow, and it represents a small
percentage of the overall market.
Competing options exchanges offer
complex order functionality, with
varying pricing schedules. The
Exchange believes its proposed fees are
reasonable and well within the range of
fees assessed for complex order among
other exchanges.37
Within this environment, market
participants can freely and often do shift
their order flow among the Exchange
and competing venues in response to
changes in their respective pricing
schedules.38 Separately, the Exchange
has provided the SEC staff with
information regarding market share.
Within the foregoing context, the
proposal represents a reasonable
attempt by the Exchange to increase its
36 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSEArca–2006–21)).
37 See note 31 above.
38 While MRX has not offered Complex Order
functionality to date, the Exchange perceives no
regulatory, structural, or cost impediments to
market participants shifting order flow away from
it as a result of this rule change. See Guidance,
supra note 16. In particular, the Exchange notes that
these examples of shifts in liquidity and market
share, along with many others, have occurred
within the context of market participants’ existing
duties of Best Execution and obligations under the
Order Protection Rule under Regulation NMS.
E:\FR\FM\12JYN1.SGM
12JYN1
33304
Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices
liquidity and market share relative to its
competitors. The Exchange believes that
its proposed Complex Order fees are a
reasonable attempt to achieve this end
because these fees are competitive as
compared to other options markets. Any
MRX market participant can transact
Complex Orders on MRX. In fact, most
options markets offer complex order
functionality 39 making the competition
for complex order flow very competitive
among options exchanges with different
markets offering incentives and rebates
to market participants to lower
transaction fees. The Exchange believes
that as a new entrant offering Complex
Order functionality, MRX, alongside
other options markets, will provide
market participants with another choice
for transacting their Complex Orders.
New entrants, such as MRX, increase
competition as to a particular offering,
in this case Complex Orders, and
encourage competitive pricing among
options markets competing for Complex
Order flow. With this proposal, the
Exchange proposes to introduce a novel
pricing model so that MRX may
compete with the other 9 complex order
books for order flow. The proposed fee
is novel because it is a flat fee as
compared to a Maker-Taker model and
the Exchange is not proposing to assess
a Marketing Fee. The Exchange may be
unsuccessful in its initial attempt to
attract order flow with the proposed
fees. At this time, MRX is not proposing
to pay rebates to attract order flow. The
Exchange would file other fee proposals
if its pricing does not attract order flow
and fails to be competitive. The
proposed MRX offering and pricing may
benefit market participants who have
different business models and desire to
direct their order flow to one of the
various options markets that offer
complex orders depending on that
market’s functionality, pricing and the
market participant’s particular business
model.
jbell on DSK3GLQ082PROD with NOTICES
Complex Order Fees
With respect to the proposed Complex
Order fees, the Exchange proposes
assessing a uniform fee of $0.15 per
contract to all non-Priority Customers,
except for Priority Customers who
would not be assessed a Complex Order
fee. The Exchange believes that the fees
will attract Complex Order flow to
MRX. The Exchange believes not
assessing Priority Customer interest a
39 Currently
9 of 16 options markets offer
Complex Order functionality. MRX would be the
10th options market to offer Complex Order
functionality. MIAX EMERALD has approved rules
and has filed pricing for complex orders, but has
not commenced offering complex order
functionality.
VerDate Sep<11>2014
16:55 Jul 11, 2019
Jkt 247001
Complex Order fee will incentivize
market participants to direct their
Priority Customer order flow to MRX.
This will provide all market participants
more trading opportunities. Priority
Customers have traditionally received
more favorable pricing as compared to
other market participants.40
Stock Handling Fee
With respect to the proposed Stock
Handling Fee of $0.0010 per share for
the stock leg of Stock-Option Orders
executed against other Stock-Option
Orders in the Complex Order Book, this
fee would be assessed on each Complex
Order so the Exchange may offer
Members the ability to execute StockOption Orders on MRX. The Exchange
would outsource the function of
printing the stock portion of the trade to
a third party venue so that MRX
Members may simultaneously execute
options and stock to achieve their
desired strategy. The Exchange has
developed its Complex Order System to
process the stock leg of a Stock-Option
Order and match these Stock-Option
Orders against other Stock-Option
Orders on the Complex Order Book. The
Exchange believes offering this service
to Members adds value in permitting
Stock-Option Order executions on MRX.
In addition, the Exchange believes that
the process adds efficiency to a
Member’s workflow. Despite the fee, the
Exchange would cap the amount
assessed at a maximum of $50 per trade
to limit the amount paid by Members.
The Exchange believes that the fee is
reasonable and will allow the Exchange
to offer Members the ability to trade
Stock-Option Orders. This proposed fee
is the same as the fee assessed today on
ISE and Cboe.41
Reduced Market Maker Complex Order
Fee
With respect to the reduced fee
offered to Market Makers, the Exchange
notes Market Makers add value to MRX
through quoting obligations 42 and their
commitment of capital. The fee is
reasonable because incentivizing Market
Makers to provide greater liquidity will
benefit all market participants through
the quality of order interaction. Market
Makers will be incentivized to
aggressively pursue order flow in order
to receive the benefit of the reduced fee
when the Market Maker executes a
Complex Order contra a Priority
Customer. This discount will reward
PO 00000
40 See
note 27 above.
notes 18 and 19 above.
42 See MRX Rule 804.
Market Makers that bring more order
flow to the Exchange.
Marketing Fee
The Exchange’s proposal to waive the
Marketing Fee for Complex Orders is
reasonable because the Exchange desires
to limit the cost of transacting Complex
Orders for Market Makers who are the
only market participant assessed a
Marketing Fee. Today, the Exchange
waives the Marketing Fee for: (i) Flash
Order Responses; (ii) Market Maker
Orders that take liquidity from the
Order Book; and (iii) Crossing Orders
and Responses to Crossing Orders. It is
reasonable to seek to lower the total cost
for Market Makers to execute Complex
Orders while simultaneously
incentivizing Market Makers to provide
greater liquidity to MRX as explained
herein.
The Proposal Represents an Equitable
Allocation and Is Not Unfairly
Discriminatory
The Exchange believes its proposal
allocates its fees fairly among its market
participants.
Complex Order Fees
The Exchange believes its Complex
Order fees are equitable and not unfairly
discriminatory. The proposed Complex
Order fees would be applied uniformly
to all market participant capacities
($0.15 per contract), except for Priority
Customers ($0.00 per contract). Priority
Customer interest brings valuable
liquidity to the market, which liquidity
benefits other market participants.
Priority Customer liquidity benefits all
market participants by providing more
trading opportunities, which attracts
Market Makers. An increase in the
activity of these market participants in
turn facilitates tighter spreads, which
may cause an additional corresponding
increase in order flow from other market
participants. Priority Customers have
traditionally received more favorable
pricing as compared to other market
participants.43 The Exchange notes that
any Member may transact Complex
Orders on MRX or submit a response
into MRX’s Complex Facilitation
Mechanism, Complex Solicited Order
Mechanism, Complex PIM or enter an
order as a Complex Customer Cross
Order, Complex QCC Order or Complex
QCC with Stock Order.
Stock Handling Fee
The Exchange believes its Stock
Handling Fee is equitable and not
unfairly discriminatory. The proposed
Stock Handling Fee of $0.0010 per share
41 See
Frm 00087
Fmt 4703
Sfmt 4703
43 See
E:\FR\FM\12JYN1.SGM
note 27 above.
12JYN1
Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices
(capped at a maximum of $50 per trade)
for the stock leg of Stock-Option Orders
executed against other Stock-Option
Orders in the Complex Order Book
would be applied uniformly to all
market participants. This fee, which is
in addition to a Complex Order fee,
would be applied to any market
participant who executes a Complex
Order.
Reduced Market Maker Complex Order
Fee
The Exchange believes its proposal to
reduce Market Maker Complex Order
fees is equitable and not unfairly
discriminatory. With respect to the
reduced fee offered to Market Makers,
the Exchange notes that Priority
Customers do not pay a Complex Order
fee as proposed herein. Other market
participants, such as a Non-Nasdaq
MRX Market Maker (FarMM), a Firm
Proprietary, a Broker-Dealer and a
Professional Customer, would not be
entitled to the same fee reduction as a
Market Maker. The Exchange notes that
Market Makers, their Affiliated
Members and their Appointed Members
are being incentivized to direct Priority
Customer order flow to MRX. Other
market participants benefit from this
order flow because they may interact
with it. Unlike other participants,
Market Makers add value to MRX
through quoting obligations 44 and their
commitment of capital. Encouraging
Market Makers to add greater liquidity
benefits all market participants in the
quality of order interaction.
Marketing Fee
The Exchange believes its waiver of
the Marketing Fee for Complex Orders
is equitable and not unfairly
discriminatory. The Exchange would
uniformly waive the Marketing Fee for
all Market Makers, who are the only
type of market participants assessed the
Marketing Fee. As proposed, no market
participant would be assessed a
Marketing Fee for Complex Orders.
jbell on DSK3GLQ082PROD with NOTICES
Relocation Options 7 Sections
The Exchange’s proposal to relocate
certain rule text within Options 7 are
reasonable, equitable and not unfairly
discriminatory. These amendments are
non-substantive.
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.
44 See
MRX Rule 804.
VerDate Sep<11>2014
16:55 Jul 11, 2019
Jkt 247001
Inter-Market Competition
The proposal does not impose an
undue burden on inter-market
competition. Today, there are 9 options
markets that offer complex order
functionality.45 The complex order
functionality offerings differ by options
market.46 Some options markets have
offered complex order functionality for
a number of years and other options
markets are new entrants in recent years
with their complex order offerings.47
MRX will be the newest options market
to offer market participants another
venue on which to transact Complex
Orders. The Exchange believes the
proposed fees will encourage Members
to submit order flow to MRX,
particularly orders that may otherwise
remain unfilled on other venues. The
Exchange believes the proposed rates
are competitive and will offer market
participants with another choice of
where to transact Complex Orders. New
entrants, such as MRX, increase
competition as to a particular offering,
in this case Complex Orders, and
encourage competitive pricing among
options markets competing for Complex
Order flow. The proposed MRX offering
and pricing may benefit market
participants who have different business
models and desire to direct their order
flow to one of the various options
markets that offer complex orders
depending on that market’s
functionality, pricing and their
particular business model.
Permitting MRX to commence offering
Complex Order functionality, by
permitting it to establish Complex Order
fees, will bring additional competition
to the option markets that currently
offer Complex Orders. MRX would not
commence offering Complex Order
functionality without implementing
pricing for this new offering.
The Exchange notes that it operates in
a highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive, or rebate opportunities
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
fees to remain competitive with other
exchanges that have been exempted
from compliance with the statutory
standards applicable to exchanges.
Because competitors are free to modify
their own fees in response, and because
market participants may readily adjust
their order routing practices, the
note 28 above.
example, the various options markets have
different complex order auctions.
47 See note 30 above.
PO 00000
45 See
46 For
Frm 00088
Fmt 4703
Sfmt 4703
33305
Exchange believes that the degree to
which fee changes in this market may
impose any burden on competition is
extremely limited.
The proposed reduced criteria is
reflective of this competition because, as
a threshold issue, the Exchange is a
relatively small market so its ability to
burden intermarket competition is
limited. In this regard, even the largest
U.S. options exchange by volume only
has 28% market share, which in most
markets could hardly be categorized as
having enough market power to burden
competition. Moreover, as noted above,
price competition between exchanges is
fierce, with liquidity and market share
moving freely between exchanges in
reaction to fee and credit changes.
In sum, if the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share as a
result. Accordingly, the Exchange does
not believe that the proposed changes
will impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
Intra-Market Competition
The proposed fee do not impose an
undue burden on intra-market
competition.
Complex Order Fees
The Exchange’s proposed Complex
Order fees do not impose an undue
burden on competition as these fees
would be applied uniformly to all
market participant capacities ($0.15 per
contract), except for Priority Customers
($0.00 per contract). Priority Customer
interest brings valuable liquidity to the
market, which liquidity benefits other
market participants. Priority Customer
liquidity benefits all market participants
by providing more trading
opportunities, which attracts Market
Makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants. Priority Customers have
traditionally received more favorable
pricing as compared to other market
participants.48 The Exchange notes that
any Member may transact Complex
Orders on MRX or submit a response
into MRX’s Complex Facilitation
Mechanism, Complex Solicited Order
Mechanism, Complex PIM or enter an
order as a Complex Customer Cross
Order, Complex QCC Order or Complex
QCC with Stock Order.
48 See
E:\FR\FM\12JYN1.SGM
note 27 above.
12JYN1
33306
Federal Register / Vol. 84, No. 134 / Friday, July 12, 2019 / Notices
Stock Handling Fee
The proposed Stock Handling Fee of
$0.0010 per share (capped at a
maximum of $50 per trade) for the stock
leg of Stock-Option Orders executed
against other Stock-Option Orders in the
Complex Order Book does not impose
an undue burden on competition
because this fee would be applied
uniformly to all market participants.
This fee, which is in addition to a
Complex Order fee, would be applied to
any market participant who executes a
Complex Order.
Reduced Market Maker Complex Order
Fee
The Exchange’s proposed reduced fee
offered to Market Makers does not
impose an undue burden on
competition. Priority Customers do not
pay a Complex Order fee as proposed
herein. Other market participants, such
as a Non-Nasdaq MRX Market Maker
(FarMM), a Firm Proprietary, a BrokerDealer and a Professional Customer,
would not be entitled to the same fee
reduction as a Market Maker. The
Exchange notes that the proposal
incentivizes Market Makers through
their Affiliated Members and their
Appointed Members to direct Priority
Customer order flow to MRX. Other
market participants benefit from this
proposal because they may interact with
this order flow. Unlike other
participants, Market Makers add value
to MRX through quoting obligations 49
and their commitment of capital.
Encouraging Market Makers to add
greater liquidity benefits all market
participants in the quality of order
interaction because the Exchange
believes that Market Makers will be
incentivized to aggressively pursue
order flow in order to receive the benefit
of the reduced fee.
jbell on DSK3GLQ082PROD with NOTICES
Marketing Fee
The Exchange’s proposal to waive the
Marketing Fee for Complex Orders does
not impose an undue burden on
competition. The Marketing Fee applies
only to Market Makers. The Exchange’s
proposal to waive the Marketing Fee for
Complex Orders would apply to
uniformly to all Market Makers. As
proposed, no market participant would
be assessed a Marketing Fee for
Complex Orders.
Relocation Options 7 Sections
The Exchange’s proposal to relocate
certain rule text within Options 7 does
not impose an undue burden on
competition. These amendments are
non-substantive.
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.50 At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is: (i)
Necessary or appropriate in the public
interest; (ii) for the protection of
investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MRX–2019–14 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MRX–2019–14. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (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–2019–14 and should
be submitted on or before August 2,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.51
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–14812 Filed 7–11–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86322; File No. SR–
CboeEDGX–2019–042]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend the Exchange’s Fee Schedule
Applicable to its Equities Trading
Platform To Adopt a New Cross-Asset
Volume Tier
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 June 25,
2019, Cboe EDGX Exchange, Inc.
(‘‘Exchange’’ or ‘‘EDGX’’) 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.
51 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
49 See
MRX Rule 804.
VerDate Sep<11>2014
16:55 Jul 11, 2019
50 15
Jkt 247001
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00089
Fmt 4703
Sfmt 4703
E:\FR\FM\12JYN1.SGM
12JYN1
]]>Agencies
[Federal Register Volume 84, Number 134 (Friday, July 12, 2019)]
[Notices]
[Pages 33300-33306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14812]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86326; File No. SR-MRX-2019-14]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Adopt Complex
Order Pricing
July 8, 2019.
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 June 24, 2019, Nasdaq MRX, LLC (``MRX'' 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.
---------------------------------------------------------------------------
\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 adopt Complex Order pricing. Specifically,
MRX proposes to amend MRX's Pricing Schedule at Options 7, Section 1,
titled ``General Provisions,'' and adopt a new Section 4, titled
``Complex Order Fees.'' The Exchange proposes to renumber current
Section 4, titled ``Other Options Fees and Rebates'' as well as amend
that section and relocate Section 5, titled ``Legal and Regulatory''.
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
[[Page 33301]]
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
MRX recently received approval to adopt rules to provide for the
trading of Complex Orders.\3\ MRX proposes to adopt Complex Order
pricing. Specifically, the Exchange proposes to: (1) Amend MRX's
Pricing Schedule at Options 7, Section 1, ``General Provisions'' to
define a Complex Order; and (2) adopt Complex Order pricing within new
Section 4, titled ``Complex Order Fees''. The Exchange proposes to
amend current Options 7, Section 4, B, ``Marketing Fee'' to waive this
fee for Complex Orders. In addition, the Exchange proposes other
technical amendments to renumber current Section 4, ``Other Options
Fees and Rebates'' and combine that rule with Section 5, ``Legal and
Regulatory''. Each amendment is described below.
---------------------------------------------------------------------------
\3\ Securities Exchange Act Release No. 85935 (May 24, 2019), 84
FR 16907 (April 17, 2019) (SR-MRX-2019-08) (Order Approving a
Proposed Rule Change To Adopt Complex Order Functionality).
---------------------------------------------------------------------------
Description of Proposed Complex Order Pricing
The purpose of the proposed rule change is to adopt Complex Order
Pricing. The Exchange proposes to define the term ``Complex Order''
within Options 7, Section 1, ``General Provisions''. The Exchange
proposes to state at Options 7, Section 1(c), a ``Complex Order'' is
any order involving the simultaneous purchase and/or sale of two or
more different options series in the same underlying security, as
provided in Nasdaq MRX Rule 722, as well as Stock-Option Orders.\4\
This proposed description of the term ``Complex Order'' is intended to
bring greater transparency to the proposed Complex Order fees.
---------------------------------------------------------------------------
\4\ A Stock-Option Order is a Stock-Option Strategies with only
one option leg and one stock leg. See MRX Rule 722(a)(2).
---------------------------------------------------------------------------
There are four fee proposals with respect to Complex Orders.
(1) Complex Order Fees
The Exchange proposes to adopt a new Options 7, Section 4, titled
``Complex Order Fees.'' The Exchange proposes to assess a Complex Order
fee of $0.15 per contract for orders submitted as a Market Maker,\5\
Non-Nasdaq MRX Market Maker (FarMM),\6\ Firm Proprietary,\7\ Broker-
Dealer \8\ and Professional Customer.\9\ Specifically, these proposed
fees would be assessed for Complex Order transactions in the Complex
Order Book as well as Complex Orders submitted into the Complex
Facilitation Mechanism,\10\ Complex Solicited Order Mechanism,\11\
Complex Price Improvement Mechanism (``PIM'') \12\ or an order
submitted as a Complex Customer Cross Order,\13\ Complex Qualified
Contingent Cross (``QCC'') Order \14\ or a Complex QCC with Stock
Order.\15\ These Complex Order fees apply to an originating order,
contra-side order and responses entered into MRX's Complex Facilitation
Mechanism, Complex Solicited Order Mechanism, Complex PIM and orders
entered as a Complex Customer Cross Order, Complex QCC Order or Complex
QCC with Stock Order. The Exchange proposes to assess no Complex Order
fee to Priority Customers.\16\ The Exchange notes that interest on the
Regular Order Book that interacts with a Complex Order is subject to
Regular Order \17\ Book fees within Options 7, Section 3. The Exchange
further notes that a Member will be assessed the applicable Complex
Order fee on those Complex Orders that interact with the Regular Order
Book.
---------------------------------------------------------------------------
\5\ A ``Market Maker'' is a market maker as defined in Nasdaq
MRX Rule 100(a)(30). See MRX Options 7, Section 1(c).
\6\ 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. See MRX Options 7, Section 1(c).
\7\ A ``Firm Proprietary'' order is an order submitted by a
Member for its own proprietary account. See MRX Options 7, Section
1(c).
\8\ A ``Broker-Dealer'' order is an order submitted by a Member
for a broker-dealer account that is not its own proprietary account.
See MRX Options 7, Section 1(c).
\9\ A ``Professional Customer'' is a person or entity that is
not a broker/dealer and is not a Priority Customer. See MRX Options
7, Section 1(c).
\10\ See MRX Rule 716(c).
\11\ See MRX Rule 716(e).
\12\ See MRX Rule 723(e).
\13\ See MRX Rule 721(b).
\14\ See MRX Rule 721(d).
\15\ See MRX Rule 721(f).
\16\ 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). See MRX Options 7, Section 1(c).
\17\ A ``Regular Order'' is an order that consists of only a
single option series and is not submitted with a stock leg. See MRX
Options 7, Section 1(c).
---------------------------------------------------------------------------
(2) Stock Handling Fee
The Exchange proposes to assess a Stock Handling Fee of $0.0010 per
share (capped at a maximum of $50 per trade) for the stock leg of
Stock-Option Orders executed against other Stock-Option Orders in the
Complex Order Book. This fee would be in addition to the above-
referenced fees for Complex Orders. Nasdaq ISE, LLC (``ISE'') assesses
a similar Stock Handling Fee of $0.0010 per share (capped at a maximum
of $50 per trade) \18\ and Cboe Exchange, Inc. (``Cboe'') assesses a
Stock-Portion of Stock-Option Strategy Orders fee of $0.0010 per
share.\19\ In order to offer Members the ability to execute Stock-
Option Orders on MRX, the Exchange outsources the function of printing
the stock portion of the trade to a third party venue so that MRX
Members may simultaneously execute options and stock to achieve their
desired strategy. The Exchange has developed its Complex Order System
to process the stock leg of a Stock-Option Order and match these Stock-
Option Orders against other Stock-Option Orders on the Complex Order
Book. The Exchange believes offering this service to Members adds value
in permitting Stock-Option Order executions on MRX. In addition, the
Exchange believes that the process adds efficiency to a Member's
workflow. As stated above, the Exchange would assess a maximum of $50
per trade.\20\ The cap would provide Members with the total dollar that
would be assessed per trade. No charges would be assessed above the
cap.
---------------------------------------------------------------------------
\18\ See ISE's Pricing Schedule at Options 7, Section 4.
\19\ See Cboe's Fees Schedule. Cboe notes, ``The Exchange shall
assess a fee of $0.0010 per share for the stock portion, which Cboe
Options must route to an outside venue, of stock option orders
executed via the Complex Order Auction (``COA''), the Complex Order
Book (``COB''), AIM, SAM, and the splitting mechanism which is used
for certain market orders pursuant to Interpretation .06(d) of Rule
6.53C. This fee applies in addition to the fees assessed by the
outside venue to which the stock portion of the order is routed if
an exchange destination is specified on the original order (with
such fees to be passed on to the market participant). A maximum of
$50.00 per order will be assessed under this fee.''
\20\ The equivalent of a $50 cap in terms of shares is 50,000
shares on a singular execution.
---------------------------------------------------------------------------
(3) Reduced Market Maker Complex Order Fee
The Exchange also proposes to offer Market Makers a reduced Complex
Order fee. Specifically, MRX proposes to reduce the proposed $0.15 per
contract Complex Order Market Maker fee to $0.00 per contract when a
Market Maker trades against Priority Customer orders that originate
from its Affiliated
[[Page 33302]]
Member \21\ or its Appointed Member.\22\ This incentive is designed to
encourage Market Makers, Affiliated Members and/or Appointed Members to
direct additional Priority Customer order flow to the Exchange.
Priority Customer order flow is unique in that it attracts valuable
liquidity from Market Makers to the market, which in turn benefits all
market participants by providing more trading opportunities. This
increased activity from all market participants attracts Market Makers
and in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Market Makers will benefit from this incentive through reduced fees,
and other market participants will benefit because they will have an
opportunity to trade with the order flow that Marker Makers, their
Affiliated Member and/or Appointed Member bring to MRX. When a Priority
Customer order is submitted to MRX, a Market Maker that wishes to
interact with that order flow does not know whether that order
originated from one of its Affiliated Members and/or Appointed Members.
The Exchange believes this incentive will cause Market Makers to
aggressively pursue order flow in order to receive the benefit of the
reduced fee when the Market Maker executes a Complex Order contra a
Priority Customer. Discounting fees in this manner will reward Market
Makers that bring more order flow to the Exchange. This is the case
because a Market Maker through its Affiliated Member or its Appointed
Member directing additional order flow would increase the chances of a
Market Maker qualifying for a reduced Complex Order fee of $0.00 (i.e.,
because it increases the chances that a contra-side order is entered by
the Market Maker or its Affiliated Member and/or Appointed Member).
---------------------------------------------------------------------------
\21\ An ``Affiliated Member'' is a Member that shares at least
75% common ownership with a particular Member as reflected on the
Member's Form BD, Schedule A. See Options 7, Section 1(c).
\22\ An ``Appointed Member'' is either an Appointed Market Maker
or Appointed Order Flow Provider. An ``Appointed Market Maker'' is a
Market Maker who has been appointed by an Electronic Access Member
pursuant to Section 3, Table 3. An ``Appointed Order Flow Provider''
is an Electronic Access Member who has been appointed by a Market
Maker pursuant to Section 3, Table 3. See Options 7, Section 1(c).
---------------------------------------------------------------------------
(4) Marketing Fee
The Exchange proposes to waive the Marketing Fee within Options 7,
Section 4, B which applies to MRX Market Makers. Today, MRX assesses
Market Makers a Marketing Fee of $0.25 per contract in Penny Symbols
and $0.70 per contract in Non-Penny Symbols for each Regular Priority
Customer contract executed.\23\ Today, the Marketing Fee is waived for:
(i) Flash Order \24\ Responses; (ii) Market Maker Orders that take
liquidity from the Order Book; and (iii) Crossing Orders \25\ and
Responses to Crossing Orders.
---------------------------------------------------------------------------
\23\ The Marketing Fee is 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. Preferenced Orders. An Electronic Access
Member may designate a ``Preferred Market Maker'' on orders it
enters into the System (``Preferenced Orders''). See MRX Rule 713 at
Supplementary Material .01.
\24\ 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. For all Flash Orders, the Exchange will charge the
applicable maker fee and for responses that trade against a Flash
Order, the Exchange will provide the applicable taker fee. See MRX
Options 7, Section 1(c).
\25\ See MRX Rule 721.
---------------------------------------------------------------------------
In connection with the adoption of Complex Order Fees, the Exchange
proposes to amend current Options 7, Section 4 to waive the Marketing
Fee for Complex Orders. The Exchange believes that waiving the
Marketing Fee will ensure that Market Makers can benefit from the
proposed fee incentives proposed herein with respect to Complex Orders.
This proposal would ensure that the total fee assessed to a Market
Maker with respect to Complex Orders would be a transaction fee of
either $0.15 or $0.00 per contract (provided the Market Maker executed
against Priority Customer orders that originate from an Affiliated
Member or its Appointed Member) plus a Stock Handling Fee of $0.0010
per share. With this proposal, Market Makers will be able to lower
total execution costs when executing Complex Orders.
Applicability to and Impact on Participants \26\
---------------------------------------------------------------------------
\26\ On May 21, 2019, the SEC Division of Trading and Markets
(the ``Division'') issued fee filing guidance titled ``Staff
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance'').
Within the Guidance, the Division noted, among other things, that
the purpose discussion should address ``how the fee may apply
differently (e.g., additional cost vs. additional discount) to
different types of market participants (e.g., market makers,
institutional brokers, retail brokers, vendors, etc.) and different
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees). The Guidance
also suggests that the purpose discussion should include numerical
examples. Where possible, the Exchange is including numerical
examples. In addition, the Exchange is providing data to the
Commission in support of its arguments herein. The Guidance covers
all aspects of a fee filing, which the Exchange has addressed
throughout this filing.
---------------------------------------------------------------------------
The proposed Complex Order fees would be applied uniformly to all
market participant capacities ($0.15 per contract), except for Priority
Customers ($0.00 per contract). Priority Customer interest brings
valuable liquidity to the market, which liquidity benefits other market
participants. Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Priority Customers have traditionally received more favorable pricing
as compared to other market participants.\27\ The Exchange notes that
any Member may transact Complex Orders on MRX or submit a response into
MRX's Complex Facilitation Mechanism, Complex Solicited Order
Mechanism, Complex PIM or enter an order as a Complex Customer Cross
Order, Complex QCC Order or Complex QCC with Stock Order.
---------------------------------------------------------------------------
\27\ Priority Customers pay no fees for certain Select Symbols
and Non-Select Symbols for Regular Order Fees. See MRX's Pricing
Schedule at Options 7, Section 3.
---------------------------------------------------------------------------
Complex Order Fees
The Exchange believes that assessing all non-Priority Customers a
$0.15 per contract fee will attract Complex Order flow to MRX. Today,
there are 9 options markets that offer complex order functionality.\28\
The complex order functionality offerings differ by options market.\29\
Some options markets have offered complex order functionality for a
number of years and other options markets are new entrants in recent
years with their complex order offerings.\30\ MRX will be the newest
options market to offer market participants another venue on which to
transact Complex Orders. The Exchange believes its proposed fees are
reasonable and well within the range of fees assessed for complex
orders among other exchanges.\31\ The Exchange believes the
[[Page 33303]]
proposed fees will encourage Members to submit order flow to MRX,
particularly orders that may otherwise remain unfilled on other venues.
The Exchange believes the proposed rates are competitive for all
multiply-listed options and will offer market participants with another
choice of where to transact Complex Orders. New entrants, such as MRX,
may increase competition as to a particular offering, in this case
Complex Orders, and encourage competitive pricing among options markets
competing for such Complex Order flow. The proposed MRX offering and
pricing may benefit market participants with certain business models.
The Exchange believes that market participants determine where to
direct their Complex Order flow by considering, among other factors, a
market's functionality, pricing and the market participant's needs
arising from its particular business model.
---------------------------------------------------------------------------
\28\ ISE, Nasdaq PHLX LLC, Cboe, Cboe C2 Exchange, Inc., Cboe
EDGX Exchange, Inc. Miami International Securities Exchange, LLC,
BOX Exchange LLC, NYSE Arca, Inc. and NYSE American LLC.
\29\ For example, the various options markets have different
complex order auctions.
\30\ Cboe EDGX Exchange, Inc. and MIAX EMERALD, LLC were the
last two markets to receive approval for complex order rules prior
to MRX.
\31\ MIAX EMERALD, LLC's pricing schedule assesses complex order
fees that range from $0.10 to $0.88 per contract for all origin
types except priority customer (of which, MIAX EMERALD pays rebates
of $0.25 to $0.87 per contract for priority customer complex
orders), whether the participant is a maker or taker and whether the
transaction was in a Penny or non-Penny Pilot Symbol.
---------------------------------------------------------------------------
Stock Handling Fee
The proposed Stock Handling Fee of $0.0010 per share (capped at a
maximum of $50 per trade) for the stock leg of Stock-Option Orders
executed against other Stock-Option Orders in the Complex Order Book
would be applied uniformly to all market participants. This fee, which
is in addition to a Complex Order fee, would be applied to any market
participant who executes a Complex Order.
Reduced Market Maker Complex Order Fee
With this proposal, only Market Makers are offered an incentive
that would reduce their Complex Order fee to $0.00 per contract.
Priority Customers do not pay a Complex Order fee as proposed herein.
Other market participants, such as a Non-Nasdaq MRX Market Maker
(FarMM), a Firm Proprietary, a Broker-Dealer and a Professional
Customer, would not be entitled to the same fee reduction as a Market
Maker. The Exchange notes that Market Makers, their Affiliated Members
and their Appointed Members are being incentivized to direct Priority
Customer order flow to MRX. Other market participants benefit because
they may interact with this order flow. Unlike other participants,
Market Makers add value to MRX through quoting obligations \32\ and
their commitment of capital. Encouraging Market Makers to add greater
liquidity benefits all market participants in the quality of order
interaction because the Exchange believes that Market Makers will be
incentivized to aggressively pursue order flow in order to receive the
benefit of the reduced fee.
---------------------------------------------------------------------------
\32\ See MRX Rule 804.
---------------------------------------------------------------------------
Marketing Fee
Finally, with respect to the waiver of the Marketing Fee for
Complex Orders, the Exchange notes that the Marketing Fee applies only
to Market Makers. The Exchange's proposal to waive the Marketing Fee
for Complex Orders would apply to uniformly to all Market Makers. As
proposed, no market participant would be assessed a Marketing Fee for
Complex Orders.
Relocation Options 7 Sections
The Exchange proposes technical amendments to the Pricing Schedule
to relocate certain rule text within Options 7. The Exchange proposes
to re-number current Options 7, Section 4, titled ``Other Options Fees
and Rebates'' as new Section 5. The Exchange proposes to delete the
title to current Section 5, ``Legal and Regulatory'' and re-letter the
rule text within that section. Current Options 7, Section 5, ``A''
titled ``Options Regulatory Fee'' would be re-lettered as ``C'' and
current Options 7, Section 5, ``B'' titled ``FINRA Web CRD Fees'' would
be re-lettered as ``D''.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\33\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\34\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. The proposal is also
consistent with Section 11A of the Act relating to the establishment of
the national market system for securities. Moreover, the Exchange
believes that its proposal complies with Commission guidance on SRO fee
filings that the Commission Staff issued on May 21, 2019.\35\
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(4) and (5).
\35\ See Guidance, supra note 3. Although the Exchange believes
that this filing complies with the Guidance, the Exchange does not
concede that the standards set forth in the Guidance are consistent
with the Exchange Act and reserves its right to challenge those
standards through administrative and judicial review, as
appropriate.
---------------------------------------------------------------------------
The Proposal is Reasonable
The Exchange's proposed new Complex Order fees are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for options transaction
services that constrain its pricing determinations in that market. The
fact that this market is competitive has long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
Circuit stated as follows: ``[n]o one disputes that competition for
order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S.
national market system, buyers and sellers of securities, and the
broker-dealers that act as their order-routing agents, have a wide
range of choices of where to route orders for execution'; [and] `no
exchange can afford to take its market share percentages for granted'
because `no exchange possesses a monopoly, regulatory or otherwise, in
the execution of order flow from broker dealers'. . . .'' \36\
---------------------------------------------------------------------------
\36\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------
Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is one of several options
venues to which market participants may direct their order flow, and it
represents a small percentage of the overall market. Competing options
exchanges offer complex order functionality, with varying pricing
schedules. The Exchange believes its proposed fees are reasonable and
well within the range of fees assessed for complex order among other
exchanges.\37\
---------------------------------------------------------------------------
\37\ See note 31 above.
---------------------------------------------------------------------------
Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules.\38\
Separately, the Exchange has provided the SEC staff with information
regarding market share.
---------------------------------------------------------------------------
\38\ While MRX has not offered Complex Order functionality to
date, the Exchange perceives no regulatory, structural, or cost
impediments to market participants shifting order flow away from it
as a result of this rule change. See Guidance, supra note 16. In
particular, the Exchange notes that these examples of shifts in
liquidity and market share, along with many others, have occurred
within the context of market participants' existing duties of Best
Execution and obligations under the Order Protection Rule under
Regulation NMS.
---------------------------------------------------------------------------
Within the foregoing context, the proposal represents a reasonable
attempt by the Exchange to increase its
[[Page 33304]]
liquidity and market share relative to its competitors. The Exchange
believes that its proposed Complex Order fees are a reasonable attempt
to achieve this end because these fees are competitive as compared to
other options markets. Any MRX market participant can transact Complex
Orders on MRX. In fact, most options markets offer complex order
functionality \39\ making the competition for complex order flow very
competitive among options exchanges with different markets offering
incentives and rebates to market participants to lower transaction
fees. The Exchange believes that as a new entrant offering Complex
Order functionality, MRX, alongside other options markets, will provide
market participants with another choice for transacting their Complex
Orders. New entrants, such as MRX, increase competition as to a
particular offering, in this case Complex Orders, and encourage
competitive pricing among options markets competing for Complex Order
flow. With this proposal, the Exchange proposes to introduce a novel
pricing model so that MRX may compete with the other 9 complex order
books for order flow. The proposed fee is novel because it is a flat
fee as compared to a Maker-Taker model and the Exchange is not
proposing to assess a Marketing Fee. The Exchange may be unsuccessful
in its initial attempt to attract order flow with the proposed fees. At
this time, MRX is not proposing to pay rebates to attract order flow.
The Exchange would file other fee proposals if its pricing does not
attract order flow and fails to be competitive. The proposed MRX
offering and pricing may benefit market participants who have different
business models and desire to direct their order flow to one of the
various options markets that offer complex orders depending on that
market's functionality, pricing and the market participant's particular
business model.
---------------------------------------------------------------------------
\39\ Currently 9 of 16 options markets offer Complex Order
functionality. MRX would be the 10th options market to offer Complex
Order functionality. MIAX EMERALD has approved rules and has filed
pricing for complex orders, but has not commenced offering complex
order functionality.
---------------------------------------------------------------------------
Complex Order Fees
With respect to the proposed Complex Order fees, the Exchange
proposes assessing a uniform fee of $0.15 per contract to all non-
Priority Customers, except for Priority Customers who would not be
assessed a Complex Order fee. The Exchange believes that the fees will
attract Complex Order flow to MRX. The Exchange believes not assessing
Priority Customer interest a Complex Order fee will incentivize market
participants to direct their Priority Customer order flow to MRX. This
will provide all market participants more trading opportunities.
Priority Customers have traditionally received more favorable pricing
as compared to other market participants.\40\
---------------------------------------------------------------------------
\40\ See note 27 above.
---------------------------------------------------------------------------
Stock Handling Fee
With respect to the proposed Stock Handling Fee of $0.0010 per
share for the stock leg of Stock-Option Orders executed against other
Stock-Option Orders in the Complex Order Book, this fee would be
assessed on each Complex Order so the Exchange may offer Members the
ability to execute Stock-Option Orders on MRX. The Exchange would
outsource the function of printing the stock portion of the trade to a
third party venue so that MRX Members may simultaneously execute
options and stock to achieve their desired strategy. The Exchange has
developed its Complex Order System to process the stock leg of a Stock-
Option Order and match these Stock-Option Orders against other Stock-
Option Orders on the Complex Order Book. The Exchange believes offering
this service to Members adds value in permitting Stock-Option Order
executions on MRX. In addition, the Exchange believes that the process
adds efficiency to a Member's workflow. Despite the fee, the Exchange
would cap the amount assessed at a maximum of $50 per trade to limit
the amount paid by Members. The Exchange believes that the fee is
reasonable and will allow the Exchange to offer Members the ability to
trade Stock-Option Orders. This proposed fee is the same as the fee
assessed today on ISE and Cboe.\41\
---------------------------------------------------------------------------
\41\ See notes 18 and 19 above.
---------------------------------------------------------------------------
Reduced Market Maker Complex Order Fee
With respect to the reduced fee offered to Market Makers, the
Exchange notes Market Makers add value to MRX through quoting
obligations \42\ and their commitment of capital. The fee is reasonable
because incentivizing Market Makers to provide greater liquidity will
benefit all market participants through the quality of order
interaction. Market Makers will be incentivized to aggressively pursue
order flow in order to receive the benefit of the reduced fee when the
Market Maker executes a Complex Order contra a Priority Customer. This
discount will reward Market Makers that bring more order flow to the
Exchange.
---------------------------------------------------------------------------
\42\ See MRX Rule 804.
---------------------------------------------------------------------------
Marketing Fee
The Exchange's proposal to waive the Marketing Fee for Complex
Orders is reasonable because the Exchange desires to limit the cost of
transacting Complex Orders for Market Makers who are the only market
participant assessed a Marketing Fee. Today, the Exchange waives the
Marketing Fee for: (i) Flash Order Responses; (ii) Market Maker Orders
that take liquidity from the Order Book; and (iii) Crossing Orders and
Responses to Crossing Orders. It is reasonable to seek to lower the
total cost for Market Makers to execute Complex Orders while
simultaneously incentivizing Market Makers to provide greater liquidity
to MRX as explained herein.
The Proposal Represents an Equitable Allocation and Is Not Unfairly
Discriminatory
The Exchange believes its proposal allocates its fees fairly among
its market participants.
Complex Order Fees
The Exchange believes its Complex Order fees are equitable and not
unfairly discriminatory. The proposed Complex Order fees would be
applied uniformly to all market participant capacities ($0.15 per
contract), except for Priority Customers ($0.00 per contract). Priority
Customer interest brings valuable liquidity to the market, which
liquidity benefits other market participants. Priority Customer
liquidity benefits all market participants by providing more trading
opportunities, which attracts Market Makers. An increase in the
activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants. Priority Customers have
traditionally received more favorable pricing as compared to other
market participants.\43\ The Exchange notes that any Member may
transact Complex Orders on MRX or submit a response into MRX's Complex
Facilitation Mechanism, Complex Solicited Order Mechanism, Complex PIM
or enter an order as a Complex Customer Cross Order, Complex QCC Order
or Complex QCC with Stock Order.
---------------------------------------------------------------------------
\43\ See note 27 above.
---------------------------------------------------------------------------
Stock Handling Fee
The Exchange believes its Stock Handling Fee is equitable and not
unfairly discriminatory. The proposed Stock Handling Fee of $0.0010 per
share
[[Page 33305]]
(capped at a maximum of $50 per trade) for the stock leg of Stock-
Option Orders executed against other Stock-Option Orders in the Complex
Order Book would be applied uniformly to all market participants. This
fee, which is in addition to a Complex Order fee, would be applied to
any market participant who executes a Complex Order.
Reduced Market Maker Complex Order Fee
The Exchange believes its proposal to reduce Market Maker Complex
Order fees is equitable and not unfairly discriminatory. With respect
to the reduced fee offered to Market Makers, the Exchange notes that
Priority Customers do not pay a Complex Order fee as proposed herein.
Other market participants, such as a Non-Nasdaq MRX Market Maker
(FarMM), a Firm Proprietary, a Broker-Dealer and a Professional
Customer, would not be entitled to the same fee reduction as a Market
Maker. The Exchange notes that Market Makers, their Affiliated Members
and their Appointed Members are being incentivized to direct Priority
Customer order flow to MRX. Other market participants benefit from this
order flow because they may interact with it. Unlike other
participants, Market Makers add value to MRX through quoting
obligations \44\ and their commitment of capital. Encouraging Market
Makers to add greater liquidity benefits all market participants in the
quality of order interaction.
---------------------------------------------------------------------------
\44\ See MRX Rule 804.
---------------------------------------------------------------------------
Marketing Fee
The Exchange believes its waiver of the Marketing Fee for Complex
Orders is equitable and not unfairly discriminatory. The Exchange would
uniformly waive the Marketing Fee for all Market Makers, who are the
only type of market participants assessed the Marketing Fee. As
proposed, no market participant would be assessed a Marketing Fee for
Complex Orders.
Relocation Options 7 Sections
The Exchange's proposal to relocate certain rule text within
Options 7 are reasonable, equitable and not unfairly discriminatory.
These amendments are non-substantive.
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.
Inter-Market Competition
The proposal does not impose an undue burden on inter-market
competition. Today, there are 9 options markets that offer complex
order functionality.\45\ The complex order functionality offerings
differ by options market.\46\ Some options markets have offered complex
order functionality for a number of years and other options markets are
new entrants in recent years with their complex order offerings.\47\
MRX will be the newest options market to offer market participants
another venue on which to transact Complex Orders. The Exchange
believes the proposed fees will encourage Members to submit order flow
to MRX, particularly orders that may otherwise remain unfilled on other
venues. The Exchange believes the proposed rates are competitive and
will offer market participants with another choice of where to transact
Complex Orders. New entrants, such as MRX, increase competition as to a
particular offering, in this case Complex Orders, and encourage
competitive pricing among options markets competing for Complex Order
flow. The proposed MRX offering and pricing may benefit market
participants who have different business models and desire to direct
their order flow to one of the various options markets that offer
complex orders depending on that market's functionality, pricing and
their particular business model.
---------------------------------------------------------------------------
\45\ See note 28 above.
\46\ For example, the various options markets have different
complex order auctions.
\47\ See note 30 above.
---------------------------------------------------------------------------
Permitting MRX to commence offering Complex Order functionality, by
permitting it to establish Complex Order fees, will bring additional
competition to the option markets that currently offer Complex Orders.
MRX would not commence offering Complex Order functionality without
implementing pricing for this new offering.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues if they
deem fee levels at a particular venue to be excessive, or rebate
opportunities available at other venues to be more favorable. In such
an environment, the Exchange must continually adjust its fees to remain
competitive with other exchanges that have been exempted from
compliance with the statutory standards applicable to exchanges.
Because competitors are free to modify their own fees in response, and
because market participants may readily adjust their order routing
practices, the Exchange believes that the degree to which fee changes
in this market may impose any burden on competition is extremely
limited.
The proposed reduced criteria is reflective of this competition
because, as a threshold issue, the Exchange is a relatively small
market so its ability to burden intermarket competition is limited. In
this regard, even the largest U.S. options exchange by volume only has
28% market share, which in most markets could hardly be categorized as
having enough market power to burden competition. Moreover, as noted
above, price competition between exchanges is fierce, with liquidity
and market share moving freely between exchanges in reaction to fee and
credit changes.
In sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
changes will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
Intra-Market Competition
The proposed fee do not impose an undue burden on intra-market
competition.
Complex Order Fees
The Exchange's proposed Complex Order fees do not impose an undue
burden on competition as these fees would be applied uniformly to all
market participant capacities ($0.15 per contract), except for Priority
Customers ($0.00 per contract). Priority Customer interest brings
valuable liquidity to the market, which liquidity benefits other market
participants. Priority Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Priority Customers have traditionally received more favorable pricing
as compared to other market participants.\48\ The Exchange notes that
any Member may transact Complex Orders on MRX or submit a response into
MRX's Complex Facilitation Mechanism, Complex Solicited Order
Mechanism, Complex PIM or enter an order as a Complex Customer Cross
Order, Complex QCC Order or Complex QCC with Stock Order.
---------------------------------------------------------------------------
\48\ See note 27 above.
---------------------------------------------------------------------------
[[Page 33306]]
Stock Handling Fee
The proposed Stock Handling Fee of $0.0010 per share (capped at a
maximum of $50 per trade) for the stock leg of Stock-Option Orders
executed against other Stock-Option Orders in the Complex Order Book
does not impose an undue burden on competition because this fee would
be applied uniformly to all market participants. This fee, which is in
addition to a Complex Order fee, would be applied to any market
participant who executes a Complex Order.
Reduced Market Maker Complex Order Fee
The Exchange's proposed reduced fee offered to Market Makers does
not impose an undue burden on competition. Priority Customers do not
pay a Complex Order fee as proposed herein. Other market participants,
such as a Non-Nasdaq MRX Market Maker (FarMM), a Firm Proprietary, a
Broker-Dealer and a Professional Customer, would not be entitled to the
same fee reduction as a Market Maker. The Exchange notes that the
proposal incentivizes Market Makers through their Affiliated Members
and their Appointed Members to direct Priority Customer order flow to
MRX. Other market participants benefit from this proposal because they
may interact with this order flow. Unlike other participants, Market
Makers add value to MRX through quoting obligations \49\ and their
commitment of capital. Encouraging Market Makers to add greater
liquidity benefits all market participants in the quality of order
interaction because the Exchange believes that Market Makers will be
incentivized to aggressively pursue order flow in order to receive the
benefit of the reduced fee.
---------------------------------------------------------------------------
\49\ See MRX Rule 804.
---------------------------------------------------------------------------
Marketing Fee
The Exchange's proposal to waive the Marketing Fee for Complex
Orders does not impose an undue burden on competition. The Marketing
Fee applies only to Market Makers. The Exchange's proposal to waive the
Marketing Fee for Complex Orders would apply to uniformly to all Market
Makers. As proposed, no market participant would be assessed a
Marketing Fee for Complex Orders.
Relocation Options 7 Sections
The Exchange's proposal to relocate certain rule text within
Options 7 does not impose an undue burden on competition. These
amendments are non-substantive.
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.\50\ 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.
---------------------------------------------------------------------------
\50\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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-2019-14 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MRX-2019-14. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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-2019-14 and should be submitted on
or before August 2, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\51\
---------------------------------------------------------------------------
\51\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14812 Filed 7-11-19; 8:45 am]
BILLING CODE 8011-01-P
