[Federal Register Volume 78, Number 132 (Wednesday, July 10, 2013)]
[Notices]
[Pages 41455-41460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-16530]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69929; File No. SR-NASDAQ-2013-091]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Penny Pilot Option Rebates To Add Liquidity
July 3, 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 June 27, 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 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 Customer,\3\ Professional \4\ and NOM Market Maker \5\
Rebates to Add Liquidity in Penny Pilot Options.\6\
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\3\ 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)).
\4\ 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.
\5\ 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.
\6\ 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. The Exchange recently filed a
proposed rule change to extend the pilot through December 31, 2013.
See SR-Phlx-2013-64, which is not yet published.
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While the changes proposed herein are effective upon filing, the
Exchange has designated that the amendments be operative on July 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 amend the Customer,
Professional and NOM Market Maker Penny Pilot Options Rebates to Add
Liquidity and make other technical amendments to the Section 2(1) as
described more fully below.
Today, the Exchange offers an eight-tiered Rebate to Add Liquidity
in Penny Pilot Options to Customers and Professionals as follows:
------------------------------------------------------------------------
Rebate to add
Monthly volume liquidity
------------------------------------------------------------------------
Tier 1......................... Participant adds $0.25
Customer 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 0.40
Customer 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 0.43
Customer 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 0.45
Customer 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......................... 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.
[[Page 41456]]
Tier 6......................... 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......................... 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......................... Participant (1) has 0.48
Total 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.
------------------------------------------------------------------------
The Exchange is proposing to amend Tier 8 which currently pays a
rebate of $0.48 per contract to a Participant that: (i) Has Total
Volume \7\ of 325,000 or more contracts per day in a month; (ii) 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 (iii) 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 in a month. The Exchange is proposing
to continue to pay a $0.48 per contract rebate for Tier 8 and amend the
criteria to qualify for this rebate tier. The Exchange proposes to pay
the Tier 8 rebate to a Participant that: (i) has Total Volume of
325,000 or more contracts per day in a month (as is the case today); or
(ii) has Total Volume of 200,000 or more contracts per day in a month
of which 70,000 or more contracts per day in a month must be Customer
and/or Professional liquidity; or (iii) 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 (as is the case
today). The Exchange would eliminate the criteria whereby a Participant
can achieve the Tier 8 rebate by adding 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. The
Exchange believes that Participants will be incentivized to achieve a
Tier 8 rebate as they are today and additional Participants may be able
to qualify with the new criteria, which focuses on Customer and/or
Professional liquidity.
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\7\ Total Volume is defined as Customer, Professional, Firm,
Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in
Penny Pilot Options or Non-Penny Pilot Options which either adds or
removes liquidity on NOM. See Chapter XV, Section 2(1) of the NOM
Rules.
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The Exchange is also proposing to make a technical amendment to the
Penny Pilot Options Customer and Professional Rebates to Add Liquidity
to clarify the text of these rebates. The Exchange today permits
Participants to add Customer or Professional liquidity for Tiers 1
through 7. Participants may add either Customer or Professional
liquidity to qualify for these rebate tiers. The Exchange proposes to
add the words ``/or'' to clarify that Customer and/or Professional
liquidity may be added to Tiers 1 through 5. The Exchange also proposes
to amend Tiers 6 and 7 in similar fashion to add``and/'' to specify
Customer or Professional liquidity may be added. Similarly the Exchange
proposes to add the word ``and/'' in note 2 of Section (2)(1) of
Chapter XV which provides that ``[a] Participant that adds Firm, Non-
NOM Market Maker or Broker-Dealer liquidity in Penny Pilot Options or
Non-Penny Pilot Options of 15,000 contracts per day or more in a given
month will receive a Rebate to Add Liquidity in Penny Pilot Options of
$0.20 per contract and will pay a Fee for Adding Liquidity in Non-Penny
Pilot Options of $0.36 per contract.'' This would make clear that a
Participant may add Penny and/or Non-Penny Pilot Options to qualify for
the rebate. Finally, the Exchange proposes a similar amendment to note
b in Section 2(1) Chapter XV which provides that ``[f]or purposes of
Tiers 6, 7 and 8, ``Total Volume'' shall be 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.'' The Exchange would add the
words ``/or'' to make clear that Total Volume can consist of Penny
Pilot Options or Non-Penny Pilot Options. The Exchange believes that
these amendments will provide greater clarity to the pricing. The
Exchange otherwise does not propose to amend Tiers 1 through 7 of the
Customer and Professional Rebates to Add Liquidity in Penny Pilot
Options.
Today, the Exchange offers a four-tiered Rebate to Add Liquidity in
Penny Pilot Options to NOM Market Makers as follows:
------------------------------------------------------------------------
Rebate to add
Monthly volume liquidity
------------------------------------------------------------------------
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 109,999
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
Market Maker the following
liquidity in Penny symbols BAC,
Pilot Options of GLD, IWM, QQQ
110,000 or more and VXX or
contracts per day in $0.40 in SPY.
a month.
------------------------------------------------------------------------
[[Page 41457]]
The Exchange proposes to amend the Tier 2 NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options which currently pays a $0.30
per contract rebate to a Participant that adds NOM Market Maker
liquidity in Penny Pilot Options of 40,000 to 109,999 contracts per day
in a month to 40,000 to 69,999 contracts per day in a month to achieve
the same rebate.
The Exchange also proposes to amend the Tier 3 NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options which currently pays a
$0.37 per contract rebate to reduce that rebate to $0.32 per contract
and amend the criteria to qualify for a Tier 3 rebate. Currently, a
Participant and its affiliate under Common Ownership \8\ that qualify
for Tier 8 of the Customer and Professional Rebate to Add Liquidity in
Penny Pilot Options qualify for a Tier 3 NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options. The Exchange is proposing to
eliminate the current Tier 3 criteria and instead pay the new $0.32 per
contract NOM Market Maker Rebate to Add Liquidity in Penny Pilot
Options to Participants that add NOM Market Maker liquidity in Penny
Pilot Options of 70,000 to 99,999 contracts per day in a month.
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\8\ The term ``Common Ownership'' is defined in Chapter XV of
the NOM Rules as Participants under 75% common ownership or control.
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The Exchange also proposes to amend the Tier 4 NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options which currently pays
rebate of $0.28 \9\ or $0.38 per contract in the following symbols,
Bank of America Corporation (``BAC''), SPDR Gold Shares (``GLD''),
iShares Russell 2000 Index (``IWM''), PowerShares QQQ (``QQQ''), iPath
S&P 500 VIX ST Futures ETN (``VXX''), or $0.40 per contract in SPDR S&P
500 (``SPY'') if Participants add NOM Market Maker liquidity in Penny
Pilot Options of 110,000 or more contracts per day in a month. The
Exchange is proposing to increase the Tier 4 rebate of $0.28 per
contract, which is paid on all qualifying Penny Pilot Options,
excluding BAC, GLD, IWM, QQQ, VXX and SPY, to $0.32 per contract.\10\
In addition, the Exchange proposes to decrease the requisite number of
contracts that a Participant must add in NOM Market Maker liquidity in
Penny Pilot Options to achieve a Tier 4 rebate from 110,000 to 100,000
or more contracts per day in a month.
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\9\ The $0.28 per contract Tier 4 NOM Market Maker rebate would
be paid on all qualifying Penny Pilot Options, excluding BAC, GLD,
IWM, QQQ, VXX and SPY.
\10\ The Exchange is not proposing to amend the $0.38 per
contract rebate in BAC, GLD, IWM, QQQ or VXX or the $0.40 per
contract rebate in SPY.
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The Exchange is not proposing to amend the Tier 1 NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options. The Exchange would also
eliminate the text referencing Tiers 3 and 4 of the NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options which provides that
``[i]n the instance that a Participant qualifies for both a Tier 3 and
a Tier 4 NOM Market Maker Penny Pilot Option rebate, the Exchange would
pay the Participant the Tier 3 rebate unless the Participant is
eligible for an increased rebate in one of the following symbols: BAC,
GLD, IWM, QQQ, VXX and SPY, in which case the Tier 4 rebate would be
applied.'' This language is no longer necessary because a Participant
would not be able to qualify for both a Tier 3 and a Tier 4 rebate with
the proposed changes.
The Exchange believes that the amendment to the NOM Market Maker
Rebate to Add Liquidity will continue to incentivize NOM Market Makers
to post liquidity on the Exchange.
2. Statutory Basis
NASDAQ believes that the proposed rule changes are consistent with
the provisions of Section 6 of the Act,\11\ in general, and with
Section 6(b)(4) of the Act,\12\ in particular, in that they provide for
the equitable allocation of reasonable dues, fees and other charges
among Participants and issuers and other persons using any facility or
system which NASDAQ operates or controls as described in detail below.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4).
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The Exchange's proposal to amend the Customer, Professional and NOM
Market Maker Penny Pilot Options Rebates to Add Liquidity are
reasonable because the Exchange will continue to offer competitive
Customer, Professional and NOM Market Maker rebates in order to attract
liquidity to the market to the benefit of all market participants. The
Exchange believes that offering Customers and Professionals and NOM
Market Makers the opportunity to earn higher rebates is reasonable
because by incentivizing Participants to select the Exchange as a venue
to post Customer and Professional liquidity will attract additional
order flow to the benefit of all market participants and incentivizing
NOM Market Makers to post liquidity will also benefit participants
through increased order interaction.
The Exchange believes that the amendments to the Penny Pilot
Options Rebates to Add Liquidity are equitable and not unfairly
discriminatory for various reasons. The Exchange believes that
continuing to pay Customers and Professionals tiered Rebates to Add
Liquidity in Penny Pilot Options, as proposed herein, is equitable and
not unfairly discriminatory as compared to other market participants.
Pursuant to this proposal, the Exchange would pay the highest Tier 1
Rebates to Add Liquidity in Penny Pilot Options of $0.25 per contract
to Customers, Professionals and NOM Market Makers for transacting one
qualifying contract as compared to other market participants.\13\ The
Exchange believes that 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 for the reasons which follow. 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. 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.\14\ A Professional could
only otherwise presume the Tier 1 rebate would be achieved in a month
when determining
[[Page 41458]]
price.\15\ Further, the Exchange initially established Professional
pricing in order to ``. . . bring additional revenue to the Exchange.''
\16\ The Exchange noted in the Professional Filing that it believes ``.
. . that the increased revenue from the proposal would assist the
Exchange to recoup fixed costs.'' \17\ 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.\18\ 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.\19\ 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 \20\
because NOM Market Makers add value through continuous quoting \21\ and
the commitment of capital.
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\13\ Firms, Non-NOM Market Makers and Broker-Dealers receive a
$0.10 per contract Penny Pilot Option Rebate to Add Liquidity. In
addition, Participant that adds Firm, Non-NOM Market Maker or
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options of 15,000 contracts per day or more in a given month
will receive a Rebate to Add Liquidity in Penny Pilot Options of
$0.20 per contract.
\14\ 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.
\15\ 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.
\16\ 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.
\17\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
\18\ 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.
\19\ 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.
\20\ Firms, Non-NOM Market Makers and Broker-Dealers are paid a
$0.10 per contract Rebate to Add Liquidity in Penny Pilot Options
and have the opportunity to earn a higher Penny Pilot Options Rebate
to Add Liquidity of $0.20 per contact if they transact 15,000
contracts per day or more in a given month of Penny Pilot Options or
Non-Penny Pilot Options liquidity.
\21\ 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.
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The Exchange's proposal to amend the Customer and Professional
Rebates to Add Liquidity in Penny Pilot Options is reasonable because
the Exchange is offering Participants meaningful incentives to increase
their participation on NOM in terms of higher Penny Pilot Options
Rebates to Add Liquidity. The Exchange's proposal to amend Tier 8 to
eliminate the criteria which qualifies a Participant that adds Customer
or Professional liquidity of 60,000 or more contracts per day in a
month and NOM Marker Maker liquidity of 40,000 or more contracts per
day in a month to a $0.48 per contract rebate and replace that criteria
with new criteria that pays the same rebate if the Participant has
Total Volume of 200,000 or more contracts per day in a month, of which
70,000 or more contracts per day in a month must be Customer and/or
Professional liquidity is reasonable because it should continue to
incentivize Participants to add liquidity on NOM. The new criteria
focuses on Total Volume which consists of Customer, Professional, Firm,
Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in
Penny Pilot Options and/or Non-Penny Pilot Options which either adds or
removes liquidity on NOM. The Exchange believes that offering
Participants an option to transact a lower amount of Total Volume
(200,000 contracts) as compared to the 325,000 contracts of Total
Volume, which would also qualify a Participant for a Tier 8 rebate, and
also requiring that 70,000 of that Total Volume be comprised of
Customer and/or Professional liquidity further incentivizes
Participants to add Customer and Professional liquidity to NOM. The
criteria that is being eliminated required 60,000 or more contracts per
day of Customer and/or Professional liquidity and 40,000 or more
contracts of NOM Market Maker liquidity. The Exchange believes that it
is reasonable to incentivize Participants to add a greater amount of
Customer and/or Professional liquidity combined with other volume as a
means to qualify for the Tier 8 rebate. This proposal only impacts one
of the ways in which a Participant may qualify for the Tier 8 rebate.
Participants that today do not qualify for the Tier 8 rebate may be
able to qualify with the new criteria. In addition, other exchanges
employ similar incentive programs.\22\
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\22\ See CBOE Fees Schedule. CBOE offers each Trading Permit
Holder (``TPH'') a credit for each public customer order transmitted
by the TPH which is executed electronically in all multiply-listed
option classes, excluding QCC trades and executions related to
contracts that are routed to one or more exchanges in connection
with the Options Order Protection and Locked/Crossed Market Plan,
provided the TPH meets certain percentage thresholds in a month as
described in the Volume Incentive Program. See also Phlx's Pricing
Schedule at Section B which contains the Customer Rebate Program.
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The Exchange's proposal to amend Tier 8 to eliminate the criteria
which qualifies a Participant that adds Customer or Professional
liquidity of 60,000 or more contracts per day in a month and NOM Marker
Maker liquidity of 40,000 or more contracts per day in a month to a
$0.48 per contract rebate and replace that criteria with new criteria
that pays the same rebate if the Participant has Total Volume of
200,000 or more contracts per day in a month, of which 70,000 or more
contracts per day in a month must be Customer and/or Professional
liquidity is equitable and not unfairly discriminatory because this
amendment will be applied to all market participants in a uniform
matter. Any market participant is eligible to receive the rebate
provided they transact a qualifying amount of Customer and Professional
volume in Penny Pilot Options.
The Exchange's proposal to amend the NOM Market Maker Rebates to
Add Liquidity in Penny Pilot Options is reasonable because it should
incentivize NOM Market Makers to post liquidity on NOM. NOM Market
Makers are valuable market participants that provide liquidity in the
marketplace and incur costs unlike other market participants. The
Exchange believes that encouraging NOM Market Makers to be more
aggressive when posting liquidity benefits all market participants
through increased liquidity. The Exchange believes that the NOM Market
Maker rebate proposal is equitable and not unfairly discriminatory
because it does not misalign the current rebate structure because NOM
Market Makers will continue to earn higher rebates as compared to
Firms, Non-NOM Market Makers and Broker-Dealers and will earn the same
or lower rebates as
[[Page 41459]]
compared to Customers and Professionals.\23\
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\23\ The Tier 1 NOM Market Maker Rebate to Add Liquidity in
Penny Pilot Options is the same rebate as the proposed Tier 1
Customer and Professional rebate in Penny Pilot Options.
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The Exchange's proposal to amend the number of qualifying contracts
in Tier 2 of the NOM Market Maker Penny Pilot Options Rebate to Add
Liquidity from 40,000 to 109,999 contracts to 40,000 to 69,999
contracts per day in a month is reasonable because today Participants
that transact between 40,000 to 69,999 contracts of NOM Market Maker
Penny Pilot Options would continue to qualify for Tier 2 and
Participants that qualify from 70,000 to 109,999 contracts would
qualify for the new proposed Tier 3 rebate of $0.32 per contract.
The Exchange's proposal to amend the Tier 3 rebate, which currently
requires a Participant and its affiliate under Common Ownership that
qualify for Tier 8 of the Customer and Professional Rebate to Add
Liquidity in Penny Pilot Options to receive a Tier 3 rebate of $0.37
per contract, and replace it with new criteria which requires that a
Participant add NOM Market Maker liquidity in Penny Pilot Options of
70,000 to 99,999 contracts per day in a month to qualify for a new Tier
3 rebate rate of $0.32 per contract is reasonable because it would
increase the rebate paid to certain Participants who currently
qualifying for a Tier 2 rebate. Also, those Participants and its
affiliate under Common Ownership that qualify for a Tier 8 rebate would
continue to receive the Customer and Professional Rebates to Add
Liquidity in Penny Pilot Options rebate and may separately qualify for
another NOM Market Maker Rebate to Add Liquidity in Penny Pilot
Options. The Exchange is offering a different rebate incentive to
remain competitive while continuing to encourage NOM Market Makers to
aggressively post liquidity on NOM.
The Exchange's proposal to amend Tier 4 to lower the number of NOM
Market Maker Penny Pilot Options contract from 110,000 to 100,000 is
reasonable because additional Participants may be able to qualify for a
Tier 4 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options.
The Exchange also believes that the proposal to pay an increased Tier 8
rebate of $0.32 per contract as compared to $0.28 per contract for all
symbols excluding BAC, GLD, IWM, QQQ, VXX \24\ and SPY \25\ is
reasonable because the increased rebate should encourage other market
participants to add NOM Marker Maker liquidity to obtain a higher
rebate in certain symbols.
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\24\ These symbols pay a $0.38 per contract rebate.
\25\ SPY pays a $0.40 per contract rebate.
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The Exchange believes offering NOM Market Makers the opportunity to
receive higher rebates as compared to Firms, Non-NOM Market Makers and
Broker-Dealers is equitable and not unfairly discriminatory because all
NOM Market Makers may qualify for the NOM Market Maker rebate tiers and
every NOM Market Maker is entitled to a rebate solely by adding one
contract of NOM Market Maker liquidity on NOM. Also, as mentioned, the
NOM Market Maker would receive the same rebate in Tier 1 as compared
Customers and Professionals and a higher rebate in all other tiers as
compared to a Firm, Non-NOM Market Maker or Broker-Dealer because of
the obligations \26\ borne by NOM Market Makers as compared to other
market participants. Encouraging NOM Market Makers to add greater
liquidity benefits all Participants in the quality of order
interaction.
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\26\ See note 21.
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The Exchange believes that it is equitable and not unfairly
discriminatory to amend the Tier 2, 3 and 4 rebate criteria to qualify
for those rebates as well as the Tier 4 rebate rate for certain symbols
because those amendments will apply uniformly to all participants. The
Exchange believes that it is reasonable, equitable, and not unfairly
discriminatory to adopt specific pricing for BAC, GLD, IWM, QQQ, VXX
and SPY because pricing by symbol is a common practice on many U.S.
options exchanges as a means to incentivize order flow to be sent to an
exchange for execution in the most actively traded options classes, in
this case actively traded Penny Pilot Options.\27\ The Exchange notes
that BAC, GLD, IWM, QQQ, VXX and SPY are some of the most actively
traded options in the U.S.
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\27\ See Phlx's Pricing Schedule. See also the International
Securities Exchange LLC's Fee Schedule. Both of these markets
segment pricing by symbol.
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The Exchange's proposal to add language throughout Section 2(1) of
Chapter XV to clarify the rule text with respect to adding liquidity is
reasonable, equitable and not unfairly discriminatory because the
amendments provide clarity to the rule text. The Exchange's proposal to
eliminate text related to qualifying for both Tier 3 and Tier 4 NOM
Market Maker rebates is reasonable, equitable and not unfairly
discriminatory because the text is no longer necessary because a
Participant could no longer achieve both rebates in a given month.
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. While the Exchange's proposal results in a
Professional receiving the same or a higher rebate as compared to a NOM
Market Maker, in certain circumstances, the Exchange does not believe
the proposed rebate tiers would result in any burden on competition as
between market participants. The Exchange believes that offering
Customers and Professionals the proposed tiered rebates creates
competition among options exchanges because the Exchange believes that
the rebates may cause market participants to select NOM as a venue to
send Customer and Professional order flow. The Exchange believes that
incentivizing NOM Market Makers to post liquidity on NOM benefits
market participants through increased order interaction. Also, NOM
Market Makers have obligations \28\ 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.
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\28\ See note 21.
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The proposed amendments does not misalign the current rebate
structure because NOM Market Makers will continue to earn higher
rebates as compared to Firms, Non-NOM Market Makers and Broker-Dealers
and will earn the same or lower rebates as compared to Customers and
Professionals.
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
[[Page 41460]]
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.\29\ 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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\29\ 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-2013-091 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-2013-091. 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-2013-091, and should
be submitted on or before July 31, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16530 Filed 7-9-13; 8:45 am]
BILLING CODE 8011-01-P