84 FR 33300 - Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Complex Order Pricing

[Federal Register Volume 84, Number 134 (Friday, July 12, 2019)]
[Notices]
[Pages 33300-33306]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2019-14812]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86326; File No. SR-MRX-2019-14]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Adopt Complex 
Order Pricing

July 8, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 24, 2019, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III, below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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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 adopt Complex Order pricing. Specifically, 
MRX proposes to amend MRX's Pricing Schedule at Options 7, Section 1, 
titled ``General Provisions,'' and adopt a new Section 4, titled 
``Complex Order Fees.'' The Exchange proposes to renumber current 
Section 4, titled ``Other Options Fees and Rebates'' as well as amend 
that section and relocate Section 5, titled ``Legal and Regulatory''.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqmrx.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed

[[Page 33301]]

any comments it received on the proposed rule change. The text of these 
statements may be examined at the places specified in Item IV below. 
The Exchange has prepared summaries, set forth in sections A, B, and C 
below, of the most significant aspects of such statements.

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

1. Purpose
    MRX recently received approval to adopt rules to provide for the 
trading of Complex Orders.\3\ MRX proposes to adopt Complex Order 
pricing. Specifically, the Exchange proposes to: (1) Amend MRX's 
Pricing Schedule at Options 7, Section 1, ``General Provisions'' to 
define a Complex Order; and (2) adopt Complex Order pricing within new 
Section 4, titled ``Complex Order Fees''. The Exchange proposes to 
amend current Options 7, Section 4, B, ``Marketing Fee'' to waive this 
fee for Complex Orders. In addition, the Exchange proposes other 
technical amendments to renumber current Section 4, ``Other Options 
Fees and Rebates'' and combine that rule with Section 5, ``Legal and 
Regulatory''. Each amendment is described below.
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    \3\ Securities Exchange Act Release No. 85935 (May 24, 2019), 84 
FR 16907 (April 17, 2019) (SR-MRX-2019-08) (Order Approving a 
Proposed Rule Change To Adopt Complex Order Functionality).
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Description of Proposed Complex Order Pricing
    The purpose of the proposed rule change is to adopt Complex Order 
Pricing. The Exchange proposes to define the term ``Complex Order'' 
within Options 7, Section 1, ``General Provisions''. The Exchange 
proposes to state at Options 7, Section 1(c), a ``Complex Order'' is 
any order involving the simultaneous purchase and/or sale of two or 
more different options series in the same underlying security, as 
provided in Nasdaq MRX Rule 722, as well as Stock-Option Orders.\4\ 
This proposed description of the term ``Complex Order'' is intended to 
bring greater transparency to the proposed Complex Order fees.
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    \4\ A Stock-Option Order is a Stock-Option Strategies with only 
one option leg and one stock leg. See MRX Rule 722(a)(2).
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    There are four fee proposals with respect to Complex Orders.
(1) Complex Order Fees
    The Exchange proposes to adopt a new Options 7, Section 4, titled 
``Complex Order Fees.'' The Exchange proposes to assess a Complex Order 
fee of $0.15 per contract for orders submitted as a Market Maker,\5\ 
Non-Nasdaq MRX Market Maker (FarMM),\6\ Firm Proprietary,\7\ Broker-
Dealer \8\ and Professional Customer.\9\ Specifically, these proposed 
fees would be assessed for Complex Order transactions in the Complex 
Order Book as well as Complex Orders submitted into the Complex 
Facilitation Mechanism,\10\ Complex Solicited Order Mechanism,\11\ 
Complex Price Improvement Mechanism (``PIM'') \12\ or an order 
submitted as a Complex Customer Cross Order,\13\ Complex Qualified 
Contingent Cross (``QCC'') Order \14\ or a Complex QCC with Stock 
Order.\15\ These Complex Order fees apply to an originating order, 
contra-side order and responses entered into MRX's Complex Facilitation 
Mechanism, Complex Solicited Order Mechanism, Complex PIM and orders 
entered as a Complex Customer Cross Order, Complex QCC Order or Complex 
QCC with Stock Order. The Exchange proposes to assess no Complex Order 
fee to Priority Customers.\16\ The Exchange notes that interest on the 
Regular Order Book that interacts with a Complex Order is subject to 
Regular Order \17\ Book fees within Options 7, Section 3. The Exchange 
further notes that a Member will be assessed the applicable Complex 
Order fee on those Complex Orders that interact with the Regular Order 
Book.
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    \5\ A ``Market Maker'' is a market maker as defined in Nasdaq 
MRX Rule 100(a)(30). See MRX Options 7, Section 1(c).
    \6\ A ``Non-Nasdaq MRX Market Maker'' is a market maker as 
defined in Section 3(a)(38) of the Securities Exchange Act of 1934, 
as amended, registered in the same options class on another options 
exchange. See MRX Options 7, Section 1(c).
    \7\ A ``Firm Proprietary'' order is an order submitted by a 
Member for its own proprietary account. See MRX Options 7, Section 
1(c).
    \8\ A ``Broker-Dealer'' order is an order submitted by a Member 
for a broker-dealer account that is not its own proprietary account. 
See MRX Options 7, Section 1(c).
    \9\ A ``Professional Customer'' is a person or entity that is 
not a broker/dealer and is not a Priority Customer. See MRX Options 
7, Section 1(c).
    \10\ See MRX Rule 716(c).
    \11\ See MRX Rule 716(e).
    \12\ See MRX Rule 723(e).
    \13\ See MRX Rule 721(b).
    \14\ See MRX Rule 721(d).
    \15\ See MRX Rule 721(f).
    \16\ A ``Priority Customer'' is a person or entity that is not a 
broker/dealer in securities, and does not place more than 390 orders 
in listed options per day on average during a calendar month for its 
own beneficial account(s), as defined in Nasdaq MRX Rule 
100(a)(37A). See MRX Options 7, Section 1(c).
    \17\ A ``Regular Order'' is an order that consists of only a 
single option series and is not submitted with a stock leg. See MRX 
Options 7, Section 1(c).
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(2) Stock Handling Fee
    The Exchange proposes to assess a Stock Handling Fee of $0.0010 per 
share (capped at a maximum of $50 per trade) for the stock leg of 
Stock-Option Orders executed against other Stock-Option Orders in the 
Complex Order Book. This fee would be in addition to the above-
referenced fees for Complex Orders. Nasdaq ISE, LLC (``ISE'') assesses 
a similar Stock Handling Fee of $0.0010 per share (capped at a maximum 
of $50 per trade) \18\ and Cboe Exchange, Inc. (``Cboe'') assesses a 
Stock-Portion of Stock-Option Strategy Orders fee of $0.0010 per 
share.\19\ In order to offer Members the ability to execute Stock-
Option Orders on MRX, the Exchange outsources the function of printing 
the stock portion of the trade to a third party venue so that MRX 
Members may simultaneously execute options and stock to achieve their 
desired strategy. The Exchange has developed its Complex Order System 
to process the stock leg of a Stock-Option Order and match these Stock-
Option Orders against other Stock-Option Orders on the Complex Order 
Book. The Exchange believes offering this service to Members adds value 
in permitting Stock-Option Order executions on MRX. In addition, the 
Exchange believes that the process adds efficiency to a Member's 
workflow. As stated above, the Exchange would assess a maximum of $50 
per trade.\20\ The cap would provide Members with the total dollar that 
would be assessed per trade. No charges would be assessed above the 
cap.
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    \18\ See ISE's Pricing Schedule at Options 7, Section 4.
    \19\ See Cboe's Fees Schedule. Cboe notes, ``The Exchange shall 
assess a fee of $0.0010 per share for the stock portion, which Cboe 
Options must route to an outside venue, of stock option orders 
executed via the Complex Order Auction (``COA''), the Complex Order 
Book (``COB''), AIM, SAM, and the splitting mechanism which is used 
for certain market orders pursuant to Interpretation .06(d) of Rule 
6.53C. This fee applies in addition to the fees assessed by the 
outside venue to which the stock portion of the order is routed if 
an exchange destination is specified on the original order (with 
such fees to be passed on to the market participant). A maximum of 
$50.00 per order will be assessed under this fee.''
    \20\ The equivalent of a $50 cap in terms of shares is 50,000 
shares on a singular execution.
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(3) Reduced Market Maker Complex Order Fee
    The Exchange also proposes to offer Market Makers a reduced Complex 
Order fee. Specifically, MRX proposes to reduce the proposed $0.15 per 
contract Complex Order Market Maker fee to $0.00 per contract when a 
Market Maker trades against Priority Customer orders that originate 
from its Affiliated

[[Page 33302]]

Member \21\ or its Appointed Member.\22\ This incentive is designed to 
encourage Market Makers, Affiliated Members and/or Appointed Members to 
direct additional Priority Customer order flow to the Exchange. 
Priority Customer order flow is unique in that it attracts valuable 
liquidity from Market Makers to the market, which in turn benefits all 
market participants by providing more trading opportunities. This 
increased activity from all market participants attracts Market Makers 
and in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Market Makers will benefit from this incentive through reduced fees, 
and other market participants will benefit because they will have an 
opportunity to trade with the order flow that Marker Makers, their 
Affiliated Member and/or Appointed Member bring to MRX. When a Priority 
Customer order is submitted to MRX, a Market Maker that wishes to 
interact with that order flow does not know whether that order 
originated from one of its Affiliated Members and/or Appointed Members. 
The Exchange believes this incentive will cause Market Makers to 
aggressively pursue order flow in order to receive the benefit of the 
reduced fee when the Market Maker executes a Complex Order contra a 
Priority Customer. Discounting fees in this manner will reward Market 
Makers that bring more order flow to the Exchange. This is the case 
because a Market Maker through its Affiliated Member or its Appointed 
Member directing additional order flow would increase the chances of a 
Market Maker qualifying for a reduced Complex Order fee of $0.00 (i.e., 
because it increases the chances that a contra-side order is entered by 
the Market Maker or its Affiliated Member and/or Appointed Member).
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    \21\ An ``Affiliated Member'' is a Member that shares at least 
75% common ownership with a particular Member as reflected on the 
Member's Form BD, Schedule A. See Options 7, Section 1(c).
    \22\ An ``Appointed Member'' is either an Appointed Market Maker 
or Appointed Order Flow Provider. An ``Appointed Market Maker'' is a 
Market Maker who has been appointed by an Electronic Access Member 
pursuant to Section 3, Table 3. An ``Appointed Order Flow Provider'' 
is an Electronic Access Member who has been appointed by a Market 
Maker pursuant to Section 3, Table 3. See Options 7, Section 1(c).
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(4) Marketing Fee
    The Exchange proposes to waive the Marketing Fee within Options 7, 
Section 4, B which applies to MRX Market Makers. Today, MRX assesses 
Market Makers a Marketing Fee of $0.25 per contract in Penny Symbols 
and $0.70 per contract in Non-Penny Symbols for each Regular Priority 
Customer contract executed.\23\ Today, the Marketing Fee is waived for: 
(i) Flash Order \24\ Responses; (ii) Market Maker Orders that take 
liquidity from the Order Book; and (iii) Crossing Orders \25\ and 
Responses to Crossing Orders.
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    \23\ The Marketing Fee is rebated proportionately to the Members 
that paid the fee such that on a monthly basis the Marketing Fee 
fund balance administered by a Primary Market Maker for a Group of 
options established under Rule 802(b) does not exceed $100,000 and 
the Marketing Fee fund balance administered by a Preferenced 
Competitive Market Maker for such a Group does not exceed $100,000. 
A Preferenced Competitive Market Maker that elects not to administer 
a fund will not be charged the Marketing Fee. The Exchange assesses 
an administrative fee of .45% on the total amount of the funds 
collected each month. Preferenced Orders. An Electronic Access 
Member may designate a ``Preferred Market Maker'' on orders it 
enters into the System (``Preferenced Orders''). See MRX Rule 713 at 
Supplementary Material .01.
    \24\ A ``Flash Order'' is an order that is exposed at the 
National Best Bid or Offer by the Exchange to all Members for 
execution, as provided under Supplementary Material .02 to Nasdaq 
MRX Rule 1901. For all Flash Orders, the Exchange will charge the 
applicable maker fee and for responses that trade against a Flash 
Order, the Exchange will provide the applicable taker fee. See MRX 
Options 7, Section 1(c).
    \25\ See MRX Rule 721.
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    In connection with the adoption of Complex Order Fees, the Exchange 
proposes to amend current Options 7, Section 4 to waive the Marketing 
Fee for Complex Orders. The Exchange believes that waiving the 
Marketing Fee will ensure that Market Makers can benefit from the 
proposed fee incentives proposed herein with respect to Complex Orders. 
This proposal would ensure that the total fee assessed to a Market 
Maker with respect to Complex Orders would be a transaction fee of 
either $0.15 or $0.00 per contract (provided the Market Maker executed 
against Priority Customer orders that originate from an Affiliated 
Member or its Appointed Member) plus a Stock Handling Fee of $0.0010 
per share. With this proposal, Market Makers will be able to lower 
total execution costs when executing Complex Orders.
Applicability to and Impact on Participants \26\
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    \26\ On May 21, 2019, the SEC Division of Trading and Markets 
(the ``Division'') issued fee filing guidance titled ``Staff 
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance''). 
Within the Guidance, the Division noted, among other things, that 
the purpose discussion should address ``how the fee may apply 
differently (e.g., additional cost vs. additional discount) to 
different types of market participants (e.g., market makers, 
institutional brokers, retail brokers, vendors, etc.) and different 
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees). The Guidance 
also suggests that the purpose discussion should include numerical 
examples. Where possible, the Exchange is including numerical 
examples. In addition, the Exchange is providing data to the 
Commission in support of its arguments herein. The Guidance covers 
all aspects of a fee filing, which the Exchange has addressed 
throughout this filing.
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    The proposed Complex Order fees would be applied uniformly to all 
market participant capacities ($0.15 per contract), except for Priority 
Customers ($0.00 per contract). Priority Customer interest brings 
valuable liquidity to the market, which liquidity benefits other market 
participants. Priority Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Priority Customers have traditionally received more favorable pricing 
as compared to other market participants.\27\ The Exchange notes that 
any Member may transact Complex Orders on MRX or submit a response into 
MRX's Complex Facilitation Mechanism, Complex Solicited Order 
Mechanism, Complex PIM or enter an order as a Complex Customer Cross 
Order, Complex QCC Order or Complex QCC with Stock Order.
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    \27\ Priority Customers pay no fees for certain Select Symbols 
and Non-Select Symbols for Regular Order Fees. See MRX's Pricing 
Schedule at Options 7, Section 3.
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Complex Order Fees
    The Exchange believes that assessing all non-Priority Customers a 
$0.15 per contract fee will attract Complex Order flow to MRX. Today, 
there are 9 options markets that offer complex order functionality.\28\ 
The complex order functionality offerings differ by options market.\29\ 
Some options markets have offered complex order functionality for a 
number of years and other options markets are new entrants in recent 
years with their complex order offerings.\30\ MRX will be the newest 
options market to offer market participants another venue on which to 
transact Complex Orders. The Exchange believes its proposed fees are 
reasonable and well within the range of fees assessed for complex 
orders among other exchanges.\31\ The Exchange believes the

[[Page 33303]]

proposed fees will encourage Members to submit order flow to MRX, 
particularly orders that may otherwise remain unfilled on other venues. 
The Exchange believes the proposed rates are competitive for all 
multiply-listed options and will offer market participants with another 
choice of where to transact Complex Orders. New entrants, such as MRX, 
may increase competition as to a particular offering, in this case 
Complex Orders, and encourage competitive pricing among options markets 
competing for such Complex Order flow. The proposed MRX offering and 
pricing may benefit market participants with certain business models. 
The Exchange believes that market participants determine where to 
direct their Complex Order flow by considering, among other factors, a 
market's functionality, pricing and the market participant's needs 
arising from its particular business model.
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    \28\ ISE, Nasdaq PHLX LLC, Cboe, Cboe C2 Exchange, Inc., Cboe 
EDGX Exchange, Inc. Miami International Securities Exchange, LLC, 
BOX Exchange LLC, NYSE Arca, Inc. and NYSE American LLC.
    \29\ For example, the various options markets have different 
complex order auctions.
    \30\ Cboe EDGX Exchange, Inc. and MIAX EMERALD, LLC were the 
last two markets to receive approval for complex order rules prior 
to MRX.
    \31\ MIAX EMERALD, LLC's pricing schedule assesses complex order 
fees that range from $0.10 to $0.88 per contract for all origin 
types except priority customer (of which, MIAX EMERALD pays rebates 
of $0.25 to $0.87 per contract for priority customer complex 
orders), whether the participant is a maker or taker and whether the 
transaction was in a Penny or non-Penny Pilot Symbol.
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Stock Handling Fee
    The proposed Stock Handling Fee of $0.0010 per share (capped at a 
maximum of $50 per trade) for the stock leg of Stock-Option Orders 
executed against other Stock-Option Orders in the Complex Order Book 
would be applied uniformly to all market participants. This fee, which 
is in addition to a Complex Order fee, would be applied to any market 
participant who executes a Complex Order.
Reduced Market Maker Complex Order Fee
    With this proposal, only Market Makers are offered an incentive 
that would reduce their Complex Order fee to $0.00 per contract. 
Priority Customers do not pay a Complex Order fee as proposed herein. 
Other market participants, such as a Non-Nasdaq MRX Market Maker 
(FarMM), a Firm Proprietary, a Broker-Dealer and a Professional 
Customer, would not be entitled to the same fee reduction as a Market 
Maker. The Exchange notes that Market Makers, their Affiliated Members 
and their Appointed Members are being incentivized to direct Priority 
Customer order flow to MRX. Other market participants benefit because 
they may interact with this order flow. Unlike other participants, 
Market Makers add value to MRX through quoting obligations \32\ and 
their commitment of capital. Encouraging Market Makers to add greater 
liquidity benefits all market participants in the quality of order 
interaction because the Exchange believes that Market Makers will be 
incentivized to aggressively pursue order flow in order to receive the 
benefit of the reduced fee.
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    \32\ See MRX Rule 804.
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Marketing Fee
    Finally, with respect to the waiver of the Marketing Fee for 
Complex Orders, the Exchange notes that the Marketing Fee applies only 
to Market Makers. The Exchange's proposal to waive the Marketing Fee 
for Complex Orders would apply to uniformly to all Market Makers. As 
proposed, no market participant would be assessed a Marketing Fee for 
Complex Orders.
Relocation Options 7 Sections
    The Exchange proposes technical amendments to the Pricing Schedule 
to relocate certain rule text within Options 7. The Exchange proposes 
to re-number current Options 7, Section 4, titled ``Other Options Fees 
and Rebates'' as new Section 5. The Exchange proposes to delete the 
title to current Section 5, ``Legal and Regulatory'' and re-letter the 
rule text within that section. Current Options 7, Section 5, ``A'' 
titled ``Options Regulatory Fee'' would be re-lettered as ``C'' and 
current Options 7, Section 5, ``B'' titled ``FINRA Web CRD Fees'' would 
be re-lettered as ``D''.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\33\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\34\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The proposal is also 
consistent with Section 11A of the Act relating to the establishment of 
the national market system for securities. Moreover, the Exchange 
believes that its proposal complies with Commission guidance on SRO fee 
filings that the Commission Staff issued on May 21, 2019.\35\
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    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(4) and (5).
    \35\ See Guidance, supra note 3. Although the Exchange believes 
that this filing complies with the Guidance, the Exchange does not 
concede that the standards set forth in the Guidance are consistent 
with the Exchange Act and reserves its right to challenge those 
standards through administrative and judicial review, as 
appropriate.
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The Proposal is Reasonable
    The Exchange's proposed new Complex Order fees are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for options transaction 
services that constrain its pricing determinations in that market. The 
fact that this market is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission, the D.C. 
Circuit stated as follows: ``[n]o one disputes that competition for 
order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. 
national market system, buyers and sellers of securities, and the 
broker-dealers that act as their order-routing agents, have a wide 
range of choices of where to route orders for execution'; [and] `no 
exchange can afford to take its market share percentages for granted' 
because `no exchange possesses a monopoly, regulatory or otherwise, in 
the execution of order flow from broker dealers'. . . .'' \36\
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    \36\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is one of several options 
venues to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. Competing options 
exchanges offer complex order functionality, with varying pricing 
schedules. The Exchange believes its proposed fees are reasonable and 
well within the range of fees assessed for complex order among other 
exchanges.\37\
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    \37\ See note 31 above.
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    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.\38\ 
Separately, the Exchange has provided the SEC staff with information 
regarding market share.
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    \38\ While MRX has not offered Complex Order functionality to 
date, the Exchange perceives no regulatory, structural, or cost 
impediments to market participants shifting order flow away from it 
as a result of this rule change. See Guidance, supra note 16. In 
particular, the Exchange notes that these examples of shifts in 
liquidity and market share, along with many others, have occurred 
within the context of market participants' existing duties of Best 
Execution and obligations under the Order Protection Rule under 
Regulation NMS.
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    Within the foregoing context, the proposal represents a reasonable 
attempt by the Exchange to increase its

[[Page 33304]]

liquidity and market share relative to its competitors. The Exchange 
believes that its proposed Complex Order fees are a reasonable attempt 
to achieve this end because these fees are competitive as compared to 
other options markets. Any MRX market participant can transact Complex 
Orders on MRX. In fact, most options markets offer complex order 
functionality \39\ making the competition for complex order flow very 
competitive among options exchanges with different markets offering 
incentives and rebates to market participants to lower transaction 
fees. The Exchange believes that as a new entrant offering Complex 
Order functionality, MRX, alongside other options markets, will provide 
market participants with another choice for transacting their Complex 
Orders. New entrants, such as MRX, increase competition as to a 
particular offering, in this case Complex Orders, and encourage 
competitive pricing among options markets competing for Complex Order 
flow. With this proposal, the Exchange proposes to introduce a novel 
pricing model so that MRX may compete with the other 9 complex order 
books for order flow. The proposed fee is novel because it is a flat 
fee as compared to a Maker-Taker model and the Exchange is not 
proposing to assess a Marketing Fee. The Exchange may be unsuccessful 
in its initial attempt to attract order flow with the proposed fees. At 
this time, MRX is not proposing to pay rebates to attract order flow. 
The Exchange would file other fee proposals if its pricing does not 
attract order flow and fails to be competitive. The proposed MRX 
offering and pricing may benefit market participants who have different 
business models and desire to direct their order flow to one of the 
various options markets that offer complex orders depending on that 
market's functionality, pricing and the market participant's particular 
business model.
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    \39\ Currently 9 of 16 options markets offer Complex Order 
functionality. MRX would be the 10th options market to offer Complex 
Order functionality. MIAX EMERALD has approved rules and has filed 
pricing for complex orders, but has not commenced offering complex 
order functionality.
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Complex Order Fees
    With respect to the proposed Complex Order fees, the Exchange 
proposes assessing a uniform fee of $0.15 per contract to all non-
Priority Customers, except for Priority Customers who would not be 
assessed a Complex Order fee. The Exchange believes that the fees will 
attract Complex Order flow to MRX. The Exchange believes not assessing 
Priority Customer interest a Complex Order fee will incentivize market 
participants to direct their Priority Customer order flow to MRX. This 
will provide all market participants more trading opportunities. 
Priority Customers have traditionally received more favorable pricing 
as compared to other market participants.\40\
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    \40\ See note 27 above.
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Stock Handling Fee
    With respect to the proposed Stock Handling Fee of $0.0010 per 
share for the stock leg of Stock-Option Orders executed against other 
Stock-Option Orders in the Complex Order Book, this fee would be 
assessed on each Complex Order so the Exchange may offer Members the 
ability to execute Stock-Option Orders on MRX. The Exchange would 
outsource the function of printing the stock portion of the trade to a 
third party venue so that MRX Members may simultaneously execute 
options and stock to achieve their desired strategy. The Exchange has 
developed its Complex Order System to process the stock leg of a Stock-
Option Order and match these Stock-Option Orders against other Stock-
Option Orders on the Complex Order Book. The Exchange believes offering 
this service to Members adds value in permitting Stock-Option Order 
executions on MRX. In addition, the Exchange believes that the process 
adds efficiency to a Member's workflow. Despite the fee, the Exchange 
would cap the amount assessed at a maximum of $50 per trade to limit 
the amount paid by Members. The Exchange believes that the fee is 
reasonable and will allow the Exchange to offer Members the ability to 
trade Stock-Option Orders. This proposed fee is the same as the fee 
assessed today on ISE and Cboe.\41\
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    \41\ See notes 18 and 19 above.
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Reduced Market Maker Complex Order Fee
    With respect to the reduced fee offered to Market Makers, the 
Exchange notes Market Makers add value to MRX through quoting 
obligations \42\ and their commitment of capital. The fee is reasonable 
because incentivizing Market Makers to provide greater liquidity will 
benefit all market participants through the quality of order 
interaction. Market Makers will be incentivized to aggressively pursue 
order flow in order to receive the benefit of the reduced fee when the 
Market Maker executes a Complex Order contra a Priority Customer. This 
discount will reward Market Makers that bring more order flow to the 
Exchange.
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    \42\ See MRX Rule 804.
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Marketing Fee
    The Exchange's proposal to waive the Marketing Fee for Complex 
Orders is reasonable because the Exchange desires to limit the cost of 
transacting Complex Orders for Market Makers who are the only market 
participant assessed a Marketing Fee. Today, the Exchange waives the 
Marketing Fee for: (i) Flash Order Responses; (ii) Market Maker Orders 
that take liquidity from the Order Book; and (iii) Crossing Orders and 
Responses to Crossing Orders. It is reasonable to seek to lower the 
total cost for Market Makers to execute Complex Orders while 
simultaneously incentivizing Market Makers to provide greater liquidity 
to MRX as explained herein.
The Proposal Represents an Equitable Allocation and Is Not Unfairly 
Discriminatory
    The Exchange believes its proposal allocates its fees fairly among 
its market participants.
Complex Order Fees
    The Exchange believes its Complex Order fees are equitable and not 
unfairly discriminatory. The proposed Complex Order fees would be 
applied uniformly to all market participant capacities ($0.15 per 
contract), except for Priority Customers ($0.00 per contract). Priority 
Customer interest brings valuable liquidity to the market, which 
liquidity benefits other market participants. Priority Customer 
liquidity benefits all market participants by providing more trading 
opportunities, which attracts Market Makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. Priority Customers have 
traditionally received more favorable pricing as compared to other 
market participants.\43\ The Exchange notes that any Member may 
transact Complex Orders on MRX or submit a response into MRX's Complex 
Facilitation Mechanism, Complex Solicited Order Mechanism, Complex PIM 
or enter an order as a Complex Customer Cross Order, Complex QCC Order 
or Complex QCC with Stock Order.
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    \43\ See note 27 above.
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Stock Handling Fee
    The Exchange believes its Stock Handling Fee is equitable and not 
unfairly discriminatory. The proposed Stock Handling Fee of $0.0010 per 
share

[[Page 33305]]

(capped at a maximum of $50 per trade) for the stock leg of Stock-
Option Orders executed against other Stock-Option Orders in the Complex 
Order Book would be applied uniformly to all market participants. This 
fee, which is in addition to a Complex Order fee, would be applied to 
any market participant who executes a Complex Order.
Reduced Market Maker Complex Order Fee
    The Exchange believes its proposal to reduce Market Maker Complex 
Order fees is equitable and not unfairly discriminatory. With respect 
to the reduced fee offered to Market Makers, the Exchange notes that 
Priority Customers do not pay a Complex Order fee as proposed herein. 
Other market participants, such as a Non-Nasdaq MRX Market Maker 
(FarMM), a Firm Proprietary, a Broker-Dealer and a Professional 
Customer, would not be entitled to the same fee reduction as a Market 
Maker. The Exchange notes that Market Makers, their Affiliated Members 
and their Appointed Members are being incentivized to direct Priority 
Customer order flow to MRX. Other market participants benefit from this 
order flow because they may interact with it. Unlike other 
participants, Market Makers add value to MRX through quoting 
obligations \44\ and their commitment of capital. Encouraging Market 
Makers to add greater liquidity benefits all market participants in the 
quality of order interaction.
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    \44\ See MRX Rule 804.
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Marketing Fee
    The Exchange believes its waiver of the Marketing Fee for Complex 
Orders is equitable and not unfairly discriminatory. The Exchange would 
uniformly waive the Marketing Fee for all Market Makers, who are the 
only type of market participants assessed the Marketing Fee. As 
proposed, no market participant would be assessed a Marketing Fee for 
Complex Orders.
Relocation Options 7 Sections
    The Exchange's proposal to relocate certain rule text within 
Options 7 are reasonable, equitable and not unfairly discriminatory. 
These amendments are non-substantive.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Inter-Market Competition
    The proposal does not impose an undue burden on inter-market 
competition. Today, there are 9 options markets that offer complex 
order functionality.\45\ The complex order functionality offerings 
differ by options market.\46\ Some options markets have offered complex 
order functionality for a number of years and other options markets are 
new entrants in recent years with their complex order offerings.\47\ 
MRX will be the newest options market to offer market participants 
another venue on which to transact Complex Orders. The Exchange 
believes the proposed fees will encourage Members to submit order flow 
to MRX, particularly orders that may otherwise remain unfilled on other 
venues. The Exchange believes the proposed rates are competitive and 
will offer market participants with another choice of where to transact 
Complex Orders. New entrants, such as MRX, increase competition as to a 
particular offering, in this case Complex Orders, and encourage 
competitive pricing among options markets competing for Complex Order 
flow. The proposed MRX offering and pricing may benefit market 
participants who have different business models and desire to direct 
their order flow to one of the various options markets that offer 
complex orders depending on that market's functionality, pricing and 
their particular business model.
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    \45\ See note 28 above.
    \46\ For example, the various options markets have different 
complex order auctions.
    \47\ See note 30 above.
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    Permitting MRX to commence offering Complex Order functionality, by 
permitting it to establish Complex Order fees, will bring additional 
competition to the option markets that currently offer Complex Orders. 
MRX would not commence offering Complex Order functionality without 
implementing pricing for this new offering.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive, or rebate 
opportunities available at other venues to be more favorable. In such 
an environment, the Exchange must continually adjust its fees to remain 
competitive with other exchanges that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, the Exchange believes that the degree to which fee changes 
in this market may impose any burden on competition is extremely 
limited.
    The proposed reduced criteria is reflective of this competition 
because, as a threshold issue, the Exchange is a relatively small 
market so its ability to burden intermarket competition is limited. In 
this regard, even the largest U.S. options exchange by volume only has 
28% market share, which in most markets could hardly be categorized as 
having enough market power to burden competition. Moreover, as noted 
above, price competition between exchanges is fierce, with liquidity 
and market share moving freely between exchanges in reaction to fee and 
credit changes.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.
Intra-Market Competition
    The proposed fee do not impose an undue burden on intra-market 
competition.
Complex Order Fees
    The Exchange's proposed Complex Order fees do not impose an undue 
burden on competition as these fees would be applied uniformly to all 
market participant capacities ($0.15 per contract), except for Priority 
Customers ($0.00 per contract). Priority Customer interest brings 
valuable liquidity to the market, which liquidity benefits other market 
participants. Priority Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Priority Customers have traditionally received more favorable pricing 
as compared to other market participants.\48\ The Exchange notes that 
any Member may transact Complex Orders on MRX or submit a response into 
MRX's Complex Facilitation Mechanism, Complex Solicited Order 
Mechanism, Complex PIM or enter an order as a Complex Customer Cross 
Order, Complex QCC Order or Complex QCC with Stock Order.
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    \48\ See note 27 above.

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[[Page 33306]]

Stock Handling Fee
    The proposed Stock Handling Fee of $0.0010 per share (capped at a 
maximum of $50 per trade) for the stock leg of Stock-Option Orders 
executed against other Stock-Option Orders in the Complex Order Book 
does not impose an undue burden on competition because this fee would 
be applied uniformly to all market participants. This fee, which is in 
addition to a Complex Order fee, would be applied to any market 
participant who executes a Complex Order.
Reduced Market Maker Complex Order Fee
    The Exchange's proposed reduced fee offered to Market Makers does 
not impose an undue burden on competition. Priority Customers do not 
pay a Complex Order fee as proposed herein. Other market participants, 
such as a Non-Nasdaq MRX Market Maker (FarMM), a Firm Proprietary, a 
Broker-Dealer and a Professional Customer, would not be entitled to the 
same fee reduction as a Market Maker. The Exchange notes that the 
proposal incentivizes Market Makers through their Affiliated Members 
and their Appointed Members to direct Priority Customer order flow to 
MRX. Other market participants benefit from this proposal because they 
may interact with this order flow. Unlike other participants, Market 
Makers add value to MRX through quoting obligations \49\ and their 
commitment of capital. Encouraging Market Makers to add greater 
liquidity benefits all market participants in the quality of order 
interaction because the Exchange believes that Market Makers will be 
incentivized to aggressively pursue order flow in order to receive the 
benefit of the reduced fee.
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    \49\ See MRX Rule 804.
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Marketing Fee
    The Exchange's proposal to waive the Marketing Fee for Complex 
Orders does not impose an undue burden on competition. The Marketing 
Fee applies only to Market Makers. The Exchange's proposal to waive the 
Marketing Fee for Complex Orders would apply to uniformly to all Market 
Makers. As proposed, no market participant would be assessed a 
Marketing Fee for Complex Orders.
Relocation Options 7 Sections
    The Exchange's proposal to relocate certain rule text within 
Options 7 does not impose an undue burden on competition. These 
amendments are non-substantive.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\50\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is: (i) Necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \50\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MRX-2019-14 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MRX-2019-14. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MRX-2019-14 and should be submitted on 
or before August 2, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
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    \51\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14812 Filed 7-11-19; 8:45 am]
 BILLING CODE 8011-01-P