[Federal Register Volume 78, Number 240 (Friday, December 13, 2013)]
[Notices]
[Pages 75949-75952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29740]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71028; File No. SR-NASDAQ-2013-149]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to NOM Penny and Non-Penny Pilot Options
December 9, 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 November 29, 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 the NOM Market Maker \3\ Non-Penny Pilot Options \4\ Fee for
Removing Liquidity and the NOM Market Maker Rebate to Add Liquidity in
Penny Pilot Options.\5\
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\3\ The term ``NOM Market Maker'' means 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.
\4\ This would include options on Nasdaq-100 Index (``NDX'').
For transactions in NDX, a surcharge of $0.10 per contract will be
added to the Fee for Adding Liquidity and the Fee for Removing
Liquidity in Non-Penny Pilot Options, except for a Customer who will
not be assessed a surcharge.
\5\ The Penny Pilot was established in March 2008 and in October
2009 was expanded and extended through December 31, 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); 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); and 69787 (June 18, 2013), 78 FR 37858 (June
24, 2013) (SR-NASDAQ-2013-082). See also NOM Rules, Chapter VI,
Section 5.
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While the changes proposed herein are effective upon filing, the
Exchange has designated that the amendments be operative on December 2,
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
[[Page 75950]]
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 increase the NOM Market Maker Fee for
Removing Liquidity in Non-Penny Pilot Options from $0.85 to $0.86 per
contract. The Exchange believes that despite the increase to the Fee
for Removing Liquidity the Exchange continues to offer competitive
rates to NOM Market Makers.
The Exchange proposes to amend the NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity tiers. Today, the Exchange offers a
four-tiered Rebate to Add Liquidity in Penny Pilot Options to NOM
Market Makers as follows:
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Rebate to add
Monthly volume liquidity
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Tier 1...................... Participant adds NOM $0.25.
Market Maker
liquidity in Penny
Pilot Options of up
to 29,999 contracts
per day in a month.
Tier 2...................... Participant adds NOM $0.30.
Market Maker
liquidity in Penny
Pilot Options of
30,000 to 59,999
contracts per day
in a month.
Tier 3...................... Participant adds NOM $0.32.
Market Maker
liquidity in Penny
Pilot Options of
60,000 to 79,999
contracts per day
in a month.
Tier 4...................... Participant adds NOM $0.32 or $0.38 in
Market Maker the following
liquidity in Penny symbols BAC, GLD,
Pilot Options of IWM, QQQ and VXX or
80,000 or more $0.40 in SPY.
contracts per day
in a month.
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The Exchange is proposing to amend the qualification for NOM Market
Maker Penny Pilot rebate Tiers 1 through 4 to provide that Participants
may qualify for each tier by adding NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options. The Exchange would
continue to pay the rebates for each volume tier on transactions in
Penny Pilot Options. This amendment would only impact a Participant's
ability to qualify for a certain rebate tier. The Exchange anticipates
that this amendment would provide an opportunity for Participants to
qualify for higher rebate tiers for their NOM Market Maker liquidity.
The Exchange is also proposing to add a new Tier 5 rebate to the
Penny Pilot Rebates to Add Liquidity. The Exchange proposes to pay
$0.40 per contract to a Participant that adds NOM Market Maker
liquidity of 40,000 or more contracts per day in a month in Penny Pilot
Options and/or Non-Penny Pilot Options and also qualifies for Tier 7 or
8 of the Customer and/or Professional Rebate to Add Liquidity in Penny
Pilot Options. The Exchange believes the opportunity to earn a higher
rebate will encourage Participants to direct a greater amount of NOM
Market Maker liquidity to NOM.
The Exchange also proposes to relocate certain text in the fee
schedule. The Exchange proposes to relocate the following text:
`` The NOM Market Maker Rebate to Add Liquidity in Penny Pilot
Options will be paid as noted below.'' The Exchange would place the
text above the NOM Market Maker tiers in the fee schedule for ease of
reference.
2. Statutory Basis
NASDAQ believes that its proposal to amend its Pricing Schedule is
consistent with Section 6(b) of the Act \6\ in general, and furthers
the objectives of Section 6(b)(4) and (b)(5) of the Act \7\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system which NASDAQ operates or
controls, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange's proposal to increase the NOM Market Maker Fee for
Removing Liquidity from $0.85 to $0.86 per contract is reasonable
because the rate remains competitive with other Non-Penny Pilot Fees
for Removing Liquidity. The increase also permits the Exchange to
support providing liquidity rebates to Participants executing NOM
Market Maker orders.
The Exchange's proposal to increase the NOM Market Maker Fee for
Removing Liquidity from $0.85 to $0.86 per contract is equitable and
not unfairly discriminatory because the rate remains competitive with
other Non-Penny Pilot Fees for Removing Liquidity. NOM Market Makers
would continue to be assessed a lower fee as compared to other non-
Customer Participants.\8\ NOM Market Makers have obligations to the
market and regulatory requirements,\9\ which normally do not apply to
other market participants. A NOM Market Maker has an obligation to make
continuous markets, engage in course of dealings reasonably calculated
to contribute to the maintenance of a fair and orderly market, and not
make bids or offers or enter into transactions that are inconsistent
with a course of dealings. Customers would continue to be assessed the
lowest fee of $0.82 per contract. Customer order flow brings unique
benefits to the market which benefits all market participants through
increased liquidity.
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\8\ All other non-Customer market participants (Professionals,
Firms, Non-NOM Market Makers and Broker-Dealers) would continue to
be assessed $0.89 per contract.
\9\ 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 qualifications for the NOM
Market Maker Rebates to Add Liquidity in Penny Pilot Options is
reasonable because by providing Participants the opportunity to add NOM
Market Maker Penny and/or Non-Penny Pilot Option liquidity to qualify
for a rebate tier provides a greater opportunity to qualify for higher
rebate tiers. The Exchange would continue to only pay rebates on Penny
Pilot volume. By incentivizing Participants to select the Exchange as a
venue to post NOM Market Maker liquidity will benefit market
[[Page 75951]]
participants through increased order interaction.
The Exchange's proposal to amend the qualifications for the NOM
Market Maker Rebates to Add Liquidity in Penny Pilot Options is
equitable and not unfairly discriminatory because this amendment will
be applied to all Participants in a uniform manner. In addition,
Participants should continue to qualify for the rebates that they
currently receive and may earn increased rebates by qualifying for a
higher volume tier as a result of combing Penny and Non-Penny Pilot NOM
Market Maker liquidity to qualify for the rebate. The proposal does not
misalign the current rebate structure. NOM Market Makers are valuable
market participants that provide liquidity in the marketplace and incur
costs unlike other market participants. 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 \10\ and the
commitment of capital. The Exchange believes that encouraging NOM
Market Makers to be more aggressive when posting liquidity benefits all
market participants through increased liquidity. The Exchange also
believes that including Non-Penny volume in calculating on the various
NOM Market Maker rebate tiers is equitable and not unfairly
discriminatory 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.\11\
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\10\ See note 9.
\11\ The Tier 1 NOM Market Maker Rebate to Add Liquidity in
Penny Pilot Options is the same rebate as the Tier 1 Customer and
Professional rebate in Penny Pilot Options. The Exchange pays 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. 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.
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The Exchange believes that continuing to offer 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 Participants may qualify for the NOM Market
Maker rebate tiers and every Participant 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 to 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 \12\ 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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\12\ See note 9.
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The Exchange's proposal to offer a new Tier 5 NOM Market Maker
Penny Pilot Options Rebate to Add Liquidity is reasonable because the
new rebate should incentivize Participants to select the Exchange as a
venue to post NOM Market Maker liquidity. This added liquidity will
benefit market participants through increased order interaction.
The Exchange's proposal to offer a new Tier 5 NOM Market Maker
Penny Pilot Options Rebate to Add Liquidity is equitable and not
unfairly discriminatory because this amendment will be applied to all
Participants in a uniform manner.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. 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 \13\ to the market which are not borne by other market
participants and therefore the Exchange believes that NOM Market Makers
are entitled to such higher rebates. Permitting Participants to add
either Penny or Non-Penny Pilot Market Maker liquidity should further
encourage NOM Market Makers to post liquidity on NOM.
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\13\ See note 9.
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The proposed amendments do 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
contributes to the overall health of the market place for the benefit
of all Participants that willing choose to transact options on NOM. In
addition, NOM Market Makers will have the opportunity to earn even
higher rebates. For the reasons specified herein, the Exchange does not
believe this proposal creates an undue burden on competition.
Additionally, NOM Market Maker would continue to be assessed a
lower Non-Penny Pilot Fee for Removing Liquidity as compared to other
non-Customer Participants.\14\ Customers would continue to be assessed
the lowest Non-Penny Pilot Fee for Removing Liquidity fee because of
the benefits that Customer order flow brings to other market
participants through increased liquidity.
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\14\ All other non-Customer market participants (Professionals,
Firms, Non-NOM Market Makers and Broker-Dealers) would continue to
be assessed $0.89 per contract.
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The Exchange operates in a highly competitive market comprised of
twelve 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.\15\ 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
[[Page 75952]]
whether the proposed rule should be approved or disapproved.
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\15\ 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-2013-149 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-2013-149. 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-2013-149, and should
be submitted on or before January 3, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29740 Filed 12-12-13; 8:45 am]
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