8011-01p
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100488; File No. SR-NASDAQ-2024-036]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change to Amend Options 7, Section 3
July 10, 2024.
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 July 1, 2024, The Nasdaq Stock Market LLC
(“Nasdaq” 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.
I.

Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed
Rule Change
The Exchange proposes to amend The Nasdaq Options Market LLC’s (“NOM”) Rules at

Options 7, Section 3, Nasdaq Options Market - Ports and Other Services.
The text of the proposed rule change is available on the Exchange’s Website at
https://listingcenter.nasdaq.com/rulebook/nasdaq/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

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below,
of the most significant aspects of such statements.
A.

Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1.

Purpose

The Exchange proposes to amend Options 7, Section 3, Nasdaq Options Market - Ports
and Other Services. Specifically, the Exchange proposes to amend Options 7, Section 3(i) to
increase the per port, per month SQF Port3 and SQF Purge4 Port Fees for all ports over 20 ports
(21 and above).5
Today, NOM assesses SQF Ports and SQF Purge Ports a per port, per month fee based on
a tiered fee schedule. Specifically, NOM assesses an SQF Port and an SQF Purge Port fee of
$1,500 per port, per month for the first 5 ports (1-5), a $1,000 per port, per month fee for the next
15 ports (6-20), and a $750 per port, per month fee for all ports over 20 ports (21 and above).
At this time, the Exchange proposes to increase the per port, per month fee for SQF Ports
and SQF Ports above 20 ports (21 and above) for Market Makers based on the size of the Market
Maker on NOM. The Exchange is determining the size of the Market Maker based on the
amount of transactional volume executed on NOM in a given month. The Exchange proposes to
take each Market’s Maker’s electronic monthly transactional volume via SQF on NOM and
divide that number by the sum of all Market Maker electronic monthly transactional volume via

“Specialized Quote Feed” or “SQF” is an interface that allows Market Makers to connect, send, and receive
messages related to quotes and Immediate-or- Cancel Orders into and from the Exchange. Features include
the following: (1) options symbol directory messages (e.g., underlying 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; and (8) opening imbalance messages. 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. Immediate-or-Cancel Orders entered into SQF are
not subject to the Order Price Protection, Market Order Spread Protection, or Size Limitation in Options 3,
Section 15(a)(1) and (a)(2), and (b)(2), respectively. See Options 3, Section 7(e)(1)(B).

SQF Purge is a specific port for the SQF interface that only receives and notifies of purge requests from the
NOM Market Maker.

The Exchange also proposes a technical amendment to remove an extraneous period in Options 7, Section 3
in the second paragraph.

SQF on NOM (“Transactional Volume”). All SQF interest would be considered. Each Market
Maker would then be classified on NOM, for the purpose of the SQF Port Fee and SQF Purge
Port Fee, as a “small,” “medium,” or “large” Market Maker based on their Transactional Volume
on NOM to determine the applicable fee in a given month for all SQF Ports and SQF Purge Ports
over 20 ports. Market Makers that qualify as “medium” would be subject to an increased
monthly fee of $625 per port for all SQF Ports and SQF Purge Ports over 20 ports. Market
Makers that qualify as “large” would be subject to an increased monthly fee of $750 per port for
all SQF Ports and SQF Purge Ports over 20 ports. Market Makers that qualify as “small” would
continue to pay a monthly fee of $500 per port for all SQF Port and SQF Purge Port Fees for all
ports over 20 ports.
The Exchange believes that these increased SQF Port and SQF Purge Port Fees for all
ports over 20 ports for Market Maker that qualify as “medium” and “large,” will offer a level
playing field related to pricing when acquiring a larger amount of ports.
A NOM Market Maker requires only one SQF Port to submit quotes in its assigned
options series into NOM. A NOM Market Maker may submit all quotes through one SQF Port
and utilize one SQF Purge Port to view its purge requests. While a NOM Market Maker may
elect to obtain multiple SQF Ports and SQF Purge Ports to organize its business,6 only one SQF
Port and SQF Purge Port is necessary for a NOM Market Maker to fulfill its regulatory quoting
obligations.7

For example, a NOM Market Maker may desire to utilize multiple SQF Ports for accounting purposes, to
measure performance, for regulatory reasons or other determinations that are specific to that NOM
Participant. The Exchange notes that 78% of NOM Market Makers pay the $1,000 per port, per month fee
for 6-20 ports and 39% pay the proposed $750 per port, per month fee for over 20 ports.

NOM Market Makers have various regulatory requirements as provided for in Options 2, Section 4.
Additionally, NOM Market Makers have certain quoting requirements with respect to their assigned
options series as provided in Options 2, Section 5. The Exchange notes that SQF Ports are the only quoting
protocol available on NOM and only NOM Market Makers may utilize SQF Ports. The same is true for
SQF Purge Ports.

2.

Statutory Basis

The Exchange believes that its proposal is consistent with Section 6(b) of the Act,8 in
general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,9 in particular, in
that it provides for the equitable allocation of reasonable dues, fees, and other charges among
members and issuers and other persons using any facility, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
The Exchange believes that increasing the fee for SQF Ports and SQF Purge Ports over
20 ports (21 and above) for Market Makers that qualify as “medium” from $500 to $625 per
month, and to increase the SQF Port Fee and SQF Purge Port Fee Cap for Market Makers that
qualify as “large” from $500 to $750 per month, is reasonable because these increased SQF Port
and SQF Purge Port Fees for all ports over 20 ports for Market Maker that qualify as “medium”
and “large” will offer a level playing field related to pricing when acquiring a larger amount of
ports. A NOM Market Maker requires only one SQF Port to submit quotes in its assigned
options series into NOM. A NOM Market Maker may submit all quotes through one SQF Port
and utilize one SQF Purge Port to view its purge requests. While a Market Maker may elect to
obtain multiple SQF Ports and SQF Purge Ports to organize its business,10 only one SQF Port
and SQF Purge Port is necessary for a Market Maker to fulfill its regulatory quoting
obligations.11 Members may choose a greater number of SQF Ports or SQF Purge Ports, beyond
one port, depending on that Member’s particular business model. Additionally, the Exchange
believes that the caps are reasonable for two reasons.
First, SQF Ports are a secure method for Market Makers to submit quotes into the

15 U.S.C. 78f(b).

15 U.S.C. 78f(b)(4) and (5).

For example, a Market Maker or may desire to utilize multiple SQF Ports for accounting purposes, to
measure performance, for regulatory reasons or other determinations that are specific to that Member.

GEMX Market Makers have various regulatory requirements as provided for in Options 2, Section 4.
Additionally, GEMX Market Makers have certain quoting requirements with respect to their assigned
options series as provided in Options 2, Section 5. SQF Ports are the only quoting protocol available on
GEMX and only Market Makers may utilize SQF Ports.

Exchange’s match engine and for the Exchange to send messages related to those quotes to
Market Makers. NOM must manage the security and message traffic, among other things, for
each port. Utilizing a methodology based on the “size” of the Market Maker as determined by
Transactional Volume, provides every Market Maker the ability to manage cost. Additionally,
the Exchange would have the ability to manage the quantity of SQF Ports and SQF Purge Ports
issued by the Exchange. The various SQF Port and SQF Purge Port Fees were determined based
on the level of Transactional Volume on NOM in 2024 for Market Makers. The Exchange
assessed each level of Market Maker an increased fee based on size, as reflected by
Transactional Volume, to reflect the various sizes of Market Makers present on the Exchange at
this time. By establishing different SQF Ports and SQF Purge Port Fees at different levels based
on “size,” the Exchange is considering the message traffic and message rates generated by the
various “sizes” of Market Makers and the Exchange’s ability to process messages from all SQF
Ports and SQF Purge Ports. The SQF Port and SQF Purge Port Fees would allow the Exchange
to scale its needs with respect to processing messages in an efficient manner. The Exchange
notes that Cboe Exchange, Inc. (“Cboe”) limits usage on each port and assesses fees for
incremental usage.12
Second, the Exchange notes that multiple ports are not necessary, however, to the extent
that some Market Makers elect to obtain multiple SQF Ports and SQF Purge Ports, the Exchange
is offering different prices for over 20 ports. NOM believes that this methodology of utilizing
Transactional Volume on NOM for purposes of considering the “size” of the Market Maker to
create certain SQF Port and SQF Purge Port Fees will level the playing field. The Exchange
believes that this approach enables various types of Market Makers to effectively limit costs
based on their executed Transactional Volume on the Exchange. Further, this methodology

Each Cboe Binary Order Entry (“BOE”) or FIX Logical Port incur the logical port fee indicated when used
to enter up to 70,000 orders per trading day per logical port as measured on average in a single month. For
each incremental usage of up to 70,000 per day per logical port will incur an additional logical port fee of
$800 per month. BOE or FIX Logical Ports provide users the ability to enter order/quotes. See Cboe’s
Fees Schedule.

allows for efficiencies and permits Market Makers to increase their number of ports at varying
fee levels. The various SQF Ports and SQF Purge Port Fees for over 20 ports levels the playing
field by allowing various types of Market Makers that want to obtain a larger number of ports to
do so with different cost structures to account for their relative size. Other markets tier port fees.
BOX Exchange LLC (“BOX”) assesses $1,000 per month for all SAIL Ports for Market Making
and $500 per month per port up to 5 ports for order entry and $150 per month for each additional
port.13 Miami International Securities Exchange, LLC’s (“MIAX”) MIAX Express Interface
(“MEI”) Fee levels are based on a tiered fee structure based on the Market Maker’s total monthly
executed volume during the relevant month.14
The Exchange believes that increasing the fee for SQF Ports and SQF Purge Ports over
20 ports (21 and above) for Market Makers that qualify as “medium” from $500 to $625 per
month, and to increase the SQF Port Fee and SQF Purge Port Fee Cap for Market Makers that
qualify as “large” from $500 to $750 per month, is equitable and not unfairly discriminatory
because the Exchange is offering different sizes of Market Makers, based on Transactional
Volume executed on the Exchange, the ability pay different fees for some SQF Ports and SQF
Purge Ports above 20 ports. The proposal recognizes that some Market Makers may be deemed
“small” and may not be able to achieve the same cap as other Market Makers. To this end, the
Exchange proposes not to increase SQF Port and SQF Purge Port Fees for over 20 ports for
Market Makers that qualify as “small.” To the extent that a Market Maker qualifies in a given
month as a “medium” Market Maker the Exchange proposes to increase SQF Port and SQF
Purge Port Fees from $500 to $625 per month. This fee presumes to place a Market Maker that
qualifies as “medium” on equal footing with a Market Maker that qualifies as a “small” Market

See BOX’s Fee Schedule.

MEI is a connection to MIAX systems that enables Market Makers to submit simple and complex
electronic quotes to MIAX. MIAX caps its MEI Ports. For these Monthly MIAX MEI Fees levels, if the
Market Maker’s total monthly executed volume during the relevant month is less than 0.060% of the total
monthly executed volume reported by OCC in the market maker account type for MIAX-listed option
classes for that month, then the fee will be $14,500 instead of the fee otherwise applicable to such level.
See MIAX’s Fee Schedule.

Maker in terms of the fee, by setting different fees for each group. The proposal presumes that
based on Transactional Volume, these Market Makers that qualify as “medium” have a greater
ability to obtain a greater amount of SQF Ports and SQF Purge Ports as compared to Market
Makers that qualify as “small.” Finally, to the extent that a Market Maker qualifies in a given
month as a “large” Market Maker the Exchange proposes to increase SQF Port and SQF Purge
Port Fees from $500 to $750 per month. This fee presumes to place a Market Maker that
qualifies as “large” on equal footing with a Market Maker that qualifies as a “small” Market
Maker, and a Market Maker that qualifies as “medium” in terms of the fee, by setting different
fees for each group. The proposal presumes that based on Transactional Volume these Market
Makers that qualify as “large” have the ability to obtain the largest amount of SQF Ports and
SQF Purge Ports. The Exchange would uniformly apply the appropriate SQF Port and SQF
Purge Port Fee to each Market Maker group based on the same volume calculation. Also,
Market Makers would uniformly be assessed fees for SQF Ports and SQF Purge Ports based on
the proposed methodology.
NOM Market Makers are the only market participants that are assessed SQF Port and
SQF Purge Port fees because they are the only market participants that are permitted to quote on
the Exchange. SQF Ports and SQF Purge Ports are only utilized in the Market Maker’s assigned
options series. Unlike other market participants, NOM Market Makers are subject to market
making and quoting obligations.15 These liquidity providers are critical market participants in
that they are the only market participants that provide liquidity to NOM on a continuous basis.
Providing NOM Market Makers a means to manage their cost by applying different fees for SQF
Ports and SQF Purge Ports beyond 20 ports enables these market participants to provide the
necessary liquidity to NOM at lower costs relative to their size. Therefore, because NOM
Market Makers fulfill a unique role on the Exchange, are the only market participant required to

See Options 2, Sections 4 and 5.

submit quotes as part of their obligations to operate on the Exchange, and, in light of that role,
they are eligible for certain incentives. The proposed SQF Port and SQF Purge Fee cap is
designed to continue to incent NOM Market Makers to quote on NOM, thereby promoting
liquidity, quote competition, and trading opportunities.
In 2022, NYSE Arca, Inc. (“NYSE Arca”) proposed to restructure fees relating to OTPs
for Market Makers.16 In that rule change,17 NYSE Arca argued that,
Market Makers serve a unique and important function on the Exchange (and other
options exchanges) given the quote-driven nature of options markets. Because
options exchanges rely on actively quoting Market Makers to facilitate a robust
marketplace that attracts order flow, options exchanges must attract and retain
Market Makers, including by setting competitive Market Maker permit fees.
Stated otherwise, changes to Market Maker permit fees can have a direct effect on
the ability of an exchange to compete for order flow. The Exchange also believes
that the number of options exchanges on which Market Makers can effect option
transactions also ensures competition in the marketplace and constrains the ability
of exchanges to charge supracompetitive fees for access to its market by Market
Makers.
Further, NYSE ARCA noted that,18
The Exchange further believes that its ability to set Market Maker permit fees is
constrained by competitive forces based on the fact that Market Makers can, and
have, chosen to terminate their status as a Market Maker if they deem Market
Maker permit fees to be unreasonable or excessive. Specifically, the Exchange
notes that a BOX participant modified its access to BOX in connection with the
implementation of a proposed change to BOX’s Market Maker permit fees. The
Exchange has also observed that another options exchange group experienced
decreases in market share following its proposed modifications of its access fees
(including Market Maker trading permit fees), suggesting that market participants
(including Market Makers) are sensitive to changes in exchanges’ access fees and
may respond by shifting their order flow elsewhere if they deem the fees to be
unreasonable or excessive.
There is no requirement, regulatory or otherwise, that any Market Maker connect
to and access any (or all of) the available options exchanges. The Exchange also
is not aware of any reason why a Market Maker could not cease being a permit
holder in response to unreasonable price increases. The Exchange does not assess

See Securities Exchange Act Release No. 95412 (June 23, 2022), 87 FR 38786 (June 29, 2022) (SRNYSEArca-2022-36). NYSE Arca proposed to increase both the monthly fee per Market Maker OTP and
the number of issues covered by each additional OTP because, among other reasons, the number of issues
traded on the Exchange has increased significantly in recent years.

Id at 38788.

Id at 38790.

any termination fee for a Market Maker to drop its OTP, nor is the Exchange
aware of any other costs that would be incurred by a Market Maker to do so.
The Exchange likewise believes that its lower SQF Ports and SQF Purge Port monthly
fees beyond 20 ports is constrained by competitive forces and that its proposed modifications to
the SQF Port and SQF Purge Fees is reasonably designed in consideration of the competitive
environment in which the Exchange operates, by balancing the value of the enhanced benefits
available to Market Makers due to the current level of activity on the Exchange with a fee
structure that will continue to incent Market Makers to support increased liquidity, quote
competition, and trading opportunities on the Exchange, for the benefit of all market participants.
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.
Intermarket Competition
The proposal does not impose an undue burden on intermarket competition. The
Exchange notes that it operates in a highly competitive market in which market participants can
readily favor competing venues if they deem fee levels at a particular venue to be excessive. In
such an environment, the Exchange must continually adjust its fees to remain competitive with
other 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.
Intramarket Competition
The Exchange believes that increasing the fee for SQF Ports and SQF Purge Ports over
20 ports (21 and above) for Market Makers that qualify as “medium” from $500 to $625 per
month, and to increase the SQF Port Fee and SQF Purge Port Fee Cap for Market Makers that
qualify as “large” from $500 to $750 per month, does not impose an undue burden on
competition because the Exchange is offering different sizes of Market Makers, based on

Transactional Volume executed on the Exchange, the ability pay different fees for some SQF
Ports and SQF Purge Ports above 20 ports. The proposal recognizes that some Market Makers
may be deemed “small” and may not be able to achieve the same cap as other Market Makers.
To this end, the Exchange proposes not to increase SQF Port and SQF Purge Port Fees for over
20 ports for Market Makers that qualify as “small.” To the extent that a Market Maker qualifies
in a given month as a “medium” Market Maker the Exchange proposes to increase SQF Port and
SQF Purge Port Fees from $500 to $625 per month. This fee presumes to place a Market Maker
that qualifies as “medium” on equal footing with a Market Maker that qualifies as a “small”
Market Maker in terms of the fee, by setting different fees for each group. The proposal
presumes that based on Transactional Volume, these Market Makers that qualify as “medium”
have a greater ability to obtain a greater amount of SQF Ports and SQF Purge Ports as compared
to Market Makers that qualify as “small.” Finally, to the extent that a Market Maker qualifies in
a given month as a “large” Market Maker the Exchange proposes to increase SQF Port and SQF
Purge Port Fees from $500 to $750 per month. This fee presumes to place a Market Maker that
qualifies as “large” on equal footing with a Market Maker that qualifies as a “small” Market
Maker, and a Market Maker that qualifies as “medium” in terms of the fee, by setting different
fees for each group. The proposal presumes that based on Transactional Volume these Market
Makers that qualify as “large” have the ability to obtain the largest amount of SQF Ports and
SQF Purge Ports. The Exchange would uniformly apply the appropriate SQF Port and SQF
Purge Port Fee to each Market Maker group based on the same volume calculation. Also,
Market Makers would uniformly be assessed fees for SQF Ports and SQF Purge Ports based on
the proposed methodology.
NOM Market Makers are the only market participants that are assessed SQF Port and
SQF Purge Port fees because they are the only market participants that are permitted to quote on
the Exchange. SQF Ports and SQF Purge Ports are only utilized in the Market Maker’s assigned
options series. Unlike other market participants, NOM Market Makers are subject to market

making and quoting obligations.19 These liquidity providers are critical market participants in
that they are the only market participants that provide liquidity to NOM on a continuous basis.
Providing NOM Market Makers a means to manage their cost by applying different fees for SQF
Ports and SQF Purge Ports beyond 20 ports enables these market participants to provide the
necessary liquidity to NOM at lower costs relative to their size. Therefore, because NOM
Market Makers fulfill a unique role on the Exchange, are the only market participant required to
submit quotes as part of their obligations to operate on the Exchange, and, in light of that role,
they are eligible for certain incentives. The proposed SQF Port and SQF Purge Fee cap is
designed to continue to incent NOM Market Makers to quote on NOM, thereby promoting
liquidity, quote competition, and trading opportunities.
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.20
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.

See Options 2, Sections 4 and 5.

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

IV.

Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the

foregoing, including whether the proposed rule change is consistent with the Act. Comments
may be submitted by any of the following methods:
Electronic Comments:
•

Use the Commission’s internet comment form
(https://www.sec.gov/rules/sro.shtml); or

•

Send an email to rule-comments@sec.gov. Please include file number
SR-NASDAQ-2024-036 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-NASDAQ-2024-036. 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. Do not include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We may redact in part or
withhold entirely from publication submitted material that is obscene or subject to copyright

protection. All submissions should refer to file number SR-NASDAQ-2024-036 and should be
submitted on or before [INSERT DATE 21 DAYS AFTER DATE OF PUBLICATION IN THE
FEDERAL REGISTER].
For the Commission, by the Division of Trading and Markets, pursuant to delegated
authority.21
Vanessa A. Countryman,
Secretary.

[FR Doc. 2024-15502 Filed: 7/15/2024 8:45 am; Publication Date: 7/16/2024]

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