Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Pricing Schedule at Options 7 for Orders Entered Into the Exchange's Price Improvement Mechanism, 77317-77321 [2020-26402]

Download as PDF Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Notices and collection of margin requirements that will account for Index Swaptions as part of its overall risk-based margin system and risk management processes which rely, in part, on the end-of-day prices submitted by ICC’s CPs.14 Moreover, the Commission believes these risks, if mismanaged, could threaten ICC’s ability to operate and therefore its ability to clear and settle transactions and safeguard funds. As a result, the Commission believes that the proposed changes should promote ICC’s ability to assure the safeguarding of securities and funds which are in the custody or control of ICC or for which it is responsible. Therefore, the Commission believes that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act.15 khammond on DSKJM1Z7X2PROD with NOTICES4 B. Consistency With Section 17A(b)(3)(G) of the Act Section 17A(b)(3)(G) of the Act requires, among other things, that ICC’s rules provide that CPs shall be appropriately disciplined for violation of any provision of ICC’s rules by fine or other fitting sanction.16 As noted above, the proposed rule change would amend current Rule 702(e) and Schedule 702 of the Rules to impose an assessment amount on any CP that violates the ICC Procedures for submitting end-of-day prices with respect to Index Swaption Contracts. The Commission believes that this aspect of the proposed rule change should be an appropriate form of discipline for CPs that violate such price submission procedures for any reason other than technical failures that meet the waiver requirements of Rule 702(e)(ii)(2). The Commission also believes that without an appropriate sanction that would deter CPs from committing Index Swaption Missed Submission Violations, the accuracy, integrity and reliability of ICC’s end-ofday price discovery process could be impaired. Therefore, the Commission believes that the proposed rule change is consistent with Section 17A(b)(3)(G) of the Act.17 14 See SEC Release No. 34–82960 (Mar. 28, 2018), 83 FR 14300, 14302 (Apr. 3, 2018) (SR–ICC–2018– 002) (finding improvements to ICC’s end-of-day pricing process would improve ‘‘ICC’s risk management processes related to the end-of-day pricing process, including the calculation and collection of certain margin requirements’’ and would ‘‘promote the prompt and accurate clearance and settlement of the products cleared by ICC, and . . . enhance ICC’s ability to assure the safeguarding of securities and funds which are in the custody or control of ICC or for which it is responsible’’). 15 15 U.S.C. 78q–1(b)(3)(F). 16 15 U.S.C. 78q–1(b)(3)(G). 17 15 U.S.C. 78q–1(b)(3)(G). VerDate Sep<11>2014 18:11 Nov 30, 2020 Jkt 253001 C. Consistency With Section 17A(b)(3)(H) of the Act Section 17A(b)(3)(H) of the Act 18 requires, among other things, that ICC’s rules, in general, provide a fair procedure with respect to the disciplining of participants. As noted above, the proposed rule change would provide a generally applicable process for requesting and reviewing waivers of the summary assessment amount for Index Swaption Missed Submissions. This proposed process is consistent with the processes currently set forth in Rule 702(e) for requesting and reviewing waivers for single name Missed Submissions and index Missed Submissions, which is another indication of procedural fairness and consistency with respect to disciplining CPs for Missed Submissions across all three types of CDS Contracts after ICC’s proposed launch of clearing Index Swaptions. For these reasons, the Commission believes that the proposed rule change is consistent with Section 17A(b)(3)(H) of the Act.19 D. Consistency With Rule 17Ad– 22(e)(6)(iv) Under the Act Rule 17Ad–22(e)(6)(iv) 20 requires each covered clearing agency to establish, implement, maintain, and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, uses reliable sources of timely price data and uses procedures and sound valuation models for addressing circumstances in which pricing data are not readily available or reliable. The Commission believes the proposed rule change is reasonably designed to deter the occurrence of Index Swaption Missed Submissions that would undermine ICC’s ability to maintain the integrity and effectiveness of its end-of-day price discovery process for the provision of reliable prices, which could, in turn, be used to enhance ICC’s ability to establish and maintain risk-based margin requirements which rely, in part, on the end-of-day prices provided by CPs. The Commission believes that the proposed rule change is therefore consistent with Rule 17Ad–22(e)(6)(iv).21 18 15 U.S.C. 78q–1(b)(3)(H). 19 15 U.S.C. 78q–1(b)(3)(H). In addition, the Commission believes that ICC’s proposed correction of a typographical error in Schedule 702 of the Rules with respect to single names will enhance the clarity and procedural fairness of ICC’s assessment approach with respect to each single name Missed Submission. 20 17 CFR 240.17Ad–22(e)(6)(iv). 21 17 CFR 240.17Ad–22(e)(6)(iv). PO 00000 Frm 00179 Fmt 4703 Sfmt 4703 77317 IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A(b)(3)(F) of the Act, Section 17A(b)(3)(G) of the Act, Section 17A(b)(3)(H) of the Act 22 and Rule 17Ad–22(e)(6)(iv) thereunder.23 It is therefore ordered pursuant to Section 19(b)(2) of the Act 24 that the proposed rule change (SR–ICC–2020– 011), be, and hereby is, approved.25 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–26404 Filed 11–30–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90503; File No. SR–MRX– 2020–18] Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Pricing Schedule at Options 7 for Orders Entered Into the Exchange’s Price Improvement Mechanism November 24, 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 13, 2020, Nasdaq MRX, LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Pricing Schedule at Options 7 in connection with the pricing for orders 22 15 U.S.C. 78q–1(b)(3)(F), 15 U.S.C. 78q– 1(b)(3)(G) and 15 U.S.C. 78q–1(b)(3)(H). 23 17 CFR 240.17Ad–22(e)(6)(iv). 24 15 U.S.C. 78s(b)(2). 25 In approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 26 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\01DEN1.SGM 01DEN1 77318 Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Notices entered into the Exchange’s Price Improvement Mechanism (‘‘PIM’’).3 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 khammond on DSKJM1Z7X2PROD with NOTICES4 The purpose of the proposed rule change is to amend the Exchange’s Pricing Schedule at Options 7 in connection with the pricing for orders entered into the Exchange’s PIM. Today for both regular and complex PIM orders, the Exchange pays a PIM break-up rebate to an originating Priority Customer 4 PIM order that executes with a response (order or quote), other than the PIM contra-side order, of $0.40 per contract in Penny Symbols and $1.00 per contract in NonPenny Symbols.5 The Exchange also offers a higher PIM break-up rebate in note 3 of Options 7, Section 3.A for Members that meet certain cumulative volume requirements. In particular, Members that execute an average daily volume (‘‘ADV’’) of 10,000 PIM originating contracts or greater within a month are currently eligible to receive a 3 PIM is a process by which an Electronic Access Member (‘‘EAM’’) can provide price improvement opportunities for a transaction wherein the EAM seeks to facilitate an order it represents as agent, and/or a transaction wherein the EAM solicited interest to execute against an order it represents as agent. See Options 3, Section 13. 4 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). 5 Break-up rebates apply only to regular PIM orders of 500 or fewer contracts and to complex PIM orders where the largest leg is 500 or fewer contracts. See Options 7, Section 3.A. VerDate Sep<11>2014 18:11 Nov 30, 2020 Jkt 253001 rebate of (i) $0.45 per contract in Penny Symbols (in lieu of $0.40 per contract) for complex PIM orders only, and (ii) $1.05 per contract in Non-Penny Symbols (in lieu of $1.00 per contract) for both regular and complex PIM orders. The Exchange now proposes a number of changes to the break-up rebate structure. First, the Exchange proposes to lower the base rebates to $0.25 in Penny Symbols and $0.60 per contract in Non-Penny Symbols. Second, the Exchange proposes to replace the existing note 3 incentive described above with a new program. As amended, note 3 of Options 7, Section 3.A would provide: Break-up Rebates are provided for an originating Priority Customer PIM Order that executes with any response (order or quote) other than the PIM contra-side order. Members that are not in an Affiliated Member or Affiliated Entity relationship and that execute 0.05% or greater of Customer Total Consolidated Volume in non-PIM Priority Customer contracts within a month will receive an additional rebate of: (i) $0.20 per contract in Penny Symbols for Complex PIM Orders only, (ii) $0.15 per contract in Penny Symbols for Regular PIM Orders only, and (iii) $0.45 per contract in Non-Penny Symbols for both Regular and Complex PIM Orders. Alternatively, Affiliated Members or Affiliated Entities will be eligible to receive the rebates in this note 3 without any additional volume requirements. The Exchange will provide the rebate to the OFP arm of an Affiliated Member relationship, or the Appointed OFP arm of an Affiliated Entity relationship. The new program replaces the current cumulative ADV threshold with a total industry percentage threshold, specifically a Customer Total Consolidated Volume 6 percentage threshold. The Exchange notes that the proposed percentage threshold of 0.05% or greater of Customer Total Consolidated Volume is comparable in terms of requisite volume to the existing ADV threshold of 10,000 or greater contracts. 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.7 6 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. 7 Specifically, the qualifying tier thresholds for the Exchange’s maker/taker pricing are based on PO 00000 Frm 00180 Fmt 4703 Sfmt 4703 The Exchange is also modifying this qualification by requiring that Members execute 0.05% or greater of Customer Total Consolidated Volume in non-PIM Priority Customer contracts (instead of PIM originating contracts, as currently required). The Exchange believes this change will incentivize Members to bring a wider range of order flow for execution on the Exchange, which activity may result in tighter spreads making the Exchange a more attractive trading venue to the benefit of all market participants. As discussed in the following paragraph, this volume qualification only applies to Members that are not in affiliated relationships. The new program will also offer a new, alternative basis, to qualify for the higher break-up rebates in amended note 3. Specifically, as proposed, Members may enter into certain affiliated relationships (i.e., Affiliated Members 8 or Affiliated Entities 9) to qualify for the higher break-up rebates. The Exchange recently filed to permit Members to enter into Affiliated Entities in order to aggregate volume and qualify for certain pricing incentives, provided they are not Affiliated Members.10 Accordingly, the proposed changes are intended to enhance participation in the Exchange’s new Affiliated Entity program in order to encourage additional order flow to MRX. As described above, the rebates in note 3 will be provided to the OFP 11 arm of the Affiliated Member relationship, or Customer Total Consolidated Volume percentages. See Options 7, Section 3, Table 3. 8 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). 9 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). 10 See SR–MRX–2020–21(not yet published). 11 An ‘‘OFP’’ is any Member, other than a Market Maker, that submits orders, as agent or principal, to the Exchange. See Options 7, Section 1(c) E:\FR\FM\01DEN1.SGM 01DEN1 Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES4 the Appointed OFP in the Affiliated Entity relationship, without additional volume requirements. The Exchange believes that this will encourage Members who are not Affiliated Members to enter into Affiliated Entity relationships and submit any amount of Priority Customer PIM order flow in order to receive the note 3 rebates. The Exchange will also make clear in note 3 that the 0.05% or greater Customer Total Consolidated Volume requirement only applies to Members that are not in an Affiliated Member or Affiliated Entity relationship. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,12 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,13 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’. . . .’’ 14 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 12 15 U.S.C. 78 f(b). U.S.C. 78f(b)(4) and (5). 14 NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir. 2010) (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782–83 (December 9, 2008) (SR–NYSEArca–2006–21)). 13 15 VerDate Sep<11>2014 18:11 Nov 30, 2020 Jkt 253001 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.’’ 15 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. In this context, the Exchange believes that its proposal for the PIM break-up rebates is reasonable. While the Exchange is proposing to lower the base break-up rebates to $0.25 in Penny Symbols and $0.60 per contract in NonPenny Symbols, the Exchange believes that market participants will continue to be incentivized to send Priority Customer order flow to PIM to receive the base break-up rebate. Furthermore, the Exchange notes the proposed breakup rebates remain in line with similar rebates provided at other exchanges.16 In addition, the Exchange believes that the amended note 3 incentive providing higher break-up rebates to qualifying Members, as described above, is reasonable in several respects. Regarding the change in the volume qualification to replace the current cumulative ADV threshold with a total industry percentage threshold, the Exchange notes that this is to align with increasing Member activity on MRX over time. The Exchange is proposing to base the volume qualification on a percentage of industry volume in recognition of the fact that the volume executed by a Member may rise or fall 15 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 16 See MIAX Options (‘‘MIAX’’) Fee Schedule, Sections 1(a)(v) and (vi), which set forth MIAX Price Improvement Mechanism (‘‘PRIME’’) and MIAX Complex PRIME (‘‘cPRIME’’) pricing. MIAX PRIME and cPRIME Break-up Credits are $0.25 per contract (Penny Classes) and $0.60 per contract (Non-Penny Classes). See also Cboe Exchange, Inc. (‘‘Cboe’’) Fee Schedule, Break-Up Credits, which provides Break-Up Credits of $0.25 per contract (Penny Classes) and $0.60 per contract (Non-Penny Classes) to orders executed in Cboe’s Automated Improvement Mechanism. PO 00000 Frm 00181 Fmt 4703 Sfmt 4703 77319 with industry volume. A percentage of industry volume calculation allows the note 3 qualification 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 qualification in note 3 may change in any given month due to increases or decreases in industry volume, the Exchange believes that the proposed threshold requirement is set at an appropriate level. As discussed above, the proposed threshold of 0.05% Customer Total Consolidated Volume is comparable to the existing ADV threshold of 10,000 contracts, so the Exchange anticipates minimal impact to Members as a result of replacing the current cumulative volume threshold with the new total industry percentage threshold. Furthermore, as noted above, total industry percentage thresholds are established concepts within its Pricing Schedule.17 The Exchange also believes that modifying this qualification in note 3 to require Members that are not in an Affiliated Member or Affiliated Entity relationship to execute 0.05% or greater of Customer Total Consolidated Volume in non-PIM Priority Customer contracts (instead of PIM originating contracts, as currently required) is reasonable because this change will incentivize Members to bring a wider range of order flow for execution on the Exchange. This could ultimately result in increased trading opportunities, tighter spreads and greater price discovery, making the Exchange a more attractive trading venue to the benefit of all market participants. Furthermore, the Exchange believes that the new, alternative basis, to qualify for the higher break-up rebates in amended note 3 is reasonable. In particular, the Exchange will permit Affiliated Members or Affiliated Entities to send any amount of Priority Customer PIM volume for purposes of qualifying for higher break-up rebates. The Exchange believes that this will attract additional Priority Customer PIM order flow to the Exchange and will fortify participation in the Exchange’s Affiliated Entity program, as noted above. Permitting Members to enter into an Affiliated Entity relationship for purposes of qualifying the OFP arm of an Affiliated Member relationship, or the Appointed OFP of an Affiliated Entity relationship, for the higher breakup rebates in amended note 3 may also 17 Specifically, the qualifying tier thresholds for the Exchange’s maker/taker pricing are based on Customer Total Consolidated Volume percentages. See Options 7, Section 3, Table 3. E:\FR\FM\01DEN1.SGM 01DEN1 77320 Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES4 encourage the counterparties that comprise the Affiliated Members or Affiliated Entities to incentivize each other to attract and seek to execute more Priority Customer volume in PIM. In turn, market participants would benefit from the increased liquidity with which to interact and potentially tighter spreads on orders. Overall, incentivizing market participants with increased opportunities to earn higher break-up rebates may increase the quality of the liquidity available on MRX. The Exchange believes that the PIM break-up rebate changes, as proposed, are equitable and not unfairly discriminatory because the proposed rebates will apply equally to all Priority Customer PIM originating orders that execute against PIM responses. The Exchange’s proposal to permit Affiliated Members or Affiliated Entities to send any amount of Priority Customer PIM volume for purposes of qualifying the OFP arm or the Appointed OFP for the higher break-up rebates in note 3 is equitable and not unfairly discriminatory because all Members who are not Affiliated Members may elect to become an Affiliated Entity. While Priority Customer PIM orders will continue to receive the break-up rebate, as opposed to other market participant orders, the Exchange believes that this application of the rebate is equitable and not unfairly discriminatory because Priority Customer order flow enhances liquidity on the Exchange. This, in turn, provides more trading opportunities and attracts other market participants, thus facilitating tighter spreads, increased order flow and trading opportunities to the benefit of all market participants. Moreover, the Exchange has historically provided lower pricing or other incentives to Priority Customers in order to attract such order flow to MRX. 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 intra-market competition, the Exchange does not believe that its proposal will place any category of Exchange market participant at a competitive disadvantage. The proposed changes to the Exchange’s PIM break-up rebate program are designed to incentivize market participants to direct PIM order flow to the Exchange. While PIM break-up rebates apply directly to Priority Customer orders, the Exchange believes that the proposed changes benefit all market participants by fortifying and encouraging additional VerDate Sep<11>2014 18:11 Nov 30, 2020 Jkt 253001 liquidity and order flow to MRX. Furthermore, the Exchange believes that encouraging additional activity by Affiliated Members and Affiliated Entities in the manner discussed above likewise benefits all market participants as it contributes to the Exchange’s depth of book as well as to the top of book liquidity. To the extent that the proposal attracts more liquidity, this increased order flow would continue to make the Exchange a more competitive venue for order execution and all of the Exchange’s market participants should benefit from the improved market quality. Enhanced market quality and increased transaction volume that results from the anticipated increase in order flow directed to the Exchange would benefit all market participants and improve competition on the Exchange. 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. Moreover, as noted above, price competition between exchanges is fierce, with liquidity and market share moving freely between exchanges in reaction to fee and rebate 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. 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. PO 00000 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 18 and Rule 19b–4(f)(2) 19 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. 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–2020–18 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–2020–18. 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 18 15 19 17 Frm 00182 Fmt 4703 Sfmt 4703 E:\FR\FM\01DEN1.SGM U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 01DEN1 Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Notices 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–2020–18 and should be submitted on or before December 22, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–26402 Filed 11–30–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90507; File No. SR–MIAX– 2020–36] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Delay Implementation of an Amendment to Rule 518, Complex Orders, To Permit Legging Through the Simple Market November 24, 2020. khammond on DSKJM1Z7X2PROD with NOTICES4 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 20, 2020, Miami International Securities Exchange, LLC (‘‘MIAX Options’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a 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 is filing a proposal to delay implementation of the change to 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:11 Nov 30, 2020 Jkt 253001 allow a component of a complex order 3 that legs into the Simple Order Book 4 to execute at a price that is outside the NBBO.5 The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/ at MIAX Options’ principal office, 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 On October 22, 2019, the Exchange filed a proposed rule change to amend subsection (c)(2)(iii) of Exchange Rule 518, Complex Orders, to remove the provision which provides that a component of a complex order that legs into the Simple Order Book may not execute at a price that is outside the NBBO.6 The proposed rule change indicated that the Exchange would announce the implementation date of the proposed rule change by Regulatory 3 A ‘‘complex order’’ is any order involving the concurrent purchase and/or sale of two or more different options in the same underlying security (the ‘‘legs’’ or ‘‘components’’ of the complex order), for the same account, in a ratio that is equal to or greater than one-to-three (.333) and less than or equal to three-to-one (3.00) and for the purposes of executing a particular investment strategy. Minioptions may only be part of a complex order that includes other mini-options. Only those complex orders in the classes designated by the Exchange and communicated to Members via Regulatory Circular with no more than the applicable number of legs, as determined by the Exchange on a classby-class basis and communicated to Members via Regulatory Circular, are eligible for processing. See Exchange Rule 518(a)(5). 4 The ‘‘Simple Order Book’’ is the Exchange’s regular electronic book of orders and quotes. See Exchange Rule 518(a)(15). 5 The term ‘‘NBBO’’ means the national best bid or offer as calculated by the Exchange based on market information received by the Exchange from the appropriate Securities Information Processor (‘‘SIP’’). See Exchange Rule 518(a)(14). 6 See Securities Exchange Release No. 87440 (November 1, 2019), 84 FR 60117 (November 7, 2019) (SR–MIAX–2019–45). PO 00000 Frm 00183 Fmt 4703 Sfmt 4703 77321 Circular to be published no later than 90 days following the operative date of the proposed rule. The implementation date will be no later than 90 days following the issuance of the Regulatory Circular. The Exchange delayed the implementation of this functionality until the fourth quarter of 2020.7 The Exchange now proposes to delay the implementation of this functionality until the second quarter of 2021. The Exchange proposes this delay in order to allow the Exchange to reprioritize its software delivery and release schedule as a result of a shift in priorities resulting from the impact the coronavirus pandemic has had on Exchange operations. The Exchange will issue a Regulatory Circular notifying market participants at least 45 days prior to implementing this functionality. 2. Statutory Basis The Exchange believes that its proposed rule change is consistent with Section 6(b) of the Act 8 in general, and furthers the objectives of Section 6(b)(5) of the Act 9 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in, securities, to remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest by allowing the Exchange additional time to implement the proposed functionality. 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 that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange’s proposal to delay the implementation of the proposed functionality does not impose an undue burden on competition. Delaying the implementation will simply allow the Exchange additional time to properly plan and implement the proposed functionality. 7 See Securities Exchange Release No. 88691 (April 20, 2020), 85 FR 23092 (April 24, 2020) (SR– MIAX–2020–07). 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). E:\FR\FM\01DEN1.SGM 01DEN1

Agencies

[Federal Register Volume 85, Number 231 (Tuesday, December 1, 2020)]
[Notices]
[Pages 77317-77321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26402]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90503; File No. SR-MRX-2020-18]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its 
Pricing Schedule at Options 7 for Orders Entered Into the Exchange's 
Price Improvement Mechanism

November 24, 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 13, 2020, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend its Pricing Schedule at Options 7 in 
connection with the pricing for orders

[[Page 77318]]

entered into the Exchange's Price Improvement Mechanism (``PIM'').\3\
---------------------------------------------------------------------------

    \3\ PIM is a process by which an Electronic Access Member 
(``EAM'') can provide price improvement opportunities for a 
transaction wherein the EAM seeks to facilitate an order it 
represents as agent, and/or a transaction wherein the EAM solicited 
interest to execute against an order it represents as agent. See 
Options 3, Section 13.
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    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 purpose of the proposed rule change is to amend the Exchange's 
Pricing Schedule at Options 7 in connection with the pricing for orders 
entered into the Exchange's PIM.
    Today for both regular and complex PIM orders, the Exchange pays a 
PIM break-up rebate to an originating Priority Customer \4\ PIM order 
that executes with a response (order or quote), other than the PIM 
contra-side order, of $0.40 per contract in Penny Symbols and $1.00 per 
contract in Non-Penny Symbols.\5\ The Exchange also offers a higher PIM 
break-up rebate in note 3 of Options 7, Section 3.A for Members that 
meet certain cumulative volume requirements. In particular, Members 
that execute an average daily volume (``ADV'') of 10,000 PIM 
originating contracts or greater within a month are currently eligible 
to receive a rebate of (i) $0.45 per contract in Penny Symbols (in lieu 
of $0.40 per contract) for complex PIM orders only, and (ii) $1.05 per 
contract in Non-Penny Symbols (in lieu of $1.00 per contract) for both 
regular and complex PIM orders.
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    \4\ 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).
    \5\ Break-up rebates apply only to regular PIM orders of 500 or 
fewer contracts and to complex PIM orders where the largest leg is 
500 or fewer contracts. See Options 7, Section 3.A.
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    The Exchange now proposes a number of changes to the break-up 
rebate structure. First, the Exchange proposes to lower the base 
rebates to $0.25 in Penny Symbols and $0.60 per contract in Non-Penny 
Symbols. Second, the Exchange proposes to replace the existing note 3 
incentive described above with a new program. As amended, note 3 of 
Options 7, Section 3.A would provide:
    Break-up Rebates are provided for an originating Priority Customer 
PIM Order that executes with any response (order or quote) other than 
the PIM contra-side order. Members that are not in an Affiliated Member 
or Affiliated Entity relationship and that execute 0.05% or greater of 
Customer Total Consolidated Volume in non-PIM Priority Customer 
contracts within a month will receive an additional rebate of: (i) 
$0.20 per contract in Penny Symbols for Complex PIM Orders only, (ii) 
$0.15 per contract in Penny Symbols for Regular PIM Orders only, and 
(iii) $0.45 per contract in Non-Penny Symbols for both Regular and 
Complex PIM Orders. Alternatively, Affiliated Members or Affiliated 
Entities will be eligible to receive the rebates in this note 3 without 
any additional volume requirements. The Exchange will provide the 
rebate to the OFP arm of an Affiliated Member relationship, or the 
Appointed OFP arm of an Affiliated Entity relationship.
    The new program replaces the current cumulative ADV threshold with 
a total industry percentage threshold, specifically a Customer Total 
Consolidated Volume \6\ percentage threshold. The Exchange notes that 
the proposed percentage threshold of 0.05% or greater of Customer Total 
Consolidated Volume is comparable in terms of requisite volume to the 
existing ADV threshold of 10,000 or greater contracts. 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.\7\
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    \6\ 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.
    \7\ Specifically, the qualifying tier thresholds for the 
Exchange's maker/taker pricing are based on Customer Total 
Consolidated Volume percentages. See Options 7, Section 3, Table 3.
---------------------------------------------------------------------------

    The Exchange is also modifying this qualification by requiring that 
Members execute 0.05% or greater of Customer Total Consolidated Volume 
in non-PIM Priority Customer contracts (instead of PIM originating 
contracts, as currently required). The Exchange believes this change 
will incentivize Members to bring a wider range of order flow for 
execution on the Exchange, which activity may result in tighter spreads 
making the Exchange a more attractive trading venue to the benefit of 
all market participants. As discussed in the following paragraph, this 
volume qualification only applies to Members that are not in affiliated 
relationships.
    The new program will also offer a new, alternative basis, to 
qualify for the higher break-up rebates in amended note 3. 
Specifically, as proposed, Members may enter into certain affiliated 
relationships (i.e., Affiliated Members \8\ or Affiliated Entities \9\) 
to qualify for the higher break-up rebates. The Exchange recently filed 
to permit Members to enter into Affiliated Entities in order to 
aggregate volume and qualify for certain pricing incentives, provided 
they are not Affiliated Members.\10\ Accordingly, the proposed changes 
are intended to enhance participation in the Exchange's new Affiliated 
Entity program in order to encourage additional order flow to MRX. As 
described above, the rebates in note 3 will be provided to the OFP \11\ 
arm of the Affiliated Member relationship, or

[[Page 77319]]

the Appointed OFP in the Affiliated Entity relationship, without 
additional volume requirements. The Exchange believes that this will 
encourage Members who are not Affiliated Members to enter into 
Affiliated Entity relationships and submit any amount of Priority 
Customer PIM order flow in order to receive the note 3 rebates. The 
Exchange will also make clear in note 3 that the 0.05% or greater 
Customer Total Consolidated Volume requirement only applies to Members 
that are not in an Affiliated Member or Affiliated Entity relationship.
---------------------------------------------------------------------------

    \8\ 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).
    \9\ 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).
    \10\ See SR-MRX-2020-21(not yet published).
    \11\ An ``OFP'' is any Member, other than a Market Maker, that 
submits orders, as agent or principal, to the Exchange. See Options 
7, Section 1(c)
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78 f(b).
    \13\ 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'. . . .'' \14\
---------------------------------------------------------------------------

    \14\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC 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.'' \15\
---------------------------------------------------------------------------

    \15\ 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.
    In this context, the Exchange believes that its proposal for the 
PIM break-up rebates is reasonable. While the Exchange is proposing to 
lower the base break-up rebates to $0.25 in Penny Symbols and $0.60 per 
contract in Non-Penny Symbols, the Exchange believes that market 
participants will continue to be incentivized to send Priority Customer 
order flow to PIM to receive the base break-up rebate. Furthermore, the 
Exchange notes the proposed break-up rebates remain in line with 
similar rebates provided at other exchanges.\16\
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    \16\ See MIAX Options (``MIAX'') Fee Schedule, Sections 1(a)(v) 
and (vi), which set forth MIAX Price Improvement Mechanism 
(``PRIME'') and MIAX Complex PRIME (``cPRIME'') pricing. MIAX PRIME 
and cPRIME Break-up Credits are $0.25 per contract (Penny Classes) 
and $0.60 per contract (Non-Penny Classes). See also Cboe Exchange, 
Inc. (``Cboe'') Fee Schedule, Break-Up Credits, which provides 
Break-Up Credits of $0.25 per contract (Penny Classes) and $0.60 per 
contract (Non-Penny Classes) to orders executed in Cboe's Automated 
Improvement Mechanism.
---------------------------------------------------------------------------

    In addition, the Exchange believes that the amended note 3 
incentive providing higher break-up rebates to qualifying Members, as 
described above, is reasonable in several respects. Regarding the 
change in the volume qualification to replace the current cumulative 
ADV threshold with a total industry percentage threshold, the Exchange 
notes that this is to align with increasing Member activity on MRX over 
time. The Exchange is proposing to base the volume qualification 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 note 3 
qualification 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 qualification in 
note 3 may change in any given month due to increases or decreases in 
industry volume, the Exchange believes that the proposed threshold 
requirement is set at an appropriate level. As discussed above, the 
proposed threshold of 0.05% Customer Total Consolidated Volume is 
comparable to the existing ADV threshold of 10,000 contracts, so the 
Exchange anticipates minimal impact to Members as a result of replacing 
the current cumulative volume threshold with the new total industry 
percentage threshold. Furthermore, as noted above, total industry 
percentage thresholds are established concepts within its Pricing 
Schedule.\17\
---------------------------------------------------------------------------

    \17\ Specifically, the qualifying tier thresholds for the 
Exchange's maker/taker pricing are based on Customer Total 
Consolidated Volume percentages. See Options 7, Section 3, Table 3.
---------------------------------------------------------------------------

    The Exchange also believes that modifying this qualification in 
note 3 to require Members that are not in an Affiliated Member or 
Affiliated Entity relationship to execute 0.05% or greater of Customer 
Total Consolidated Volume in non-PIM Priority Customer contracts 
(instead of PIM originating contracts, as currently required) is 
reasonable because this change will incentivize Members to bring a 
wider range of order flow for execution on the Exchange. This could 
ultimately result in increased trading opportunities, tighter spreads 
and greater price discovery, making the Exchange a more attractive 
trading venue to the benefit of all market participants.
    Furthermore, the Exchange believes that the new, alternative basis, 
to qualify for the higher break-up rebates in amended note 3 is 
reasonable. In particular, the Exchange will permit Affiliated Members 
or Affiliated Entities to send any amount of Priority Customer PIM 
volume for purposes of qualifying for higher break-up rebates. The 
Exchange believes that this will attract additional Priority Customer 
PIM order flow to the Exchange and will fortify participation in the 
Exchange's Affiliated Entity program, as noted above. Permitting 
Members to enter into an Affiliated Entity relationship for purposes of 
qualifying the OFP arm of an Affiliated Member relationship, or the 
Appointed OFP of an Affiliated Entity relationship, for the higher 
break-up rebates in amended note 3 may also

[[Page 77320]]

encourage the counterparties that comprise the Affiliated Members or 
Affiliated Entities to incentivize each other to attract and seek to 
execute more Priority Customer volume in PIM. In turn, market 
participants would benefit from the increased liquidity with which to 
interact and potentially tighter spreads on orders. Overall, 
incentivizing market participants with increased opportunities to earn 
higher break-up rebates may increase the quality of the liquidity 
available on MRX.
    The Exchange believes that the PIM break-up rebate changes, as 
proposed, are equitable and not unfairly discriminatory because the 
proposed rebates will apply equally to all Priority Customer PIM 
originating orders that execute against PIM responses. The Exchange's 
proposal to permit Affiliated Members or Affiliated Entities to send 
any amount of Priority Customer PIM volume for purposes of qualifying 
the OFP arm or the Appointed OFP for the higher break-up rebates in 
note 3 is equitable and not unfairly discriminatory because all Members 
who are not Affiliated Members may elect to become an Affiliated 
Entity. While Priority Customer PIM orders will continue to receive the 
break-up rebate, as opposed to other market participant orders, the 
Exchange believes that this application of the rebate is equitable and 
not unfairly discriminatory because Priority Customer order flow 
enhances liquidity on the Exchange. This, in turn, provides more 
trading opportunities and attracts other market participants, thus 
facilitating tighter spreads, increased order flow and trading 
opportunities to the benefit of all market participants. Moreover, the 
Exchange has historically provided lower pricing or other incentives to 
Priority Customers in order to attract such order flow to MRX.

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 intra-market competition, the Exchange does not believe 
that its proposal will place any category of Exchange market 
participant at a competitive disadvantage. The proposed changes to the 
Exchange's PIM break-up rebate program are designed to incentivize 
market participants to direct PIM order flow to the Exchange. While PIM 
break-up rebates apply directly to Priority Customer orders, the 
Exchange believes that the proposed changes benefit all market 
participants by fortifying and encouraging additional liquidity and 
order flow to MRX. Furthermore, the Exchange believes that encouraging 
additional activity by Affiliated Members and Affiliated Entities in 
the manner discussed above likewise benefits all market participants as 
it contributes to the Exchange's depth of book as well as to the top of 
book liquidity. To the extent that the proposal attracts more 
liquidity, this increased order flow would continue to make the 
Exchange a more competitive venue for order execution and all of the 
Exchange's market participants should benefit from the improved market 
quality. Enhanced market quality and increased transaction volume that 
results from the anticipated increase in order flow directed to the 
Exchange would benefit all market participants and improve competition 
on the Exchange.
    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.
    Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in reaction to fee and rebate 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.

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 \18\ and Rule 19b-4(f)(2) \19\ 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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 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-2020-18 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-2020-18. 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

[[Page 77321]]

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-
2020-18 and should be submitted on or before December 22, 2020.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26402 Filed 11-30-20; 8:45 am]
BILLING CODE 8011-01-P
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