[Federal Register Volume 78, Number 41 (Friday, March 1, 2013)]
[Notices]
[Pages 13928-13930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04747]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68976; File No. SR-NASDAQ-2013-029]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Routing Fees to C2
February 25, 2013.
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 February 12, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' 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 NASDAQ.
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
NASDAQ proposes to amend Chapter XV, entitled ``Options Pricing,''
at Section 2 governing pricing for NASDAQ members using the NASDAQ
Options Market (``NOM''), NASDAQ's facility for executing and routing
standardized equity and index options. Specifically, NOM proposes to
amend its Routing Fees to the C2 Options Exchange, Inc. (``C2'').
The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaq.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. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ proposes to amend its Routing Fees at Chapter XV, Section
2(3) of the Exchange Rules in order to recoup costs applicable to the
C2 Options Exchange, Inc. (``C2'') that the Exchange incurs for routing
and executing orders in equity options. Today, the Exchange calculates
Routing Fees by assessing certain Exchange costs related to routing
orders to away markets plus the away market's transaction fee. The
Exchange assesses a $0.05 per contract fixed Routing Fee when routing
orders to the NASDAQ OMX PHLX LLC (``PHLX'') and NASDAQ OMX BX, Inc.
(``BX Options'') and a $0.11 per contract fixed Routing Fee to all
other options exchanges in addition to the actual transaction fee or
rebate paid by the away market.\3\
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\3\ Today, the transaction fee assessed by the Exchange is based
on the away market's actual transaction fee or rebate for a
particular market participant at the time that the order was entered
into the Exchange's trading system. This transaction fee is
calculated on an order-by-order basis, since different away markets
charge different amounts. In the event that there is no transaction
fee or rebate assessed by the away market, the only fee assessed is
the fixed Routing Fee. With respect to the rebate, the Exchange pays
a market participant the rebate offered by an away market where
there is such a rebate. Any rebate available is netted against a fee
assessed by the Exchange. The Exchange is not proposing to amend its
calculation of the away market's transaction fee as described
herein.
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The fixed Routing Fee is based on costs that are incurred by the
Exchange when routing to an away market in addition to the away
market's transaction fee. For example, the Exchange incurs a fee when
it utilizes Nasdaq Options Services LLC (``NOS''), a member of the
Exchange and the Exchange's exclusive order router.\4\ Each time NOS
routes to away markets NOS incurs a clearing-related cost \5\ and, in
the case of certain exchanges, a transaction fee is also charged in
certain symbols, which fees are passed through to the Exchange. The
Exchange also incurs administrative and technical costs associated with
operating NOS, membership fees at away markets, Options Regulatory Fees
(``ORFs'') and technical costs associated with routing options.
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\4\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order
Routing).
\5\ The Options Clearing Corporation (``OCC'') assesses a
clearing fee of $0.01 per contract side. See Securities Exchange Act
Release No. 68025 (October 10, 2012), 77 FR 63398 (October 16, 2012)
(SR-OCC-2012-18).
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C2 recently filed a rule change to amend its transaction fees and
rebates
[[Page 13929]]
for simple,\6\ non-complex orders, in equity options classes which
became operative on February 1, 2013.\7\ C2 assesses its transaction
fees based on a formula wherein fees are calculated on a per-contract
basis.\8\ C2 pays rebates based on a formula wherein rebates are
calculated on a per-contract basis.\9\ Because of this recent rule
change, the Exchange proposes to amend C2 Routing Fees to provide
transparency to its market participants.
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\6\ C2 defines simple orders to exclude ETFs and indexes.
\7\ See Securities Exchange Act Release No. 68792 (January 31,
2013), 78 FR 8621 (February 6, 2013) (SR-C2-2013-004).
\8\ C2 utilizes the following formula to calculate its
transaction fees: C2 BBO Market Width at time of execution) x
(Market Participant Rate) x 50. The C2 BBO Market Width is the
difference between the quoted best offer and best bid in each class
on C2 (the displayed C2 ask price minus the displayed C2 bid price).
The Market Participant Rates are different rates for different types
of market participants, as follows: Market Participant Rate; C2
Market-Maker 30%; Public Customer (Maker) 40%; all other origins
50%. See C2's Fees Schedule.
\9\ C2 utilizes the following formula to compute rebates for
simple, non-complex Public Customer orders in all equity options
classes that remove liquidity (i.e. takers): Rebate = (C2 BBO Market
Width at time of execution) x (Order Size Multiplier) x 50. The
order size multiplier is as follows: 1-10 contracts will be 36%; 11-
99 contracts will be 30%; 100-250 contracts will be 20% and 251 plus
contracts is 0%. The maximum rebate is capped at $0.75 per contract.
See C2's Fees Schedule.
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The Exchange proposes to amend its non-Customer C2 Routing Fees to
assess the fixed cost of $0.11 per contract plus a flat rate of $0.85
per contract, except with respect to Customers.\10\ With respect to
Customers, the Exchange proposes not to pass the rebate offered by C2,
as is the case today for Routing to C2 and other away markets. The
Exchange proposes to not assess Customers a Routing Fee when routing
orders to C2. This is similar to the manner in which the BATS Exchange,
Inc. (``BATS'') prices Customer orders routed to C2.\11\ The Exchange
proposes to specifically note the amended rates in its rule text in
order to simplify C2 Routing Fees.
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\10\ Recent pricing changes by C2 will result in a maximum fee
of $0.85 per contract for non-Customer orders executed at C2 and
rebates or free executions for Customer orders executed at C2.
\11\ See SR-BATS-2013-012 (not yet published).
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As with all fees, the Exchange may adjust these Routing Fees in
response to competitive conditions by filing a new proposed rule
change.
2. Statutory Basis
NASDAQ believes that its proposal to amend its pricing is
consistent with Section 6(b) of the Act \12\ in general, and furthers
the objectives of Section 6(b)(4) of the Act,\13\ in particular, in
that it is an equitable allocation of reasonable fees and other charges
among its Participants.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that its proposal to amend non-Customer C2
Routing Fees from actual transaction charges to a flat rate, in
addition to its fixed cost, is reasonable because the current C2
Routing Fees are not transparent. The Exchange believes that assessing
a flat rate in addition to the fixed cost assessed by the Exchange will
provide market participants certainty with respect to C2 Routing Fees.
Further, each destination market's transaction charge varies and there
is a cost incurred by the Exchange when routing orders to away markets.
The costs to the Exchange include clearing costs, administrative and
technical costs associated with operating NOS, membership fees at away
markets, ORFs and technical costs associated with routing options. The
Exchange believes that the proposed non-Customer C2 Routing Fees will
enable the Exchange to recover the costs it incurs to route orders to
C2 in addition to the flat fee to recoup transaction costs.
The Exchange believes that its proposal to amend the non-Customer
C2 Routing Fees from actual transaction charges to a flat rate, in
addition to its fixed cost, is equitable and not unfairly
discriminatory because the Exchange would uniformly assess the same C2
Routing Fees to all non-Customer market participants. Under its flat
fee structure, taking all costs to the Exchange into account, the
Exchange may operate at a slight gain or a slight loss for orders
routed to and executed at C2. The Exchange believes that its proposed
Routing Fees for routing non-Customer orders to C2 are reasonable
because they are an approximation of the maximum fees the Exchange will
be charged for such executions, including costs. As a general matter,
the Exchange believes that the proposed fees will allow it to recoup
and cover its costs of providing routing services to C2.
The Exchange believes that its proposal to not pay a rebate to
Customers and assess no Customer Routing Fee is reasonable, equitable
and not unfairly discriminatory. The Exchange believes that the pricing
structure is reasonable because, although not an approximation of the
cost of routing to C2, Customer orders will still receive executions
free of charge, whereas all other non-Customer routed orders routed to
C2 would be assessed a Routing Fee. The Exchange believes that the
proposed pricing for Customer orders is equitable and not unfairly
discriminatory because it would apply uniformly to all Customer
transactions. Participants desiring the rebate offered by C2 can route
orders directly in order to take advantage of the rebate. Market
participants may submit orders to the Exchange as ineligible for
routing or ``DNR'' to avoid Routing Fees.
Further, the Exchange believes that it is equitable and not
unfairly discriminatory to assess a fixed cost of $0.05 per contract to
route orders to NASDAQ OMX away markets (BX Options and PHLX) because
the cost, in terms of actual cash outlays, to the Exchange to route to
those markets is lower. For example, costs related to routing to BX
Options and PHLX are lower as compared to other away markets because
NOS is utilized by all three exchanges to route orders.\14\ NOS and the
three NASDAQ OMX options markets have a common data center and staff
that are responsible for the day-to-day operations of NOS. Because the
three exchanges are in a common data center, Routing Fees are reduced
because costly expenses related to, for example, telecommunication
lines to obtain connectivity are avoided when routing orders in this
instance. The costs related to connectivity to route orders to other
NASDAQ OMX exchanges are de minimis. When routing orders to non-NASDAQ
OMX exchanges, the Exchange incurs costly connectivity charges related
to telecommunication lines and other related costs when routing orders.
The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to pass along savings realized by leveraging NASDAQ
OMX's infrastructure and scale to market participants when those orders
are routed to BX Options and NOM. It is important to note with respect
to routing to an away market that orders are routed based on price
first.\15\ The Exchange will route orders to away markets where the
Exchange's disseminated bid or offer is inferior to the national best
bid (best offer) (``NBBO'') price.\16\
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\14\ See Chapter VI, Section 11 of the NASDAQ and BX Options
Rules and Phlx Rule 1080(m)(iii)(A).
\15\ See NASDAQ Rules at Chapter XII (Options Order Protection
and Locked and Crossed Market Rules).
\16\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order
Routing).
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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
[[Page 13930]]
of the purposes of the Act. The Exchange believes that the rule change
would allow the Exchange to recoup its costs when routing orders
designated as available for routing by the market participant to C2.
Participants may choose to mark the order as ineligible for routing to
avoid incurring these fees.\17\ Today, other options exchanges also
assess similar fees to recoup costs incurred by the Exchange to route
orders to away markets. The Exchange routes orders to away markets
where the Exchange's disseminated bid or offer is inferior to the
national best bid (best offer) (``NBBO'') price and based on price
first.\18\
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\17\ Id.
\18\ See supra note 15.
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The Exchange operates in a highly competitive market, comprised of
eleven exchanges, in which market participants can easily and readily
direct order flow to competing venues if they deem fee levels at a
particular venue to be excessive. Accordingly, the fees that are
assessed by the Exchange must remain competitive with fees charged by
other venues and therefore must continue to be reasonable and equitably
allocated to those Participants that opt to direct orders to the
Exchange rather than competing venues.
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.\19\ 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 necessary or appropriate in the public interest,
for the protection of investors, or 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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\19\ 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-NASDAQ-2013-029 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2013-029. 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 Web site (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 Web site 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 such filing also will be available
for inspection and copying at the principal office of NASDAQ. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2013-029, and should
be submitted on or before March 22, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-04747 Filed 2-28-13; 8:45 am]
BILLING CODE 8011-01-P