[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28912-28917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11636]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69559; File No. SR-NASDAQ-2013-074]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Penny Pilot Options and Non-Penny Pilot Options
May 10, 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 April 30, 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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[[Page 28913]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASDAQ proposes to modify 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 certain Penny Pilot Options \3\ Rebates to Add Liquidity and Non-
Penny Pilot Fees for Adding Liquidity applicable to Firms,\4\ Non-NOM
Market Makers \5\ and Broker Dealers.\6\
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\3\ The Penny Pilot was established in March 2008 and in October
2009 was expanded and extended through June 30, 2013. See Securities
Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 18587 (April
4, 2008) (SR-NASDAQ-2008-026) (notice of filing and immediate
effectiveness establishing Penny Pilot); 60874 (October 23, 2009),
74 FR 56682 (November 2, 2009)(SR-NASDAQ-2009-091) (notice of filing
and immediate effectiveness expanding and extending Penny Pilot);
60965 (November 9, 2009), 74 FR 59292 (November 17, 2009)(SR-NASDAQ-
2009-097) (notice of filing and immediate effectiveness adding
seventy-five classes to Penny Pilot); 61455 (February 1, 2010), 75
FR 6239 (February 8, 2010) (SR-NASDAQ-2010-013) (notice of filing
and immediate effectiveness adding seventy-five classes to Penny
Pilot); 62029 (May 4, 2010), 75 FR 25895 (May 10, 2010) (SR-NASDAQ-
2010-053) (notice of filing and immediate effectiveness adding
seventy-five classes to Penny Pilot); 65969 (December 15, 2011), 76
FR 79268 (December 21, 2011) (SR-NASDAQ-2011-169) (notice of filing
and immediate effectiveness extension and replacement of Penny
Pilot); 67325 (June 29, 2012), 77 FR 40127 (July 6, 2012) (SR-
NASDAQ-2012-075) (notice of filing and immediate effectiveness and
extension and replacement of Penny Pilot through December 31, 2012);
and 68519 (December 21, 2012), 78 FR 136 (January 2, 2013) (SR-
NASDAQ-2012-143) (notice of filing and immediate effectiveness and
extension and replacement of Penny Pilot through June 30, 2013). See
also NOM Rules, Chapter VI, Section 5.
\4\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\5\ The term ``Non-NOM Market Maker'' or (``O'') is a registered
market maker on another options exchange that is not a NOM Market
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market
Maker designation to orders routed to NOM.
\6\ The term ``Broker-Dealer'' or (``B'') applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category.
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While the changes proposed herein are effective upon filing, the
Exchange has designated that the amendments be operative on May 1,
2013.
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 modify Chapter XV, entitled ``Options Pricing,''
at Section 2(1) governing the rebates and fees assessed for option
orders entered into NOM. The Exchange proposes to adopt certain tiered
pricing for Firms, Non-NOM Market Makers and Broker-Dealers with
respect to Penny Pilot Options Rebates to Add Liquidity and Non-Penny
Pilot Options Fees for Adding Liquidity.
Today, the Exchange offers tiered Penny Pilot Options Rebates to
Add Liquidity to Customers,\7\ Professionals \8\ and NOM Market Makers
\9\ and a $0.10 per contract Penny Pilot Options Rebate to Add
Liquidity to Firms, Non-NOM Market Makers and Broker-Dealers. With
respect to Customers and Professionals, the Exchange pays Penny Pilot
Options Rebates to Add Liquidity based on various criteria with rebates
ranging from $0.25 to $0.48 per contract as follows:
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\7\ The term ``Customer'' applies to any transaction that is
identified by a Participant for clearing in the Customer range at
The Options Clearing Corporation (``OCC'') which is not for the
account of broker or dealer or for the account of a ``Professional''
(as that term is defined in Chapter I, Section 1(a)(48)). The
Customer and Professional Rebates to Add Liquidity range from [sic].
\8\ The term ``Professional'' means any person or entity that
(i) is not a broker or dealer in securities, and (ii) places more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s) pursuant to Chapter
I, Section 1(a)(48). All Professional orders shall be appropriately
marked by Participants.
\9\ The term ``NOM Market Maker'' is a Participant that has
registered as a Market Maker on NOM pursuant to Chapter VII, Section
2, and must also remain in good standing pursuant to Chapter VII,
Section 4. In order to receive NOM Market Maker pricing in all
securities, the Participant must be registered as a NOM Market Maker
in at least one security.
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Rebate to add
Monthly volume liquidity
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Tier 1............... Participant adds Customer $0.25
and Professional liquidity
of up to 0.20% of total
industry customer equity
and ETF option average
daily volume (``ADV'')
contracts per day in a
month.
Tier 2............... Participant adds Customer 0.40
and Professional liquidity
of 0.21% to 0.30% of total
industry customer equity
and ETF option ADV
contracts per day in a
month.
Tier 3............... Participant adds Customer 0.43
and Professional liquidity
of 0.31% to 0.49% of total
industry customer equity
and ETF option ADV
contracts per day in a
month.
Tier 4............... Participant adds Customer 0.45
and Professional liquidity
of 0.5% or more of total
industry customer equity
and ETF option ADV
contracts per day in a
month.
Tier 5 \a\........... Participant adds (1) 0.42
Customer and Professional
liquidity of 25,000 or
more contracts per day in
a month, (2) the
Participant has certified
for the Investor Support
Program set forth in Rule
7014, and (3) the
Participant executed at
least one order on
NASDAQ's equity market.
Tier 6 \b,c\......... Participant has Total 0.45
Volume of 130,000 or more
contracts per day in a
month, of which 25,000 or
more contracts per day in
a month must be Customer
or Professional liquidity.
Tier 7 \b,c\......... Participant has Total 0.47
Volume of 175,000 or more
contracts per day in a
month, of which 50,000 or
more contracts per day in
a month must be Customer
or Professional liquidity.
Tier 8 \b,c\......... Participant (1) Has Total 0.48
Volume of 325,000 or more
contracts per day in a
month, or (2) adds
Customer or Professional
liquidity of 1.00% or more
of national customer
volume in multiply-listed
equity and ETF options
classes in a month or (3)
adds Customer or
Professional liquidity of
60,000 or more contracts
per day in a month and NOM
Market Maker liquidity of
40,000 or more contracts
per day per month.
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[[Page 28914]]
With respect to NOM Market Makers, the Exchange pays Penny Pilot
Options Rebates to Add Liquidity based on various criteria in four
tiers with rebates which range from $0.25 to $0.38 per contract as
follows:
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Monthly volume Rebate to add liquidity
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Tier 1.......... Participant adds NOM $0.25
Market Maker liquidity
in Penny Pilot Options
of up to 39,999
contracts per day in a
month.
Tier 2.......... Participant adds NOM $0.30
Market Maker liquidity
in Penny Pilot Options
of 40,000 to 89,999
contracts per day in a
month.
Tier 3.......... Participant and its $0.37
affiliate under Common
Ownership qualify for
Tier 8 of the Customer
and Professional
Rebate to Add
Liquidity in Penny
Pilot Options.
Tier 4.......... Participant adds NOM $0.28 or $0.38 in the
Market Maker liquidity following symbols BAC, GLD,
in Penny Pilot Options IWM, QQQ and VXX or $0.40 in
of 110,000 or more SPY
contracts per day in a
month.
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The Exchange proposes to amend the Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity to pay a
Participant that adds 15,000 contracts per day or more of Firm, Non-NOM
Market Maker or Broker-Dealer liquidity in Penny Pilot Options or Non-
Penny Pilot Options in a given month a Penny Pilot Options Rebate to
Add Liquidity of $0.20 per contract. The Exchange believes that the
proposed Penny Pilot Options Rebate to Add Liquidity will encourage
Firms, Non-NOM Market Makers and Broker-Dealers to transact additional
liquidity on NOM.
The Exchange also proposes to amend the Non-Penny Pilot Options
Fees for Adding Liquidity for a Firm, Non-NOM Market Maker and Broker-
Dealer. Today, a Customer does not pay a Non-Penny Pilot Options Fee
for Adding Liquidity. Professionals, Firms, Non-NOM Market Makers and
Broker-Dealers pay a $0.45 per contract Non-Penny Pilot Options Fee for
Adding Liquidity and a NOM Market Maker pays a $0.35 per contract Non-
Penny Pilot Options Fee for Adding Liquidity. The Exchange proposes to
decrease the Firm, Non-NOM Market Maker and Broker-Dealer Non-Penny
Pilot Options Fees for Adding Liquidity from $0.45 to $0.36 per
contract provided a Participant adds 15,000 contracts per day or more
of Firm, Non-NOM Market Maker or Broker-Dealer liquidity in Penny Pilot
Options or Non-Penny Pilot Options in a given month. The Exchange
believes that the proposed reduced Non-Penny Pilot Options Fees for
Adding Liquidity will encourage Firms, Non-NOM Market Makers and
Broker-Dealers to provide additional liquidity on NOM.
The Exchange proposes to add a new note 2 to describe the rebate
and reduced fee as described herein to Chapter XV, Section 2(1).
2. Statutory Basis
NASDAQ believes that the proposed rule changes are consistent with
the provisions of Section 6 of the Act,\10\ in general, and with
Section 6(b)(4) of the Act,\11\ in particular, in that they provide for
the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility or
system which NASDAQ operates or controls as described in detail below.
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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed Firm, Non-NOM Market Maker
and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity are
reasonable because a Firm, Non-NOM Market Maker and Broker-Dealer have
the opportunity to obtain an increased rebate, similar to Customers,
Professionals and NOM Market Makers today,\12\ by transacting 15,000
contracts per day or more of Penny Pilot Options or Non-Penny Pilot
Options liquidity in a given month.
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\12\ Customers and Professionals Penny Pilot Option Rebates to
Add Liquidity are based on various criteria with rebates ranging
from $0.25 to $0.48 per contract. A NOM Market Maker is paid a Penny
Pilot Options Rebate to Add Liquidity based on various criteria in
four tiers with rebates which range from $0.25 to $0.38 per
contract. See Chapter XV, Section 2(1).
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The Exchange believes that the proposed Firm, Non-NOM Market Maker
and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity are
equitable and not unfairly discriminatory because the Exchange would
continue to offer Customers, Professionals and NOM Market Makers an
opportunity to obtain higher rebates. The Exchange believes that
continuing to pay Customers and Professionals tiered Rebates to Add
Liquidity in Penny Pilot Options, as compared to other market
participants, is equitable and not unfairly discriminatory because
Customers are entitled to higher rebates because Customer order flow
brings unique benefits to the market through increased liquidity which
benefits all market participants. The Exchange believes that continuing
to offer Professionals the same Penny Pilot Options Rebates to Add
Liquidity as Customers is equitable and not unfairly discriminatory
because the Exchange believes that offering Professionals the
opportunity to earn the same rebates as Customers, as is the case
today, and higher rebates as compared to Firms, Broker-Dealers and Non-
NOM Market Makers, and in some cases NOM Market Makers, is equitable
and not unfairly discriminatory because the Exchange does not believe
that the amount of the rebate offered by the Exchange has a material
impact on a Participant's ability to execute orders in Penny Pilot
Options. By offering Professionals, as well as Customers, higher
rebates, the Exchange hopes to simply remain competitive with other
venues so that it remains a choice for market participants when posting
orders and the result may be additional Professional order flow for the
Exchange, in addition to increased Customer order flow.
In addition, a Participant may not be able to gauge the exact
rebate tier it would qualify for until the end of the month because
Professional volume would be commingled with Customer volume in
calculating tier volume.\13\ A Professional could only otherwise
presume the Tier 1 rebate would be achieved in a month when determining
price.\14\ Further, the Exchange initially established Professional
pricing in order to ``. . . bring additional revenue to the Exchange.''
\15\ The Exchange noted in
[[Page 28915]]
the Professional Filing that it believes ``. . . that the increased
revenue from the proposal would assist the Exchange to recoup fixed
costs.'' \16\ The Exchange also noted in that filing that it believes
that establishing separate pricing for a Professional, which ranges
between that of a customer and market maker, accomplishes this
objective.\17\ The Exchange does not believe that providing
Professionals with the opportunity to obtain higher rebates equivalent
to that of a Customer creates a competitive environment where
Professionals would be necessarily advantaged on NOM as compared to NOM
Market Makers, Firms, Broker-Dealers or Non-NOM Market Makers. Also, a
Professional is assessed the same fees as other market participants,
except Customers and NOM Market Makers, as discussed herein.\18\ For
these reasons, the Exchange believes that continuing to offer
Professionals the same rebates as Customers is equitable and not
unfairly discriminatory. Finally, the Exchange believes that NOM Market
Makers should be offered the opportunity to earn higher rebates as
compared to Non-NOM Market Makers, Firms and Broker Dealers because NOM
Market Makers add value through continuous quoting \19\ and the
commitment of capital. Firms, Non-NOM Market Makers and Broker-Dealers
would continue to be offered the same Penny Pilot Options Rebate to Add
Liquidity, as is the case today, except, similar to other market
participants, Firms, Non-NOM Market Makers and Broker-Dealers would
have the opportunity to earn a higher Penny Pilot Options Rebate to Add
Liquidity if they transact 15,000 contract per day or more of Penny
Pilot Options or Non-Penny Pilot Options liquidity in a given month.
The volume requirement for Firms, Non-NOM Market Makers and Broker-
Dealers to qualify for the higher Penny Pilot Options Rebate to Add
Liquidity is less than is required to earn a Tier 1 Customer or
Professional Rebate to Add Liquidity in Penny Pilot Options or a Tier 1
NOM Market Maker Rebate to Add Liquidity in Penny Pilot Option.\20\ The
proposed Firm, Non-NOM Market Maker and Broker-Dealer Penny Pilot
Options Rebate to Add Liquidity of $0.20 per contract is the same for
these market participants and would be uniformly applied to all
Participants that qualify for the increased rebate.
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\13\ Customer and Professional volume is aggregated for purposes
of determining which rebate tier a Participant qualifies for with
respect to the Professional Rebate to Add Liquidity in Penny Pilot
Options.
\14\ A Professional would be unable to determine the exact
rebate that would be paid on a transaction by transaction basis with
certainty until the end of a given month when all Customer and
Professional volume is aggregated for purposes of determining which
tier the Participant qualified for in a given month.
\15\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066)
(``Professional Filing''). In this filing, the Exchange addressed
the perceived favorable pricing of Professionals who were assessed
fees and paid rebates like a Customer prior to the filing. The
Exchange noted in that filing that a Professional, unlike a retail
Customer, has access to sophisticated trading systems that contain
functionality not available to retail Customers.
\16\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
\17\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066). The Exchange
noted in this filing that it believes the role of the retail
customer in the marketplace is distinct from that of the
professional and the Exchange's fee proposal at that time accounted
for this distinction by pricing each market participant according to
their roles and obligations.
\18\ The Fee for Removing Liquidity in Penny Pilot Options is
$0.48 per contract for all market participants, except Customers and
NOM Market Makers. Customers are assessed $0.45 per contract and NOM
Market Makers would continue to be assessed $0.47 per contract.
\19\ Pursuant to Chapter VII (Market Participants), Section 5
(Obligations of Market Makers), in registering as a market maker, an
Options Participant commits himself to various obligations.
Transactions of a Market Maker in its market making capacity must
constitute a course of dealings reasonably calculated to contribute
to the maintenance of a fair and orderly market, and Market Makers
should not make bids or offers or enter into transactions that are
inconsistent with such course of dealings. Further, all Market
Makers are designated as specialists on NOM for all purposes under
the Act or rules thereunder. See Chapter VII, Section 5.
\20\ The 15,000 contract threshold for Firms, Non-NOM Market
Makers and Broker-Dealers to earn the Penny Pilot Options Rebate to
Add Liquidity equates to approximately 0.12% of the industry
customer equity and ETF volume.
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The Exchange's proposal to decrease the Firm, Non-NOM Market Maker
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity
from $0.45 to $0.36 per contract if a Firm, Non-NOM Market Maker or
Broker-Dealer transacts 15,000 contracts per day or more of Penny Pilot
Options or Non-Penny Pilot Options liquidity in a given month is
reasonable because a Firm, Non-NOM Market Maker and Broker-Dealer have
the opportunity to lower their transaction fees by transacting
additional liquidity on NOM.
The Exchange's proposal to decrease the Firm, Non-NOM Market Maker
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity
from $0.45 to $0.36 per contract if a Firm, Non-NOM Market Maker or
Broker-Dealer transacts 15,000 contracts per day or more of Penny Pilot
Options or Non-Penny Pilot Options liquidity in a given month is
equitable and not unfairly discriminatory because the Exchange would
continue to assess Firms, Non-NOM Market Makers and Broker-Dealers the
same Non-Penny Pilot Options Fees for Adding Liquidity, as is the case
today, except, similar to other market participants, Firms, Non-NOM
Market Makers and Broker-Dealers would have the opportunity to reduce
Non-Penny Pilot Options Fees for Adding Liquidity if they transact
15,000 contract per day or more of Penny Pilot Options or Non-Penny
Pilot Options liquidity in a given month. Today, Customers are not
assessed a Non-Penny Pilot Options Fee for Adding Liquidity because
Customer order flow is unique and benefits all market participants. A
NOM Market Maker would continue to be assessed lower fees as compared
to Firms, Non-NOM Market Makers and Broker-Dealers in Non-Penny Pilot
Fees for Adding Liquidity ($0.35 per contract for a NOM Market Maker as
compared to other market participants), even with the proposed reduced
fee of $0.36 per contract, because, as mentioned herein, NOM Market
Makers add value through continuous quoting \21\ and the commitment of
capital. The proposed reduced Firm, Non-NOM Market Maker and Broker-
Dealer Non-Penny Pilot Options Fee for Adding Liquidity of $0.26 per
contract is the same for Firms, Non-NOM Market Makers and Broker-
Dealers, and would be uniformly applied to all Participants that
qualify for the reduced fee.
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\21\ See note 19.
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The Exchange believes that not offering Professionals the same
reduction in Non-Penny Pilot Options Fees for Adding Liquidity is
reasonable because Professionals have the opportunity to earn
significantly higher rebates for adding liquidity in Penny Pilot
Options, as compared to Firms, Non-NOM Market Makers and Broker-
Dealers, which should continue to incentivize Professionals to add
liquidity to the Exchange in Penny Pilot Options, which account for
approximately 80% of the industry volume every month. The Exchange
believes that the Penny Pilot Options Professional rebate tiers, which
requires Professionals to add a certain amount of Penny Pilot Options
liquidity per month and liquidity in either Penny Pilot Options or Non-
Penny Pilot Options for purposes of Tiers 6, 7 or 8,\22\ incentivizes
Professionals to add Non-Penny Pilot Options liquidity on NOM. Further,
Professionals average effective rate to add liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options has a high probability of being
lower than the average effective rate for a Firm, Non-NOM Market Maker
or Broker-Dealers to add liquidity in Penny Pilot Options or Non-Penny
Pilot Options in any given month, despite the Exchange's decision to
not offer a Professional the opportunity to reduce
[[Page 28916]]
Non-Penny Pilot Fees for Adding Liquidity in certain circumstances. By
way of example, if a Professional and a Firm add liquidity volume,
which volume is evenly split between Penny Pilot Options and Non-Penny
Pilot Options and both achieve the maximum rebate opportunity
available, the Professional's effective rate to add liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options would be an average
effective rebate of $0.015 per contract, while the Firm's effective
rate would be an average effective fee of $0.08 per contract.
Otherwise, the Non-Penny Pilot Options Fees for Adding Liquidity are
the same for all market participants, except Customers, when a Firm,
Non-NOM Market Maker or Broker-Dealer does not otherwise qualify for
the reduced fee. The Exchange believes that its proposal to reduce the
Firm, Non-NOM Market Maker and Broker-Dealer Fees for Adding Liquidity
in Non-Penny Pilot Options, only when a Firm, Non-NOM Market Maker or
Broker-Dealer adds liquidity of 15,000 contracts per day or more of
Penny Pilot Options or Non-Penny Pilot Options volume in a given month,
is equitable and not unfairly discriminatory because of the potential a
Professional has to achieve higher rebates in Penny Pilot Options,
particularly when such volume is aggregated with Customer volume and,
in certain cases, includes liquidity in either Penny Pilot Options or
Non-Penny Pilot Options.
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\22\ Tiers 6, 7 or 8 of the Professional Penny Pilot Options
Rebate to Add Liquidity permits Participants to add Total Volume
which is defined as Customer, Professional, Firm, Broker-Dealer,
Non-NOM Market Maker and NOM Market Maker volume in Penny Pilot
Options and Non-Penny Pilot Options which either adds or removes
liquidity on NOM.
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule changes will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
Customers have traditionally been paid the highest rebates offered
by options exchanges. The Exchange does not believe that providing
Professionals with the opportunity to obtain higher rebates equivalent
to that of a Customer creates an undue burden on competition where
Professionals would be necessarily advantaged on NOM as compared to NOM
Market Makers, Firms, Broker-Dealers or Non-NOM Market Makers because
the Exchange does not believe that the amount of the rebate offered by
the Exchange has a material impact on a Participant's ability to
execute orders in Penny Pilot Options. The Exchange does not believe
the proposed rebate tiers would result in any burden on competition as
between market participants because the remaining market participants,
Firms, Non-NOM Market Makers and Broker-Dealers would continue to earn
uniform rebates today and have the opportunity to earn the same
enhanced rebate. The Exchange believes that incentivizing Firms, Non-
NOM Market Makers and Broker-Dealers to transact a greater number of
Penny Pilot Options or Non-Penny Pilot Options brings greater liquidity
to the Exchange.
The Exchange's proposal to decrease the Firm, Non-NOM Market Maker
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity,
provided those Participants transacted 15,000 contracts per day or more
of Penny Pilot Options or Non-Penny Pilot Options liquidity in a given
month, does not misalign the current fees on NOM. These market
participants would continue to pay uniform transaction fees as compared
to other market participants. Customers would not pay such a fee, as is
the case today because of the unique benefits attributed to Customer
order flow, and NOM Market Makers would continue to be assessed a more
favorable fee, despite the fee reduction offered to Firms, Non-NOM
Market Makers and Broker-Dealers because NOM Market Makers have
obligations \23\ to the market which are not borne by other market
participants and therefore the Exchange believes that NOM Market Makers
are entitled to a lower fee as compared to other market participants,
except Customers.
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\23\ See note 19.
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With respect to the Non-Penny Pilot Options Fees for Adding
Liquidity, the Exchange noted that Professionals have the opportunity
to earn significantly higher Penny Pilot Options Rebates for Adding
Liquidity as compared to Firms, Non-NOM Market Makers and Broker-
Dealers by qualifying for rebate tiers which aggregates Penny Pilot
Options volume and Non-Penny Pilot Options volume, in certain
circusmtances [sic],\24\ as well as volume from Customer executions.
The Exchange believes that its proposal to reduce the Firm, Non-NOM
Market Maker and Broker-Dealer Non-Penny Pilot Options Fees for Adding
Liquidity only when a Firm, Non-NOM Market Maker or Broker-Dealer adds
liquidity of 15,000 contracts per day or more of Penny Pilot Options or
Non-Penny Pilot Options volume in a given month does not create an
undue burden on competition given the opportunity for Professionals to
qualify for higher Penny Pilot Options rebates.
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\24\ See note 22.
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The Exchange believes the differing outcomes, rebates and fees
created by the Exchange's proposed pricing incentives contribute to the
overall health of the market place for the benefit of all Participants
that willing choose to transact options on NOM. For the reasons
specified herein, the Exchange does not believe this proposal creates
an undue burden on competition. The Exchange operates in a highly
competitive market comprised of eleven U.S. options exchanges in which
many sophisticated and knowledgeable market participants can readily
and do send order flow to competing exchanges if they deem fee levels
or rebate incentives at a particular exchange to be excessive or
inadequate. These market forces support the Exchange belief that the
proposed rebate structure and tiers proposed herein are competitive
with rebates and tiers in place on other exchanges. The Exchange
believes that this competitive marketplace continues to impact the
rebates present on the Exchange today and substantially influences the
proposals set forth above.
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.\25\ 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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\25\ 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
[[Page 28917]]
Number SR-NASDAQ-2013-074 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-2013-074. 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 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; 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-2013-074, and should
be submitted on or before June 6, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11636 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P