The Nasdaq Stock Market LLC has filed a proposed rule change with the Securities and Exchange Commission to amend the pricing schedule for its Nasdaq Options Market, known as NOM. Effective upon filing and set to become operative on February 2, 2026, the amendment reduces rebates paid to NOM Market Makers for adding liquidity in Penny Symbols under the highest tiers. This development reflects ongoing efforts by exchanges to calibrate incentives amid competitive pressures in the options trading landscape. It could influence how market makers allocate liquidity and affect overall market dynamics on NOM.
Background on NOM Pricing Structure
NOM operates as an options trading platform under Nasdaq, providing a venue for trading equity and ETF options. Its pricing model, detailed in Options 7, Section 2, includes rebates to encourage liquidity provision. These rebates vary by participant type and are tiered based on monthly volume thresholds. For NOM Market Makers, who are registered participants obligated to maintain quotes and facilitate trading, rebates for adding liquidity in Penny Symbols—options with premium increments of $0.01 or $0.05—range from $0.20 to $0.48 per contract across six tiers.
The tiers are designed to reward higher levels of participation. For instance, Tier 1 requires adding up to 0.10% of total industry customer equity and ETF option average daily volume, yielding a $0.20 rebate. Higher tiers incorporate additional criteria, such as combined activity across Nasdaq's equity and options platforms. This structure aims to attract order flow by incentivizing market makers to contribute more liquidity, which in turn enhances market depth and efficiency.
Details of the Proposed Rule Change
The filing, submitted on January 30, 2026, and published in the Federal Register on February 17, 2026, specifically targets Tiers 5 and 6 of the rebate schedule for NOM Market Makers adding liquidity in Penny Symbols. Under the amendment, the Tier 5 rebate decreases from $0.46 to $0.45 per contract, and the Tier 6 rebate drops from $0.48 to $0.47 per contract. No changes are proposed for lower tiers or other participant types, such as Customers or Broker-Dealers.
To qualify for Tier 5, a participant must either add NOM Market Maker liquidity above 1.25% of total industry customer equity and ETF option ADV or meet a lower threshold of 0.40% combined with specific equity market activity on Nasdaq. Tier 6 requires even higher benchmarks, including options ADV above 0.95% or 1.40%, plus minimum total volume and liquidity removal requirements. As stated in the filing, 'The Exchange proposes to modify the Tier 5 and Tier 6 rebates paid to NOM Market Makers for adding liquidity in Penny Symbols.' This modest reduction—amounting to a one-cent decrease per contract—applies uniformly to qualifying market makers.
The proposal was filed under Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 1934, allowing immediate effectiveness while soliciting public comments. The SEC is accepting input until March 10, 2026, to assess consistency with the Act.
Key Players and Regulatory Context
Nasdaq, as a self-regulatory organization, is the primary proponent of this change, with the SEC overseeing approval to ensure compliance with federal securities laws. NOM Market Makers, defined as participants registered under Options 2, Section 1, are directly affected, as they rely on these rebates to offset costs and remain competitive.
This adjustment aligns with broader regulatory precedents emphasizing market-based pricing. The filing references Section 6(b) of the Act, which requires equitable fee allocation and prohibits unfair discrimination. It echoes the Commission's stance in Regulation NMS, as noted in the document: 'The Commission highlighted the importance of market forces in determining prices and SRO revenues.' Court decisions, such as NetCoalition v. SEC (2010), have upheld this approach, affirming that competition, not rigid cost-based regulation, should guide exchange fees. Nasdaq argues the change supports these principles by refining incentives without unduly burdening competition.
Potential Implications and Perspectives
From a short-term perspective, the rebate reduction could marginally decrease earnings for high-volume NOM Market Makers, potentially prompting them to reassess participation levels. However, the one-cent cut is minor relative to overall trading economics, and Nasdaq contends it will help attract more order flow by maintaining a balanced incentive structure. In the long term, this might contribute to greater market efficiency if it encourages diversified liquidity provision across exchanges.
Different stakeholders offer varied views. Exchanges like Nasdaq view such tweaks as essential for staying competitive in a fragmented options market, where rivals including Cboe and NYSE Arca frequently adjust fees. Market participants, particularly large market-making firms, might see the reduction as a cost increase, potentially shifting flow to venues with more generous rebates. Regulators, focused on investor protection, could evaluate whether the change promotes fair access without favoring certain players. Consumer advocacy groups might welcome any move that indirectly tightens spreads through competitive pressures, though no specific comments were noted in the filing.
The proposal asserts no undue burden on inter-market competition, citing the 'fierce' rivalry for order flow. Intra-market, it applies uniformly, benefiting all by potentially increasing overall liquidity.
In summary, Nasdaq's proposed rebate adjustments for NOM Market Makers represent a targeted refinement to its pricing model. Key takeaways include the modest reduction in high-tier rebates, alignment with competitive market principles, and potential for enhanced order flow. Looking ahead, possible trajectories involve SEC review of public comments, which could lead to modifications or full approval. Ongoing debates may center on balancing incentives with market fairness, especially as options volumes grow. Challenges include adapting to evolving trading technologies and regulatory scrutiny, while next steps likely include monitoring implementation effects starting February 2, 2026.
