Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend MRX's Pricing Schedule at Options 7, Section 6, 56464-56474 [2022-19817]

Download as PDF 56464 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted by November 14, 2022. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: David Bottom, Acting Director/Chief Information Officer, Securities and Exchange Commission, c/o John Pezzullo, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_ Mailbox@sec.gov. Dated: September 8, 2022. J. Matthew DeLesDernier, Deputy Secretary. 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 [FR Doc. 2022–19804 Filed 9–13–22; 8:45 am] 1. Purpose BILLING CODE 8011–01–P MRX proposes to amend its Pricing Schedule at Options 7, Section 6, Ports and Other Services, to assess port 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 established 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 ports, 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 port fees within Options 7, Section 6, Ports and Other Services, are described below. This proposal reflects MRX’s assessment that it has gained sufficient market share to compete effectively against the other 15 options exchanges SECURITIES AND EXCHANGE COMMISSION [Release No. 34–95710; File No. SR–MRX– 2022–12] Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend MRX’s Pricing Schedule at Options 7, Section 6 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change khammond on DSKJM1Z7X2PROD with NOTICES II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The Exchange proposes to amend MRX’s Pricing Schedule at Options 7, Section 6. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/mrx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 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– 2022–06 replaced the port fees set forth in SR– MRX–2022–04. Thereafter, SR–MRX–2022–06 was withdrawn on July 1, 2022 and replaced with SR– MRX–2022–09. The instant filing replaces SR– MRX–2022–09 which was withdrawn on August 25, 2022. 4 See, e.g., Securities Exchange Act Release No 90076 (October 2, 2020), 85 FR 63620 (October 8, 2020) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt the Initial Fee Schedule and Other Fees for MEMX LLC). PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 without waiving fees for ports. These types of fees are assessed by options exchanges that compete with MRX in the sale of exchange services. New exchanges commonly waive connectivity 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 The Exchange proposes to amend fees for the following ports within Options 7, Section 6: (1) FIX,7 (2) SQF; 8 (3) SQF 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 ‘‘Financial Information eXchange’’ or ‘‘FIX’’ is an interface that allows Members and their Sponsored Customers to connect, send, and receive messages related to orders and auction orders to the Exchange. Features include the following: (1) execution messages; (2) order messages; (3) risk protection triggers and cancel notifications; and (4) post trade allocation messages. See Supplementary Material .03(a) to Options 3, Section 7. 8 ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an interface that allows Market Makers to connect, send, and receive messages related to quotes, Immediate-or-Cancel Orders, and auction responses to the Exchange. Features include the following: (1) options symbol directory messages (e.g., underlying and complex instruments); (2) system event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages (e.g., halts and resumes); (4) execution messages; (5) quote messages; (6) Immediate-or-Cancel Order messages; (7) risk protection triggers and purge notifications; (8) opening imbalance messages; (9) auction notifications; and (10) auction responses. The SQF Purge Interface only receives and notifies of purge requests from the Market Maker. Market Makers may only enter interest into SQF in their assigned options series. See Supplementary Material .03(c) to Options 3, Section 7. E:\FR\FM\14SEN1.SGM 14SEN1 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Purge; 9 (4) OTTO; 10 (5) CTI; 11 (6) FIX DROP; 12 and Disaster Recovery Ports.13 Currently, no fees are being assessed for these ports. The Exchange proposes to assess no fee for the first FIX Port obtained by an Electronic Access Member 14 or the first SQF Port obtained by a Market Maker.15 9 SQF Purge is a specific port for the SQF interface that only receives and notifies of purge requests from the Market Maker. Dedicated SQF Purge Ports enable Market Makers to seamlessly manage their ability to remove their quotes in a swift manner. 10 ‘‘Ouch to Trade Options’’ or ‘‘OTTO’’ is an interface that allows Members and their Sponsored Customers to connect, send, and receive messages related to orders, auction orders, and auction responses to the Exchange. Features include the following: (1) options symbol directory messages (e.g., underlying and complex instruments); (2) system event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages (e.g., halts and resumes); (4) execution messages; (5) order messages; (6) risk protection triggers and cancel notifications; (7) auction notifications; (8) auction responses; and (9) post trade allocation messages. See Supplementary Material .03(b) to Options 3, Section 7. 11 Clearing Trade Interface (‘‘CTI’’) is a real-time cleared trade update message that is sent to a Member after an execution has occurred and contains trade details specific to that Member. The information includes, among other things, the following: (i) The Clearing Member Trade Agreement (‘‘CMTA’’) or The Options Clearing Corporation (‘‘OCC’’) number; (ii) badge or mnemonic; (iii) account number; (iv) information which identifies the transaction type (e.g. auction type) for billing purposes; and (v) market participant capacity. See Options 3, Section 23(b)(1). 12 FIX DROP is a real-time order and execution update message that is sent to a Member after an order been received/modified or an execution has occurred and contains trade details specific to that Member. The information includes, among other things, the following: (i) executions; (ii) cancellations; (iii) modifications to an existing order; and (iv) busts or post-trade corrections. See Options 3, Section 23(b)(3). 13 Disaster Recovery ports provide connectivity to the Exchange’s disaster recovery data center, to be utilized in the event the Exchange should failover during a trading day. 14 The first FIX Port would be provided to each Electronic Access Member. 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). Also, the first SQF Port would be provided to each Market Maker. 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). 15 The first SQF Port would be provided to each Market Maker. 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). VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 The Exchange proposes to assess a FIX Port Fee of $650 per port, per month, per account number 16 for each subsequent port beyond the first port. The Exchange proposes to assess an SQF Port Fee of $1,250 per port, per month for each subsequent port beyond the first port.17 The Exchange proposes to assess an SQF Purge Port Fee of $1,250 per port, per month. The Exchange proposes to assess an OTTO Port Fee of $650 per port, per month, per account number. The Exchange proposes to assess a CTI Port Fee and a FIX Drop Port Fee of $650 per port, per month. The Exchange proposes to assess no fee for the first FIX Disaster Recovery Port obtained by an Electronic Access Member 18 or the first SQF Disaster Recovery Port obtained by a Market Maker.19 The Exchange proposes to assess each additional FIX Disaster Recovery Port and each additional SQF Disaster Recovery Port a fee of $50 per port, per month, per account number. Additionally, the Exchange proposes to assess a Disaster Recovery Fee for SQF Purge and OTTO Ports of $50 per port, 16 An ‘‘account number’’ shall mean a number assigned to a Member. Members may have more than one account number. See Options 1, Section 1(a)(1). Account numbers are free on MRX. 17 SQF’s Port Fees are assessed a higher dollar fee as compared to FIX and OTTO ports ($1,250 vs. $650) because the Exchange has to maintain options assignments within SQF and manage quoting traffic. Market Makers may utilize SQF Ports in their assigned options series. Market Maker badges are assigned to specific SQF ports to manage the option series in which a Market Maker may quote. Additionally, because of quoting obligations provided for within Options 2, Section 5, Market Makers are required to provide liquidity in their assigned options series which generates quote traffic. The Exchange notes because of the higher fee, SQF ports are billed per port, per month while FIX and OTTO ports are billed per port, per month, per account number. Members may have more than one account number. 18 The first FIX Port would be provided to each Electronic Access Member. 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). Also, the first SQF Port would be provided to each Market Maker. 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). 19 The first SQF Port would be provided to each Market Maker. 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). PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 56465 per month, per account number. Finally, the Exchange proposes to assess a Disaster Recovery Fee for CTI Ports and FIX DROP Ports of $50 per port, per month. The OTTO Port, CTI Port, FIX Port, FIX Drop Port and all Disaster Recovery Ports 20 are available to all Electronic Access Members, and will be subject to a monthly cap of $7,500. The SQF Port and the SQF Purge Port are available to all Market Makers, and will be subject to a monthly cap of $17,500.21 The Exchange is not amending the TradeInfo MRX Interface 22 or the Nasdaq MRX Depth of Market, Nasdaq MRX Order Feed, Nasdaq MRX Top Quote Feed, Nasdaq MRX Trades Feed, or Nasdaq MRX Spread Feed Ports; all of these aforementioned ports will continue to be assessed no fees. Additionally, as is the case today, the Disaster Recovery Ports for TradeInfo and the Nasdaq MRX Depth of Market, Nasdaq MRX Order Feed, Nasdaq MRX Top Quote Feed, Nasdaq MRX Trades Feed and Nasdaq MRX Spread Feed Ports will not be assessed a fee. Order and Quote Entry Protocols Only one order protocol is required for an MRX Member to submit orders into MRX. The Exchange will provide each Electronic Access Member the first FIX Port at no cost to submit orders into MRX. Only one account number is necessary to transact an options business on MRX and account numbers are available to Members at no cost. Only one quote protocol is required for an MRX Market Maker to submit quotes into MRX. The Exchange will provide each Market Maker the first SQF Port at no cost to submit quotes into MRX. A quoting protocol, such as SQF, is only required to the extent an MRX Member has been appointed as a Market Maker in an options series pursuant to Options 2, Section 1. Only MRX Members may utilize ports on MRX. Any market participant that sends orders to a Member would not need to utilize a port. The Member can send all orders, proprietary and agency, 20 This includes FIX, SQF, SQF Purge, OTTO, CTI and FIX Drop Disaster Recovery Ports. 21 Only Market Makers may quote on MRX. The Exchange is proposing non-substantive technical amendments to add commas within the ‘‘Production’’ column of the proposed rule text to separate terms. 22 TradeInfo is a user interface that permits a Member to: (i) search all orders submitted in a particular security or all orders of a particular type, regardless of their status (open, canceled, executed, etc.); (ii) view orders and executions; and (iii) download orders and executions for recordkeeping purposes. TradeInfo users may also cancel open orders at the order, port or firm mnemonic level through TradeInfo. See Options 3, Section 23(b)(2). E:\FR\FM\14SEN1.SGM 14SEN1 khammond on DSKJM1Z7X2PROD with NOTICES 56466 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices through one port to MRX. Members may elect to obtain multiple account numbers to organize their business, however only one account number and one port for orders and one port for quotes is necessary for a Member to trade on MRX. MRX also offers an OTTO protocol. Unlike FIX, which offers routing capability, OTTO does not permit routing. Depending on a Member’s business model, Members may elect to purchase an OTTO Port in addition to the first FIX Port offered at no cost. Members may prefer one protocol as compared to another protocol, for example, the ability to route may cause a Member to utilize FIX and a Member that desires to execute an order locally may utilize OTTO. Also, the OTTO Port offers lower latency as compared to the FIX Port, which may be attractive to Members depending on their trading behavior. MRX Members utilizing the first FIX Port offered at no cost do not need to purchase an OTTO Port. However, Members may elect to utilize both order entry protocols, depending on how they organize their business. Because the Exchange is providing the first FIX Port at no cost, the use of an OTTO Port is optional. OTTO provides MRX Members with an additional choice as to the type of protocol that they may use to submit orders to the Exchange. Today, Nasdaq Phlx LLC (‘‘Phlx’’) and Nasdaq BX, Inc. (‘‘BX’’) offer only a FIX Port to submit orders on those options markets.23 Further, while only one protocol is necessary to submit orders into MRX, Members may choose to purchase a greater number of order entry ports, depending on that Member’s business model.24 To the extent that Electronic Access Members chose to utilize more than one FIX Port, the Electronic Access Member would be assessed $650 per port, per month, per account number for each subsequent optional port beyond the first port. To the extent that Market Makers chose to utilize more than one SQF Port, the Market Maker would be assessed $1,250 per port, per month for each subsequent optional port beyond the first port. Additionally, to the extent a Member expended more than $7,500 for FIX Ports or more than $17,500 for SQF Ports, the Exchange would not charge an MRX Member for additional 23 See Phlx and BX Options 3, Section 7 for a list of protocols. 24 For example, a Member may desire to utilize multiple FIX or OTTO Ports for accounting purposes, to measure performance, for regulatory reasons or other determinations that are specific to that Member. VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 FIX or SQF Ports, respectively, beyond the cap. Other Protocols The Exchange’s proposal to offer an SQF Purge Port for $1,250 per port, per month is optional. The SQF Purge Port is designed to assist Market Makers in the management of, and risk control over, their quotes. Market Makers may utilize a purge port to reduce uncertainty and to manage risk by purging all quotes in their assigned options series. Of note, Market Makers may only enter interest into SQF in their assigned options series. Additionally, the SQF Purge Port may be utilized by a Market Maker in the event that the Member has a system issue and determines to purge its quotes from the order book. The SQF Purge Port is optional as Market Makers have various ways of purging their quotes from the order book. First of all, a Market Maker may cancel quotes through SQF in their assigned option series.25 Second, a Member may cancel any bids or offers in any series of options by requesting MRX Market Operations staff to effect such cancellation as per the instructions of the Member.26 Third, in the event of a loss of communication with the Exchange, MRX offers the ability to cancel all of a Member’s open quotes via a cancel-on-disconnect control.27 Fourth, MRX offers Market Makers the ability, with respect to quotes, to establish pre-determined levels of risk exposure which would be utilized to automatically remove quotes in all series of an options class.28 Accordingly, the Exchange believes that the SQF Purge Port provides an efficient option to other available services which allow a Market Maker to cancel quotes. CTI Ports and FIX DROP Ports are optional as Members have multiple ways of receiving information concerning open orders and executed transactions. First, FIX and OTTO protocols provide Members with realtime order execution messages similar to the Clearing Trade Interface and FIX DROP. Second, TradeInfo provides Members with the ability to query open orders and order executions real-time, at no cost, similar to the Clearing Trade Interface and FIX DROP. Third, Members receive free daily reports 25 SQF Purge Ports, similar to SQF Ports, allow Market Makers to mass cancel quotes. 26 See Options 3, Section 19, Mass Cancellation of Trading Interest. 27 See MRX Options 3, Section 18, Detection of Loss. This risk protection is free. 28 See MRX Options 3, Section 15(a)(3)(B). Thresholds may be set by Members based on percentage, volume, delta or vega. This risk protection is free. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 listing open orders and trade executions from the Exchange. While not real-time, the Open Orders Report and Trade Detail Report provide Members with information similar to the Clearing Trade Interface and FIX DROP. Disaster Recovery With respect to Disaster Recovery Ports, the Exchange proposes to assess no fee for the first FIX Disaster Recovery Port obtained by an Electronic Access Member or the first SQF Disaster Recovery Port obtained by a Market Maker. The Exchange proposes to assess no fees for these ports to provide Members with continuous access to MRX in the event of a failover at no cost. Electronic Access Members only require one FIX Disaster Recovery Port to submit orders in the event of a failover. Market Makers only require one SQF Disaster Recovery Port to submit quotes in the event of a failover. Electronic Access Members may elect to purchase additional optional FIX Disaster Recovery Ports for $50 per port, per month, per account number. Market Makers may elect to purchase additional optional SQF Disaster Recovery Ports for $50 per port, per month, per account number. The additional FIX and SQF Disaster Recovery Ports are not necessary to connect to the Exchange in the event of a failover because the Exchange has provided Members with a FIX Disaster Recovery Port and an SQF Disaster Recovery Port at no cost. Further, the Exchange’s proposal to offer Disaster Recovery Ports for SQF Purge Ports and OTTO Ports for $50 per port, per month, per account number and Disaster Recovery Ports for CTI Ports and FIX DROP Ports for $50 per port, per month is optional. As noted herein, today, there are other alternatives for these ports. The purchase of an SQF Purge Port, OTTO Port, CTI Port, and FIX DROP Port in production are optional and, therefore, so is the purchase of Disaster Recovery Ports for these ports. The proposed Disaster Recovery Port fees are intended to encourage Members to be efficient when purchasing Disaster Recovery Ports. Similar to all other ports, Disaster Recovery Ports need to be maintained by the Exchange.29 Finally, in the event that an MRX Member elects to subscribe to multiple ports, the Exchange offers a monthly cap beyond which a Member would be 29 The Exchange maintains ports in a number of ways to ensure that ports are properly connected to the Exchange at all times. This includes offering testing, ensuring all ports are up-to-date with the latest code releases, as well as ensuring that all ports meet the Exchange’s information security specifications. E:\FR\FM\14SEN1.SGM 14SEN1 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES assessed no additional port fees in a given month. As noted above, the SQF Port and the SQF Purge Port are subject to a monthly cap of $17,500 and the OTTO Port, CTI Port, FIX Port, FIX Drop Port and all Disaster Recovery Ports are subject to a monthly cap of $7,500. As noted herein, these different protocols are not all necessary to conduct business on MRX; a Member may choose among protocols based on their business workflow. The proposed port fees are similar to fees assessed today by GEMX.30 The Exchange’s proposal to offer the first FIX and SQF Port at no cost as well as the first FIX and SQF Disaster Recovery Ports at no cost would allow MRX Members to submit orders and quotes into MRX at no cost. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,31 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,32 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’. . . .’’ 33 The Commission and the courts have repeatedly expressed their preference 30 See GEMX Options 7, Section 6.C. (Ports and Other Services). 31 See 15 U.S.C. 78f(b). 32 See 15 U.S.C. 78f(b)(4) and (5). 33 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)). VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 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.’’ 34 Congress directed the Commission to ‘‘rely on ‘competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs and the national market system.’ ’’ 35 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.’’ 36 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.’’ 37 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.’’ 38 History of MRX Operations Over the years, MRX has amended its transactional pricing to remain competitive and attract order flow to the Exchange.39 34 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 35 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.’’). 36 See Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74,770 (December 9, 2008) (SR–NYSEArca-2006–21). 37 Id. 38 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. 39 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 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 56467 In June 2019, MRX commenced offering complex orders.40 With the addition of complex order functionality, MRX offered Members certain order types, an opening process, auction 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. 40 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). E:\FR\FM\14SEN1.SGM 14SEN1 56468 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices capabilities and other trading functionality that was nearly identical to functionality available on ISE.41 By way of comparison, ISE assessed fees for ports 42 in 2019 while offering the same suite of functionality as MRX, with a limited exception.43 Ports Are 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. Chart 1: Market Share by Exchange for January 2022 f\llarlr.at Share - Exchange PKIJC. 10.1% AME)i{ MIAX 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 ports. As described in detail below, only one order protocol is required to submit orders to MRX. Quoting protocols are only required to the extent an MRX Member has been appointed as a Market Maker in an options series pursuant to Options 2, Section 1, and only one quoting protocol is necessary to quote on MRX. Members may choose a greater number of order or quote entry ports, beyond the first FIX Port and the first SQF Port which are proposed to be offered at no cost, depending on that Member’s particular business model.44 However, Members do not need more than one order entry port (and account number) and one quote port to submit interest to MRX. The experience of MRX’s affiliates shows that the number of ports that members choose to purchase varies widely. For example, a review of the Phlx exchange in April 2022 shows that, among its member organizations that purchase ports, approximately 26 percent purchased 1 SQF or FIX port, another 26 percent purchased between 2 and 5 ports, 21 percent purchased between 6 and 10 ports, and 28 percent purchased more than 11 ports. This means that any MRX Member may enter all of their interest (orders or quotes) with only one order and one quote port and remain competitive.45 41 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. 42 Since 2019, ISE has assessed the following port fees: a FIX Port Fee of $300 per port, per month, per mnemonic, an SQF Port Fee and SQF Purge Port Fee of $1,100 per port, per month, an OTTO Port Fee of $400 per port, per month, per mnemonic with a monthly cap of $4,000, a CTI Port Fee and FIX DROP Port Fee of $500 per port, per month, per mnemonic. See Securities Exchange Act Release No. 82568 (January 23, 2018), 83 FR 4086 (January 29, 2018) (SR–ISE–2018–07) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Assess Fees for OTTO Port, CTI Port, FIX Port, FIX Drop Port and Disaster Recovery Port Connectivity). Of note, ISE assessed port fees prior to 2019 as well. 43 See note 41, supra. 44 For example, a Member may desire to utilize multiple FIX ports for accounting purposes, to measure performance, for regulatory reasons or other determinations that are specific to that Member. 45 As noted above, one port would be required to submit orders and one port would be required to submit quotes. VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 E:\FR\FM\14SEN1.SGM 14SEN1 EN14SE22.005</GPH> khammond on DSKJM1Z7X2PROD with NOTICES EDGX Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices 56469 By way of comparison, the number of ports that MRX Members purchased in April 2022 also varied widely. Chart 2: Number of SQF and FIX Ports Subscribed to by MRX Members in April 2022 MRX count of SQF and FIX ports per firm ~ April 2022 8 7 6 5 "'§ a: 4 . 0 3 2 1 0 1 2 3 5 4 6 8 10+ # of Ports Chart 2 indicates the number of FIX and SQF Ports, respectively, that MRX Members were subscribed to in April 2022. Chart 2 shows that 1 MRX Member only subscribed to 1 SQF Port and 3 MRX Members subscribed to 1 FIX Port. Further, approximately 23 percent of MRX Members purchased 1 SQF, FIX or OTTO Port,46 another 43 percent purchased between 2 and 5 ports, 13 percent purchased between 6 and 10 ports, and 20 percent purchased more than 11 ports. MRX Members, similar to Phlx member organizations, have the option of reducing their port purchases without purchasing a substitute product. All of these statistics must be viewed in the context of a field with relatively low barriers to entry. MRX, like many new entrants to the field, offered ports for free to establish itself and gain market share. As new entrants enter the field, MRX can also expect competition from these new entrants. Those new entrants, like MRX, are likely to set port, or other fees to zero, increasing marketplace competition. 46 Phlx only offers FIX and SQF ports while MRX offers FIX, OTTO and SQF ports for order and quote entry. VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 The Exchange notes that one MRX Member cancelled 1 SQF Port and 1 OTTO Port to avoid being assessed an SQF Port fee as of May 2, 2022.47 As of July 1, 2022, the Exchange did not assess MRX Members for their first SQF Port. MRX port fees are subject to significant substitution-based competitive forces due to its consistently low percentage of market share, the relatively small number of purchasers for each product, and the purchasers that either cancelled or are reviewing their subscriptions. Implementation of the proposed fees is therefore consistent with the Act. Fees for Ports The proposed port fees described below are in line with 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. As noted above, market participants may choose to become a member of one or more options exchanges based on the market participant’s business model. The Exchange believes that there are many factors that may cause a market 47 MRX originally filed to assess a fee for all FIX Ports. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 participant to decide to become a member of a particular exchange dependent upon their 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.48 Most firms that 48 BOX Exchange LLC (‘‘BOX’’) amended its fees on January 3, 2022 to adopt an electronic market maker trading permit fee. 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). In the BOX–2022–17 rule change, BOX stated that, ‘‘. . . it is not aware of any reason why Market Makers could not simply drop their access to an exchange (or not initially access an exchange) if an exchange were to establish prices for its nontransaction fees that, in the determination of such Market Maker, did not make business or economic sense for such Market Maker to access such exchange. The Exchange again notes that no market makers are required by rule, regulation, or competitive forces to be a Market Maker on the Exchange.’’ Further, in 2022, MEMX LLC (‘‘MEMX’’) established a monthly membership fee. See Securities Exchange Act Release No. 93927 (January 7, 2022), 87 FR 2191 (January 13, 2022) (SR–MEMX–2021–19). The Monthly Membership E:\FR\FM\14SEN1.SGM Continued 14SEN1 EN14SE22.006</GPH> khammond on DSKJM1Z7X2PROD with NOTICES 1111 SQF 1111 FIX 56470 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices actively trade on options markets are not currently Members of MRX and do not purchase port services at MRX. Ports are only available to MRX Members or service bureaus, and only an MRX Member may utilize a port.49 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%). MRX, like other options markets, has a mix of market participants as Members. Chart 3 below displays the percentage of Electronic Access Members, Market Makers and Clearing Firms on MRX.50 Chart 3: Composition ofMRX Membership as of August 2022 MRX member type distribution - August 2022 BILLING CODE 8011–01–C khammond on DSKJM1Z7X2PROD with NOTICES The percentages in Chart 3 represent percentages of the total number of MRX Members. Some Members have dual representations (e.g., a Market Maker and Electronic Access Member) as reflected in Chart 2. The Exchange notes that no firm is a Member of MRX only. Few, if any, firms have purchased port services at MRX, notwithstanding the fact that ports are 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 Fee is assessed to each active Member at the close of business on the first day of each month. MEMX reasoned in MEMX–2022–19 that that there is value in becoming a member of the exchange. 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.’’ Moreover, ‘‘neither the trade-through requirements under Regulation NMS nor brokerdealers’ best execution obligations require a brokerdealer to become a member of every exchange.’’ The Exchange notes that neither BOX–2022–17 or MEMX–2022–19 were suspended. VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 Ill MM 11t MM and EAM III Clearing and EAM ill Clearing 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 or ports. associated with becoming a Member and connecting to the Exchange, notwithstanding the fact that ports are currently 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. As noted herein, specific factors include, but are not limited to: (i) an exchange’s available liquidity in options series; (ii) trading functionality offered on a particular market; (iii) product offerings; (iv) customer service on an exchange; and (v) transactional pricing. Becoming a member of the exchange does not ‘‘lock’’ a potential member into a market or diminish the overall competition for 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.51 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.52 49 Service bureaus may obtain ports on behalf of Members. The Exchange would only assign a badge and/or mnemonic to a Member to be utilized to submit quotes and/or orders to the Exchange. 50 Of note, Nasdaq Execution Services, LLC (‘‘NES’’), a Nasdaq affiliate, is a Member of MRX. NES is a broker-dealer and the Routing Facility of the Exchange. NES routes orders in options listed and open for trading on the System to away markets either directly or through one or more third-party unaffiliated routing broker-dealers pursuant to Exchange Rules on behalf of the Exchange. NES is subject to regulation as a facility of the Exchange, including the requirement to file proposed rule changes under Section 19 of the Securities Exchange Act of 1934, as amended. 51 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. 52 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). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 E:\FR\FM\14SEN1.SGM 14SEN1 EN14SE22.007</GPH> Iii EAM Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES With respect to the submission of orders, Members may also choose not to purchase any port at all from the Exchange, and instead rely on the port of a third party to submit an order.53 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,54 or request sponsored access 55 through a member of an exchange in order to submit a trade directly to an options exchange.56 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. Only if a market participant elects to become a Member of MRX will the market participant need to utilize a port to submit orders and/or quotes into MRX. Once an applicant is approved for membership on MRX and becomes a Member, the Exchange assigns the Member a badge 57 and/or mnemonic 58 to submit quotes and/or orders to the Exchange through the applicable port. 53 Market Makers on MRX are required to obtain one SQF port to submit quotes into MRX. 54 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. 55 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. 56 This may include utilizing a Floor Broker and submitting the trade to one of the five options trading floors. 57 A ‘‘badge’’ shall mean an account number, which may contain letters and/or numbers, assigned to Market Makers. A Market Maker account may be associated with multiple badges. See MRX Options 1, Section 1(a)(5). 58 A ‘‘mnemonic’’ shall mean an acronym comprised of letters and/or numbers assigned to Electronic Access Members. An Electronic Access Member account may be associated with multiple mnemonics. See MRX Options 1, Section 1(a)(23). VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 An MRX Member may have one or more accounts numbers and may assign badges or mnemonics to those account numbers.59 Membership approval grants a Member a right to exercise trading privileges on MRX, which includes the submission of orders and/or quotes into the Exchange through a secure port by utilizing the badge and/or mnemonic assigned to a specific Member by the Exchange. The Exchange utilizes ports as a secure method for Members to submit orders and/or quotes into the Exchange’s match engine and for the Exchange to send messages related to those orders and/or quotes to its Members. MRX is obligated to regulate its Members and secure access to its environment. In order to properly regulate its Members and secure the trading environment, MRX takes measures to ensure access is monitored and maintained with various controls. Ports are a method utilized by the Exchange to grant Members secure access to communicate with the Exchange and exercise trading rights. When a market participant elects to be a Member of MRX, and is approved for membership by MRX, the Member is granted trading rights to enter orders and/or quotes into MRX through secure ports. As noted herein, there is no legal or regulatory requirement that a market participant become a Member of MRX, or, if it is a Member, to purchase port services beyond the one quoting protocol or one order entry protocol necessary to quote or submit orders on MRX. The Exchange proposes to offer the first FIX and SQF Port at no cost in addition to the first FIX Disaster Recovery Port and the first SQF Disaster Recovery Port at no cost.60 As noted above, Members may freely choose to rely on one or many ports, depending on their business model. The Exchange’s proposal to amend port fees is reasonable, equitable and not unfairly discriminatory as MRX is providing MRX Electronic Access Members the first FIX Port to submit orders and MRX Market Makers the first SQF Port to submit quotes to MRX, at no cost, in addition to providing the first FIX Disaster Recovery Port and the first SQF Disaster Recovery Port at no cost; all other ports offered by MRX are optional and not necessary to trade options on the Exchange. 59 The Exchange provides account numbers, badges and mnemonics at no cost. 60 Only Members and service bureaus may request ports on MRX, and only Members may utilize ports on MRX through their assigned badge or mnemonic. See Options 1, Section 1(a)(5) and (23). PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 56471 The proposed fees reflect the ongoing services provided to maintain and support the ports. In order to submit orders into MRX, only one order protocol is required, and MRX is providing Electronic Access Members the first FIX Port at no cost. Quoting protocols are only required to the extent an MRX Member has been appointed as a Market Maker in an options series pursuant to Options 2, Section 1. Similarly, only one quoting protocol is necessary to quote on MRX and MRX is providing Market Makers the first SQF Port at no cost. As noted above, only Members may utilize ports. A Member can send all orders, proprietary and agency, through one port to MRX and all quotes through one port. Therefore, for the foregoing reasons, it is reasonable to assess no fee for the first FIX Port obtained by an Electronic Access Member or the first SQF Port obtained by a Market Maker. Further it is equitable and not unfairly discriminatory to assess no fee for the first FIX Port to Electronic Access Members as all Electronic Access Members would be entitled to the first FIX Port at no cost. Also, it is equitable and not unfairly discriminatory to assess no fee for the first SQF Port to Market Makers as all Market Makers would be entitled to the first SQF Port at no cost. With this proposal, MRX Members may organize their business in such a way as to submit orders and/or quotes continuously to MRX at no cost. The Exchange’s proposal to assess Members $650 per port, per month, per account number for FIX Ports beyond the first port and $1,250 per port, per month for SQF Ports beyond the first port is reasonable because these ports are optional and Members only require one FIX Port to submit orders to MRX and one SQF Port to submit quotes to MRX. Members electing to subscribe to more than one FIX or SQF Port are choosing the additional ports to accommodate their business model. Additionally, to the extent a Member expended more than $7,500 for FIX Ports or more than $17,500 for SQF Ports, the Exchange would not charge an MRX Member for additional FIX or SQF Ports beyond the cap. The fees for the proposed additional FIX and SQF Ports are equitable and not unfairly discriminatory because any Member may elect to subscribe to additional ports. Electronic Access Members would be subject to the same fees for FIX Ports and Market Makers would be subject to the same fees for SQF Ports. Unlike other market participants, Market Makers are required to provide continuous two-sided quotes on a daily E:\FR\FM\14SEN1.SGM 14SEN1 khammond on DSKJM1Z7X2PROD with NOTICES 56472 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices basis,61 and are subject to various obligations associated with providing liquidity.62 Also, as noted herein, account numbers are available on MRX at no cost. The Exchange’s proposal to assess $650 per port, per month, per account number for an OTTO Port is reasonable because OTTO is optional. The Exchange is offering the first FIX Port at no cost to submit orders to MRX. In addition to the FIX Port, all Members may elect to purchase OTTO to submit orders to MRX. Unlike FIX, which offers routing capability, OTTO does not permit routing. Depending on a Member’s business model, Members may elect to purchase an OTTO Port in addition to the FIX Port, which is being provided at no cost. Members may prefer one protocol as compared to another protocol. For example, the ability to route may cause a Member to utilize FIX and a Member that desires to execute an order locally may utilize OTTO. Also, the OTTO Port offers lower latency as compared to the FIX Port, which may be attractive to Members depending on their trading behavior. MRX Members utilizing the FIX Port, which is offered at no cost, do not need to utilize OTTO. Members may elect to utilize both order entry protocols, depending on how they organize their business. OTTO provides MRX Members with an additional choice as to the type of protocol that they may use to submit orders to the Exchange. Today, Phlx and BX offer only a FIX Port to submit orders on those options markets.63 The proposed OTTO fee is equitable and not unfairly discriminatory because any Member may elect to purchase an optional OTTO Port and would be subject to the same fee. The Exchange’s proposal to offer an SQF Purge Port for $1,250 per port, per month is reasonable because this port is optional. The SQF Purge Port is designed to assist Market Makers in the management of, and risk control over, their quotes. Market Makers may utilize a purge port to reduce uncertainty and to manage risk by purging all quotes in their assigned options series. Of note, Market Makers may only enter interest into SQF in their assigned options series. Additionally, the SQF Purge Port may be utilized by a Market Maker in the event that the Member has a system issue and determines to purge from the order book. The SQF Purge Port is optional as Market Makers have various 61 See MRX Options 2, Section 5. MRX Options 2, Section 4. 63 See Phlx and BX Options 3, Section 7 for a list of protocols. 62 See VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 ways of purging their quotes from the order book. First of all, a Market Maker may cancel quotes through SQF in their assigned options series in the same manner as they may cancel quotes with an SQF Purge Port.64 Second, a Member may cancel any bids or offers in any series of options by requesting MRX Market Operations staff to effect such cancellation as per the instructions of the Member.65 Third, in the event of a loss of communication with the Exchange, MRX offers the ability to cancel all of a Member’s open quotes via a cancel-on-disconnect control.66 Fourth, MRX offers Market Makers the ability, with respect to simple orders, to establish pre-determined levels of risk exposure which would be utilized to automatically remove quotes in all series of an options class.67 Accordingly, the Exchange believes that the SQF Purge Port provides an efficient alternative to other available services which allow a Market Maker to cancel quotes. The proposed SQF Purge Port is equitable and not unfairly discriminatory because any Member may elect to purchase an optional SQF Purge Port and would be subject to the same fee. The Exchange’s proposal to assess $650 per port, per month for CTI Ports and FIX DROP Ports is reasonable because these ports are optional because Members have various ways of receiving information concerning open orders and executed transactions. First, FIX and OTTO provide Members with real-time order executions similar to the Clearing Trade Interface and FIX DROP. Second, TradeInfo provides Members with the ability to query open orders and order executions real-time, at no cost, similar to the Clearing Trade Interface and FIX DROP. Third, Members receive free daily reports listing open orders and trade executions from the Exchange. While not real-time, the Open Orders Report and Trade Detail Report provide Members with information similar to the Clearing Trade Interface and FIX DROP. The proposed CTI and FIX DROP Ports are equitable and not unfairly discriminatory because any Member may elect to purchase an optional CTI Port or FIX DROP Port and would be subject to the same fee. 64 SQF Purge Ports, similar to SQF Ports, allow Market Makers to mass cancel quotes. 65 See Options 3, Section 19, Mass Cancellation of Trading Interest. 66 See MRX Options 3, Section 18, Detection of Loss. This risk protection is free. 67 See MRX Options 3, Section 15(a)(3)(B). Thresholds may be set by Members based on percentage, volume, delta or vega. This risk protection is free. PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 The Exchange’s proposal to assess no fee for the first FIX Disaster Recovery Port or the first SQF Disaster Recovery Port is reasonable because it will provide Members with continuous access to MRX in the event of a failover, at no cost. Further it is equitable and not unfairly discriminatory to assess no fee for the first FIX Disaster Recovery Port to Electronic Access Members as all Electronic Access Members would be entitled to the first FIX Disaster Recovery Port at no cost. Also, it is equitable and not unfairly discriminatory to assess no fee for the first SQF Disaster Recovery Port to Market Makers as all Market Makers would be entitled to the first SQF Disaster Recovery Port at no cost. The Exchange’s proposal to assess Members $50 per port, per month, per account number for optional FIX Disaster Recovery Ports beyond the first port offered at no cost and $50 per port, per month, per account number for optional SQF Disaster Recovery Ports beyond the first port offered at no cost is reasonable because these ports are optional and Members only require one FIX Disaster Recovery Port to submit orders to MRX in the event of a failover and one SQF Disaster Recovery Port to submit quotes to MRX in the event of a failover. Additionally, to the extent a Member expended more than $7,500 for Disaster Recovery Ports, the Exchange would not charge an MRX Member for additional Disaster Recovery Ports beyond the cap. The fees for the proposed additional FIX and SQF Disaster Recovery Ports are equitable and not unfairly discriminatory because any Member may elect additional ports and would be subject to the same fees. The Exchange’s proposal to offer Disaster Recovery Ports for SQF Purge Ports, and OTTO Ports at $50 per port, per month, per account number and CTI Ports, and FIX DROP Ports for $50 per port, per month is reasonable because these ports are optional. As noted herein, there are other alternatives for all of these ports today, the purchase of an SQF Purge Port, OTTO Port, CTI Port, and FIX DROP Port in production is optional and, therefore, so is the purchase of Disaster Recovery Ports for these ports. The proposed Disaster Recovery Port fees are intended to encourage Members to be efficient when purchasing Disaster Recovery Ports. The proposed Disaster Recovery Ports are equitable and not unfairly discriminatory because any Member may elect to purchase an optional Disaster Recovery Port and would be subject to the same fee, depending on the port. E:\FR\FM\14SEN1.SGM 14SEN1 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices 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 to offer the first FIX and SQF Ports for free, as well as the first Disaster Recovery version of these ports, positions MRX as a competitive market among other options exchanges, all of which assess fees for the first order and/or quote protocols. MRX’s offering would permit Electronic Access Members and Market Makers the ability to submit orders and quote to MRX at no cost. The remainder of the port offerings are optional. The Exchange believes that the optional port offerings permit MRX to remain competitive with other options markets in its offerings. 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. By way of example, today, with the exception of Precise, ISE has identical functionality to MRX. Market participants may elect to become members of ISE instead of MRX if those market participants believe that the order flow on ISE provides more value than the order flow on MRX. ISE has more market share (6.2%) as compared to MRX (1.8%). A market participant may evaluate the fees assessed by ISE, its market share, and proprietary products, among other things, and determine to become a member of ISE instead of MRX if it determines the proposed fees to be unreasonable. The proposed port fees are similar to port fees assessed by GEMX 69 for similar connectivity. As a consequence, competition will not be burdened by the proposed fees. Only one order protocol is required to submit orders to MRX, and the Exchange proposes to offer the first FIX Port and the first FIX Disaster Recovery Port to Electronic Access Members at no cost. This would provide Members with the ability to continuously submit orders to MRX, even in the event of a failover. Likewise, only one quoting protocol is required to submit quotes to MRX, and the Exchange proposes to offer the first SQF Port and the first SQF Disaster Recovery Port to Market Makers at no cost. This would provide Market Makers with the ability to continuously submit quotes to MRX, even in the event of a failover. Only one account number is necessary per Member and account numbers are free. As noted above, the remainder of the proposed port fees are for optional ports (additional FIX and SQF Ports, additional FIX and SQF Disaster Recovery Ports, SQF Purge Port, OTTO Port, CTI Port, FIX DROP Port and Disaster Recovery Ports for SQF Purge Ports, OTTO Ports, CTI Ports, and FIX DROP Ports). These different protocols are not all necessary to conduct business on MRX. Members choose among the protocols based on their business workflow. The proposed fees 68 See GEMX Options 7, Section 6.C. (Ports and Other Services). 69 See GEMX Options 7, Section 6.C. (Ports and Other Services). khammond on DSKJM1Z7X2PROD with NOTICES Finally, in the event that an MRX Member elects to subscribe to multiple ports, the Exchange offers a monthly cap beyond which a Member would be assessed no additional fees for month. As noted above, the SQF Port and the SQF Purge Port are subject to a monthly cap of $17,500 and the OTTO Port, CTI Port, FIX Port, FIX Drop Port and all Disaster Recovery Ports are subject to a monthly cap of $7,500. These caps are reasonable because they allow Members to limit their fees beyond a certain level if they elect to purchase multiple ports in a given month. The caps are also equitable and not unfairly discriminatory because any Member will be subject to the cap, provided they exceeded the appropriate dollar amount in a given month. The proposed port fees are similar to the fees assessed by GEMX.68 After 6 years, MRX proposes to commence assessing port fees, just as all other options exchanges while offerings its Members the ability to submit orders and quotes to the Exchange at no cost. 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. VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 56473 do not impose an undue burden on competition because the Exchange would uniformly assess the port fees to all Members and would uniformly apply monthly caps. Market participants may also connect to third parties instead of directly to the Exchange. With respect to the higher fees assessed for SQF Ports and SQF Purge Ports, the Exchange notes that only Market Makers may utilize these ports. Market Makers are required to provide continuous two-sided quotes on a daily basis,70 and are subject to various obligations associated with providing liquidity.71 As a result of these quoting obligations, the SQF Port and SQF Purge Port are designed to handle higher throughput to permit Market Makers to bundle orders to meet their obligations. The technology to permit Market Makers to submit a greater number of quotes, in addition to the various risk protections 72 afforded to these market participants when quoting, accounts for the higher SQF Port and SQF Purge Port fees. Greater liquidity benefits all market participants by providing more trading opportunities and attracting greater participation by Market Makers. Also, an increase in the activity of Market Makers in turn facilitates tighter spreads. 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.73 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 See MRX Options 2, Section 5. MRX Options 2, Section 4. 72 See MRX Options 3, Section 15(a)(3). Market Makers are offered risk protections to permit them to manage their risk more effectively. 73 15 U.S.C. 78s(b)(3)(A)(ii). 71 See E:\FR\FM\14SEN1.SGM 14SEN1 56474 Federal Register / Vol. 87, No. 177 / Wednesday, September 14, 2022 / Notices IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: [FR Doc. 2022–19817 Filed 9–13–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– MRX–2022–12 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. khammond on DSKJM1Z7X2PROD with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.74 J. Matthew DeLesDernier, Deputy Secretary. All submissions should refer to File Number SR–MRX–2022–12. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of 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– 2022–12 and should be submitted on or before October 5, 2022. [Investment Company Act Release No. 34699; File No. 812–15368] Ares Capital Corporation, et al. September 8, 2022. Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’). ACTION: Notice. AGENCY: Notice of application for an order (‘‘Order’’) under sections 17(d) and 57(i) of the Investment Company Act of 1940 (the ‘‘Act’’) and rule 17d–1 under the Act to permit certain joint transactions otherwise prohibited by sections 17(d) and 57(a)(4) of the Act and rule 17d–1 under the Act. Summary of Application: Applicants request an order to amend a previous order granted by the Commission that permits certain business development companies (‘‘BDCs’’) and closed-end management investment companies to co-invest in portfolio companies with each other and with certain affiliated investment entities. Applicants: ACE III Master Fund, L.P., ACIP Investment Management LLC, ACIP Parallel Fund A, L.P., ACIP Apex Co-Investment, L.P., ACOF Investment Management LLC, ACOF IV ATD CoInvest, L.P., ACOF Operating Manager II, L.P., ACOF Operating Manager III, LLC, ACOF Operating Manager IV, LLC, ACOF Operating Manager, L.P., ADREX Advisor LLC, AEIF Kleen Investor, LLC, AEIF Linden Blocker II LLC, AEPEP II N Strategic Investments, L.P., AEPEP III N Strategic Co-Invest, L.P., AF Energy Feeder, L.P., AF V APR Co-Invest, L.P., AIREX Advisor LLC, Ambition Holdings, L.P., American Capital Equity I, LLC, American Capital Equity II, LP, Apollo Poland Real Estate CoInvestment, L.P., Apollo Real Estate Investment Fund V, L.P., Apollo Real Estate Management V L.P., Apollo Real Estate Parallel Fund V–A, L.P., Apollo Real Estate Parallel Fund V–B, L.P., Apollo Real Estate Parallel Fund V–C, L.P., APSecurities Manager LP, AREA EAGLE Co-Invest Management LLC, AREA EAGLE Co-Invest Partnership, L.P., AREA European Property Enhancement Management, LLC, AREA 74 17 VerDate Sep<11>2014 18:31 Sep 13, 2022 Jkt 256001 PO 00000 CFR 200.30–3(a)(12). Frm 00079 Fmt 4703 Sfmt 4703 European Property Enhancement Program, L.P., AREA UK Co-Invest Real Estate Management L.P., AREA–C, L.P., AREA–CAELUS Co-Invest Management, L.P., AREA–CAELUS Co-Invest, L.P., AREG AC Makena Holdings LLC, AREG CC II Manager L.P., AREG CIP 601 W. 29 AIV LP, AREG CIP 601 W. 29 CoInvest Member LLC, AREG CIP DAQ AIV LP, AREG CIP IE Portfolio AIV LP, AREG CIP Needham AIV LP, AREG CIP One South Halsted AIV LP, AREG CIP Portland Industrial AIV LP, AREG CIP RW50 AIV LP, AREG CIP Wellington Bay AIV LP, AREG CV Boston Hotel CoInvestor LLC, AREG ELI Co-Invest Vehicle, L.P., AREG Iberian Residential Co-Invest Vehicle SCSp, AREG Kennedy Co-Invest S.C.A., AREG Klondike Manager, L.P., AREG LPKC Partners, L.P., AREG Makena Management L.P., AREG Star and Garter Co-Invest Partnership, L.P., AREG–T European Portfolio, L.P., AREG–T Manager III, L.P., AREG-Talisman Fred Supp Partners, L.P., Ares Alternative Credit Management LLC, Ares Apex Pooling, LLC, Ares Asia Management Ltd, Ares ASIP VII Management, L.P., Ares AssetBacked Loan Fund LP, Ares Cactus Operating Manager, L.P., Ares Capital Corporation, Ares Capital Europe IV (E) Levered, Ares Capital Europe IV (E) Unlevered, Ares Capital Europe IV (G) Levered, Ares Capital Europe IV (G) Unlevered, Ares Capital Europe V (E) Levered, Ares Capital Europe V (E) Unlevered, Ares Capital Europe V (G) Levered, Ares Capital Europe V (G) Unlevered, Ares Capital Europe, L.P., Ares Capital Management LLC, Ares Capital Management II LLC, Ares Capital Management III LLC, Ares Centre Street Management, L.P., Ares Centre Street Partnership, L.P., Ares CIP (V) Management LLC, ARES CIP US Real Estate Opportunity Partners A, L.P., ARES CIP US Real Estate Opportunity Partners B, L.P, Ares Climate Infrastructure Partners, L.P., Ares CLO Funding I, L.P., Ares CLO Funding III LP, Ares CLO Management LLC, Ares CLO Management XXVII, L.P., Ares CLO Management II, LLC, Ares CLO Management IIIR/IVR, L.P., Ares CLO Management VIR, L.P., Ares CLO Management VR, L.P., Ares CLO Management X, L.P., Ares CLO Management XI, L.P., Ares CLO Management XX, L.P., Ares CLO Management XXI, L.P., Ares CLO Management XXIX, L.P., Ares CLO Warehouse 2021–6 Ltd., Ares CLO Warehouse 2021–8 Ltd., Ares Commercial Finance LP, Ares Commercial Finance Management, LP, Ares Commercial Real Estate Corporation, Ares Commercial Real E:\FR\FM\14SEN1.SGM 14SEN1

Agencies

[Federal Register Volume 87, Number 177 (Wednesday, September 14, 2022)]
[Notices]
[Pages 56464-56474]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95710; File No. SR-MRX-2022-12]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend MRX's 
Pricing Schedule at Options 7, Section 6

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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 6.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/mrx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    MRX proposes to amend its Pricing Schedule at Options 7, Section 6, 
Ports and Other Services, to assess port 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 established 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 ports, 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 port fees within Options 7, Section 
6, Ports and Other Services, are described below.
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    \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-2022-06 replaced the port fees set forth in SR-
MRX-2022-04. Thereafter, SR-MRX-2022-06 was withdrawn on July 1, 
2022 and replaced with SR-MRX-2022-09. The instant filing replaces 
SR-MRX-2022-09 which was withdrawn on August 25, 2022.
    \4\ See, e.g., Securities Exchange Act Release No 90076 (October 
2, 2020), 85 FR 63620 (October 8, 2020) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Adopt the 
Initial Fee Schedule and Other Fees for MEMX LLC).
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    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 ports. These types of fees 
are assessed by options exchanges that compete with MRX in the sale of 
exchange services. New exchanges commonly waive connectivity 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\
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    \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.
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    The Exchange proposes to amend fees for the following ports within 
Options 7, Section 6: (1) FIX,\7\ (2) SQF; \8\ (3) SQF

[[Page 56465]]

Purge; \9\ (4) OTTO; \10\ (5) CTI; \11\ (6) FIX DROP; \12\ and Disaster 
Recovery Ports.\13\ Currently, no fees are being assessed for these 
ports.
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    \7\ ``Financial Information eXchange'' or ``FIX'' is an 
interface that allows Members and their Sponsored Customers to 
connect, send, and receive messages related to orders and auction 
orders to the Exchange. Features include the following: (1) 
execution messages; (2) order messages; (3) risk protection triggers 
and cancel notifications; and (4) post trade allocation messages. 
See Supplementary Material .03(a) to Options 3, Section 7.
    \8\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Market Makers to connect, send, and receive messages related 
to quotes, Immediate-or-Cancel Orders, and auction responses to the 
Exchange. Features include the following: (1) options symbol 
directory messages (e.g., underlying and complex instruments); (2) 
system event messages (e.g., start of trading hours messages and 
start of opening); (3) trading action messages (e.g., halts and 
resumes); (4) execution messages; (5) quote messages; (6) Immediate-
or-Cancel Order messages; (7) risk protection triggers and purge 
notifications; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. The SQF Purge Interface 
only receives and notifies of purge requests from the Market Maker. 
Market Makers may only enter interest into SQF in their assigned 
options series. See Supplementary Material .03(c) to Options 3, 
Section 7.
    \9\ SQF Purge is a specific port for the SQF interface that only 
receives and notifies of purge requests from the Market Maker. 
Dedicated SQF Purge Ports enable Market Makers to seamlessly manage 
their ability to remove their quotes in a swift manner.
    \10\ ``Ouch to Trade Options'' or ``OTTO'' is an interface that 
allows Members and their Sponsored Customers to connect, send, and 
receive messages related to orders, auction orders, and auction 
responses to the Exchange. Features include the following: (1) 
options symbol directory messages (e.g., underlying and complex 
instruments); (2) system event messages (e.g., start of trading 
hours messages and start of opening); (3) trading action messages 
(e.g., halts and resumes); (4) execution messages; (5) order 
messages; (6) risk protection triggers and cancel notifications; (7) 
auction notifications; (8) auction responses; and (9) post trade 
allocation messages. See Supplementary Material .03(b) to Options 3, 
Section 7.
    \11\ Clearing Trade Interface (``CTI'') is a real-time cleared 
trade update message that is sent to a Member after an execution has 
occurred and contains trade details specific to that Member. The 
information includes, among other things, the following: (i) The 
Clearing Member Trade Agreement (``CMTA'') or The Options Clearing 
Corporation (``OCC'') number; (ii) badge or mnemonic; (iii) account 
number; (iv) information which identifies the transaction type (e.g. 
auction type) for billing purposes; and (v) market participant 
capacity. See Options 3, Section 23(b)(1).
    \12\ FIX DROP is a real-time order and execution update message 
that is sent to a Member after an order been received/modified or an 
execution has occurred and contains trade details specific to that 
Member. The information includes, among other things, the following: 
(i) executions; (ii) cancellations; (iii) modifications to an 
existing order; and (iv) busts or post-trade corrections. See 
Options 3, Section 23(b)(3).
    \13\ Disaster Recovery ports provide connectivity to the 
Exchange's disaster recovery data center, to be utilized in the 
event the Exchange should failover during a trading day.
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    The Exchange proposes to assess no fee for the first FIX Port 
obtained by an Electronic Access Member \14\ or the first SQF Port 
obtained by a Market Maker.\15\ The Exchange proposes to assess a FIX 
Port Fee of $650 per port, per month, per account number \16\ for each 
subsequent port beyond the first port. The Exchange proposes to assess 
an SQF Port Fee of $1,250 per port, per month for each subsequent port 
beyond the first port.\17\ The Exchange proposes to assess an SQF Purge 
Port Fee of $1,250 per port, per month. The Exchange proposes to assess 
an OTTO Port Fee of $650 per port, per month, per account number. The 
Exchange proposes to assess a CTI Port Fee and a FIX Drop Port Fee of 
$650 per port, per month.
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    \14\ The first FIX Port would be provided to each Electronic 
Access Member. 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). Also, 
the first SQF Port would be provided to each Market Maker. 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).
    \15\ The first SQF Port would be provided to each Market Maker. 
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).
    \16\ An ``account number'' shall mean a number assigned to a 
Member. Members may have more than one account number. See Options 
1, Section 1(a)(1). Account numbers are free on MRX.
    \17\ SQF's Port Fees are assessed a higher dollar fee as 
compared to FIX and OTTO ports ($1,250 vs. $650) because the 
Exchange has to maintain options assignments within SQF and manage 
quoting traffic. Market Makers may utilize SQF Ports in their 
assigned options series. Market Maker badges are assigned to 
specific SQF ports to manage the option series in which a Market 
Maker may quote. Additionally, because of quoting obligations 
provided for within Options 2, Section 5, Market Makers are required 
to provide liquidity in their assigned options series which 
generates quote traffic. The Exchange notes because of the higher 
fee, SQF ports are billed per port, per month while FIX and OTTO 
ports are billed per port, per month, per account number. Members 
may have more than one account number.
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    The Exchange proposes to assess no fee for the first FIX Disaster 
Recovery Port obtained by an Electronic Access Member \18\ or the first 
SQF Disaster Recovery Port obtained by a Market Maker.\19\ The Exchange 
proposes to assess each additional FIX Disaster Recovery Port and each 
additional SQF Disaster Recovery Port a fee of $50 per port, per month, 
per account number. Additionally, the Exchange proposes to assess a 
Disaster Recovery Fee for SQF Purge and OTTO Ports of $50 per port, per 
month, per account number. Finally, the Exchange proposes to assess a 
Disaster Recovery Fee for CTI Ports and FIX DROP Ports of $50 per port, 
per month.
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    \18\ The first FIX Port would be provided to each Electronic 
Access Member. 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). Also, 
the first SQF Port would be provided to each Market Maker. 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).
    \19\ The first SQF Port would be provided to each Market Maker. 
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).
---------------------------------------------------------------------------

    The OTTO Port, CTI Port, FIX Port, FIX Drop Port and all Disaster 
Recovery Ports \20\ are available to all Electronic Access Members, and 
will be subject to a monthly cap of $7,500.
---------------------------------------------------------------------------

    \20\ This includes FIX, SQF, SQF Purge, OTTO, CTI and FIX Drop 
Disaster Recovery Ports.
---------------------------------------------------------------------------

    The SQF Port and the SQF Purge Port are available to all Market 
Makers, and will be subject to a monthly cap of $17,500.\21\
---------------------------------------------------------------------------

    \21\ Only Market Makers may quote on MRX. The Exchange is 
proposing non-substantive technical amendments to add commas within 
the ``Production'' column of the proposed rule text to separate 
terms.
---------------------------------------------------------------------------

    The Exchange is not amending the TradeInfo MRX Interface \22\ or 
the Nasdaq MRX Depth of Market, Nasdaq MRX Order Feed, Nasdaq MRX Top 
Quote Feed, Nasdaq MRX Trades Feed, or Nasdaq MRX Spread Feed Ports; 
all of these aforementioned ports will continue to be assessed no fees. 
Additionally, as is the case today, the Disaster Recovery Ports for 
TradeInfo and the Nasdaq MRX Depth of Market, Nasdaq MRX Order Feed, 
Nasdaq MRX Top Quote Feed, Nasdaq MRX Trades Feed and Nasdaq MRX Spread 
Feed Ports will not be assessed a fee.
---------------------------------------------------------------------------

    \22\ TradeInfo is a user interface that permits a Member to: (i) 
search all orders submitted in a particular security or all orders 
of a particular type, regardless of their status (open, canceled, 
executed, etc.); (ii) view orders and executions; and (iii) download 
orders and executions for recordkeeping purposes. TradeInfo users 
may also cancel open orders at the order, port or firm mnemonic 
level through TradeInfo. See Options 3, Section 23(b)(2).
---------------------------------------------------------------------------

Order and Quote Entry Protocols
    Only one order protocol is required for an MRX Member to submit 
orders into MRX. The Exchange will provide each Electronic Access 
Member the first FIX Port at no cost to submit orders into MRX. Only 
one account number is necessary to transact an options business on MRX 
and account numbers are available to Members at no cost. Only one quote 
protocol is required for an MRX Market Maker to submit quotes into MRX. 
The Exchange will provide each Market Maker the first SQF Port at no 
cost to submit quotes into MRX. A quoting protocol, such as SQF, is 
only required to the extent an MRX Member has been appointed as a 
Market Maker in an options series pursuant to Options 2, Section 1.
    Only MRX Members may utilize ports on MRX. Any market participant 
that sends orders to a Member would not need to utilize a port. The 
Member can send all orders, proprietary and agency,

[[Page 56466]]

through one port to MRX. Members may elect to obtain multiple account 
numbers to organize their business, however only one account number and 
one port for orders and one port for quotes is necessary for a Member 
to trade on MRX.
    MRX also offers an OTTO protocol. Unlike FIX, which offers routing 
capability, OTTO does not permit routing. Depending on a Member's 
business model, Members may elect to purchase an OTTO Port in addition 
to the first FIX Port offered at no cost. Members may prefer one 
protocol as compared to another protocol, for example, the ability to 
route may cause a Member to utilize FIX and a Member that desires to 
execute an order locally may utilize OTTO. Also, the OTTO Port offers 
lower latency as compared to the FIX Port, which may be attractive to 
Members depending on their trading behavior. MRX Members utilizing the 
first FIX Port offered at no cost do not need to purchase an OTTO Port. 
However, Members may elect to utilize both order entry protocols, 
depending on how they organize their business. Because the Exchange is 
providing the first FIX Port at no cost, the use of an OTTO Port is 
optional. OTTO provides MRX Members with an additional choice as to the 
type of protocol that they may use to submit orders to the Exchange. 
Today, Nasdaq Phlx LLC (``Phlx'') and Nasdaq BX, Inc. (``BX'') offer 
only a FIX Port to submit orders on those options markets.\23\
---------------------------------------------------------------------------

    \23\ See Phlx and BX Options 3, Section 7 for a list of 
protocols.
---------------------------------------------------------------------------

    Further, while only one protocol is necessary to submit orders into 
MRX, Members may choose to purchase a greater number of order entry 
ports, depending on that Member's business model.\24\ To the extent 
that Electronic Access Members chose to utilize more than one FIX Port, 
the Electronic Access Member would be assessed $650 per port, per 
month, per account number for each subsequent optional port beyond the 
first port. To the extent that Market Makers chose to utilize more than 
one SQF Port, the Market Maker would be assessed $1,250 per port, per 
month for each subsequent optional port beyond the first port. 
Additionally, to the extent a Member expended more than $7,500 for FIX 
Ports or more than $17,500 for SQF Ports, the Exchange would not charge 
an MRX Member for additional FIX or SQF Ports, respectively, beyond the 
cap.
---------------------------------------------------------------------------

    \24\ For example, a Member may desire to utilize multiple FIX or 
OTTO Ports for accounting purposes, to measure performance, for 
regulatory reasons or other determinations that are specific to that 
Member.
---------------------------------------------------------------------------

Other Protocols
    The Exchange's proposal to offer an SQF Purge Port for $1,250 per 
port, per month is optional. The SQF Purge Port is designed to assist 
Market Makers in the management of, and risk control over, their 
quotes. Market Makers may utilize a purge port to reduce uncertainty 
and to manage risk by purging all quotes in their assigned options 
series. Of note, Market Makers may only enter interest into SQF in 
their assigned options series. Additionally, the SQF Purge Port may be 
utilized by a Market Maker in the event that the Member has a system 
issue and determines to purge its quotes from the order book. The SQF 
Purge Port is optional as Market Makers have various ways of purging 
their quotes from the order book. First of all, a Market Maker may 
cancel quotes through SQF in their assigned option series.\25\ Second, 
a Member may cancel any bids or offers in any series of options by 
requesting MRX Market Operations staff to effect such cancellation as 
per the instructions of the Member.\26\ Third, in the event of a loss 
of communication with the Exchange, MRX offers the ability to cancel 
all of a Member's open quotes via a cancel-on-disconnect control.\27\ 
Fourth, MRX offers Market Makers the ability, with respect to quotes, 
to establish pre-determined levels of risk exposure which would be 
utilized to automatically remove quotes in all series of an options 
class.\28\ Accordingly, the Exchange believes that the SQF Purge Port 
provides an efficient option to other available services which allow a 
Market Maker to cancel quotes.
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    \25\ SQF Purge Ports, similar to SQF Ports, allow Market Makers 
to mass cancel quotes.
    \26\ See Options 3, Section 19, Mass Cancellation of Trading 
Interest.
    \27\ See MRX Options 3, Section 18, Detection of Loss. This risk 
protection is free.
    \28\ See MRX Options 3, Section 15(a)(3)(B). Thresholds may be 
set by Members based on percentage, volume, delta or vega. This risk 
protection is free.
---------------------------------------------------------------------------

    CTI Ports and FIX DROP Ports are optional as Members have multiple 
ways of receiving information concerning open orders and executed 
transactions. First, FIX and OTTO protocols provide Members with real-
time order execution messages similar to the Clearing Trade Interface 
and FIX DROP. Second, TradeInfo provides Members with the ability to 
query open orders and order executions real-time, at no cost, similar 
to the Clearing Trade Interface and FIX DROP. Third, Members receive 
free daily reports listing open orders and trade executions from the 
Exchange. While not real-time, the Open Orders Report and Trade Detail 
Report provide Members with information similar to the Clearing Trade 
Interface and FIX DROP.
Disaster Recovery
    With respect to Disaster Recovery Ports, the Exchange proposes to 
assess no fee for the first FIX Disaster Recovery Port obtained by an 
Electronic Access Member or the first SQF Disaster Recovery Port 
obtained by a Market Maker. The Exchange proposes to assess no fees for 
these ports to provide Members with continuous access to MRX in the 
event of a failover at no cost. Electronic Access Members only require 
one FIX Disaster Recovery Port to submit orders in the event of a 
failover. Market Makers only require one SQF Disaster Recovery Port to 
submit quotes in the event of a failover. Electronic Access Members may 
elect to purchase additional optional FIX Disaster Recovery Ports for 
$50 per port, per month, per account number. Market Makers may elect to 
purchase additional optional SQF Disaster Recovery Ports for $50 per 
port, per month, per account number. The additional FIX and SQF 
Disaster Recovery Ports are not necessary to connect to the Exchange in 
the event of a failover because the Exchange has provided Members with 
a FIX Disaster Recovery Port and an SQF Disaster Recovery Port at no 
cost.
    Further, the Exchange's proposal to offer Disaster Recovery Ports 
for SQF Purge Ports and OTTO Ports for $50 per port, per month, per 
account number and Disaster Recovery Ports for CTI Ports and FIX DROP 
Ports for $50 per port, per month is optional. As noted herein, today, 
there are other alternatives for these ports. The purchase of an SQF 
Purge Port, OTTO Port, CTI Port, and FIX DROP Port in production are 
optional and, therefore, so is the purchase of Disaster Recovery Ports 
for these ports. The proposed Disaster Recovery Port fees are intended 
to encourage Members to be efficient when purchasing Disaster Recovery 
Ports. Similar to all other ports, Disaster Recovery Ports need to be 
maintained by the Exchange.\29\
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    \29\ The Exchange maintains ports in a number of ways to ensure 
that ports are properly connected to the Exchange at all times. This 
includes offering testing, ensuring all ports are up-to-date with 
the latest code releases, as well as ensuring that all ports meet 
the Exchange's information security specifications.
---------------------------------------------------------------------------

    Finally, in the event that an MRX Member elects to subscribe to 
multiple ports, the Exchange offers a monthly cap beyond which a Member 
would be

[[Page 56467]]

assessed no additional port fees in a given month. As noted above, the 
SQF Port and the SQF Purge Port are subject to a monthly cap of $17,500 
and the OTTO Port, CTI Port, FIX Port, FIX Drop Port and all Disaster 
Recovery Ports are subject to a monthly cap of $7,500.
    As noted herein, these different protocols are not all necessary to 
conduct business on MRX; a Member may choose among protocols based on 
their business workflow. The proposed port fees are similar to fees 
assessed today by GEMX.\30\ The Exchange's proposal to offer the first 
FIX and SQF Port at no cost as well as the first FIX and SQF Disaster 
Recovery Ports at no cost would allow MRX Members to submit orders and 
quotes into MRX at no cost.
---------------------------------------------------------------------------

    \30\ See GEMX Options 7, Section 6.C. (Ports and Other 
Services).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\31\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\32\ 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.
---------------------------------------------------------------------------

    \31\ See 15 U.S.C. 78f(b).
    \32\ 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'. . . .'' \33\
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    \33\ 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.'' \34\
---------------------------------------------------------------------------

    \34\ 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.' '' \35\ 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.'' \36\ 
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.'' \37\ 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.'' \38\
---------------------------------------------------------------------------

    \35\ 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.'').
    \36\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \37\ Id.
    \38\ 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.\39\
---------------------------------------------------------------------------

    \39\ 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.
---------------------------------------------------------------------------

    In June 2019, MRX commenced offering complex orders.\40\ With the 
addition of complex order functionality, MRX offered Members certain 
order types, an opening process, auction

[[Page 56468]]

capabilities and other trading functionality that was nearly identical 
to functionality available on ISE.\41\ By way of comparison, ISE 
assessed fees for ports \42\ in 2019 while offering the same suite of 
functionality as MRX, with a limited exception.\43\
---------------------------------------------------------------------------

    \40\ 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).
    \41\ 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.
    \42\ Since 2019, ISE has assessed the following port fees: a FIX 
Port Fee of $300 per port, per month, per mnemonic, an SQF Port Fee 
and SQF Purge Port Fee of $1,100 per port, per month, an OTTO Port 
Fee of $400 per port, per month, per mnemonic with a monthly cap of 
$4,000, a CTI Port Fee and FIX DROP Port Fee of $500 per port, per 
month, per mnemonic. See Securities Exchange Act Release No. 82568 
(January 23, 2018), 83 FR 4086 (January 29, 2018) (SR-ISE-2018-07) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Assess Fees for OTTO Port, CTI Port, FIX Port, FIX Drop 
Port and Disaster Recovery Port Connectivity). Of note, ISE assessed 
port fees prior to 2019 as well.
    \43\ See note 41, supra.
---------------------------------------------------------------------------

Ports Are 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.
[GRAPHIC] [TIFF OMITTED] TN14SE22.005

    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 ports.
    As described in detail below, only one order protocol is required 
to submit orders to MRX. Quoting protocols are only required to the 
extent an MRX Member has been appointed as a Market Maker in an options 
series pursuant to Options 2, Section 1, and only one quoting protocol 
is necessary to quote on MRX. Members may choose a greater number of 
order or quote entry ports, beyond the first FIX Port and the first SQF 
Port which are proposed to be offered at no cost, depending on that 
Member's particular business model.\44\ However, Members do not need 
more than one order entry port (and account number) and one quote port 
to submit interest to MRX.
---------------------------------------------------------------------------

    \44\ For example, a Member may desire to utilize multiple FIX 
ports for accounting purposes, to measure performance, for 
regulatory reasons or other determinations that are specific to that 
Member.
---------------------------------------------------------------------------

    The experience of MRX's affiliates shows that the number of ports 
that members choose to purchase varies widely. For example, a review of 
the Phlx exchange in April 2022 shows that, among its member 
organizations that purchase ports, approximately 26 percent purchased 1 
SQF or FIX port, another 26 percent purchased between 2 and 5 ports, 21 
percent purchased between 6 and 10 ports, and 28 percent purchased more 
than 11 ports. This means that any MRX Member may enter all of their 
interest (orders or quotes) with only one order and one quote port and 
remain competitive.\45\
---------------------------------------------------------------------------

    \45\ As noted above, one port would be required to submit orders 
and one port would be required to submit quotes.

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[[Page 56469]]

    By way of comparison, the number of ports that MRX Members 
purchased in April 2022 also varied widely.
[GRAPHIC] [TIFF OMITTED] TN14SE22.006

    Chart 2 indicates the number of FIX and SQF Ports, respectively, 
that MRX Members were subscribed to in April 2022. Chart 2 shows that 1 
MRX Member only subscribed to 1 SQF Port and 3 MRX Members subscribed 
to 1 FIX Port.
    Further, approximately 23 percent of MRX Members purchased 1 SQF, 
FIX or OTTO Port,\46\ another 43 percent purchased between 2 and 5 
ports, 13 percent purchased between 6 and 10 ports, and 20 percent 
purchased more than 11 ports. MRX Members, similar to Phlx member 
organizations, have the option of reducing their port purchases without 
purchasing a substitute product.
---------------------------------------------------------------------------

    \46\ Phlx only offers FIX and SQF ports while MRX offers FIX, 
OTTO and SQF ports for order and quote entry.
---------------------------------------------------------------------------

    All of these statistics must be viewed in the context of a field 
with relatively low barriers to entry. MRX, like many new entrants to 
the field, offered ports for free to establish itself and gain market 
share. As new entrants enter the field, MRX can also expect competition 
from these new entrants. Those new entrants, like MRX, are likely to 
set port, or other fees to zero, increasing marketplace competition.
    The Exchange notes that one MRX Member cancelled 1 SQF Port and 1 
OTTO Port to avoid being assessed an SQF Port fee as of May 2, 
2022.\47\ As of July 1, 2022, the Exchange did not assess MRX Members 
for their first SQF Port. MRX port fees are subject to significant 
substitution-based competitive forces due to its consistently low 
percentage of market share, the relatively small number of purchasers 
for each product, and the purchasers that either cancelled or are 
reviewing their subscriptions. Implementation of the proposed fees is 
therefore consistent with the Act.
---------------------------------------------------------------------------

    \47\ MRX originally filed to assess a fee for all FIX Ports.
---------------------------------------------------------------------------

Fees for Ports
    The proposed port fees described below are in line with 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.
    As noted above, market participants may choose to become a member 
of one or more options exchanges based on the market participant's 
business model. The Exchange believes that there are many factors that 
may cause a market participant to decide to become a member of a 
particular exchange dependent upon their 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.\48\ Most firms that

[[Page 56470]]

actively trade on options markets are not currently Members of MRX and 
do not purchase port services at MRX. Ports are only available to MRX 
Members or service bureaus, and only an MRX Member may utilize a 
port.\49\
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    \48\ BOX Exchange LLC (``BOX'') amended its fees on January 3, 
2022 to adopt an electronic market maker trading permit fee. 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). In the BOX-2022-17 rule change, 
BOX stated that, ``. . . it is not aware of any reason why Market 
Makers could not simply drop their access to an exchange (or not 
initially access an exchange) if an exchange were to establish 
prices for its non-transaction fees that, in the determination of 
such Market Maker, did not make business or economic sense for such 
Market Maker to access such exchange. The Exchange again notes that 
no market makers are required by rule, regulation, or competitive 
forces to be a Market Maker on the Exchange.'' Further, in 2022, 
MEMX LLC (``MEMX'') established a monthly membership fee. 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. MEMX reasoned in MEMX-2022-19 that that 
there is value in becoming a member of the exchange. 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.'' 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.'' The Exchange notes that neither BOX-2022-17 or MEMX-
2022-19 were suspended.
    \49\ Service bureaus may obtain ports on behalf of Members. The 
Exchange would only assign a badge and/or mnemonic to a Member to be 
utilized to submit quotes and/or orders to the Exchange.
---------------------------------------------------------------------------

    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%). MRX, like other options markets, has a mix of 
market participants as Members. Chart 3 below displays the percentage 
of Electronic Access Members, Market Makers and Clearing Firms on 
MRX.\50\
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    \50\ Of note, Nasdaq Execution Services, LLC (``NES''), a Nasdaq 
affiliate, is a Member of MRX. NES is a broker-dealer and the 
Routing Facility of the Exchange. NES routes orders in options 
listed and open for trading on the System to away markets either 
directly or through one or more third-party unaffiliated routing 
broker-dealers pursuant to Exchange Rules on behalf of the Exchange. 
NES is subject to regulation as a facility of the Exchange, 
including the requirement to file proposed rule changes under 
Section 19 of the Securities Exchange Act of 1934, as amended.
[GRAPHIC] [TIFF OMITTED] TN14SE22.007

BILLING CODE 8011-01-C
    The percentages in Chart 3 represent percentages of the total 
number of MRX Members. Some Members have dual representations (e.g., a 
Market Maker and Electronic Access Member) as reflected in Chart 2.
    The Exchange notes that no firm is a Member of MRX only. Few, if 
any, firms have purchased port services at MRX, notwithstanding the 
fact that ports are 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 ports are currently 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. As noted herein, specific 
factors include, but are not limited to: (i) an exchange's available 
liquidity in options series; (ii) trading functionality offered on a 
particular market; (iii) product offerings; (iv) customer service on an 
exchange; and (v) transactional pricing. Becoming a member of the 
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 or ports.
    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.\51\ 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.\52\
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    \51\ 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.
    \52\ 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).

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[[Page 56471]]

    With respect to the submission of orders, Members may also choose 
not to purchase any port at all from the Exchange, and instead rely on 
the port of a third party to submit an order.\53\ 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,\54\ or request sponsored 
access \55\ through a member of an exchange in order to submit a trade 
directly to an options exchange.\56\ 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.
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    \53\ Market Makers on MRX are required to obtain one SQF port to 
submit quotes into MRX.
    \54\ 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.
    \55\ 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.
    \56\ This may include utilizing a Floor Broker and submitting 
the trade to one of the five options trading floors.
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    Only if a market participant elects to become a Member of MRX will 
the market participant need to utilize a port to submit orders and/or 
quotes into MRX. Once an applicant is approved for membership on MRX 
and becomes a Member, the Exchange assigns the Member a badge \57\ and/
or mnemonic \58\ to submit quotes and/or orders to the Exchange through 
the applicable port. An MRX Member may have one or more accounts 
numbers and may assign badges or mnemonics to those account 
numbers.\59\ Membership approval grants a Member a right to exercise 
trading privileges on MRX, which includes the submission of orders and/
or quotes into the Exchange through a secure port by utilizing the 
badge and/or mnemonic assigned to a specific Member by the Exchange. 
The Exchange utilizes ports as a secure method for Members to submit 
orders and/or quotes into the Exchange's match engine and for the 
Exchange to send messages related to those orders and/or quotes to its 
Members.
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    \57\ A ``badge'' shall mean an account number, which may contain 
letters and/or numbers, assigned to Market Makers. A Market Maker 
account may be associated with multiple badges. See MRX Options 1, 
Section 1(a)(5).
    \58\ A ``mnemonic'' shall mean an acronym comprised of letters 
and/or numbers assigned to Electronic Access Members. An Electronic 
Access Member account may be associated with multiple mnemonics. See 
MRX Options 1, Section 1(a)(23).
    \59\ The Exchange provides account numbers, badges and mnemonics 
at no cost.
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    MRX is obligated to regulate its Members and secure access to its 
environment. In order to properly regulate its Members and secure the 
trading environment, MRX takes measures to ensure access is monitored 
and maintained with various controls. Ports are a method utilized by 
the Exchange to grant Members secure access to communicate with the 
Exchange and exercise trading rights. When a market participant elects 
to be a Member of MRX, and is approved for membership by MRX, the 
Member is granted trading rights to enter orders and/or quotes into MRX 
through secure ports.
    As noted herein, there is no legal or regulatory requirement that a 
market participant become a Member of MRX, or, if it is a Member, to 
purchase port services beyond the one quoting protocol or one order 
entry protocol necessary to quote or submit orders on MRX. The Exchange 
proposes to offer the first FIX and SQF Port at no cost in addition to 
the first FIX Disaster Recovery Port and the first SQF Disaster 
Recovery Port at no cost.\60\ As noted above, Members may freely choose 
to rely on one or many ports, depending on their business model.
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    \60\ Only Members and service bureaus may request ports on MRX, 
and only Members may utilize ports on MRX through their assigned 
badge or mnemonic. See Options 1, Section 1(a)(5) and (23).
---------------------------------------------------------------------------

    The Exchange's proposal to amend port fees is reasonable, equitable 
and not unfairly discriminatory as MRX is providing MRX Electronic 
Access Members the first FIX Port to submit orders and MRX Market 
Makers the first SQF Port to submit quotes to MRX, at no cost, in 
addition to providing the first FIX Disaster Recovery Port and the 
first SQF Disaster Recovery Port at no cost; all other ports offered by 
MRX are optional and not necessary to trade options on the Exchange.
    The proposed fees reflect the ongoing services provided to maintain 
and support the ports. In order to submit orders into MRX, only one 
order protocol is required, and MRX is providing Electronic Access 
Members the first FIX Port at no cost. Quoting protocols are only 
required to the extent an MRX Member has been appointed as a Market 
Maker in an options series pursuant to Options 2, Section 1. Similarly, 
only one quoting protocol is necessary to quote on MRX and MRX is 
providing Market Makers the first SQF Port at no cost. As noted above, 
only Members may utilize ports. A Member can send all orders, 
proprietary and agency, through one port to MRX and all quotes through 
one port. Therefore, for the foregoing reasons, it is reasonable to 
assess no fee for the first FIX Port obtained by an Electronic Access 
Member or the first SQF Port obtained by a Market Maker. Further it is 
equitable and not unfairly discriminatory to assess no fee for the 
first FIX Port to Electronic Access Members as all Electronic Access 
Members would be entitled to the first FIX Port at no cost. Also, it is 
equitable and not unfairly discriminatory to assess no fee for the 
first SQF Port to Market Makers as all Market Makers would be entitled 
to the first SQF Port at no cost. With this proposal, MRX Members may 
organize their business in such a way as to submit orders and/or quotes 
continuously to MRX at no cost.
    The Exchange's proposal to assess Members $650 per port, per month, 
per account number for FIX Ports beyond the first port and $1,250 per 
port, per month for SQF Ports beyond the first port is reasonable 
because these ports are optional and Members only require one FIX Port 
to submit orders to MRX and one SQF Port to submit quotes to MRX. 
Members electing to subscribe to more than one FIX or SQF Port are 
choosing the additional ports to accommodate their business model. 
Additionally, to the extent a Member expended more than $7,500 for FIX 
Ports or more than $17,500 for SQF Ports, the Exchange would not charge 
an MRX Member for additional FIX or SQF Ports beyond the cap. The fees 
for the proposed additional FIX and SQF Ports are equitable and not 
unfairly discriminatory because any Member may elect to subscribe to 
additional ports. Electronic Access Members would be subject to the 
same fees for FIX Ports and Market Makers would be subject to the same 
fees for SQF Ports. Unlike other market participants, Market Makers are 
required to provide continuous two-sided quotes on a daily

[[Page 56472]]

basis,\61\ and are subject to various obligations associated with 
providing liquidity.\62\ Also, as noted herein, account numbers are 
available on MRX at no cost.
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    \61\ See MRX Options 2, Section 5.
    \62\ See MRX Options 2, Section 4.
---------------------------------------------------------------------------

    The Exchange's proposal to assess $650 per port, per month, per 
account number for an OTTO Port is reasonable because OTTO is optional. 
The Exchange is offering the first FIX Port at no cost to submit orders 
to MRX. In addition to the FIX Port, all Members may elect to purchase 
OTTO to submit orders to MRX. Unlike FIX, which offers routing 
capability, OTTO does not permit routing. Depending on a Member's 
business model, Members may elect to purchase an OTTO Port in addition 
to the FIX Port, which is being provided at no cost. Members may prefer 
one protocol as compared to another protocol. For example, the ability 
to route may cause a Member to utilize FIX and a Member that desires to 
execute an order locally may utilize OTTO. Also, the OTTO Port offers 
lower latency as compared to the FIX Port, which may be attractive to 
Members depending on their trading behavior. MRX Members utilizing the 
FIX Port, which is offered at no cost, do not need to utilize OTTO. 
Members may elect to utilize both order entry protocols, depending on 
how they organize their business. OTTO provides MRX Members with an 
additional choice as to the type of protocol that they may use to 
submit orders to the Exchange. Today, Phlx and BX offer only a FIX Port 
to submit orders on those options markets.\63\ The proposed OTTO fee is 
equitable and not unfairly discriminatory because any Member may elect 
to purchase an optional OTTO Port and would be subject to the same fee.
---------------------------------------------------------------------------

    \63\ See Phlx and BX Options 3, Section 7 for a list of 
protocols.
---------------------------------------------------------------------------

    The Exchange's proposal to offer an SQF Purge Port for $1,250 per 
port, per month is reasonable because this port is optional. The SQF 
Purge Port is designed to assist Market Makers in the management of, 
and risk control over, their quotes. Market Makers may utilize a purge 
port to reduce uncertainty and to manage risk by purging all quotes in 
their assigned options series. Of note, Market Makers may only enter 
interest into SQF in their assigned options series. Additionally, the 
SQF Purge Port may be utilized by a Market Maker in the event that the 
Member has a system issue and determines to purge from the order book. 
The SQF Purge Port is optional as Market Makers have various ways of 
purging their quotes from the order book. First of all, a Market Maker 
may cancel quotes through SQF in their assigned options series in the 
same manner as they may cancel quotes with an SQF Purge Port.\64\ 
Second, a Member may cancel any bids or offers in any series of options 
by requesting MRX Market Operations staff to effect such cancellation 
as per the instructions of the Member.\65\ Third, in the event of a 
loss of communication with the Exchange, MRX offers the ability to 
cancel all of a Member's open quotes via a cancel-on-disconnect 
control.\66\ Fourth, MRX offers Market Makers the ability, with respect 
to simple orders, to establish pre-determined levels of risk exposure 
which would be utilized to automatically remove quotes in all series of 
an options class.\67\ Accordingly, the Exchange believes that the SQF 
Purge Port provides an efficient alternative to other available 
services which allow a Market Maker to cancel quotes. The proposed SQF 
Purge Port is equitable and not unfairly discriminatory because any 
Member may elect to purchase an optional SQF Purge Port and would be 
subject to the same fee.
---------------------------------------------------------------------------

    \64\ SQF Purge Ports, similar to SQF Ports, allow Market Makers 
to mass cancel quotes.
    \65\ See Options 3, Section 19, Mass Cancellation of Trading 
Interest.
    \66\ See MRX Options 3, Section 18, Detection of Loss. This risk 
protection is free.
    \67\ See MRX Options 3, Section 15(a)(3)(B). Thresholds may be 
set by Members based on percentage, volume, delta or vega. This risk 
protection is free.
---------------------------------------------------------------------------

    The Exchange's proposal to assess $650 per port, per month for CTI 
Ports and FIX DROP Ports is reasonable because these ports are optional 
because Members have various ways of receiving information concerning 
open orders and executed transactions. First, FIX and OTTO provide 
Members with real-time order executions similar to the Clearing Trade 
Interface and FIX DROP. Second, TradeInfo provides Members with the 
ability to query open orders and order executions real-time, at no 
cost, similar to the Clearing Trade Interface and FIX DROP. Third, 
Members receive free daily reports listing open orders and trade 
executions from the Exchange. While not real-time, the Open Orders 
Report and Trade Detail Report provide Members with information similar 
to the Clearing Trade Interface and FIX DROP. The proposed CTI and FIX 
DROP Ports are equitable and not unfairly discriminatory because any 
Member may elect to purchase an optional CTI Port or FIX DROP Port and 
would be subject to the same fee.
    The Exchange's proposal to assess no fee for the first FIX Disaster 
Recovery Port or the first SQF Disaster Recovery Port is reasonable 
because it will provide Members with continuous access to MRX in the 
event of a failover, at no cost. Further it is equitable and not 
unfairly discriminatory to assess no fee for the first FIX Disaster 
Recovery Port to Electronic Access Members as all Electronic Access 
Members would be entitled to the first FIX Disaster Recovery Port at no 
cost. Also, it is equitable and not unfairly discriminatory to assess 
no fee for the first SQF Disaster Recovery Port to Market Makers as all 
Market Makers would be entitled to the first SQF Disaster Recovery Port 
at no cost.
    The Exchange's proposal to assess Members $50 per port, per month, 
per account number for optional FIX Disaster Recovery Ports beyond the 
first port offered at no cost and $50 per port, per month, per account 
number for optional SQF Disaster Recovery Ports beyond the first port 
offered at no cost is reasonable because these ports are optional and 
Members only require one FIX Disaster Recovery Port to submit orders to 
MRX in the event of a failover and one SQF Disaster Recovery Port to 
submit quotes to MRX in the event of a failover. Additionally, to the 
extent a Member expended more than $7,500 for Disaster Recovery Ports, 
the Exchange would not charge an MRX Member for additional Disaster 
Recovery Ports beyond the cap. The fees for the proposed additional FIX 
and SQF Disaster Recovery Ports are equitable and not unfairly 
discriminatory because any Member may elect additional ports and would 
be subject to the same fees.
    The Exchange's proposal to offer Disaster Recovery Ports for SQF 
Purge Ports, and OTTO Ports at $50 per port, per month, per account 
number and CTI Ports, and FIX DROP Ports for $50 per port, per month is 
reasonable because these ports are optional. As noted herein, there are 
other alternatives for all of these ports today, the purchase of an SQF 
Purge Port, OTTO Port, CTI Port, and FIX DROP Port in production is 
optional and, therefore, so is the purchase of Disaster Recovery Ports 
for these ports. The proposed Disaster Recovery Port fees are intended 
to encourage Members to be efficient when purchasing Disaster Recovery 
Ports. The proposed Disaster Recovery Ports are equitable and not 
unfairly discriminatory because any Member may elect to purchase an 
optional Disaster Recovery Port and would be subject to the same fee, 
depending on the port.

[[Page 56473]]

    Finally, in the event that an MRX Member elects to subscribe to 
multiple ports, the Exchange offers a monthly cap beyond which a Member 
would be assessed no additional fees for month. As noted above, the SQF 
Port and the SQF Purge Port are subject to a monthly cap of $17,500 and 
the OTTO Port, CTI Port, FIX Port, FIX Drop Port and all Disaster 
Recovery Ports are subject to a monthly cap of $7,500. These caps are 
reasonable because they allow Members to limit their fees beyond a 
certain level if they elect to purchase multiple ports in a given 
month. The caps are also equitable and not unfairly discriminatory 
because any Member will be subject to the cap, provided they exceeded 
the appropriate dollar amount in a given month.
    The proposed port fees are similar to the fees assessed by 
GEMX.\68\
---------------------------------------------------------------------------

    \68\ See GEMX Options 7, Section 6.C. (Ports and Other 
Services).
---------------------------------------------------------------------------

    After 6 years, MRX proposes to commence assessing port fees, just 
as all other options exchanges while offerings its Members the ability 
to submit orders and quotes to the Exchange at no cost. 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 to offer the first FIX and SQF 
Ports for free, as well as the first Disaster Recovery version of these 
ports, positions MRX as a competitive market among other options 
exchanges, all of which assess fees for the first order and/or quote 
protocols. MRX's offering would permit Electronic Access Members and 
Market Makers the ability to submit orders and quote to MRX at no cost. 
The remainder of the port offerings are optional. The Exchange believes 
that the optional port offerings permit MRX to remain competitive with 
other options markets in its offerings.
    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.
    By way of example, today, with the exception of Precise, ISE has 
identical functionality to MRX. Market participants may elect to become 
members of ISE instead of MRX if those market participants believe that 
the order flow on ISE provides more value than the order flow on MRX. 
ISE has more market share (6.2%) as compared to MRX (1.8%). A market 
participant may evaluate the fees assessed by ISE, its market share, 
and proprietary products, among other things, and determine to become a 
member of ISE instead of MRX if it determines the proposed fees to be 
unreasonable.
    The proposed port fees are similar to port fees assessed by GEMX 
\69\ for similar connectivity. As a consequence, competition will not 
be burdened by the proposed fees. Only one order protocol is required 
to submit orders to MRX, and the Exchange proposes to offer the first 
FIX Port and the first FIX Disaster Recovery Port to Electronic Access 
Members at no cost. This would provide Members with the ability to 
continuously submit orders to MRX, even in the event of a failover. 
Likewise, only one quoting protocol is required to submit quotes to 
MRX, and the Exchange proposes to offer the first SQF Port and the 
first SQF Disaster Recovery Port to Market Makers at no cost. This 
would provide Market Makers with the ability to continuously submit 
quotes to MRX, even in the event of a failover.
---------------------------------------------------------------------------

    \69\ See GEMX Options 7, Section 6.C. (Ports and Other 
Services).
---------------------------------------------------------------------------

    Only one account number is necessary per Member and account numbers 
are free.
    As noted above, the remainder of the proposed port fees are for 
optional ports (additional FIX and SQF Ports, additional FIX and SQF 
Disaster Recovery Ports, SQF Purge Port, OTTO Port, CTI Port, FIX DROP 
Port and Disaster Recovery Ports for SQF Purge Ports, OTTO Ports, CTI 
Ports, and FIX DROP Ports). These different protocols are not all 
necessary to conduct business on MRX. Members choose among the 
protocols based on their business workflow. The proposed fees do not 
impose an undue burden on competition because the Exchange would 
uniformly assess the port fees to all Members and would uniformly apply 
monthly caps. Market participants may also connect to third parties 
instead of directly to the Exchange.
    With respect to the higher fees assessed for SQF Ports and SQF 
Purge Ports, the Exchange notes that only Market Makers may utilize 
these ports. Market Makers are required to provide continuous two-sided 
quotes on a daily basis,\70\ and are subject to various obligations 
associated with providing liquidity.\71\ As a result of these quoting 
obligations, the SQF Port and SQF Purge Port are designed to handle 
higher throughput to permit Market Makers to bundle orders to meet 
their obligations. The technology to permit Market Makers to submit a 
greater number of quotes, in addition to the various risk protections 
\72\ afforded to these market participants when quoting, accounts for 
the higher SQF Port and SQF Purge Port fees. Greater liquidity benefits 
all market participants by providing more trading opportunities and 
attracting greater participation by Market Makers. Also, an increase in 
the activity of Market Makers in turn facilitates tighter spreads.
---------------------------------------------------------------------------

    \70\ See MRX Options 2, Section 5.
    \71\ See MRX Options 2, Section 4.
    \72\ See MRX Options 3, Section 15(a)(3). Market Makers are 
offered risk protections to permit them to manage their risk more 
effectively.
---------------------------------------------------------------------------

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.\73\ 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.
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78s(b)(3)(A)(ii).

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[[Page 56474]]

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-2022-12 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-2022-12. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of 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-2022-12 and should be submitted on 
or before October 5, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\74\
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    \74\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19817 Filed 9-13-22; 8:45 am]
BILLING CODE 8011-01-P
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