[Federal Register Volume 79, Number 104 (Friday, May 30, 2014)]
[Notices]
[Pages 31153-31156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12518]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72238; File No. SR-NASDAQ-2014-055]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Routing Fees
May 23, 2014.
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 May 15, 2014, 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 its Routing Fees. While the changes proposed herein are effective
upon filing, the Exchange has designated that the amendments be
operative on June 2, 2014.
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend the Routing Fees in Chapter
XV, Section 2(3) to recoup costs incurred by the Exchange to route
orders to away markets.
Today, the Exchange assesses a Non-Customer a $0.95 per contract
Routing Fee to any options exchange. The Customer \3\ Routing Fee for
option orders routed to NASDAQ OMX PHLX LLC (``PHLX'') is a $0.10 per
contract Fixed Fee in addition to the actual transaction fee assessed.
The Customer Routing Fee for option orders routed to NASDAQ OMX BX,
Inc. (``BX Options'') is $0.10 per contract. The Customer Routing Fee
for option orders routed to
[[Page 31154]]
all other options exchanges \4\ (excluding PHLX and BX Options) is a
fixed fee of $0.20 per contract (``Fixed Fee'') in addition to the
actual transaction fee assessed. If the away market pays a rebate, the
Routing Fee is $0.10 per contract.
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\3\ The term ``Customer'' or (``C'') 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\ Including BATS Exchange, Inc. (``BATS''), BOX Options
Exchange LLC (``BOX''), the Chicago Board Options Exchange,
Incorporated (``CBOE''), C2 Options Exchange, Incorporated (``C2''),
International Securities Exchange, LLC (``ISE''), the Miami
International Securities Exchange, LLC (``MIAX''), NYSE Arca, Inc.
(``NYSE Arca''), NYSE MKT LLC (``NYSE Amex'') and ISE Gemini, LLC
(``Gemini'').
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With respect to the fixed costs, the Exchange incurs a fee when it
utilizes Nasdaq Execution Services LLC (``NES''),\5\ a member of the
Exchange and the Exchange's exclusive order router. Each time NES
routes an order to an away market, NES is charged a clearing fee \6\
and, in the case of certain exchanges, a transaction fee is also
charged in certain symbols, which fees are passed through to the
Exchange. The Exchange currently recoups clearing and transaction
charges incurred by the Exchange as well as certain other costs
incurred by the Exchange when routing to away markets, such as
administrative and technical costs associated with operating NES,
membership fees at away markets, Options Regulatory Fees (``ORFs''),
staffing and technical costs associated with routing options. The
Exchange assesses the actual away market fee at the time that the order
was entered into the Exchange's System. This transaction fee is
calculated on an order-by-order basis since different away markets
charge different amounts.
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\5\ The Exchange filed a proposed rule change to utilize Nasdaq
Execution Services, LLC (``NES'') for outbound order routing. See
Securities Exchange Act Release No. 71419 (January 28, 2014), 79 FR
6247 (February 3, 2014) (SR-NASDAQ-2014-007).
\6\ OCC assessed a $0.01 per contract side. The fee has recently
been increased from $0.01 to $0.02 per contract side. See Securities
Exchange Act Release No. 71769 (March 21, 2014), 79 FR 17214 (March
21, 2014) (SR-OCC-2014-05).
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The Exchange is proposing to increase Routing Fees to account for
increased OCC fees and other increased costs associated with clearing,
ORF and other operational costs. The Exchange proposes to increase
Routing Fees for Non-Customer orders from $0.95 to $0.97 per contract.
The Exchange also proposes to increase Customer Routing Fees as
described herein. The Exchange proposes to increase Customer Routing
Fees to PHLX from a Fixed Fee of $0.10 to $0.12 per contract, in
addition to the actual transaction fee assessed. The Exchange proposes
to increase Customer Routing Fees to BX Options from $0.10 to $0.12 per
contract. The Exchange also proposes to amend Routing Fees to all other
exchanges (except PHLX and BX Options) from $0.20 to $0.22 per
contract, in addition to the actual transaction fee assessed, provided
the away market does not pay a rebate. If the away market pays a
rebate, the Routing Fee assessed would be $0.12 per contract, an
increase from the current $0.10 per contract. The Exchange proposes
these increases to recoup an additional portion of the costs incurred
by the Exchange for routing these orders.
The Exchange is proposing to increase Non-Customer and Customer
Routing Fees by $0.02 per contract to cover the increased costs of
offering its members the opportunity to route to other options
exchanges. With the recent increase by OCC \7\ as well as increases in
ORFs and NOM's operational expenses, the Exchange sees to further
recoup a portion of increased costs with the increase to its Routing
Fees.
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\7\ Id.
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Today the Exchange does not assess the actual transaction fee
assessed by BX Options, rather the Exchange only assesses the Fixed
Fee, because the Exchange would continue to retain the rebate to offset
the cost to route orders to BX Options. This is the not the case for
all orders routed to BX Options because not all Customer orders receive
a rebate.\8\ This will remain the same. Similarly, the Exchange is
proposing to amend the Customer Routing Fee assessed when routing to
all other options exchanges, if the away market pays a rebate, from a
$0.10 to a $0.12 per contract Fixed Fee, in order to recoup an
additional portion of the costs incurred by the Exchange for routing
these orders. The Exchange does not assess the actual transaction fee
assessed by the away market, rather the Exchange only assesses the
Fixed Fee, because the Exchange would continue to retain the rebate to
offset the cost to route orders to these away markets. This will remain
the same.
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\8\ BX Options pays a Customer Rebate to Remove Liquidity as
follows: Customers are paid $0.32 per contract in All Other Penny
Pilot Options (excluding BAC, IWM, QQQ, SPY and VXX) and $0.70 per
contract in Non-Penny Pilot Options. See BX Options Rules at Chapter
XV, Section 2(1).
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2. Statutory Basis
NASDAQ believes that its proposal to amend its Pricing Schedule is
consistent with Section 6(b) of the Act \9\ in general, and furthers
the objectives of Section 6(b)(4) and (b)(5) of the Act \10\ 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 it operates or
controls, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange believes that amending the Non-Customer and Customer
Routing Fees by $0.02 per contracts is reasonable because the Exchange
desires to recoup an additional portion of the cost it incurs when
routing Non-Customer and Customer orders. Specifically, the Exchange's
proposal to increase Non-Customer fees from $0.95 to $0.97 per contract
is reasonable because the additional $0.02 per contract fee will recoup
increased costs borne by NOM.
The Exchange believes that amending the Customer Routing Fees for
orders routed to PHLX from a Fixed Fee of $0.10 to $0.12 per contract
is reasonable because the Exchange desires to recoup an additional
portion of the cost it incurs when routing Customer orders to PHLX. The
Exchange will continue to also assess actual transaction fees assessed
by PHLX for Customer orders.
The Exchange believes that amending the Customer Routing Fee for
orders routed to BX Options from a Fixed Fee of $0.10 to $0.12 per
contract is reasonable because the Exchange desires to recoup an
additional portion of the cost it incurs when routing Customer orders
to BX Options, similar to the amount of Fixed Fee it proposes to assess
for orders routed to PHLX. While the Exchange would continue to retain
any rebate paid by BX Options, the Exchange does not assess the actual
transaction fee that is charged by BX Options for Customer orders.
The Exchange believes that continuing to assess lower Fixed Fees to
route Customer orders to PHLX and BX Options, as compared to other
options exchanges, is reasonable as the Exchange is able to leverage
certain infrastructure to offer those markets lower fees as explained
further below.
The Exchange believes that increasing the fee for routing to all
other options exchanges (other than PHLX and BX Options) from $0.20 to
$0.22 per contact is reasonable because the increased fee would recoup
costs associated with routing Customer orders, in addition to the
actual transaction fee when no rebate is paid. Similarly, the Exchange
believes that amending the Customer Routing Fee to other away markets,
other than PHLX and BX Options, in the instance the away market pays a
rebate from $0.10 to $0.12 per contract is reasonable because the
Exchange desires to recoup an additional portion of the cost it incurs
when routing orders to these away markets. While the Exchange
[[Page 31155]]
would continue to retain any rebate paid by these away markets, the
Exchange does not assess the actual transaction fee that is charged by
the away market for Customer orders. The Fixed Fee for Customer orders
is an approximation of the costs the Exchange will be charged for
routing orders to away markets. As a general matter, the Exchange
believes that the proposed fees for Customer orders routed to markets
which pay a rebate, such as BX Options and other away markets, would
allow it to recoup and cover a portion of the costs of providing
optional routing services for Customer orders because it better
approximates the costs incurred by the Exchange for routing such
orders. While each destination market's transaction charge varies and
there is a cost incurred by the Exchange when routing orders to away
markets, including, OCC clearing costs, administrative and technical
costs associated with operating NES, membership fees at away markets,
ORFs and technical costs associated with routing options, the Exchange
believes that the proposed Routing Fees will enable it to recover the
increased costs it incurs to route Customer orders to away markets.
The Exchange believes that amending the Non-Customer Routing Fees
from $0.95 to $0.97 per contract is equitable and not unfairly
discriminatory because the Exchange would assess the same Non-Customer
Routing Fee to all Non-Customer orders routed away. The Exchange
believes that amending the Customer Routing Fee for orders routed to
PHLX from a Fixed Fee of $0.10 to $0.12 per contract, in addition to
the actual transaction fee, is equitable and not unfairly
discriminatory because the Exchange would assess the same Fixed Fee to
all orders routed to PHLX in addition to the transaction fee assessed
by that market. With respect to BX Options, the Exchange believes that
amending the Customer Routing Fee for orders routed to BX Options from
a Fixed Fee of $0.10 to $0.12 per contract is equitable and not
unfairly discriminatory because the Exchange would assess the same
Fixed Fee to all Customer orders routed to BX Options. With respect
routing Customer orders to all other away markets (except PHLX and BX
Options) the Exchange believes that amending the Customer Routing Fee
from $0.20 to $0.22 per contract, in addition to the actual transaction
fee assessed) is equitable and not unfairly discriminatory because the
Exchange would assess the same fee to all Customer orders routed to
away markets, provided the away market does not pay a rebate. The
Exchange believes that increasing the Routing Fee to away markets
(other than PHLX and BX Options), when the away market pays a rebate,
from $0.10 to $0.12 per contract is equitable and not unfairly
discriminatory because all Customer orders routed to away markets
(other than PHLX and BX Options) would be assessed the same fee,
provided the away market paid a rebate.
The Exchange would uniformly assess a $0.12 per contract Fixed Fee
to orders routed to NASDAQ OMX exchanges because the Exchange is
passing along the saving realized by leveraging NASDAQ OMX's
infrastructure and scale to market participants when those orders are
routed to PHLX or BX Options and is providing those savings to all
market participants. Furthermore, it is important to note that when
orders are routed to an away market they are routed based on price
first.\11\ The Exchange believes that it is equitable and not unfairly
discriminatory to assess a fixed cost of $0.12 per contract to route
orders to PHLX and BX Options because the cost, in terms of actual cash
outlays, to the Exchange to route to those markets is lower. For
example, costs related to routing to PHLX and BX Options are lower as
compared to other away markets because NES is utilized by all three
exchanges to route orders.\12\ NES and the three NASDAQ OMX options
markets have a common data center and staff that are responsible for
the day-to-day operations of NES. Because the three exchanges are in a
common data center, Routing Fees are reduced because costly expenses
related to, for example, telecommunication lines to obtain connectivity
are avoided when routing orders in this instance. The costs related to
connectivity to route orders to other NASDAQ OMX exchanges are lower
than the costs to route to a non-NASDAQ OMX exchange. When routing
orders to non-NASDAQ OMX exchanges, the Exchange incurs costly
connectivity charges related to telecommunication lines, membership and
access fees, and other related costs when routing orders. Market
participants may submit orders to the Exchange as ineligible for
routing or ``DNR'' to avoid Routing Fees.\13\ Also, orders are routed
to an away market based on price first.\14\
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\11\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order
Routing).
\12\ See Chapter VI, Section 11 of the BX Options and NOM Rules.
\13\ See note 12.
\14\ Id.
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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 does not believe that the
proposal creates a burden on intra-market competition because the
Exchange is applying the same Routing Fee increase of $0.02 per
contract to all market participants. The Exchange will continue to
assess separate Customer Routing Fees. Customers will continue to
receive the lowest fees as compared to Non-Customers when routing
orders, as is the case today. Other options exchanges also assess lower
Routing Fees for customer orders as compared to Non-Customer
orders.\15\
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\15\ BATS assesses lower customer routing fees as compared to
non-customer routing fees per the away market. For example BATS
assesses Phlx customer routing fees of $0.45 per contract and an ISE
non-customer routing fee of $0.65 per contract. See BATS BZX
Exchange Fee Schedule.
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The Exchange's proposal would allow the Exchange to continue to
recoup its costs when routing both Non-Customer and Customer orders.
The Exchange continues to pass along savings realized by leveraging
NASDAQ OMX's infrastructure and scale to market participants when
Customer orders are routed to PHLX and BX Options and is providing
those savings to all market participants. Today, other options
exchanges also assess fixed routing fees to recoup costs incurred by
the exchange to route orders to away markets.\16\ Market participants
may submit orders to the Exchange as ineligible for routing or ``DNR''
to avoid Routing Fees.\17\ Also, orders are routed to an away market
based on price first.\18\
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\16\ See CBOE's Fees Schedule and ISE's Fee Schedule.
\17\ See note 12.
\18\ Id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\19\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the
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Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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\19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2014-055 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2014-055. 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-2014-055 and
should be submitted on or before June 20, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12518 Filed 5-29-14; 8:45 am]
BILLING CODE 8011-01-P