Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To the Exchange's Pricing Schedule at Options 7 To Amend Taker Fees for Regular Orders, 74473-74477 [2020-25617]

Download as PDF Federal Register / Vol. 85, No. 225 / Friday, November 20, 2020 / Notices BILLING CODE 7710–12–C SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90434; File No. SR–MRX– 2020–19] Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To the Exchange’s Pricing Schedule at Options 7 To Amend Taker Fees for Regular Orders November 16, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 2, 2020, Nasdaq MRX, LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. khammond on DSKJM1Z7X2PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange’s Pricing Schedule at Options 7, as described further below. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/mrx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 17:08 Nov 19, 2020 Jkt 253001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange recently filed to permit certain affiliated market participants (i.e., Affiliated Entities) 3 to aggregate volume and qualify for certain pricing incentives.4 The purpose of the proposed rule change is to amend the Exchange’s Pricing Schedule to enhance 3 An ‘‘Affiliated Entity’’ is a relationship between an Appointed Market Maker and an Appointed OFP for purposes of qualifying for certain pricing specified in the Pricing Schedule. Market Makers and OFPs are required to send an email to the Exchange to appoint their counterpart, at least 3 business days prior to the last day of the month to qualify for the next month. The Exchange will acknowledge receipt of the emails and specify the date the Affiliated Entity is eligible for applicable pricing, as specified in the Pricing Schedule. Each Affiliated Entity relationship will commence on the 1st of a month and may not be terminated prior to the end of any month. An Affiliated Entity relationship will terminate after a one (1) year period, unless either party terminates earlier in writing by sending an email to the Exchange at least 3 business days prior to the last day of the month to terminate for the next month. Affiliated Entity relationships must be renewed annually by each party sending an email to the Exchange. Affiliated Members may not qualify as a counterparty comprising an Affiliated Entity. Each Member may qualify for only one (1) Affiliated Entity relationship at any given time. See Options 7, Section 1(c). 4 See SR–MRX–2020–17 (not yet published). PO 00000 Frm 00164 Fmt 4703 Sfmt 4703 participation in the Exchange’s Affiliated Entities program in order to encourage additional order flow to the Exchange. Each change is described below. Regular Taker Fees Today, as set forth in Options 7, Section 3, Table 1, the Exchange applies a two-tier taker fee structure based on Total Affiliated Member 5 or Affiliated Entity ADV.6 In Penny Symbols, the Exchange currently charges all nonPriority Customer 7 orders a taker fee of $0.50 per contract, regardless of the tier achieved. In Non-Penny Symbols, the Exchange currently charges all nonPriority Customers a taker fee of $0.90 per contract, regardless of tier achieved. Priority Customer 8 orders do not get charged taker fees for executions in either Penny or Non-Penny Symbols today. In addition, as set forth in note 2 within Options 7, Section 3, Table 1, Market Maker 9 orders that take liquidity are also currently eligible for ADV-based fee discounts in both Penny and NonPenny Symbols when trading against Priority Customer orders entered by an Affiliated Member or Affiliated Entity. 5 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). 6 Total Affiliated Member or Affiliated Entity ADV means all ADV executed on the Exchange in all symbols and order types, including volume executed by Affiliated Members or Affiliated Entities. All eligible volume from Affiliated Members or an Affiliated Entity will be aggregated in determining applicable tiers. See Options 7, Section 3, Table 3. 7 Non-Priority Customer include Market Makers, Non-Nasdaq MRX Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and Professional Customers. 8 A ‘‘Priority Customer’’ is a person or entity that is not a broker/dealer in securities, and does not place more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s), as defined in Nasdaq MRX Options 1, Section 1(a)(36). 9 The term Market Makers refers to ‘‘Competitive Market Makers’’ and ‘‘Primary Market Makers’’ collectively. E:\FR\FM\20NON1.SGM 20NON1 EN20NO20.128</GPH> [FR Doc. 2020–25620 Filed 11–19–20; 8:45 am] 74473 khammond on DSKJM1Z7X2PROD with NOTICES 74474 Federal Register / Vol. 85, No. 225 / Friday, November 20, 2020 / Notices Today, the discounted fee is $0.05 per contract if the Member has a Total Affiliated Member or Affiliated Entity Priority Customer ADV 10 of 5,000 contracts or more, or $0.00 per contract if the Member has a Total Affiliated Member or Affiliated Entity Priority Customer ADV of 50,000 contracts or more. These fee discounts apply instead of the Market Maker taker fees of $0.50 per contract in Penny Symbols and $0.90 per contract in Non-Penny Symbols. The Exchange now proposes a number of changes to the current taker fee structure described above. The Exchange first proposes to increase the Non-Penny taker fees for all non-Priority Customer orders from $0.90 to $1.10 per contract, regardless of tier. Priority Customer orders will continue to be charged no fee under this proposal. The Exchange also proposes to amend the note 2 incentive that currently offers discounted taker fees to qualifying Market Maker orders in all symbols by separating the incentive structure between Penny and Non-Penny Symbols. For Penny Symbols, the Exchange proposes to replace the current language in note 2 with the following: A Taker Fee of $0.20 per contract applies instead when trading with Priority Customer orders in Penny Symbols entered by an Affiliated Member or Affiliated Entity. A Taker Fee of $0.10 per contract applies instead when trading with Priority Customer orders in Penny Symbols entered by an Affiliated Member or Affiliated Entity if the Member has a Total Affiliated Member or Affiliated Entity Priority Customer ADV of 0.20% to less than 0.75% Customer Total Consolidated Volume. A Taker Fee of $0.00 per contract applies instead when trading with Priority Customer orders in Penny Symbols entered by an Affiliated Member or Affiliated Entity if the Member has a Total Affiliated Member or Affiliated Entity Priority Customer ADV of 0.75% Customer Total Consolidated Volume or more. For Non-Penny Symbols, the Exchange proposes to introduce separate discounted Market Maker taker fees in new note 3, which would replace the note 2 incentive currently offered for such orders. The new incentive will be structured similarly to the amended 10 Total Affiliated Member or Affiliated Entity Priority Customer ADV means all Priority Customer ADV executed on the Exchange in all symbols and order types, including volume executed by Affiliated Members or Affiliated Entities. All eligible volume from Affiliated Members or an Affiliated Entity will be aggregated in determining applicable tiers. See Options 7, Section 3, Table 3. VerDate Sep<11>2014 17:08 Nov 19, 2020 Jkt 253001 note 2 incentive, except with respect to the amount of the discounted taker fees. Otherwise, the proposed tier structure and related qualifications will be identical to the ones proposed above for the amended note 2 incentive. As proposed, new note 3 will be added to Options 7, Section 3, Table 1 as follows: A Taker Fee of $0.90 per contract applies instead when trading with Priority Customer orders in Non-Penny Symbols entered by an Affiliated Member or Affiliated Entity. A Taker Fee of $0.50 per contract applies instead when trading with Priority Customer orders in Non-Penny Symbols entered by an Affiliated Member or Affiliated Entity if the Member has a Total Affiliated Member or Affiliated Entity Priority Customer ADV of 0.20% to less than 0.75% Customer Total Consolidated Volume. A Taker Fee of $0.20 per contract applies instead when trading with Priority Customer orders in Non-Penny Symbols entered by an Affiliated Member or Affiliated Entity if the Member has a Total Affiliated Member or Affiliated Entity Priority Customer ADV of 0.75% Customer Total Consolidated Volume or more. Taken together, the proposed note 2 and note 3 incentives differ from the current note 2 incentive in a few key ways. First, the current incentive structure will be expanded from two to three tiers with the introduction of a top tier that will contain a more stringent volume requirement than the lower tiers in order for the Member to qualify for free executions. The Exchange will also reduce the amount of the discount for some tiers,11 while raising the volume requirement in the new top tier to qualify for free executions. Second, the base tier qualifications will be modified to remove the volume requirement stipulating that the Member have a Total Affiliated Member or Affiliated Entity Priority Customer ADV of 5,000 contracts or more. As amended, the base tiers would offer the $0.20 (Penny Symbols) and $0.90 (Non-Penny Symbols) discounted Market Maker taker fees when trading with Priority Customer orders that are entered by an Affiliated Member or Affiliated Entity, without requiring them to meet a requisite volume threshold. As noted above, this would further the Exchange’s goal to encourage Members to become Affiliated Entities, provided they are not already Affiliated Members, thereby enhancing participation in the 11 As proposed, the discounted Market Maker taker fees are $0.20 and $0.10 in the lower tiers for Penny Symbols, and $0.90 and $0.50 in the lower tiers for Non-Penny Symbols. Today, the discounted Market Maker taker fee is $0.05 in the lower tier across all symbols. PO 00000 Frm 00165 Fmt 4703 Sfmt 4703 Exchange’s newly established Affiliated Entity program to bring increased order flow. Third, the cumulative volume thresholds in current note 2 would be replaced by total industry percentage thresholds, specifically thresholds that are based on a percentage of Customer Total Consolidated Volume.12 The Exchange notes that the proposed percentage threshold of 0.20% Customer Total Consolidated Volume is comparable in terms of requisite volume to the existing ADV threshold of 50,000 contracts. The proposed percentage threshold for the new top tier requires additional volume to meet the proposed criteria of 0.75% Customer Total Consolidated Volume.13 The Exchange is proposing to replace the current cumulative volume thresholds with total industry volume percentages to align with increasing Member activity on MRX over time. The Exchange notes that total industry percentage thresholds are established concepts within its Pricing Schedule today.14 Lastly, the Exchange proposes to relocate the defined term ‘‘Customer Total Consolidated Volume’’ from Options 7, Section 3, Table 3 to Options 7, Section 1(c). Because this term is used throughout the Pricing Schedule, the Exchange believes that its relocation to the general definition section in Section 1(c) is appropriate. Flash Order Definition The Exchange proposes a nonsubstantive, clarifying change to the definition of a Flash Order in its Pricing Schedule. A Flash Order is currently defined as 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 Options 5, Section 2.15 Today, the initiation of a Flash Order is considered as ‘‘taker’’ (i.e., removing liquidity from the book), while responses to a Flash Order is considered as ‘‘maker’’ (i.e., adding liquidity to the book). Accordingly, the current definition also indicates that for all Flash Orders, the Exchange will charge the applicable taker fee and for responses that trade against a Flash 12 Customer Total Consolidated Volume means the total volume cleared at The Options Clearing Corporation in the Customer range in equity and ETF options in that month. See Options 7, Section 3, Table 3. 13 Today, 0.75% of Customer Total Consolidated Volume on the Exchange is approximately 165,000 contracts per day. 14 Specifically, the qualifying tier thresholds for the Exchange’s maker/taker pricing are currently based on Customer Total Consolidated Volume percentages. See Options 7, Section 3, Table 3. 15 See Options 7, Section 1(c). E:\FR\FM\20NON1.SGM 20NON1 Federal Register / Vol. 85, No. 225 / Friday, November 20, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Order, the Exchange will provide the applicable maker rebate. The Exchange is not proposing to change its current billing practices with respect to Flash Orders; however, because the Exchange does not currently offer maker rebates and instead charges maker fees, the Exchange proposes to clarify that for responses that trade against a Flash Order, it will charge the applicable maker fee. As such, the Exchange is aligning the rule text to current billing practices. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,16 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,17 in particular, in that it provides for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange’s proposed changes to its Pricing Schedule are reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for options securities transaction services that constrain its pricing determinations in that market. The fact that this market is competitive has long been recognized by the courts. In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers’. . . .’’ 18 The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO 16 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 18 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782– 83 (December 9, 2008) (SR–NYSEArca–2006–21)). 17 15 VerDate Sep<11>2014 17:08 Nov 19, 2020 Jkt 253001 revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 19 Numerous indicia demonstrate the competitive nature of this market. For example, clear substitutes to the Exchange exist in the market for options security transaction services. The Exchange is only one of sixteen options exchanges to which market participants may direct their order flow. Within this environment, market participants can freely and often do shift their order flow among the Exchange and competing venues in response to changes in their respective pricing schedules. As such, the proposal represents a reasonable attempt by the Exchange to increase its liquidity and market share relative to its competitors. Regular Taker Fees The Exchange believes that the proposed changes to its regular taker fee structure are reasonable for several reasons. While the Exchange is proposing to increase the Non-Penny Symbol taker fees for all non-Priority Customer orders from $0.90 to $1.10 in Tier 1 and Tier 2, the Exchange believes that its fees remain competitive and will continue to encourage market participants, and, in particular, Market Makers to execute more volume on MRX. Although the base taker fees for non-Priority Customers are increasing under this proposal, the Exchange believes that the fee increase is balanced by the potential for the new discounted taker fee structure proposed for Market Makers to encourage additional liquidity and opportunities for trading, to the benefit of all market participants. As discussed further below, the Exchange is proposing taker fee incentives that specifically target Market Maker activity on the Exchange. An increase in Market Maker activity may result in tighter spreads and more trading, improving the quality of the MRX market and increasing its attractiveness to existing and prospective participants. The Exchange notes that the proposed taker fees remain in line with similar fees charged by other options exchanges.20 19 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 20 For instance, the Exchange’s affiliate, Nasdaq Options Market (‘‘NOM’’) charges NOM Market Makers, Non-NOM Market Makers, Firms, and Broker-Dealers a $1.10 per contract Fee to Remove Liquidity in Non-Penny Symbols. See NOM Pricing Schedule at Options 7, Section 2(1). In addition, MIAX PEARL charges all MIAX PEARL Market Makers, Non-Priority Customers, Firms, BDs, and PO 00000 Frm 00166 Fmt 4703 Sfmt 4703 74475 The Exchange believes that the new discounted Market Maker taker fee structure that it is proposing in notes 2 and note 3 of Options 7, Section 3, Table 1 is reasonable. As noted above, the proposed changes would further the Exchange’s goal of enhancing participation in the Exchange’s newly established Affiliated Entity program, which is designed to further incentivize Members to aggregate volume and bring more order flow to MRX to qualify for fee incentives. For the reasons described in the following paragraphs, the Exchange believes that the proposed discounted taker fee incentives in proposed notes 2 and 3 will be beneficial for all market participants by encouraging an active and liquid market on MRX. As discussed above, the note 2 and note 3 incentives would continue to offer Market Makers the opportunity to receive discounted taker fees when trading with Priority Customer orders entered by an Affiliated Member or Affiliated Entity, with a few key differences. The Exchange believes that expanding the current two tier incentive structure to three tiers will continue to reward Market Makers for executing increasingly larger Priority Customer volume on MRX to obtain the proposed discounted fees. Permitting Members to aggregate volume for purposes of qualifying the Market Maker under an Affiliated Member relationship or an Appointed Market Maker 21 under an Affiliated Entity relationship will also encourage the counterparty order flow providers that comprise the Affiliated Member or Affiliated Entity relationship to bring additional Priority Customer order flow to MRX. While the Exchange is reducing the amount of the discount for the lower tiers,22 the Exchange believes this is reasonable given that it will be significantly easier to qualify for the discounted taker fee in the base incentive tier under this proposal.23 The Exchange is also changing the volume qualifications for the discounted taker fee incentives by removing (for the base tiers only) or replacing the current cumulative volume thresholds with Non-MIAX PEARL Market Makers a base taker fee of $1.10 per contract for Non-Penny Classes. See MIAX PEARL Fee Schedule at Section (1)(a). 21 An ‘‘Appointed Market Maker’’ is a Market Maker who has been appointed by an OFP for purposes of qualifying as an Affiliated Entity. See Options 7, Section 1(c). 22 See supra note 11. 23 As proposed, the Exchange will no longer require Market Makers to meet a requisite volume threshold in order to qualify for the discounted taker fees of $0.20 (Penny Symbols) and $0.90 (NonPenny Symbols) in the base incentive tier. See proposed notes 2 and 3 in Options 7, Section 3, Table 1. E:\FR\FM\20NON1.SGM 20NON1 khammond on DSKJM1Z7X2PROD with NOTICES 74476 Federal Register / Vol. 85, No. 225 / Friday, November 20, 2020 / Notices total industry percentage thresholds for the Affiliated Member or Affiliated Entity. The Exchange believes that removing the volume requirements for the base tier so that Market Makers would be able to more easily obtain the benefit of the discounted taker fee if they trade with any Priority Customer orders entered by an Affiliated Member or Affiliated Entity would further incentivize Market Makers to aggregate and execute large volumes of Priority Customer orders on the Exchange to qualify for the discounted Market Maker taker fees. The Exchange also believes that replacing the current cumulative volume thresholds with total industry percentage thresholds is reasonable in order to align with increasing Member activity on MRX over time. The Exchange is proposing to base the discounted Market Maker taker fee volume requirements on a percentage of industry volume in recognition of the fact that the volume executed by a Member may rise or fall with industry volume. A percentage of industry volume calculation allows the qualifications within notes 2 and 3 to be calibrated to current market volumes rather than requiring a static amount of volume regardless of market conditions. While the amount of volume required by the proposed qualifications in notes 2 and 3 may change in any given month due to increases or decreases in industry volume, the Exchange believes that the proposed threshold requirements are set at appropriate levels. The proposed thresholds of 0.20% Customer Total Consolidated Volume, which is comparable to the existing ADV requirement of 50,000 contracts, and 0.75% Customer Total Consolidated Volume, which is new and requires additional volume,24 are both intended to continue to reward Market Makers for executing more volume on MRX. To the extent Market Maker activity is increased by this proposal, market participants will increasingly compete for the opportunity to trade on the Exchange, and thus would promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. As noted above, total industry percentage thresholds are also established concepts within the Exchange’s Pricing Schedule.25 The Exchange believes that its proposal to amend the regular taker fee structure in the manner described above 24 See 25 See supra note 13. supra note 14. VerDate Sep<11>2014 17:08 Nov 19, 2020 is equitable and not unfairly discriminatory. As it relates to the increase in Non-Penny Symbol taker fees, the Exchange will apply this change to all non-Priority Customers while Priority Customers will continue to not be charged taker fees under this proposal. The Exchange continues to believe that it is equitable and not unfairly discriminatory to provide free executions to Priority Customer orders as the Exchange is seeking to attract this order flow. The Exchange believes that attracting more volume from Priority Customers benefits all market participants by providing more trading opportunities on MRX. Furthermore, the Exchange’s proposal to provide the discounted Market Maker taker fees in note 2 and note 3 is equitable and not unfairly discriminatory. As discussed above, the proposed threshold of 0.20% Customer Total Consolidated Volume is comparable to the existing ADV requirement of 50,000 contracts, so the Exchange anticipates minimal impact to Market Makers as a result of replacing the current cumulative volume threshold with the new total industry percentage threshold. While the proposed threshold of 0.75% Customer Total Consolidated Volume is new and requires additional volume,26 the Exchange likewise anticipates minimal impact with this proposed change because no Market Makers meet the current ADV threshold for free executions, and thus would not fall out of the proposed highest tier as a result of this change. The Exchange also believes that it is equitable and not unfairly discriminatory to continue to offer the discounted taker fee incentives only to Market Makers. Market Makers have special obligations to the market (such as quoting obligations) that other market participants do not. As such, these incentives are designed to increase Market Maker participation and reward Market Makers for the unique role they play in ensuring a robust market. Furthermore, providing the discounted taker fees specifically to Market Makers that trade with Priority Customer orders entered by Affiliated Members or Affiliated Entities will encourage firms to bring more of this order flow to the Exchange. Priority Customer liquidity benefits all market participants by providing more trading opportunities and attracting other market participants, thus facilitating tighter spreads and increased order flow to the benefit of all market participants. In addition, all Members that are not Affiliated Members may enter into an Affiliated 26 See Jkt 253001 PO 00000 supra note 13. Frm 00167 Fmt 4703 Sfmt 4703 Entity relationship. Thus, rewarding Members that use these programs to aggregate volume to bring a more order flow is beneficial to all market participants, who are free to interact with such order flow. Lastly, the Exchange believes that the proposed change to relocate the definition of Customer Total Consolidated Volume into Options 7, Section 1(c) is reasonable, equitable and not unfairly discriminatory. Because this term is used throughout the Pricing Schedule, the Exchange believes that its relocation to the general definition section in Section 1(c) is appropriate and brings greater transparency to the Pricing Schedule. Flash Order Definition The Exchange believes that the proposed change to clarify in the definition of a Flash Order that it will charge the applicable maker fee for responses that trade against the Flash Order (instead of providing that it will provide the applicable maker rebate) is reasonable, equitable, and not unfairly discriminatory. As discussed above, the Exchange is not changing its current billing practices with respect to Flash Orders, and Members are being uniformly charged the applicable maker fee for their executed responses against Flash Orders today. Accordingly, the proposed change aligns the rule text to current practice. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other options exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. 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 E:\FR\FM\20NON1.SGM 20NON1 Federal Register / Vol. 85, No. 225 / Friday, November 20, 2020 / Notices proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. In terms of intra-market competition, the Exchange does not believe that its proposal will place any category of market participant at a competitive disadvantage. The proposed changes to the regular taker fee structure are ultimately designed to incentivize Members to bring additional order flow to the Exchange and create a more active and liquid market on MRX. The proposed discounted taker fees will continue to reward Market Makers for executing increasingly larger Priority Customer volume entered by Affiliated Members or Affiliated Entities on MRX to obtain the proposed incentives. As discussed above, permitting Members to aggregate volume for purposes of qualifying the Market Maker under an Affiliated Member relationship or an Appointed Market Maker under an Affiliated Entity relationship will also encourage the counterparty order flow providers that comprise the Affiliated Member or Affiliated Entity relationship to bring additional Priority Customer order flow to MRX. All Members will benefit from any increase in market activity that the proposal effectuates through increased trading opportunities and price discovery. 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. khammond on DSKJM1Z7X2PROD with NOTICES 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,27 and Rule 19b–4(f)(2) 28 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 27 15 28 17 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). VerDate Sep<11>2014 17:08 Nov 19, 2020 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.29 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–25617 Filed 11–19–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION 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–2020–19 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–MRX–2020–19. 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–2020–19 and should be submitted on or before December 11, 2020. [Release No. 34–90432; File No. SR– CboeEDGX–2020–053] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule November 16, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 2, 2020, Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (the ‘‘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 Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) is filing with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change to amend the fee schedule. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ options/regulation/rule_filings/edgx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The 1 15 29 17 Jkt 253001 PO 00000 CFR 200.30–3(a)(12). Frm 00168 Fmt 4703 74477 Sfmt 4703 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. E:\FR\FM\20NON1.SGM 20NON1

Agencies

[Federal Register Volume 85, Number 225 (Friday, November 20, 2020)]
[Notices]
[Pages 74473-74477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25617]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90434; File No. SR-MRX-2020-19]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To the Exchange's 
Pricing Schedule at Options 7 To Amend Taker Fees for Regular Orders

November 16, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 2, 2020, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
Options 7, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/mrx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange recently filed to permit certain affiliated market 
participants (i.e., Affiliated Entities) \3\ to aggregate volume and 
qualify for certain pricing incentives.\4\ The purpose of the proposed 
rule change is to amend the Exchange's Pricing Schedule to enhance 
participation in the Exchange's Affiliated Entities program in order to 
encourage additional order flow to the Exchange. Each change is 
described below.
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    \3\ An ``Affiliated Entity'' is a relationship between an 
Appointed Market Maker and an Appointed OFP for purposes of 
qualifying for certain pricing specified in the Pricing Schedule. 
Market Makers and OFPs are required to send an email to the Exchange 
to appoint their counterpart, at least 3 business days prior to the 
last day of the month to qualify for the next month. The Exchange 
will acknowledge receipt of the emails and specify the date the 
Affiliated Entity is eligible for applicable pricing, as specified 
in the Pricing Schedule. Each Affiliated Entity relationship will 
commence on the 1st of a month and may not be terminated prior to 
the end of any month. An Affiliated Entity relationship will 
terminate after a one (1) year period, unless either party 
terminates earlier in writing by sending an email to the Exchange at 
least 3 business days prior to the last day of the month to 
terminate for the next month. Affiliated Entity relationships must 
be renewed annually by each party sending an email to the Exchange. 
Affiliated Members may not qualify as a counterparty comprising an 
Affiliated Entity. Each Member may qualify for only one (1) 
Affiliated Entity relationship at any given time. See Options 7, 
Section 1(c).
    \4\ See SR-MRX-2020-17 (not yet published).
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Regular Taker Fees
    Today, as set forth in Options 7, Section 3, Table 1, the Exchange 
applies a two-tier taker fee structure based on Total Affiliated Member 
\5\ or Affiliated Entity ADV.\6\ In Penny Symbols, the Exchange 
currently charges all non-Priority Customer \7\ orders a taker fee of 
$0.50 per contract, regardless of the tier achieved. In Non-Penny 
Symbols, the Exchange currently charges all non-Priority Customers a 
taker fee of $0.90 per contract, regardless of tier achieved. Priority 
Customer \8\ orders do not get charged taker fees for executions in 
either Penny or Non-Penny Symbols today.
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    \5\ 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).
    \6\ Total Affiliated Member or Affiliated Entity ADV means all 
ADV executed on the Exchange in all symbols and order types, 
including volume executed by Affiliated Members or Affiliated 
Entities. All eligible volume from Affiliated Members or an 
Affiliated Entity will be aggregated in determining applicable 
tiers. See Options 7, Section 3, Table 3.
    \7\ Non-Priority Customer include Market Makers, Non-Nasdaq MRX 
Market Makers (FarMMs), Firm Proprietary/Broker-Dealers, and 
Professional Customers.
    \8\ A ``Priority Customer'' is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s), as defined in Nasdaq MRX Options 1, 
Section 1(a)(36).
---------------------------------------------------------------------------

    In addition, as set forth in note 2 within Options 7, Section 3, 
Table 1, Market Maker \9\ orders that take liquidity are also currently 
eligible for ADV-based fee discounts in both Penny and Non-Penny 
Symbols when trading against Priority Customer orders entered by an 
Affiliated Member or Affiliated Entity.

[[Page 74474]]

Today, the discounted fee is $0.05 per contract if the Member has a 
Total Affiliated Member or Affiliated Entity Priority Customer ADV \10\ 
of 5,000 contracts or more, or $0.00 per contract if the Member has a 
Total Affiliated Member or Affiliated Entity Priority Customer ADV of 
50,000 contracts or more. These fee discounts apply instead of the 
Market Maker taker fees of $0.50 per contract in Penny Symbols and 
$0.90 per contract in Non-Penny Symbols.
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    \9\ The term Market Makers refers to ``Competitive Market 
Makers'' and ``Primary Market Makers'' collectively.
    \10\ Total Affiliated Member or Affiliated Entity Priority 
Customer ADV means all Priority Customer ADV executed on the 
Exchange in all symbols and order types, including volume executed 
by Affiliated Members or Affiliated Entities. All eligible volume 
from Affiliated Members or an Affiliated Entity will be aggregated 
in determining applicable tiers. See Options 7, Section 3, Table 3.
---------------------------------------------------------------------------

    The Exchange now proposes a number of changes to the current taker 
fee structure described above. The Exchange first proposes to increase 
the Non-Penny taker fees for all non-Priority Customer orders from 
$0.90 to $1.10 per contract, regardless of tier. Priority Customer 
orders will continue to be charged no fee under this proposal.
    The Exchange also proposes to amend the note 2 incentive that 
currently offers discounted taker fees to qualifying Market Maker 
orders in all symbols by separating the incentive structure between 
Penny and Non-Penny Symbols. For Penny Symbols, the Exchange proposes 
to replace the current language in note 2 with the following:
    A Taker Fee of $0.20 per contract applies instead when trading with 
Priority Customer orders in Penny Symbols entered by an Affiliated 
Member or Affiliated Entity. A Taker Fee of $0.10 per contract applies 
instead when trading with Priority Customer orders in Penny Symbols 
entered by an Affiliated Member or Affiliated Entity if the Member has 
a Total Affiliated Member or Affiliated Entity Priority Customer ADV of 
0.20% to less than 0.75% Customer Total Consolidated Volume. A Taker 
Fee of $0.00 per contract applies instead when trading with Priority 
Customer orders in Penny Symbols entered by an Affiliated Member or 
Affiliated Entity if the Member has a Total Affiliated Member or 
Affiliated Entity Priority Customer ADV of 0.75% Customer Total 
Consolidated Volume or more.
    For Non-Penny Symbols, the Exchange proposes to introduce separate 
discounted Market Maker taker fees in new note 3, which would replace 
the note 2 incentive currently offered for such orders. The new 
incentive will be structured similarly to the amended note 2 incentive, 
except with respect to the amount of the discounted taker fees. 
Otherwise, the proposed tier structure and related qualifications will 
be identical to the ones proposed above for the amended note 2 
incentive. As proposed, new note 3 will be added to Options 7, Section 
3, Table 1 as follows:
    A Taker Fee of $0.90 per contract applies instead when trading with 
Priority Customer orders in Non-Penny Symbols entered by an Affiliated 
Member or Affiliated Entity. A Taker Fee of $0.50 per contract applies 
instead when trading with Priority Customer orders in Non-Penny Symbols 
entered by an Affiliated Member or Affiliated Entity if the Member has 
a Total Affiliated Member or Affiliated Entity Priority Customer ADV of 
0.20% to less than 0.75% Customer Total Consolidated Volume. A Taker 
Fee of $0.20 per contract applies instead when trading with Priority 
Customer orders in Non-Penny Symbols entered by an Affiliated Member or 
Affiliated Entity if the Member has a Total Affiliated Member or 
Affiliated Entity Priority Customer ADV of 0.75% Customer Total 
Consolidated Volume or more.
    Taken together, the proposed note 2 and note 3 incentives differ 
from the current note 2 incentive in a few key ways. First, the current 
incentive structure will be expanded from two to three tiers with the 
introduction of a top tier that will contain a more stringent volume 
requirement than the lower tiers in order for the Member to qualify for 
free executions. The Exchange will also reduce the amount of the 
discount for some tiers,\11\ while raising the volume requirement in 
the new top tier to qualify for free executions. Second, the base tier 
qualifications will be modified to remove the volume requirement 
stipulating that the Member have a Total Affiliated Member or 
Affiliated Entity Priority Customer ADV of 5,000 contracts or more. As 
amended, the base tiers would offer the $0.20 (Penny Symbols) and $0.90 
(Non-Penny Symbols) discounted Market Maker taker fees when trading 
with Priority Customer orders that are entered by an Affiliated Member 
or Affiliated Entity, without requiring them to meet a requisite volume 
threshold. As noted above, this would further the Exchange's goal to 
encourage Members to become Affiliated Entities, provided they are not 
already Affiliated Members, thereby enhancing participation in the 
Exchange's newly established Affiliated Entity program to bring 
increased order flow.
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    \11\ As proposed, the discounted Market Maker taker fees are 
$0.20 and $0.10 in the lower tiers for Penny Symbols, and $0.90 and 
$0.50 in the lower tiers for Non-Penny Symbols. Today, the 
discounted Market Maker taker fee is $0.05 in the lower tier across 
all symbols.
---------------------------------------------------------------------------

    Third, the cumulative volume thresholds in current note 2 would be 
replaced by total industry percentage thresholds, specifically 
thresholds that are based on a percentage of Customer Total 
Consolidated Volume.\12\ The Exchange notes that the proposed 
percentage threshold of 0.20% Customer Total Consolidated Volume is 
comparable in terms of requisite volume to the existing ADV threshold 
of 50,000 contracts. The proposed percentage threshold for the new top 
tier requires additional volume to meet the proposed criteria of 0.75% 
Customer Total Consolidated Volume.\13\ The Exchange is proposing to 
replace the current cumulative volume thresholds with total industry 
volume percentages to align with increasing Member activity on MRX over 
time. The Exchange notes that total industry percentage thresholds are 
established concepts within its Pricing Schedule today.\14\
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    \12\ Customer Total Consolidated Volume means the total volume 
cleared at The Options Clearing Corporation in the Customer range in 
equity and ETF options in that month. See Options 7, Section 3, 
Table 3.
    \13\ Today, 0.75% of Customer Total Consolidated Volume on the 
Exchange is approximately 165,000 contracts per day.
    \14\ Specifically, the qualifying tier thresholds for the 
Exchange's maker/taker pricing are currently based on Customer Total 
Consolidated Volume percentages. See Options 7, Section 3, Table 3.
---------------------------------------------------------------------------

    Lastly, the Exchange proposes to relocate the defined term 
``Customer Total Consolidated Volume'' from Options 7, Section 3, Table 
3 to Options 7, Section 1(c). Because this term is used throughout the 
Pricing Schedule, the Exchange believes that its relocation to the 
general definition section in Section 1(c) is appropriate.
Flash Order Definition
    The Exchange proposes a non-substantive, clarifying change to the 
definition of a Flash Order in its Pricing Schedule. A Flash Order is 
currently defined as 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 Options 5, Section 2.\15\ Today, 
the initiation of a Flash Order is considered as ``taker'' (i.e., 
removing liquidity from the book), while responses to a Flash Order is 
considered as ``maker'' (i.e., adding liquidity to the book). 
Accordingly, the current definition also indicates that for all Flash 
Orders, the Exchange will charge the applicable taker fee and for 
responses that trade against a Flash

[[Page 74475]]

Order, the Exchange will provide the applicable maker rebate. The 
Exchange is not proposing to change its current billing practices with 
respect to Flash Orders; however, because the Exchange does not 
currently offer maker rebates and instead charges maker fees, the 
Exchange proposes to clarify that for responses that trade against a 
Flash Order, it will charge the applicable maker fee. As such, the 
Exchange is aligning the rule text to current billing practices.
---------------------------------------------------------------------------

    \15\ See Options 7, Section 1(c).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange's proposed changes to its Pricing Schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \18\
---------------------------------------------------------------------------

    \18\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \19\
---------------------------------------------------------------------------

    \19\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options security transaction services. The Exchange is only one of 
sixteen options exchanges to which market participants may direct their 
order flow. Within this environment, market participants can freely and 
often do shift their order flow among the Exchange and competing venues 
in response to changes in their respective pricing schedules. As such, 
the proposal represents a reasonable attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.
Regular Taker Fees
    The Exchange believes that the proposed changes to its regular 
taker fee structure are reasonable for several reasons. While the 
Exchange is proposing to increase the Non-Penny Symbol taker fees for 
all non-Priority Customer orders from $0.90 to $1.10 in Tier 1 and Tier 
2, the Exchange believes that its fees remain competitive and will 
continue to encourage market participants, and, in particular, Market 
Makers to execute more volume on MRX. Although the base taker fees for 
non-Priority Customers are increasing under this proposal, the Exchange 
believes that the fee increase is balanced by the potential for the new 
discounted taker fee structure proposed for Market Makers to encourage 
additional liquidity and opportunities for trading, to the benefit of 
all market participants. As discussed further below, the Exchange is 
proposing taker fee incentives that specifically target Market Maker 
activity on the Exchange. An increase in Market Maker activity may 
result in tighter spreads and more trading, improving the quality of 
the MRX market and increasing its attractiveness to existing and 
prospective participants. The Exchange notes that the proposed taker 
fees remain in line with similar fees charged by other options 
exchanges.\20\
---------------------------------------------------------------------------

    \20\ For instance, the Exchange's affiliate, Nasdaq Options 
Market (``NOM'') charges NOM Market Makers, Non-NOM Market Makers, 
Firms, and Broker-Dealers a $1.10 per contract Fee to Remove 
Liquidity in Non-Penny Symbols. See NOM Pricing Schedule at Options 
7, Section 2(1). In addition, MIAX PEARL charges all MIAX PEARL 
Market Makers, Non-Priority Customers, Firms, BDs, and Non-MIAX 
PEARL Market Makers a base taker fee of $1.10 per contract for Non-
Penny Classes. See MIAX PEARL Fee Schedule at Section (1)(a).
---------------------------------------------------------------------------

    The Exchange believes that the new discounted Market Maker taker 
fee structure that it is proposing in notes 2 and note 3 of Options 7, 
Section 3, Table 1 is reasonable. As noted above, the proposed changes 
would further the Exchange's goal of enhancing participation in the 
Exchange's newly established Affiliated Entity program, which is 
designed to further incentivize Members to aggregate volume and bring 
more order flow to MRX to qualify for fee incentives. For the reasons 
described in the following paragraphs, the Exchange believes that the 
proposed discounted taker fee incentives in proposed notes 2 and 3 will 
be beneficial for all market participants by encouraging an active and 
liquid market on MRX.
    As discussed above, the note 2 and note 3 incentives would continue 
to offer Market Makers the opportunity to receive discounted taker fees 
when trading with Priority Customer orders entered by an Affiliated 
Member or Affiliated Entity, with a few key differences. The Exchange 
believes that expanding the current two tier incentive structure to 
three tiers will continue to reward Market Makers for executing 
increasingly larger Priority Customer volume on MRX to obtain the 
proposed discounted fees. Permitting Members to aggregate volume for 
purposes of qualifying the Market Maker under an Affiliated Member 
relationship or an Appointed Market Maker \21\ under an Affiliated 
Entity relationship will also encourage the counterparty order flow 
providers that comprise the Affiliated Member or Affiliated Entity 
relationship to bring additional Priority Customer order flow to MRX. 
While the Exchange is reducing the amount of the discount for the lower 
tiers,\22\ the Exchange believes this is reasonable given that it will 
be significantly easier to qualify for the discounted taker fee in the 
base incentive tier under this proposal.\23\
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    \21\ An ``Appointed Market Maker'' is a Market Maker who has 
been appointed by an OFP for purposes of qualifying as an Affiliated 
Entity. See Options 7, Section 1(c).
    \22\ See supra note 11.
    \23\ As proposed, the Exchange will no longer require Market 
Makers to meet a requisite volume threshold in order to qualify for 
the discounted taker fees of $0.20 (Penny Symbols) and $0.90 (Non-
Penny Symbols) in the base incentive tier. See proposed notes 2 and 
3 in Options 7, Section 3, Table 1.
---------------------------------------------------------------------------

    The Exchange is also changing the volume qualifications for the 
discounted taker fee incentives by removing (for the base tiers only) 
or replacing the current cumulative volume thresholds with

[[Page 74476]]

total industry percentage thresholds for the Affiliated Member or 
Affiliated Entity. The Exchange believes that removing the volume 
requirements for the base tier so that Market Makers would be able to 
more easily obtain the benefit of the discounted taker fee if they 
trade with any Priority Customer orders entered by an Affiliated Member 
or Affiliated Entity would further incentivize Market Makers to 
aggregate and execute large volumes of Priority Customer orders on the 
Exchange to qualify for the discounted Market Maker taker fees.
    The Exchange also believes that replacing the current cumulative 
volume thresholds with total industry percentage thresholds is 
reasonable in order to align with increasing Member activity on MRX 
over time. The Exchange is proposing to base the discounted Market 
Maker taker fee volume requirements on a percentage of industry volume 
in recognition of the fact that the volume executed by a Member may 
rise or fall with industry volume. A percentage of industry volume 
calculation allows the qualifications within notes 2 and 3 to be 
calibrated to current market volumes rather than requiring a static 
amount of volume regardless of market conditions. While the amount of 
volume required by the proposed qualifications in notes 2 and 3 may 
change in any given month due to increases or decreases in industry 
volume, the Exchange believes that the proposed threshold requirements 
are set at appropriate levels. The proposed thresholds of 0.20% 
Customer Total Consolidated Volume, which is comparable to the existing 
ADV requirement of 50,000 contracts, and 0.75% Customer Total 
Consolidated Volume, which is new and requires additional volume,\24\ 
are both intended to continue to reward Market Makers for executing 
more volume on MRX. To the extent Market Maker activity is increased by 
this proposal, market participants will increasingly compete for the 
opportunity to trade on the Exchange, and thus would promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest. As noted 
above, total industry percentage thresholds are also established 
concepts within the Exchange's Pricing Schedule.\25\
---------------------------------------------------------------------------

    \24\ See supra note 13.
    \25\ See supra note 14.
---------------------------------------------------------------------------

    The Exchange believes that its proposal to amend the regular taker 
fee structure in the manner described above is equitable and not 
unfairly discriminatory. As it relates to the increase in Non-Penny 
Symbol taker fees, the Exchange will apply this change to all non-
Priority Customers while Priority Customers will continue to not be 
charged taker fees under this proposal. The Exchange continues to 
believe that it is equitable and not unfairly discriminatory to provide 
free executions to Priority Customer orders as the Exchange is seeking 
to attract this order flow. The Exchange believes that attracting more 
volume from Priority Customers benefits all market participants by 
providing more trading opportunities on MRX.
    Furthermore, the Exchange's proposal to provide the discounted 
Market Maker taker fees in note 2 and note 3 is equitable and not 
unfairly discriminatory. As discussed above, the proposed threshold of 
0.20% Customer Total Consolidated Volume is comparable to the existing 
ADV requirement of 50,000 contracts, so the Exchange anticipates 
minimal impact to Market Makers as a result of replacing the current 
cumulative volume threshold with the new total industry percentage 
threshold. While the proposed threshold of 0.75% Customer Total 
Consolidated Volume is new and requires additional volume,\26\ the 
Exchange likewise anticipates minimal impact with this proposed change 
because no Market Makers meet the current ADV threshold for free 
executions, and thus would not fall out of the proposed highest tier as 
a result of this change. The Exchange also believes that it is 
equitable and not unfairly discriminatory to continue to offer the 
discounted taker fee incentives only to Market Makers. Market Makers 
have special obligations to the market (such as quoting obligations) 
that other market participants do not. As such, these incentives are 
designed to increase Market Maker participation and reward Market 
Makers for the unique role they play in ensuring a robust market. 
Furthermore, providing the discounted taker fees specifically to Market 
Makers that trade with Priority Customer orders entered by Affiliated 
Members or Affiliated Entities will encourage firms to bring more of 
this order flow to the Exchange. Priority Customer liquidity benefits 
all market participants by providing more trading opportunities and 
attracting other market participants, thus facilitating tighter spreads 
and increased order flow to the benefit of all market participants. In 
addition, all Members that are not Affiliated Members may enter into an 
Affiliated Entity relationship. Thus, rewarding Members that use these 
programs to aggregate volume to bring a more order flow is beneficial 
to all market participants, who are free to interact with such order 
flow.
---------------------------------------------------------------------------

    \26\ See supra note 13.
---------------------------------------------------------------------------

    Lastly, the Exchange believes that the proposed change to relocate 
the definition of Customer Total Consolidated Volume into Options 7, 
Section 1(c) is reasonable, equitable and not unfairly discriminatory. 
Because this term is used throughout the Pricing Schedule, the Exchange 
believes that its relocation to the general definition section in 
Section 1(c) is appropriate and brings greater transparency to the 
Pricing Schedule.
Flash Order Definition
    The Exchange believes that the proposed change to clarify in the 
definition of a Flash Order that it will charge the applicable maker 
fee for responses that trade against the Flash Order (instead of 
providing that it will provide the applicable maker rebate) is 
reasonable, equitable, and not unfairly discriminatory. As discussed 
above, the Exchange is not changing its current billing practices with 
respect to Flash Orders, and Members are being uniformly charged the 
applicable maker fee for their executed responses against Flash Orders 
today. Accordingly, the proposed change aligns the rule text to current 
practice.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other options exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited. 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

[[Page 74477]]

proposed changes will impair the ability of members or competing order 
execution venues to maintain their competitive standing in the 
financial markets.
    In terms of intra-market competition, the Exchange does not believe 
that its proposal will place any category of market participant at a 
competitive disadvantage. The proposed changes to the regular taker fee 
structure are ultimately designed to incentivize Members to bring 
additional order flow to the Exchange and create a more active and 
liquid market on MRX. The proposed discounted taker fees will continue 
to reward Market Makers for executing increasingly larger Priority 
Customer volume entered by Affiliated Members or Affiliated Entities on 
MRX to obtain the proposed incentives. As discussed above, permitting 
Members to aggregate volume for purposes of qualifying the Market Maker 
under an Affiliated Member relationship or an Appointed Market Maker 
under an Affiliated Entity relationship will also encourage the 
counterparty order flow providers that comprise the Affiliated Member 
or Affiliated Entity relationship to bring additional Priority Customer 
order flow to MRX. All Members will benefit from any increase in market 
activity that the proposal effectuates through increased trading 
opportunities and price discovery.

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,\27\ and Rule 19b-4(f)(2) \28\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is: (i) Necessary or 
appropriate in the public interest; (ii) for the protection of 
investors; or (iii) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \28\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MRX-2020-19 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MRX-2020-19. 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-2020-19 and should be submitted on 
or before December 11, 2020.
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25617 Filed 11-19-20; 8:45 am]
BILLING CODE 8011-01-P
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