Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 5, 56449-56456 [2022-19815]
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Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices
5. Date: October 19, 2022
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[FR Doc. 2022–19797 Filed 9–13–22; 8:45 am]
BILLING CODE 7536–01–P
SECURITIES AND EXCHANGE
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Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 7,
Section 5
September 8, 2022.
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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 August
25, 2022, 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, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
MRX’s Pricing Schedule at Options 7,
Section 5.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices
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
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1. Purpose
MRX proposes to amend its Pricing
Schedule at Options 7, Section 5, Other
Options Fees and Rebates, to assess
membership fees, which are not
assessed today, and which have not
been assessed since MRX’s inception in
2016.3 The proposed changes are
designed to update fees for MRX’s
services to reflect their current value—
rather than their value when it was a
new exchange six years ago—based on
MRX’s ability to deliver value to its
customers through technology, liquidity
and functionality. Newly-opened
exchanges often charge no fees for
certain services such as membership, in
order to attract order flow to an
exchange, and later amend their fees to
reflect the true value of those services.4
Allowing newly-opened exchanges time
to build and sustain market share before
charging non-transactional fees
encourages market entry and promotes
competition. The proposed changes to
membership fees within Options 7,
Section 5; Other Options Fees and
Rebates, are described below.
This proposal reflects MRX’s
assessment that it has gained sufficient
market share to compete effectively
3 The Exchange initially filed the proposed
pricing changes on May 2, 2022 (SR–MRX–2022–
04) instituting fees for membership, ports and
market data. On June 29, 2022, the Exchange
withdrew that filing, and submitted separate filings
for membership, ports and market data. SR–MRX–
2022–07 replaced the membership fees set forth in
SR–MRX–2022–04. The instant filing replaces SR–
MRX–2022–07 which was withdrawn on August 25,
2022.
4 See also Securities Exchange Act Release No.
93927 (January 7, 2022), 87 FR 2191 (January 13,
2022) (SR–MEMX–2021–19) (introduction of
membership fees by MEMX).
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against the other 15 options exchanges
without waiving fees for membership.
These types of fees are assessed by
options exchanges that compete with
MRX in the sale of exchange services—
indeed, MRX is the only options
exchange (out of the 16 current options
exchanges) not assessing membership
fees today. New exchanges commonly
waive membership fees to attract market
participants, facilitating their entry into
the market and, once there is sufficient
depth and breadth of liquidity,
‘‘graduate’’ to compete against
established exchanges and charge fees
that reflect the value of their services.5
If MRX is incorrect in this assessment,
that error will be reflected in MRX’s
ability to compete with other options
exchanges.6
As noted above, MRX Members are
not assessed fees for membership today.
Under the proposed fee change, MRX
Members will be required to pay a
monthly Access Fee, which entitles
MRX Members to trade on the Exchange
based on their membership type.
Specifically, MRX proposes to assess
Electronic Access Members 7 an Access
Fee of $200 per month, per membership.
The Exchange proposes to assess Market
Makers 8 Access Fees depending on
whether they are a Primary Market
Maker (‘‘PMM’’) or a Competitive
Market Maker (‘‘CMM’’). A PMM would
be assessed an Access Fee of $200 per
5 For example, MIAX Emerald commenced
operations as a national securities exchange
registered on March 1, 2019. See Securities
Exchange Act Release No. 84891 (December 20,
2018), 83 FR 67421 (December 28, 2018) (File No.
10–233) (order approving application of MIAX
Emerald, LLC for registration as a national
securities exchange). MIAX Emerald filed to adopt
its transaction fees and certain of its nontransaction fees in its filing SR–EMERALD–2019–
15. See Securities Exchange Act Release No. 85393
(March 21, 2019), 84 FR 11599 (March 27, 2019)
(SR–EMERALD–2019–15) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Establish the MIAX Emerald Fee Schedule).
MIAX Emerald waived its one-time application fee
and monthly Trading Permit Fees assessable to
EEMs and Market Makers among other fees within
SR–EMERALD–2019–15.
6 Nasdaq recently announced that, beginning in
2022, Nasdaq plans to migrate its North American
markets to Amazon Web Services in a phased
approach, starting with Nasdaq MRX, a U.S. options
market. The proposed fee changes are entirely
unrelated to this effort.
7 The term ‘‘Electronic Access Member’’ or
‘‘EAM’’ means a Member that is approved to
exercise trading privileges associated with EAM
Rights. See General 1, Section 1(a)(6).
8 The term ‘‘Market Makers’’ refers to
‘‘Competitive Market Makers’’ and ‘‘Primary Market
Makers’’ collectively. See Options 1, Section
1(a)(21). The term ‘‘Competitive Market Maker’’
means a Member that is approved to exercise
trading privileges associated with CMM Rights. See
Options 1, Section 1(a)(12). The term ‘‘Primary
Market Maker’’ means a Member that is approved
to exercise trading privileges associated with PMM
Rights. See Options 1, Section 1(a)(35).
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month, per membership. A CMM would
be assessed an Access Fee of $100 per
month, per membership.9 The proposed
fees are identical to access fees on
Nasdaq GEMX, LLC (‘‘GEMX’’).10 Of
note, a Member would pay each
applicable fee. For example, a
Competitive Market Maker who does
not enter orders would only pay the
$100 per month, per membership
Access Fee.
In order to receive market making
appointments to quote in any options
class, CMMs will also be assessed a
CMM Trading Right Fee identical to
GEMX.11 CMM trading rights entitle a
CMM to enter quotes in options symbols
that comprise a certain percentage of
industry volume. On a quarterly basis,
the Exchange assigns points to each
options class equal to its percentage of
overall industry volume (not including
exclusively traded index options),
rounded down to the nearest one
hundredth of a percentage with a
maximum of 15 points. A new listing is
assigned a point value of zero for the
remainder of the quarter in which it was
listed. CMMs may seek appointments to
options classes that total 20 points for
the first CMM Right it holds, and 10
points for the second and each
subsequent CMM Right it holds.12 In
order to encourage CMMs to quote on
the Exchange, MRX launched CMM
trading rights without any fees, allowing
CMMs to freely quote in all options
classes.
The Exchange is now proposing to
adopt a monthly CMM Trading Rights
Fee. Under the proposed fee structure,
CMMs will be assessed a Trading Rights
Fee of $850 per month for the first
trading right, which will entitle the
CMM to quote in 20 percent of industry
volume.13 Each additional CMM Right
will cost $500 per month, and will
entitle the CMM to quote an additional
10 percent of volume. Similar to
GEMX’s trading rights fee,14 a new
CMM would pay $850 for the first
trading right and all CMMs would
9 In the case where a single Member has multiple
MRX memberships, the monthly access fee is
charged for each membership. For example, if a
single member firm is both an EAM and a CMM,
or owns multiple CMM memberships, the firm is
subject to the access fee for each of those
memberships.
10 See GEMX Options 7, Section 6.A. (Access
Fees).
11 See GEMX Options 7, Section 6.B. (CMM
Trading Rights Fees).
12 A CMM may request changes to its
appointments at any time upon advance
notification to the Exchange in a form and manner
prescribed by the Exchange. See MRX Options 2,
Section 3(c)(3).
13 These trading rights are referred to as CMM
Rights. See MRX Options 2, Section 3.
14 See GEMX Options 7, Section 6.B.
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thereafter pay $500 for each additional
trading right. For example, if a CMM
desired to quote in all options series
listed on MRX, the CMM would need to
obtain 9 trading rights at a cost of
$4,850. The Exchange is proposing this
pricing model because each subsequent
CMM Right costs less than the first
trading right. All CMMs have the
opportunity to purchase additional
CMM Rights beyond the initial trading
right in order to quote in additional
options series. PMMs would not be
assessed a Trading Rights Fee.
PMMs have additional obligations on
MRX as compared to CMMs. PMMs are
required to open options series in which
they are assigned each day on MRX.
Specifically, PMMs must submit a Valid
Width Quote each day to open their
assigned options series.15 PMMs are
integral to providing liquidity during
MRX’s Opening Process.16 Further,
intra-day, PMMs are required to provide
two-sided quotations in 90% of
cumulative number of seconds, or such
higher percentage as the Exchange may
announce in advance. In contrast, a
CMM is not required to enter quotations
in the options classes to which it is
appointed; however, if a CMM initiates
quoting in an options class, the CMM is
required to provide two-sided
quotations in 60% of the cumulative
number of seconds, or such higher
percentage as the Exchange may
announce in advance.17 While there can
be multiple CMMs in an options series,
there is only one PMM assigned per
options series. The Exchange desires to
encourage Members to act as PMMs,
which will benefit the market through,
for example, more robust quoting.
Finally, the Exchange is proposing
only to charge the $200 access fee to
EAMs, and no trading rights fee, as the
technical, regulatory, and administrative
services associated with an EAM’s use
of the Exchange are not as
comprehensive as those associated with
Market Makers’ use.18
MRX believes that its membership
fees, which have been in effect since
May 2, 2022, are in line with or less
than those of other options exchanges.
The Exchange believes it is notable that
during this time, there have been no
comment letters submitted to the
15 See
Options 3, Section 8(c)(1) and 8(c)(3).
Exchange notes that most options markets
do not require their primary or lead market maker
to open their assigned options series.
17 See Options 2, Section 5(e)(2).
18 The Exchange notes that all MRX Members may
submit orders; however, only Market Makers may
submit quotes. The Exchange surveils Market Maker
quoting to ensure these participants have met their
obligations. The regulatory oversight for Market
Makers is in addition to the regulatory oversight
which is administered for all EAMs.
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16 The
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Commission arguing that the Exchange’s
new fees are unreasonable. The
membership fees are constrained by
competition. For example, since the
inception of the membership fees on
May 2, 2022, one firm cancelled nine
CMM trading rights as well as their
membership on MRX.19 Also, another
firm decreased their CMM trading rights
from nine to four CMM trading rights.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,20 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,21 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 proposed changes to the Pricing
Schedule are reasonable in several
respects. As a threshold matter, the
Exchange is subject to significant
competitive forces in the market for
order flow, which constrains its pricing
determinations. The fact that the market
for order flow is competitive has long
been recognized by the courts. In
NetCoalition v. Securities and Exchange
Commission, the D.C. Circuit stated,
‘‘[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’. . . .’’ 22
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention to determine 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
19 The Exchange notes that this Member was not
active on MRX prior to the cancellation.
20 See 15 U.S.C. 78f(b).
21 See 15 U.S.C. 78f(b)(4) and (5).
22 See NetCoalition, 615 F.3d at 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)).
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56451
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 23
Congress directed the Commission to
‘‘rely on ‘competition, whenever
possible, in meeting its regulatory
responsibilities for overseeing the SROs
and the national market system.’ ’’ 24 As
a result, the Commission has
historically relied on competitive forces
to determine whether a fee proposal is
equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.
‘‘If competitive forces are operative, the
self-interest of the exchanges themselves
will work powerfully to constrain
unreasonable or unfair behavior.’’ 25
Accordingly, ‘‘the existence of
significant competition provides a
substantial basis for finding that the
terms of an exchange’s fee proposal are
equitable, fair, reasonable, and not
unreasonably or unfairly
discriminatory.’’ 26 In its 2019 guidance
on fee proposals, Commission staff
indicated that they would look at factors
beyond the competitive environment,
such as cost, only if a ‘‘proposal lacks
persuasive evidence that the proposed
fee is constrained by significant
competitive forces.’’ 27
History of MRX Operations
Over the years, MRX has amended its
transactional pricing to remain
competitive and attract order flow to the
Exchange.28
23 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
24 See NetCoalition, 615 F.3d at 534–35; see also
H.R. Rep. No. 94–229 at 92 (1975) (‘‘[I]t is the intent
of the conferees that the national market system
evolve through the interplay of competitive forces
as unnecessary regulatory restrictions are
removed.’’).
25 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74,770 (December 9,
2008) (SR–NYSEArca–2006–21).
26 Id.
27 See U.S. Securities and Exchange Commission,
‘‘Staff Guidance on SRO Rule filings Relating to
Fees’’ (May 21, 2019), available at https://
www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
28 See e.g. Securities Exchange Act Release Nos.
77292 (March 4, 2016), 81 FR 12770 (March 10,
2016) (SR–ISEMercury–2016–02) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change To Establish the Schedule of Fees); 77409
(March 21, 2016), 81 FR 16240 (March 25, 2016)
(SR–ISEMercury–2016–05) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Amend the Schedule of Fees); 81 FR 16238
(March 21, 2016), 81 FR 16238 (March 25, 2016)
(SR–ISEMercury–2016–06) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Amend the Schedule of Fees); 77841 (May 16,
2016), 81 FR 31986 (SR–ISEMercury–2016–11)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the Schedule of
Fees); 82537 (January 19, 2018), 83 FR 3784
(January 26, 2018) (SR–MRX–2018–01) (Notice of
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Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices
In June 2019, MRX commenced
offering complex orders.29 With the
addition of complex order functionality,
MRX offered Members certain order
types, an opening process, auction
capabilities, and other trading
functionality that was nearly identical
to functionality available on ISE.30 By
way of comparison, ISE, unlike MRX,
assessed membership fees in 2019 31
while offering the same suite of
functionality as MRX, with a limited
exception.32
Membership Is Subject to Significant
Substitution-Based Competitive Forces
An exchange can show that a product
is ‘‘subject to significant substitutionbased competitive forces’’ by
introducing evidence that customers can
substitute the product for products
offered by other exchanges.
Chart 1 below shows the January 2022
market share for multiply-listed options
by exchange. Of the 16 operating
options exchanges, none currently has
more than a 13.1% market share, and
MRX has the smallest market share at
1.8%. Customers widely distribute their
transactions across exchanges according
to their business needs and the ability
of each exchange to meet those needs
through technology, liquidity and
functionality. Average market share for
the 16 options exchanges is 6.26
percent, with the median at 5.8, and a
range between 1.8 and 13.1 percent.
BILLING CODE 8011–01–P
Chart 1: Market Share by Exchange for January 2022
Market Share - Exchange
ARCA
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10.1%
NCIM
AME<
ISE.
BOX
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MIAX
4.8%
£OGX
MPRL
_).
2.5%
. Z.2%
.1,8%
Filing and Immediate Effectiveness of Proposed
Rule Change To Amend the Schedule of Fees To
Introduce a New Pricing Model); 82990 (April 4,
2018), 83 FR 15434 (April 10, 2018) (SR–MRX–
2018–10) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend
Chapter IV of the Exchange’s Schedule of Fees);
28677 (June 14, 2018), 83 FR 28677 (June 20, 2018)
(SR–MRX–2018–19) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Increase Certain Route-Out Fees Set Forth in
Section II.A of the Schedule of Fees); 84113
(September 13, 2018), 83 FR 47386 (September 19,
2018) (SR–MRX–2018–27) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Relocate the Exchange’s Schedule of Fees);
85143 (February 14, 2019), 84 FR 5508 (February
21, 2019) (SR–MRX–2019–02) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Amend the Pricing Schedule at Options 7,
Section 3); 85313 (March 14, 2019), 84 FR 10357
(March 20, 2019) (SR–MRX–2019–05) (Notice of
Filing and Immediate Effectiveness of a Proposed
Rule Change Relating to PIM Fees and Rebates);
86326 (July 8, 2019), 84 FR 33300 (July 12, 2019)
(SR–MRX–2019–14) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Adopt Complex Order Pricing); 88022 (January
23, 2020), 85 FR 5263 (January 29, 2020) (SR–MRX–
2020–02) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend
MRX Pricing Schedule); 89046 (June 11, 2020), 85
FR 36633 (June 17, 2020) (SR–MRX–2020–11)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Its Pricing
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18:31 Sep 13, 2022
Jkt 256001
Schedule at Options 7); 89320 (July 15, 2020), 85
FR 44135 (July 21, 2020) (SR–MRX–2020–14)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Its Pricing
Schedule at Options 7, Section 5, Other Options
Fees and Rebates, in Connection With the Pricing
for Orders Entered Into the Exchanges Price
Improvement Mechanism); 90503 (November 24,
2020), 85 FR 77317 (December 1, 2020) (SR–MRX–
2020–18) (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); 90434 (November 16, 2020), 85 FR
74473 (November 20, 2020) (SR–MRX–2020–19)
(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); 90455 (November 18, 2020), 85 FR
75064 (November 24, 2020) (SR–MRX–2020–21)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the Pricing
Schedule); and 91687 (April 27, 2021), 86 FR 23478
(May 3, 2021) (SR–MRX–2021–04) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change To Amend the Exchange’s Pricing Schedule
at Options 7). Note that ISE Mercury is an earlier
name for MRX.
29 See Securities Exchange Act Release No. 86326
(July 8, 2019), 84 FR 33300 (July 12, 2019) (SR–
MRX–2019–14) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change to Adopt
Complex Order Pricing).
30 One distinction is that ISE offered its Members
access to Nasdaq Precise in 2019 and since that
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time. MRX has never offered Precise. ‘‘Nasdaq
Precise’’ or ‘‘Precise’’ is a front-end interface that
allows EAMs and their Sponsored Customers to
send orders to the Exchange and perform other
related functions. Features include the following:
(1) order and execution management: enter, modify,
and cancel orders on the Exchange, and manage
executions (e.g., parent/child orders, inactive
orders, and post-trade allocations); (2) market data:
access to real-time market data (e.g., NBBO and
Exchange BBO); (3) risk management: set
customizable risk parameters (e.g., kill switch); and
(4) book keeping and reporting: comprehensive
audit trail of orders and trades (e.g., order history
and done away trade reports). See ISE
Supplementary Material .03(d) of Options 3,
Section 7. Precise is also available on GEMX.
31 In 2019, ISE assessed the following Access
Fees: $500 per month, per membership to an
Electronic Access Member, $5,000 per month, per
membership to a Primary Market Maker and $2,500
per month, per membership to a Competitive
Market Maker. ISE does not assess Trading Rights
Fees to Competitive Market Makers. See Securities
Exchange Act Release No. 82446 (January 5, 2018),
83 FR 1446 (January 11, 2018) (SR–ISE–2017–112)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Certain NonTransaction Fees in the Exchange’s Schedule of
Fees). Of note, ISE assessed Access Fees prior to
2019 as well.
32 Unlike ISE, MRX does not offer Precise. See
note 30, supra.
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Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices
Market share is the percentage of
volume on a particular exchange
relative to the total volume across all
exchanges, and indicates the amount of
order flow directed to that exchange.
High levels of market share enhance the
value of trading and membership. MRX
has the smallest number of Members
relative to its GEMX, ISE, NOM and
Phlx affiliates, with approximately 40
members. This demonstrates that
customers can and will choose where to
become members, need not become
members of all exchanges, and do not
need to become Members of MRX and
instead may utilize a third party.33
The Exchange established these lower
(when compared to other options
exchanges in the industry) membership
fees in order to encourage market
participants to become MRX Members
and register as MRX Market Makers. As
noted above, MRX has grown its market
share since inception and seeks to
continue to grow its membership base.
The Exchange believes that there are
many factors that may cause a market
participant to decide to become a
member of a particular exchange in
addition to its pricing.
As noted herein, MRX filed its
membership fees on May 2, 2022 and
has not received a comment with
respect to the proposed membership fee
changes. MRX Members may elect to
cancel their membership on MRX. Since
the inception of the membership fees on
May 2, 2022, one firm cancelled nine
CMM trading rights as well as their
membership on MRX. Also, another
firm decreased their CMM trading rights
from nine to four CMM trading rights.
Also, no MRX Member is required by
rule, regulation, or competitive forces to
be a Member on the Exchange.
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Fees for Membership
The proposed membership fees
described below are in line with or less
than those of other markets. Setting a fee
above competitors is likely to drive
away customers, so the most efficient
price-setting strategy is to set prices at
the same level as other firms.
The Exchange’s proposal to adopt
membership fees is reasonable,
equitable and not unfairly
discriminatory. As a self-regulatory
organization, MRX’s membership
department reviews applicants to ensure
that each application complies with the
33 Of course, that third party must itself become
a Member of MRX, so at least some market
participants must become Members of MRX for any
trading to take place at all. Nevertheless, because
some firms would be able to exercise the option of
not becoming Members, excessive membership fees
would cause the Exchange to lose members.
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rules specified within MRX General 3 34
as well as other requirements for
membership.35 Applicants must meet
the Exchange’s qualification criteria
prior to approval. The membership
review includes, but is not limited to,
the registration and qualification of
associated persons, financial health, the
validity of the required clearing
relationship, and the history of
disciplinary matters. Approved
Members would be required to comply
with MRX’s By-Laws and Rules and
would be subject to regulation by MRX.
The proposed membership fees are
identical to membership fees on
GEMX,36 and are in line with or lower
than similar fees assessed on other
options markets.37
MRX’s flat rate Access Fee to
Electronic Access Members of $200 per
month, per membership is reasonable
because the Exchange notes that the
technical, regulatory, and administrative
services associated with an EAM’s use
of the Exchange are not as
comprehensive as those associated with
Market Makers.38 MRX’s flat rate Access
Fee to Electronic Access Members of
$200 per month, per membership is
equitable and not unfairly
discriminatory as all Members
transacting orders on MRX would be
subject to this same fee. The CMM
Trading Right Fee is identical to
GEMX.39
The Exchange’s proposal to assess
Primary Market Makers a slightly higher
flat rate Access Fee of $200 per month,
per membership as compared to
Competitive Market Makers who would
be assessed a flat rate Access Fee of
$100 per month, per membership is
reasonable because Primary Market
Makers have higher regulatory
obligations and require more technical,
regulatory, and administrative services
as compared to Competitive Market
Makers. For PMMs on MRX, the fees
34 MRX General 3, Membership and Access,
incorporates by reference Nasdaq General 3.
35 The Exchange’s Membership Department must
ensure, among other things, that an applicant is not
statutorily disqualified.
36 See GEMX Options 7, Section 6A (Access Fees).
37 See Cboe’s Fees Schedule. Cboe assesses permit
fees as follows: Market-Maker Electronic Access
Permit of $5,000 per month; Electronic Access
Permits of $3,000 per month; and Clearing TPH
Permit of $2,000 per month. See also Miami
International Securities Exchange, LLC’s (‘‘MIAX’’)
Fee Schedule. MIAX assesses an Electronic
Exchange Member Fee of $1,500 per month.
38 The Exchange notes that all MRX Members may
submit orders; however, only Market Makers may
submit quotes. The Exchange surveils Market Maker
quoting to ensure these participants have met their
obligations. The regulatory oversight for Market
Makers is in addition to the regulatory oversight
which is administered for all EAMs.
39 See GEMX Options 7, Section 6.B. (CMM
Trading Rights Fees).
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56453
required to access the Exchange are
substantially lower than those of
competing exchanges. For example, a
PMM could quote on the Exchange for
only $200 (i.e., the access fee),
compared with the minimum $6,000 per
month trading permit fee charged by
NYSE Arca.
Unlike PMMs, similar to GEMX’s
trading rights fee,40 CMMs would be
assessed a Trading Right Fee of $850 per
month for the first trading right and
$500 per month for each additional
right. The Exchange believes that it is
reasonable to assess CMMs a trading
right fee because these Market Makers
are not required to quote on MRX.
Specifically, a CMM is not required to
enter quotations in the options classes
to which it is appointed; however, if a
CMM initiates quoting in an options
class, the CMM is required to provide
two-sided quotations in 60% of the
cumulative number of seconds, or such
higher percentage as the Exchange may
announce in advance.41 While there can
be multiple CMMs in an options series,
there is only one PMM assigned per
options series. With respect to the CMM
Trading Rights Fee, the proposed fees
compare favorably with those of other
options exchanges. For example, a
market maker on MIAX is assessed a
$3,000 one-time fee and then a tiered
monthly fee from $7,000 for up to 10
classes to $22,000 for over 100 classes.42
By comparison, under the proposed fee
structure, a CMM can be granted access
on the Exchange for as little as $950 per
month (i.e., a $100 access fee and an
$850 trading right), and could quote in
all options classes on the Exchange by
paying the access fee and obtaining nine
CMM trading rights for a total of $4,950
per month. The Exchange notes that its
tiered model for CMM trading rights is
consistent with the pricing practices of
other exchanges, such as NYSE Arca,
which charges $6,000 per month for the
first market maker trading permit, down
to $1,000 per month for the fifth and
additional trading permits, with various
tiers in-between. Like other options
exchanges, the Exchange is proposing a
tiered pricing model because it may
encourage CMM firms to purchase
additional trading rights and quote more
issues because subsequent trading rights
are priced lower than the initial trading
right.
The Exchange does not believe that it
is unfairly discriminatory to assess
40 See
GEMX Options 7, Section 6.B.
Options 2, Section 5(e)(2).
42 See Miami International Securities Exchange,
LLC Fee Schedule at 20 and 21: https://
www.miaxoptions.com/sites/default/files/fee_
schedule-files/MIAX_Options_Fee_Schedule_
03012022.pdf.
41 See
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different fees for EAMS, PMMs, and
CMMs. While PMMs would pay lower
membership fees as compared to CMMs,
PMMs have additional obligations on
MRX as compared to CMMs. PMMs are
required to open options series in which
they are assigned each day on MRX.
Specifically, PMMs must submit a Valid
Width Quote each day to open their
assigned options series.43 PMMs are
integral to providing liquidity during
MRX’s Opening Process.44 Further,
intra-day, PMMs are required to provide
two-sided quotations in 90% of
cumulative number of seconds, or such
higher percentage as the Exchange may
announce in advance. In contrast, a
CMM is not required to enter quotations
in the options classes to which it is
appointed; however, if a CMM initiates
quoting in an options class, the CMM is
required to provide two-sided
quotations in 60% of the cumulative
number of seconds, or such higher
percentage as the Exchange may
announce in advance.45 While there can
be multiple CMMs in an options series,
there is only one PMM assigned per
options series. The Exchange desires to
encourage Members to act as PMMs,
which will benefit the market through,
for example, more robust quoting.
Further, with respect to the higher
fees for Market Makers generally, MRX
notes that Market Makers: (1) consume
the most bandwidth and resources of
the network; (2) transact a majority of
the volume on the Exchange; and (3)
require the high touch network support
services provided by the Exchange and
its staff. Other non-Market Maker
market participants take up significantly
less Exchange resources as discussed
further below. Further, the Exchange
notes that Market Makers account for
greater than 99% of message traffic over
the network, while other non-Market
Maker market participants account for
less than 1% of message traffic over the
network. Most Members do not have a
business need for the high performance
network solutions generally required by
Market Makers. The Exchange’s high
performance network solutions and
supporting infrastructure (including
employee support), provides
unparalleled system throughput and the
capacity to handle approximately 3
million quote messages per second. On
an average day, MRX handles over 6.10
billion total messages. Of those 6.10
billion daily messages, Market Makers
generate 6.08 billion of those messages,
43 See
Options 3, Section 8(c)(1) and 8(c)(3).
Exchange notes that most options markets
do not require their primary or lead market maker
to open their assigned options series.
45 See Options 2, Section 5(e)(2).
44 The
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while other non-Market Maker market
participants generate approximately 20
million messages. Additionally, in order
to achieve consistent, premium network
performance, MRX must build out and
maintain a network that has the capacity
to handle the message rate requirements
beyond those 6.08 billion daily
messages. These billions of messages
per day consume the Exchange’s
resources and significantly contribute to
the overall expense for storage and
network transport capabilities. Given
this difference in network utilization
rate, the Exchange believes that it is
reasonable, equitable, and not unfairly
discriminatory that Market Makers are
assessed different Access Fees as
compared to EAMs.
MRX notes that while Market Makers
continue to account for a vast majority
of resources placed on MRX and its
System (as discussed herein), Market
Makers continue to be valuable market
participants on the exchanges as the
options market is a quote driven
industry. MRX recognizes the value that
Market Makers bring to the Exchange.
For certain transactions, MRX also
assesses a lower fee for Market Makers
compared to other non-Priority
Customer market participants to attract
liquidity to the Exchange.46 Finally, the
Exchange notes that PMMs are entitled
to certain enhanced allocations as a
result of providing liquidity on MRX.47
The proposed membership fees are
meant to strike a balance between
resources consumed by Market Makers
on MRX and continuing to incentivize
Market Makers to access and make a
market on MRX.
Additionally, the Exchange believes
that the proposed change will better
align MRX’s membership fees with rates
charged by competing options
exchanges. Further, the Exchange
believes that the proposal is reasonably
designed to continue to compete with
other options exchanges by
incentivizing market participants to
register as Market Makers on MRX in a
manner than enables MRX to improve
its overall competitiveness and
strengthen market quality for all market
participants.
Similar to recent proposal by BOX
Exchange LLC (‘‘BOX’’),48 the Exchange
notes that there is no regulatory
requirement that market makers connect
and access any one options exchange.
Moreover, a Market Maker membership
is not a requirement to participate on
the Exchange and participation on an
exchange is completely voluntary. BOX
noted in its rule change that it reviewed
membership details at three options
exchanges and found that there are 62
market making firms across these three
exchanges.49 Further, BOX found that
42 of the 62 market making firms access
only one of the three exchanges.50
Additionally, BOX identified numerous
market makers that are members of
other options exchanges, but not BOX.51
Not only is there not an actual
regulatory requirement to connect to
every options exchange, the Exchange
believes there is also no ‘‘de facto’’ or
practical requirement as well, as further
evidenced by the market maker
membership analysis by BOX of three
options exchanges discussed above.
Indeed, Market Makers choose if and
how to access a particular exchange and
because it is a choice, MRX must set
reasonable pricing, otherwise
prospective market makers would not
connect and existing Market Makers
would disconnect from the Exchange.
As noted above, one firm cancelled
nine CMM trading rights as well as their
membership on MRX.52 Also, another
firm decreased their CMM trading rights
from nine to four CMM trading rights.
The Exchange believes the Commission
has a sufficient basis to determine that
MRX was subject to significant
competitive forces in setting the terms
of its proposed fees. Moreover, the
Commission has found that, if an
exchange meets the burden of
demonstrating it was subject to
significant competitive forces in setting
its fees, the Commission ‘‘will find that
its fee rule is consistent with the Act
unless ‘there is a substantial
countervailing basis to find that the
terms’ of the rule violate the Act or the
rules thereunder.’’ 53 The Exchange is
not aware of, nor has the Commission
articulated, a substantial countervailing
basis for finding the proposal violates
the Act or the rules thereunder.
Membership fees are charged by all
options exchanges except MRX. In 2022,
49 Id.
50 Id.
46 See
MRX’s Pricing Schedule at Options 7.
47 See Options 3, Section 10.
48 See Securities and Exchange Release No. 94894
(May 11, 2022), 87 FR 29987 (May 17, 2022) (SR–
BOX–2022–17) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend
the Fee Schedule on the BOX Options Market LLC
Facility To Adopt Electronic Market Maker Trading
Permit Fees). BOX amended its fees on January 3,
2022 to adopt an electronic market maker trading
permit fee.
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51 Id. For example, BOX identified 47 market
makers that are members of Cboe Exchange Inc. (an
exchange that only lists options), but not the
Exchange (which also lists only options).
52 The Exchange notes that this Member was not
active on MRX prior to the cancellation.
53 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770, 74781 (December
9, 2008) (‘‘2008 ArcaBook Approval Order’’)
(approving proposed rule change to establish fees
for a depth-of-book market data product).
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similar to MRX, MEMX LLC (‘‘MEMX’’)
commenced assessing a monthly
membership fee.54 MEMX reasoned in
that rule change that there is value in
becoming a member of the exchange.55
MEMX stated that it believed that its
proposed membership fee ‘‘is not
unfairly discriminatory because no
broker-dealer is required to become a
member of the Exchange.’’ 56 Moreover,
‘‘neither the trade-through requirements
under Regulation NMS nor brokerdealers’ best execution obligations
require a broker-dealer to become a
member of every exchange.’’ 57 In this
respect, MEMX is correct; a monthly
membership fee is reasonable, equitably
allocated and not unfairly
discriminatory. Market participants may
choose to become a member of one or
more options exchanges based on the
market participant’s business model. A
very small number of market
participants choose to become a member
of all sixteen options exchanges. It is not
a requirement for market participants to
become members of all options
exchanges, in fact, certain market
participants conduct an options
business as a member of only one
options market.
MRX makes the same arguments
herein as were proposed by MEMX in
similarly adopting membership fees.
The Exchange notes that MRX’s ability
to assess membership fees similar to
MEMX and all other options markets
permits it to compete with other options
markets on an equal playing field. MRX
is the only options market that does not
have membership fees. Most firms that
actively trade on options markets are
not currently Members of MRX. Using
options markets that Nasdaq operates as
points of comparison, less than a third
of the firms that are members of at least
one of the options markets that Nasdaq
operates are also Members of MRX
(approximately 29%). The Exchange
notes that no firm is a Member of MRX
only. Few, if any, firms have become
Members at MRX, notwithstanding the
fact that MRX membership is currently
free, because MRX currently has less
liquidity than other options markets. As
explained above, MRX has the smallest
market share of the 16 options
exchanges, representing only
approximately 1.8% of the market, and,
for certain market participants, the
current levels of liquidity may be
54 See Securities Exchange Act Release No. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022)
(SR–MEMX–2021–19). The Monthly Membership
Fee is assessed to each active Member at the close
of business on the first day of each month.
55 Id.
56 Id.
57 Id.
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insufficient to justify the costs
associated with becoming a Member and
connecting to the Exchange,
notwithstanding the fact that
membership is free.
The decision to become a member of
an exchange, particularly for registered
market makers, is complex, and not
solely based on the non-transactional
costs assessed by an exchange.
Becoming a member of an exchange
does not ‘‘lock’’ a potential member into
a market or diminish the overall
competition for exchange services. The
decision to become a member of an
exchange is made at the beginning of the
relationship, and is no less subject to
competition than trading fees.
In lieu of becoming a member at each
options exchange, a market participant
may join one exchange and elect to have
their orders routed in the event that a
better price is available on an away
market. Nothing in the Order Protection
Rule requires a firm to become a
Member at MRX.58 If MRX is not at the
NBBO, MRX will route an order to any
away market that is at the NBBO to
prevent a trade-through and also ensure
that the order was executed at a superior
price.59
In lieu of joining an exchange, a thirdparty may be utilized to execute an
order on an exchange. For example, a
third-party broker-dealer Member of
MRX may be utilized by a retail investor
to submit orders into an Exchange. An
institutional investor may utilize a
broker-dealer, a service bureau,60 or
request sponsored access 61 through a
member of an exchange in order to
submit a trade directly to an options
exchange.62 A market participant may
either pay the costs associated with
becoming a member of an exchange or,
in the alternative, a market participant
58 See Options Order Protection and Locked/
Crossed Market Plan (August 14, 2009), available at
https://www.theocc.com/getmedia/7fc629d9-4e544b99-9f11-c0e4db1a2266/options_order_protection_
plan.pdf.
59 MRX Members may elect to not route their
orders by marking an order as ‘‘do-not-route.’’ In
this case, the order would not be routed. See
Options 3, Section 7(m).
60 Service bureaus provide access to market
participants to submit and execute orders on an
exchange. On MRX, a Service Bureau may be a
Member. Some MRX Members utilize a Service
Bureau for connectivity and that Service Bureau
may not be a Member. Some market participants
utilize a Service Bureau who is a Member to submit
orders. As noted herein only MRX Members may
submit orders or quotes through ports.
61 Sponsored Access is an arrangement whereby
a member permits its customers to enter orders into
an exchange’s system that bypass the member’s
trading system and are routed directly to the
Exchange, including routing through a service
bureau or other third-party technology provider.
62 This may include utilizing a Floor Broker and
submitting the trade to one of the five options
trading floors.
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56455
may elect to pay commissions to a
broker-dealer, pay fees to a service
bureau to submit trades, or pay a
member to sponsor the market
participant in order to submit trades
directly to an exchange. Market
participants may elect any of the above
models and weigh the varying costs
when determining how to submit trades
to an exchange. Depending on the
number of orders to be submitted,
technology, ability to control
submission of orders, and projected
revenues, a market participant may
determine one model is more cost
efficient as compared to the alternatives.
After 6 years, MRX proposes to
commence assessing membership fees,
just as all other options exchanges.63
The introduction of these fees will not
impede a Member’s access to MRX, but
rather will allow MRX to continue to
compete and grow its marketplace so
that it may continue to offer a robust
trading architecture, a quality opening
process, an array of simple and complex
order types and auctions, and
competitive transaction pricing. If MRX
is incorrect in its assessment of the
value of its services, that assessment
will be reflected in MRX’s ability to
compete with other options exchanges.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange believes its proposal
remains competitive with other options
markets, and will offer market
participants with another choice of
venue to transact options. 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. Because
competitors are free to modify their own
fees in response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited.
The Exchange notes that other options
markets have adopted membership fees.
MEMX recently reasoned that it should
be permitted to adopt membership fees
because MEMX’s proposed membership
fees would be lower than the cost of
63 Today, MRX is the only options exchange that
does not assess membership fees.
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membership on other exchanges, and
therefore,
. . . may stimulate intramarket competition
by attracting additional firms to become
Members on the Exchange or at least should
not deter interested participants from joining
the Exchange. In addition, membership fees
are subject to competition from other
exchanges. Accordingly, if the changes
proposed herein are unattractive to market
participants, it is likely the Exchange will see
a decline in membership as a result. The
proposed fee change will not impact
intermarket competition because it will apply
to all Members equally. The Exchange
operates in a highly competitive market in
which market participants can determine
whether or not to join the Exchange based on
the value received compared to the cost of
joining and maintaining membership on the
Exchange.’’ 64
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Likewise, MRX’s ability to assess
membership fees, similar to MEMX and
all other options markets, would permit
it to compete with other options markets
on an equal playing field. MRX is the
only options market that does not have
membership fees.
The proposed membership fees are
identical to membership fees assessed
by GEMX.65 The proposed fees are
designed to reflect the benefits of the
technical, regulatory, and administrative
services provided to a Member by the
Exchange, and the fees remain
competitive with similar fees offered on
other options exchanges. The Exchange
does not believe that assessing different
fees for EAMs, PMMs, and CMMs,
creates an undue burden on
competition.
With respect to the CMM Trading
Rights Fee, the proposed fees compare
favorably with those of other options
exchanges.66 Like other options
exchanges, the Exchange is proposing a
tiered pricing model because it may
encourage CMM firms to purchase
additional trading rights and quote more
issues because subsequent trading rights
are priced lower than the initial trading
right. The Exchange notes that it is not
proposing trading right fees for PMMs.
As compared to CMMs, PMMs have
additional obligations on MRX. PMMs
are required to open options series in
which they are assigned each day on
MRX. Specifically, PMMs must submit
a Valid Width Quote each day to open
64 See Securities Exchange Act Release No. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022)
(SR–MEMX–2021–19).
65 See GEMX Options 7, Section 6.A. (Access
Fees) and Section 6.B. (CMM Trading Rights Fees).
66 See NYSE Arca Fees and Charges, General
Options and Trading Permit (OTP) Fees (comparing
CMM Trading Rights Fees to the Arca Market Maker
fees).
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their assigned options series.67 PMMs
are integral to providing liquidity
during MRX’s Opening Process.68
Further, intra-day, PMMs are required to
provide two-sided quotations in 90% of
cumulative number of seconds, or such
higher percentage as the Exchange may
announce in advance. In contrast, a
CMM is not required to enter quotations
in the options classes to which it is
appointed; however, if a CMM initiates
quoting in an options class, the CMM is
required to provide two-sided
quotations in 60% of the cumulative
number of seconds, or such higher
percentage as the Exchange may
announce in advance.69 While there can
be multiple CMMs in an options series,
there is only one PMM assigned per
options series. The Exchange desires to
encourage Members to act as PMMs,
which will benefit the market through,
for example, more robust quoting.
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.70 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–2022–13 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–2022–13. 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–2022–13 and should
be submitted on or before October 5,
2022.
67 See
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.71
J. Matthew DeLesDernier,
Deputy Secretary.
68 The
[FR Doc. 2022–19815 Filed 9–13–22; 8:45 am]
Options 3, Section 8(c)(1) and 8(c)(3).
Exchange notes that most options markets
do not require their primary or lead market maker
to open their assigned options series.
69 See Options 2, Section 5(e)(2).
70 15 U.S.C. 78s(b)(3)(A)(ii).
PO 00000
Frm 00061
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Sfmt 4703
BILLING CODE 8011–01–P
71 17
E:\FR\FM\14SEN1.SGM
CFR 200.30–3(a)(12).
14SEN1
]]>Agencies
[Federal Register Volume 87, Number 177 (Wednesday, September 14, 2022)]
[Notices]
[Pages 56449-56456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19815]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95709; File No. SR-MRX-2022-13]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7,
Section 5
September 8, 2022.
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 August 25, 2022, 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, II, and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend MRX's Pricing Schedule at Options 7,
Section 5.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/
[[Page 56450]]
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
MRX proposes to amend its Pricing Schedule at Options 7, Section 5,
Other Options Fees and Rebates, to assess membership fees, which are
not assessed today, and which have not been assessed since MRX's
inception in 2016.\3\ The proposed changes are designed to update fees
for MRX's services to reflect their current value--rather than their
value when it was a new exchange six years ago--based on MRX's ability
to deliver value to its customers through technology, liquidity and
functionality. Newly-opened exchanges often charge no fees for certain
services such as membership, in order to attract order flow to an
exchange, and later amend their fees to reflect the true value of those
services.\4\ Allowing newly-opened exchanges time to build and sustain
market share before charging non-transactional fees encourages market
entry and promotes competition. The proposed changes to membership fees
within Options 7, Section 5; Other Options Fees and Rebates, are
described below.
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed pricing changes on
May 2, 2022 (SR-MRX-2022-04) instituting fees for membership, ports
and market data. On June 29, 2022, the Exchange withdrew that
filing, and submitted separate filings for membership, ports and
market data. SR-MRX-2022-07 replaced the membership fees set forth
in SR-MRX-2022-04. The instant filing replaces SR-MRX-2022-07 which
was withdrawn on August 25, 2022.
\4\ See also Securities Exchange Act Release No. 93927 (January
7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19)
(introduction of membership fees by MEMX).
---------------------------------------------------------------------------
This proposal reflects MRX's assessment that it has gained
sufficient market share to compete effectively against the other 15
options exchanges without waiving fees for membership. These types of
fees are assessed by options exchanges that compete with MRX in the
sale of exchange services--indeed, MRX is the only options exchange
(out of the 16 current options exchanges) not assessing membership fees
today. New exchanges commonly waive membership fees to attract market
participants, facilitating their entry into the market and, once there
is sufficient depth and breadth of liquidity, ``graduate'' to compete
against established exchanges and charge fees that reflect the value of
their services.\5\ If MRX is incorrect in this assessment, that error
will be reflected in MRX's ability to compete with other options
exchanges.\6\
---------------------------------------------------------------------------
\5\ For example, MIAX Emerald commenced operations as a national
securities exchange registered on March 1, 2019. See Securities
Exchange Act Release No. 84891 (December 20, 2018), 83 FR 67421
(December 28, 2018) (File No. 10-233) (order approving application
of MIAX Emerald, LLC for registration as a national securities
exchange). MIAX Emerald filed to adopt its transaction fees and
certain of its non-transaction fees in its filing SR-EMERALD-2019-
15. See Securities Exchange Act Release No. 85393 (March 21, 2019),
84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Establish
the MIAX Emerald Fee Schedule). MIAX Emerald waived its one-time
application fee and monthly Trading Permit Fees assessable to EEMs
and Market Makers among other fees within SR-EMERALD-2019-15.
\6\ Nasdaq recently announced that, beginning in 2022, Nasdaq
plans to migrate its North American markets to Amazon Web Services
in a phased approach, starting with Nasdaq MRX, a U.S. options
market. The proposed fee changes are entirely unrelated to this
effort.
---------------------------------------------------------------------------
As noted above, MRX Members are not assessed fees for membership
today. Under the proposed fee change, MRX Members will be required to
pay a monthly Access Fee, which entitles MRX Members to trade on the
Exchange based on their membership type. Specifically, MRX proposes to
assess Electronic Access Members \7\ an Access Fee of $200 per month,
per membership. The Exchange proposes to assess Market Makers \8\
Access Fees depending on whether they are a Primary Market Maker
(``PMM'') or a Competitive Market Maker (``CMM''). A PMM would be
assessed an Access Fee of $200 per month, per membership. A CMM would
be assessed an Access Fee of $100 per month, per membership.\9\ The
proposed fees are identical to access fees on Nasdaq GEMX, LLC
(``GEMX'').\10\ Of note, a Member would pay each applicable fee. For
example, a Competitive Market Maker who does not enter orders would
only pay the $100 per month, per membership Access Fee.
---------------------------------------------------------------------------
\7\ The term ``Electronic Access Member'' or ``EAM'' means a
Member that is approved to exercise trading privileges associated
with EAM Rights. See General 1, Section 1(a)(6).
\8\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21). The term ``Competitive Market Maker'' means a
Member that is approved to exercise trading privileges associated
with CMM Rights. See Options 1, Section 1(a)(12). The term ``Primary
Market Maker'' means a Member that is approved to exercise trading
privileges associated with PMM Rights. See Options 1, Section
1(a)(35).
\9\ In the case where a single Member has multiple MRX
memberships, the monthly access fee is charged for each membership.
For example, if a single member firm is both an EAM and a CMM, or
owns multiple CMM memberships, the firm is subject to the access fee
for each of those memberships.
\10\ See GEMX Options 7, Section 6.A. (Access Fees).
---------------------------------------------------------------------------
In order to receive market making appointments to quote in any
options class, CMMs will also be assessed a CMM Trading Right Fee
identical to GEMX.\11\ CMM trading rights entitle a CMM to enter quotes
in options symbols that comprise a certain percentage of industry
volume. On a quarterly basis, the Exchange assigns points to each
options class equal to its percentage of overall industry volume (not
including exclusively traded index options), rounded down to the
nearest one hundredth of a percentage with a maximum of 15 points. A
new listing is assigned a point value of zero for the remainder of the
quarter in which it was listed. CMMs may seek appointments to options
classes that total 20 points for the first CMM Right it holds, and 10
points for the second and each subsequent CMM Right it holds.\12\ In
order to encourage CMMs to quote on the Exchange, MRX launched CMM
trading rights without any fees, allowing CMMs to freely quote in all
options classes.
---------------------------------------------------------------------------
\11\ See GEMX Options 7, Section 6.B. (CMM Trading Rights Fees).
\12\ A CMM may request changes to its appointments at any time
upon advance notification to the Exchange in a form and manner
prescribed by the Exchange. See MRX Options 2, Section 3(c)(3).
---------------------------------------------------------------------------
The Exchange is now proposing to adopt a monthly CMM Trading Rights
Fee. Under the proposed fee structure, CMMs will be assessed a Trading
Rights Fee of $850 per month for the first trading right, which will
entitle the CMM to quote in 20 percent of industry volume.\13\ Each
additional CMM Right will cost $500 per month, and will entitle the CMM
to quote an additional 10 percent of volume. Similar to GEMX's trading
rights fee,\14\ a new CMM would pay $850 for the first trading right
and all CMMs would
[[Page 56451]]
thereafter pay $500 for each additional trading right. For example, if
a CMM desired to quote in all options series listed on MRX, the CMM
would need to obtain 9 trading rights at a cost of $4,850. The Exchange
is proposing this pricing model because each subsequent CMM Right costs
less than the first trading right. All CMMs have the opportunity to
purchase additional CMM Rights beyond the initial trading right in
order to quote in additional options series. PMMs would not be assessed
a Trading Rights Fee.
---------------------------------------------------------------------------
\13\ These trading rights are referred to as CMM Rights. See MRX
Options 2, Section 3.
\14\ See GEMX Options 7, Section 6.B.
---------------------------------------------------------------------------
PMMs have additional obligations on MRX as compared to CMMs. PMMs
are required to open options series in which they are assigned each day
on MRX. Specifically, PMMs must submit a Valid Width Quote each day to
open their assigned options series.\15\ PMMs are integral to providing
liquidity during MRX's Opening Process.\16\ Further, intra-day, PMMs
are required to provide two-sided quotations in 90% of cumulative
number of seconds, or such higher percentage as the Exchange may
announce in advance. In contrast, a CMM is not required to enter
quotations in the options classes to which it is appointed; however, if
a CMM initiates quoting in an options class, the CMM is required to
provide two-sided quotations in 60% of the cumulative number of
seconds, or such higher percentage as the Exchange may announce in
advance.\17\ While there can be multiple CMMs in an options series,
there is only one PMM assigned per options series. The Exchange desires
to encourage Members to act as PMMs, which will benefit the market
through, for example, more robust quoting.
---------------------------------------------------------------------------
\15\ See Options 3, Section 8(c)(1) and 8(c)(3).
\16\ The Exchange notes that most options markets do not require
their primary or lead market maker to open their assigned options
series.
\17\ See Options 2, Section 5(e)(2).
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Finally, the Exchange is proposing only to charge the $200 access
fee to EAMs, and no trading rights fee, as the technical, regulatory,
and administrative services associated with an EAM's use of the
Exchange are not as comprehensive as those associated with Market
Makers' use.\18\
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\18\ The Exchange notes that all MRX Members may submit orders;
however, only Market Makers may submit quotes. The Exchange surveils
Market Maker quoting to ensure these participants have met their
obligations. The regulatory oversight for Market Makers is in
addition to the regulatory oversight which is administered for all
EAMs.
---------------------------------------------------------------------------
MRX believes that its membership fees, which have been in effect
since May 2, 2022, are in line with or less than those of other options
exchanges. The Exchange believes it is notable that during this time,
there have been no comment letters submitted to the Commission arguing
that the Exchange's new fees are unreasonable. The membership fees are
constrained by competition. For example, since the inception of the
membership fees on May 2, 2022, one firm cancelled nine CMM trading
rights as well as their membership on MRX.\19\ Also, another firm
decreased their CMM trading rights from nine to four CMM trading
rights.
---------------------------------------------------------------------------
\19\ The Exchange notes that this Member was not active on MRX
prior to the cancellation.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\20\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\21\ 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.
---------------------------------------------------------------------------
\20\ See 15 U.S.C. 78f(b).
\21\ See 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The proposed changes to the Pricing Schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for order flow, which
constrains its pricing determinations. The fact that the market for
order flow is competitive has long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated, ``[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'. . . .'' \22\
---------------------------------------------------------------------------
\22\ See NetCoalition, 615 F.3d at 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 to determine
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.'' \23\
---------------------------------------------------------------------------
\23\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Congress directed the Commission to ``rely on `competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \24\ As a
result, the Commission has historically relied on competitive forces to
determine whether a fee proposal is equitable, fair, reasonable, and
not unreasonably or unfairly discriminatory. ``If competitive forces
are operative, the self-interest of the exchanges themselves will work
powerfully to constrain unreasonable or unfair behavior.'' \25\
Accordingly, ``the existence of significant competition provides a
substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \26\ In its 2019 guidance on fee proposals,
Commission staff indicated that they would look at factors beyond the
competitive environment, such as cost, only if a ``proposal lacks
persuasive evidence that the proposed fee is constrained by significant
competitive forces.'' \27\
---------------------------------------------------------------------------
\24\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
\25\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\26\ Id.
\27\ See U.S. Securities and Exchange Commission, ``Staff
Guidance on SRO Rule filings Relating to Fees'' (May 21, 2019),
available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
---------------------------------------------------------------------------
History of MRX Operations
Over the years, MRX has amended its transactional pricing to remain
competitive and attract order flow to the Exchange.\28\
---------------------------------------------------------------------------
\28\ See e.g. Securities Exchange Act Release Nos. 77292 (March
4, 2016), 81 FR 12770 (March 10, 2016) (SR-ISEMercury-2016-02)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Establish the Schedule of Fees); 77409 (March 21, 2016),
81 FR 16240 (March 25, 2016) (SR-ISEMercury-2016-05) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Schedule of Fees); 81 FR 16238 (March 21, 2016), 81 FR 16238
(March 25, 2016) (SR-ISEMercury-2016-06) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend the
Schedule of Fees); 77841 (May 16, 2016), 81 FR 31986 (SR-ISEMercury-
2016-11) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend the Schedule of Fees); 82537 (January 19,
2018), 83 FR 3784 (January 26, 2018) (SR-MRX-2018-01) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Schedule of Fees To Introduce a New Pricing Model); 82990 (April
4, 2018), 83 FR 15434 (April 10, 2018) (SR-MRX-2018-10) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Chapter IV of the Exchange's Schedule of Fees); 28677 (June 14,
2018), 83 FR 28677 (June 20, 2018) (SR-MRX-2018-19) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To
Increase Certain Route-Out Fees Set Forth in Section II.A of the
Schedule of Fees); 84113 (September 13, 2018), 83 FR 47386
(September 19, 2018) (SR-MRX-2018-27) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Relocate the
Exchange's Schedule of Fees); 85143 (February 14, 2019), 84 FR 5508
(February 21, 2019) (SR-MRX-2019-02) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend the Pricing
Schedule at Options 7, Section 3); 85313 (March 14, 2019), 84 FR
10357 (March 20, 2019) (SR-MRX-2019-05) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change Relating to PIM
Fees and Rebates); 86326 (July 8, 2019), 84 FR 33300 (July 12, 2019)
(SR-MRX-2019-14) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt Complex Order Pricing); 88022 (January
23, 2020), 85 FR 5263 (January 29, 2020) (SR-MRX-2020-02) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
MRX Pricing Schedule); 89046 (June 11, 2020), 85 FR 36633 (June 17,
2020) (SR-MRX-2020-11) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend Its Pricing Schedule at Options 7);
89320 (July 15, 2020), 85 FR 44135 (July 21, 2020) (SR-MRX-2020-14)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend Its Pricing Schedule at Options 7, Section 5, Other
Options Fees and Rebates, in Connection With the Pricing for Orders
Entered Into the Exchanges Price Improvement Mechanism); 90503
(November 24, 2020), 85 FR 77317 (December 1, 2020) (SR-MRX-2020-18)
(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); 90434 (November
16, 2020), 85 FR 74473 (November 20, 2020) (SR-MRX-2020-19) (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); 90455 (November 18, 2020), 85 FR 75064 (November
24, 2020) (SR-MRX-2020-21) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend the Pricing
Schedule); and 91687 (April 27, 2021), 86 FR 23478 (May 3, 2021)
(SR-MRX-2021-04) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the Exchange's Pricing Schedule at
Options 7). Note that ISE Mercury is an earlier name for MRX.
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[[Page 56452]]
In June 2019, MRX commenced offering complex orders.\29\ With the
addition of complex order functionality, MRX offered Members certain
order types, an opening process, auction capabilities, and other
trading functionality that was nearly identical to functionality
available on ISE.\30\ By way of comparison, ISE, unlike MRX, assessed
membership fees in 2019 \31\ while offering the same suite of
functionality as MRX, with a limited exception.\32\
---------------------------------------------------------------------------
\29\ See Securities Exchange Act Release No. 86326 (July 8,
2019), 84 FR 33300 (July 12, 2019) (SR-MRX-2019-14) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to
Adopt Complex Order Pricing).
\30\ One distinction is that ISE offered its Members access to
Nasdaq Precise in 2019 and since that time. MRX has never offered
Precise. ``Nasdaq Precise'' or ``Precise'' is a front-end interface
that allows EAMs and their Sponsored Customers to send orders to the
Exchange and perform other related functions. Features include the
following: (1) order and execution management: enter, modify, and
cancel orders on the Exchange, and manage executions (e.g., parent/
child orders, inactive orders, and post-trade allocations); (2)
market data: access to real-time market data (e.g., NBBO and
Exchange BBO); (3) risk management: set customizable risk parameters
(e.g., kill switch); and (4) book keeping and reporting:
comprehensive audit trail of orders and trades (e.g., order history
and done away trade reports). See ISE Supplementary Material .03(d)
of Options 3, Section 7. Precise is also available on GEMX.
\31\ In 2019, ISE assessed the following Access Fees: $500 per
month, per membership to an Electronic Access Member, $5,000 per
month, per membership to a Primary Market Maker and $2,500 per
month, per membership to a Competitive Market Maker. ISE does not
assess Trading Rights Fees to Competitive Market Makers. See
Securities Exchange Act Release No. 82446 (January 5, 2018), 83 FR
1446 (January 11, 2018) (SR-ISE-2017-112) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend Certain
Non-Transaction Fees in the Exchange's Schedule of Fees). Of note,
ISE assessed Access Fees prior to 2019 as well.
\32\ Unlike ISE, MRX does not offer Precise. See note 30, supra.
---------------------------------------------------------------------------
Membership Is Subject to Significant Substitution-Based Competitive
Forces
An exchange can show that a product is ``subject to significant
substitution-based competitive forces'' by introducing evidence that
customers can substitute the product for products offered by other
exchanges.
Chart 1 below shows the January 2022 market share for multiply-
listed options by exchange. Of the 16 operating options exchanges, none
currently has more than a 13.1% market share, and MRX has the smallest
market share at 1.8%. Customers widely distribute their transactions
across exchanges according to their business needs and the ability of
each exchange to meet those needs through technology, liquidity and
functionality. Average market share for the 16 options exchanges is
6.26 percent, with the median at 5.8, and a range between 1.8 and 13.1
percent.
BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN14SE22.002
[[Page 56453]]
Market share is the percentage of volume on a particular exchange
relative to the total volume across all exchanges, and indicates the
amount of order flow directed to that exchange. High levels of market
share enhance the value of trading and membership. MRX has the smallest
number of Members relative to its GEMX, ISE, NOM and Phlx affiliates,
with approximately 40 members. This demonstrates that customers can and
will choose where to become members, need not become members of all
exchanges, and do not need to become Members of MRX and instead may
utilize a third party.\33\
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\33\ Of course, that third party must itself become a Member of
MRX, so at least some market participants must become Members of MRX
for any trading to take place at all. Nevertheless, because some
firms would be able to exercise the option of not becoming Members,
excessive membership fees would cause the Exchange to lose members.
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The Exchange established these lower (when compared to other
options exchanges in the industry) membership fees in order to
encourage market participants to become MRX Members and register as MRX
Market Makers. As noted above, MRX has grown its market share since
inception and seeks to continue to grow its membership base. The
Exchange believes that there are many factors that may cause a market
participant to decide to become a member of a particular exchange in
addition to its pricing.
As noted herein, MRX filed its membership fees on May 2, 2022 and
has not received a comment with respect to the proposed membership fee
changes. MRX Members may elect to cancel their membership on MRX. Since
the inception of the membership fees on May 2, 2022, one firm cancelled
nine CMM trading rights as well as their membership on MRX. Also,
another firm decreased their CMM trading rights from nine to four CMM
trading rights. Also, no MRX Member is required by rule, regulation, or
competitive forces to be a Member on the Exchange.
Fees for Membership
The proposed membership fees described below are in line with or
less than those of other markets. Setting a fee above competitors is
likely to drive away customers, so the most efficient price-setting
strategy is to set prices at the same level as other firms.
The Exchange's proposal to adopt membership fees is reasonable,
equitable and not unfairly discriminatory. As a self-regulatory
organization, MRX's membership department reviews applicants to ensure
that each application complies with the rules specified within MRX
General 3 \34\ as well as other requirements for membership.\35\
Applicants must meet the Exchange's qualification criteria prior to
approval. The membership review includes, but is not limited to, the
registration and qualification of associated persons, financial health,
the validity of the required clearing relationship, and the history of
disciplinary matters. Approved Members would be required to comply with
MRX's By-Laws and Rules and would be subject to regulation by MRX. The
proposed membership fees are identical to membership fees on GEMX,\36\
and are in line with or lower than similar fees assessed on other
options markets.\37\
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\34\ MRX General 3, Membership and Access, incorporates by
reference Nasdaq General 3.
\35\ The Exchange's Membership Department must ensure, among
other things, that an applicant is not statutorily disqualified.
\36\ See GEMX Options 7, Section 6A (Access Fees).
\37\ See Cboe's Fees Schedule. Cboe assesses permit fees as
follows: Market-Maker Electronic Access Permit of $5,000 per month;
Electronic Access Permits of $3,000 per month; and Clearing TPH
Permit of $2,000 per month. See also Miami International Securities
Exchange, LLC's (``MIAX'') Fee Schedule. MIAX assesses an Electronic
Exchange Member Fee of $1,500 per month.
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MRX's flat rate Access Fee to Electronic Access Members of $200 per
month, per membership is reasonable because the Exchange notes that the
technical, regulatory, and administrative services associated with an
EAM's use of the Exchange are not as comprehensive as those associated
with Market Makers.\38\ MRX's flat rate Access Fee to Electronic Access
Members of $200 per month, per membership is equitable and not unfairly
discriminatory as all Members transacting orders on MRX would be
subject to this same fee. The CMM Trading Right Fee is identical to
GEMX.\39\
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\38\ The Exchange notes that all MRX Members may submit orders;
however, only Market Makers may submit quotes. The Exchange surveils
Market Maker quoting to ensure these participants have met their
obligations. The regulatory oversight for Market Makers is in
addition to the regulatory oversight which is administered for all
EAMs.
\39\ See GEMX Options 7, Section 6.B. (CMM Trading Rights Fees).
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The Exchange's proposal to assess Primary Market Makers a slightly
higher flat rate Access Fee of $200 per month, per membership as
compared to Competitive Market Makers who would be assessed a flat rate
Access Fee of $100 per month, per membership is reasonable because
Primary Market Makers have higher regulatory obligations and require
more technical, regulatory, and administrative services as compared to
Competitive Market Makers. For PMMs on MRX, the fees required to access
the Exchange are substantially lower than those of competing exchanges.
For example, a PMM could quote on the Exchange for only $200 (i.e., the
access fee), compared with the minimum $6,000 per month trading permit
fee charged by NYSE Arca.
Unlike PMMs, similar to GEMX's trading rights fee,\40\ CMMs would
be assessed a Trading Right Fee of $850 per month for the first trading
right and $500 per month for each additional right. The Exchange
believes that it is reasonable to assess CMMs a trading right fee
because these Market Makers are not required to quote on MRX.
Specifically, a CMM is not required to enter quotations in the options
classes to which it is appointed; however, if a CMM initiates quoting
in an options class, the CMM is required to provide two-sided
quotations in 60% of the cumulative number of seconds, or such higher
percentage as the Exchange may announce in advance.\41\ While there can
be multiple CMMs in an options series, there is only one PMM assigned
per options series. With respect to the CMM Trading Rights Fee, the
proposed fees compare favorably with those of other options exchanges.
For example, a market maker on MIAX is assessed a $3,000 one-time fee
and then a tiered monthly fee from $7,000 for up to 10 classes to
$22,000 for over 100 classes.\42\ By comparison, under the proposed fee
structure, a CMM can be granted access on the Exchange for as little as
$950 per month (i.e., a $100 access fee and an $850 trading right), and
could quote in all options classes on the Exchange by paying the access
fee and obtaining nine CMM trading rights for a total of $4,950 per
month. The Exchange notes that its tiered model for CMM trading rights
is consistent with the pricing practices of other exchanges, such as
NYSE Arca, which charges $6,000 per month for the first market maker
trading permit, down to $1,000 per month for the fifth and additional
trading permits, with various tiers in-between. Like other options
exchanges, the Exchange is proposing a tiered pricing model because it
may encourage CMM firms to purchase additional trading rights and quote
more issues because subsequent trading rights are priced lower than the
initial trading right.
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\40\ See GEMX Options 7, Section 6.B.
\41\ See Options 2, Section 5(e)(2).
\42\ See Miami International Securities Exchange, LLC Fee
Schedule at 20 and 21: https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_03012022.pdf.
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The Exchange does not believe that it is unfairly discriminatory to
assess
[[Page 56454]]
different fees for EAMS, PMMs, and CMMs. While PMMs would pay lower
membership fees as compared to CMMs, PMMs have additional obligations
on MRX as compared to CMMs. PMMs are required to open options series in
which they are assigned each day on MRX. Specifically, PMMs must submit
a Valid Width Quote each day to open their assigned options series.\43\
PMMs are integral to providing liquidity during MRX's Opening
Process.\44\ Further, intra-day, PMMs are required to provide two-sided
quotations in 90% of cumulative number of seconds, or such higher
percentage as the Exchange may announce in advance. In contrast, a CMM
is not required to enter quotations in the options classes to which it
is appointed; however, if a CMM initiates quoting in an options class,
the CMM is required to provide two-sided quotations in 60% of the
cumulative number of seconds, or such higher percentage as the Exchange
may announce in advance.\45\ While there can be multiple CMMs in an
options series, there is only one PMM assigned per options series. The
Exchange desires to encourage Members to act as PMMs, which will
benefit the market through, for example, more robust quoting.
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\43\ See Options 3, Section 8(c)(1) and 8(c)(3).
\44\ The Exchange notes that most options markets do not require
their primary or lead market maker to open their assigned options
series.
\45\ See Options 2, Section 5(e)(2).
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Further, with respect to the higher fees for Market Makers
generally, MRX notes that Market Makers: (1) consume the most bandwidth
and resources of the network; (2) transact a majority of the volume on
the Exchange; and (3) require the high touch network support services
provided by the Exchange and its staff. Other non-Market Maker market
participants take up significantly less Exchange resources as discussed
further below. Further, the Exchange notes that Market Makers account
for greater than 99% of message traffic over the network, while other
non-Market Maker market participants account for less than 1% of
message traffic over the network. Most Members do not have a business
need for the high performance network solutions generally required by
Market Makers. The Exchange's high performance network solutions and
supporting infrastructure (including employee support), provides
unparalleled system throughput and the capacity to handle approximately
3 million quote messages per second. On an average day, MRX handles
over 6.10 billion total messages. Of those 6.10 billion daily messages,
Market Makers generate 6.08 billion of those messages, while other non-
Market Maker market participants generate approximately 20 million
messages. Additionally, in order to achieve consistent, premium network
performance, MRX must build out and maintain a network that has the
capacity to handle the message rate requirements beyond those 6.08
billion daily messages. These billions of messages per day consume the
Exchange's resources and significantly contribute to the overall
expense for storage and network transport capabilities. Given this
difference in network utilization rate, the Exchange believes that it
is reasonable, equitable, and not unfairly discriminatory that Market
Makers are assessed different Access Fees as compared to EAMs.
MRX notes that while Market Makers continue to account for a vast
majority of resources placed on MRX and its System (as discussed
herein), Market Makers continue to be valuable market participants on
the exchanges as the options market is a quote driven industry. MRX
recognizes the value that Market Makers bring to the Exchange. For
certain transactions, MRX also assesses a lower fee for Market Makers
compared to other non-Priority Customer market participants to attract
liquidity to the Exchange.\46\ Finally, the Exchange notes that PMMs
are entitled to certain enhanced allocations as a result of providing
liquidity on MRX.\47\ The proposed membership fees are meant to strike
a balance between resources consumed by Market Makers on MRX and
continuing to incentivize Market Makers to access and make a market on
MRX.
---------------------------------------------------------------------------
\46\ See MRX's Pricing Schedule at Options 7.
\47\ See Options 3, Section 10.
---------------------------------------------------------------------------
Additionally, the Exchange believes that the proposed change will
better align MRX's membership fees with rates charged by competing
options exchanges. Further, the Exchange believes that the proposal is
reasonably designed to continue to compete with other options exchanges
by incentivizing market participants to register as Market Makers on
MRX in a manner than enables MRX to improve its overall competitiveness
and strengthen market quality for all market participants.
Similar to recent proposal by BOX Exchange LLC (``BOX''),\48\ the
Exchange notes that there is no regulatory requirement that market
makers connect and access any one options exchange. Moreover, a Market
Maker membership is not a requirement to participate on the Exchange
and participation on an exchange is completely voluntary. BOX noted in
its rule change that it reviewed membership details at three options
exchanges and found that there are 62 market making firms across these
three exchanges.\49\ Further, BOX found that 42 of the 62 market making
firms access only one of the three exchanges.\50\ Additionally, BOX
identified numerous market makers that are members of other options
exchanges, but not BOX.\51\ Not only is there not an actual regulatory
requirement to connect to every options exchange, the Exchange believes
there is also no ``de facto'' or practical requirement as well, as
further evidenced by the market maker membership analysis by BOX of
three options exchanges discussed above. Indeed, Market Makers choose
if and how to access a particular exchange and because it is a choice,
MRX must set reasonable pricing, otherwise prospective market makers
would not connect and existing Market Makers would disconnect from the
Exchange.
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\48\ See Securities and Exchange Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the
Fee Schedule on the BOX Options Market LLC Facility To Adopt
Electronic Market Maker Trading Permit Fees). BOX amended its fees
on January 3, 2022 to adopt an electronic market maker trading
permit fee.
\49\ Id.
\50\ Id.
\51\ Id. For example, BOX identified 47 market makers that are
members of Cboe Exchange Inc. (an exchange that only lists options),
but not the Exchange (which also lists only options).
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As noted above, one firm cancelled nine CMM trading rights as well
as their membership on MRX.\52\ Also, another firm decreased their CMM
trading rights from nine to four CMM trading rights. The Exchange
believes the Commission has a sufficient basis to determine that MRX
was subject to significant competitive forces in setting the terms of
its proposed fees. Moreover, the Commission has found that, if an
exchange meets the burden of demonstrating it was subject to
significant competitive forces in setting its fees, the Commission
``will find that its fee rule is consistent with the Act unless `there
is a substantial countervailing basis to find that the terms' of the
rule violate the Act or the rules thereunder.'' \53\ The Exchange is
not aware of, nor has the Commission articulated, a substantial
countervailing basis for finding the proposal violates the Act or the
rules thereunder.
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\52\ The Exchange notes that this Member was not active on MRX
prior to the cancellation.
\53\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74781 (December 9, 2008) (``2008 ArcaBook
Approval Order'') (approving proposed rule change to establish fees
for a depth-of-book market data product).
---------------------------------------------------------------------------
Membership fees are charged by all options exchanges except MRX. In
2022,
[[Page 56455]]
similar to MRX, MEMX LLC (``MEMX'') commenced assessing a monthly
membership fee.\54\ MEMX reasoned in that rule change that there is
value in becoming a member of the exchange.\55\ MEMX stated that it
believed that its proposed membership fee ``is not unfairly
discriminatory because no broker-dealer is required to become a member
of the Exchange.'' \56\ Moreover, ``neither the trade-through
requirements under Regulation NMS nor broker-dealers' best execution
obligations require a broker-dealer to become a member of every
exchange.'' \57\ In this respect, MEMX is correct; a monthly membership
fee is reasonable, equitably allocated and not unfairly discriminatory.
Market participants may choose to become a member of one or more
options exchanges based on the market participant's business model. A
very small number of market participants choose to become a member of
all sixteen options exchanges. It is not a requirement for market
participants to become members of all options exchanges, in fact,
certain market participants conduct an options business as a member of
only one options market.
---------------------------------------------------------------------------
\54\ See Securities Exchange Act Release No. 93927 (January 7,
2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19). The Monthly
Membership Fee is assessed to each active Member at the close of
business on the first day of each month.
\55\ Id.
\56\ Id.
\57\ Id.
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MRX makes the same arguments herein as were proposed by MEMX in
similarly adopting membership fees. The Exchange notes that MRX's
ability to assess membership fees similar to MEMX and all other options
markets permits it to compete with other options markets on an equal
playing field. MRX is the only options market that does not have
membership fees. Most firms that actively trade on options markets are
not currently Members of MRX. Using options markets that Nasdaq
operates as points of comparison, less than a third of the firms that
are members of at least one of the options markets that Nasdaq operates
are also Members of MRX (approximately 29%). The Exchange notes that no
firm is a Member of MRX only. Few, if any, firms have become Members at
MRX, notwithstanding the fact that MRX membership is currently free,
because MRX currently has less liquidity than other options markets. As
explained above, MRX has the smallest market share of the 16 options
exchanges, representing only approximately 1.8% of the market, and, for
certain market participants, the current levels of liquidity may be
insufficient to justify the costs associated with becoming a Member and
connecting to the Exchange, notwithstanding the fact that membership is
free.
The decision to become a member of an exchange, particularly for
registered market makers, is complex, and not solely based on the non-
transactional costs assessed by an exchange. Becoming a member of an
exchange does not ``lock'' a potential member into a market or diminish
the overall competition for exchange services. The decision to become a
member of an exchange is made at the beginning of the relationship, and
is no less subject to competition than trading fees.
In lieu of becoming a member at each options exchange, a market
participant may join one exchange and elect to have their orders routed
in the event that a better price is available on an away market.
Nothing in the Order Protection Rule requires a firm to become a Member
at MRX.\58\ If MRX is not at the NBBO, MRX will route an order to any
away market that is at the NBBO to prevent a trade-through and also
ensure that the order was executed at a superior price.\59\
---------------------------------------------------------------------------
\58\ See Options Order Protection and Locked/Crossed Market Plan
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
\59\ MRX Members may elect to not route their orders by marking
an order as ``do-not-route.'' In this case, the order would not be
routed. See Options 3, Section 7(m).
---------------------------------------------------------------------------
In lieu of joining an exchange, a third-party may be utilized to
execute an order on an exchange. For example, a third-party broker-
dealer Member of MRX may be utilized by a retail investor to submit
orders into an Exchange. An institutional investor may utilize a
broker-dealer, a service bureau,\60\ or request sponsored access \61\
through a member of an exchange in order to submit a trade directly to
an options exchange.\62\ A market participant may either pay the costs
associated with becoming a member of an exchange or, in the
alternative, a market participant may elect to pay commissions to a
broker-dealer, pay fees to a service bureau to submit trades, or pay a
member to sponsor the market participant in order to submit trades
directly to an exchange. Market participants may elect any of the above
models and weigh the varying costs when determining how to submit
trades to an exchange. Depending on the number of orders to be
submitted, technology, ability to control submission of orders, and
projected revenues, a market participant may determine one model is
more cost efficient as compared to the alternatives.
---------------------------------------------------------------------------
\60\ Service bureaus provide access to market participants to
submit and execute orders on an exchange. On MRX, a Service Bureau
may be a Member. Some MRX Members utilize a Service Bureau for
connectivity and that Service Bureau may not be a Member. Some
market participants utilize a Service Bureau who is a Member to
submit orders. As noted herein only MRX Members may submit orders or
quotes through ports.
\61\ Sponsored Access is an arrangement whereby a member permits
its customers to enter orders into an exchange's system that bypass
the member's trading system and are routed directly to the Exchange,
including routing through a service bureau or other third-party
technology provider.
\62\ This may include utilizing a Floor Broker and submitting
the trade to one of the five options trading floors.
---------------------------------------------------------------------------
After 6 years, MRX proposes to commence assessing membership fees,
just as all other options exchanges.\63\ The introduction of these fees
will not impede a Member's access to MRX, but rather will allow MRX to
continue to compete and grow its marketplace so that it may continue to
offer a robust trading architecture, a quality opening process, an
array of simple and complex order types and auctions, and competitive
transaction pricing. If MRX is incorrect in its assessment of the value
of its services, that assessment will be reflected in MRX's ability to
compete with other options exchanges.
---------------------------------------------------------------------------
\63\ Today, MRX is the only options exchange that does not
assess membership fees.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange believes its proposal remains competitive with other
options markets, and will offer market participants with another choice
of venue to transact options. 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. Because competitors are free to modify their own fees
in response, and because market participants may readily adjust their
order routing practices, the Exchange believes that the degree to which
fee changes in this market may impose any burden on competition is
extremely limited.
The Exchange notes that other options markets have adopted
membership fees. MEMX recently reasoned that it should be permitted to
adopt membership fees because MEMX's proposed membership fees would be
lower than the cost of
[[Page 56456]]
membership on other exchanges, and therefore,
. . . may stimulate intramarket competition by attracting additional
firms to become Members on the Exchange or at least should not deter
interested participants from joining the Exchange. In addition,
membership fees are subject to competition from other exchanges.
Accordingly, if the changes proposed herein are unattractive to
market participants, it is likely the Exchange will see a decline in
membership as a result. The proposed fee change will not impact
intermarket competition because it will apply to all Members
equally. The Exchange operates in a highly competitive market in
which market participants can determine whether or not to join the
Exchange based on the value received compared to the cost of joining
and maintaining membership on the Exchange.'' \64\
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\64\ See Securities Exchange Act Release No. 93927 (January 7,
2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19).
Likewise, MRX's ability to assess membership fees, similar to MEMX
and all other options markets, would permit it to compete with other
options markets on an equal playing field. MRX is the only options
market that does not have membership fees.
The proposed membership fees are identical to membership fees
assessed by GEMX.\65\ The proposed fees are designed to reflect the
benefits of the technical, regulatory, and administrative services
provided to a Member by the Exchange, and the fees remain competitive
with similar fees offered on other options exchanges. The Exchange does
not believe that assessing different fees for EAMs, PMMs, and CMMs,
creates an undue burden on competition.
---------------------------------------------------------------------------
\65\ See GEMX Options 7, Section 6.A. (Access Fees) and Section
6.B. (CMM Trading Rights Fees).
---------------------------------------------------------------------------
With respect to the CMM Trading Rights Fee, the proposed fees
compare favorably with those of other options exchanges.\66\ Like other
options exchanges, the Exchange is proposing a tiered pricing model
because it may encourage CMM firms to purchase additional trading
rights and quote more issues because subsequent trading rights are
priced lower than the initial trading right. The Exchange notes that it
is not proposing trading right fees for PMMs. As compared to CMMs, PMMs
have additional obligations on MRX. PMMs are required to open options
series in which they are assigned each day on MRX. Specifically, PMMs
must submit a Valid Width Quote each day to open their assigned options
series.\67\ PMMs are integral to providing liquidity during MRX's
Opening Process.\68\ Further, intra-day, PMMs are required to provide
two-sided quotations in 90% of cumulative number of seconds, or such
higher percentage as the Exchange may announce in advance. In contrast,
a CMM is not required to enter quotations in the options classes to
which it is appointed; however, if a CMM initiates quoting in an
options class, the CMM is required to provide two-sided quotations in
60% of the cumulative number of seconds, or such higher percentage as
the Exchange may announce in advance.\69\ While there can be multiple
CMMs in an options series, there is only one PMM assigned per options
series. The Exchange desires to encourage Members to act as PMMs, which
will benefit the market through, for example, more robust quoting.
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\66\ See NYSE Arca Fees and Charges, General Options and Trading
Permit (OTP) Fees (comparing CMM Trading Rights Fees to the Arca
Market Maker fees).
\67\ See Options 3, Section 8(c)(1) and 8(c)(3).
\68\ The Exchange notes that most options markets do not require
their primary or lead market maker to open their assigned options
series.
\69\ See Options 2, Section 5(e)(2).
---------------------------------------------------------------------------
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.\70\ 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.
---------------------------------------------------------------------------
\70\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MRX-2022-13 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-2022-13. 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-2022-13 and should be submitted on
or before October 5, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\71\
---------------------------------------------------------------------------
\71\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19815 Filed 9-13-22; 8:45 am]
BILLING CODE 8011-01-P
