[Federal Register Volume 79, Number 169 (Tuesday, September 2, 2014)]
[Notices]
[Pages 52086-52089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20702]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72920; File No. SR-NASDAQ-2014-084]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to NOM Market Maker Requirements
August 26, 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 August 21, 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 amend Chapter VII (Market Participants) at
Section 6 (Market Maker Quotations) on The NASDAQ Options Market
(``NOM''), NASDAQ's facility for executing and routing standardized
equity and index options.
The text of the proposed rule change is set forth below. Proposed
new language is italicized; proposed deletions are in brackets.
* * * * *
Chapter VII Market Participants
* * * * *
Sec. 6 Market Maker Quotations
(a)-(c) No change.
(d) Continuous Quotes. A Market Maker must enter continuous bids
and offers for the options to which it is registered, as follows:
i. On a daily basis, a Market Maker must during regular market
hours make markets consistent with the applicable quoting requirements
specified in these rules, on a continuous basis [in at least sixty
percent (60%) of the series] in options in which the Market Maker is
registered.
(1) To satisfy this requirement [with respect to quoting a series],
a Market Maker must quote [such series 90]60% of the trading day (as a
percentage of the total number of minutes in such trading day) or such
higher percentage as Nasdaq may announce in advance. Nasdaq Regulation
may consider exceptions to the requirement to quote [90]60% (or higher)
of the trading day based on demonstrated legal or regulatory
requirements or other mitigating circumstances. This obligation will
apply to all of a Market Maker's registered options collectively to all
appointed issues, rather than on an option-by-option basis. Compliance
with this obligation will be determined on a monthly basis. However,
determining compliance with the continuous quoting requirement on a
monthly basis does not relieve a Market Maker of the obligation to
provide continuous two-sided quotes on a daily basis, nor will it
prohibit the Exchange from taking disciplinary action against a Market
Maker for failing to meet the continuous quoting obligation each
trading day.
(2) and (3) No change.
ii.-iii. No change.
(e) No change.
* * * * *
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 and
discussed any comments it received on 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 the proposed rule change is to amend quoting
obligations applicable to NOM Market Makers. Currently, Chapter VII,
Section 6(d) provides that on a daily basis, a Market Maker must during
regular market hours make markets consistent with the applicable
quoting requirements specified in these rules, on a continuous basis in
at least sixty percent (60%) of the series in options in which the
Market Maker is registered. It further provides that, to satisfy this
requirement with respect to quoting a series, a Market Maker must quote
such series 90% of the trading day (as a percentage of the total number
of minutes in such trading day) or such higher percentage
[[Page 52087]]
as the Exchange may announce in advance. Nasdaq Regulation may consider
exceptions to the requirement to quote 90% (or higher) of the trading
day based on demonstrated legal or regulatory requirements or other
mitigating circumstances.
The Exchange proposes to better align its Market Maker quoting
requirement with that of NASDAQ OMX BX, Inc. (``BX''). BX recently
amended its market maker quoting requirements in a similar manner.\3\
Specifically, the Exchange proposes to reduce the quoting requirement
for NOM Market Makers as follows: A Market Maker must quote such
options 60% of the trading day (as a percentage of the total number of
minutes in such trading day) or such higher percentage as NOM may
announce in advance. Nasdaq Regulation may consider exceptions to the
requirement to quote 60% (or higher) of the trading day based on
demonstrated legal or regulatory requirements or other mitigating
circumstances. This obligation will apply to all of a Market Maker's
registered options collectively, rather than on an option-by-option
basis. Compliance with this obligation will be determined on a monthly
basis. This is the same requirement as on BX.\4\
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\3\ See BX Rules at Chapter VII, Section 6.
\4\ See BX Rules at Chapter VII, Section 6.
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The Exchange believes that this is appropriate for two reasons.
First, the Exchange's current Market Maker quoting requirement is much
more stringent than BX.\5\ Quoting each series 90% of the trading day
is much more stringent than looking at all options in which a Market
Maker is registered, because it allows for some number of series not to
be quoted at all, as long as the overall standard is met. This better
accommodates the occasional issues that may arise in a particular
series, whether technical or manual. The existing requirement may at
times discourage liquidity in particular options series because a
Market Maker is forced to focus on a momentary lapse rather than using
the appropriate resources to focus on the options series that need and
consume additional liquidity. The Exchange believes that it can better
attract Market Makers to NOM and grow its market if its quoting
obligation is more in line with that of other exchanges.
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\5\ Id.
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The Exchange believes that the amendments to Section 6(d)(i)(1) of
Chapter VII, which would allow applying the quoting requirements for
Market Makers collectively across all options classes, is a fair and
more efficient way for the Exchange and market participants to evaluate
compliance with the continuous quoting requirements. Applying the
continuous quoting requirement collectively across all option classes
rather than on an issue-by-issue basis is beneficial to Market Makers
by providing some flexibility to choose which series in their appointed
classes they will continuously quote--increasing the continuous quoting
obligation in the series of one class to allow for a decrease in the
continuous quoting obligation in the series of another class. This
flexibility does not, however, diminish the Market Maker's obligation
to continuously quote a significant part of the trading day in a
significant percentage of series. Flexibility is important for classes
that have relatively few series and may prevent the Market Maker, in
particular, from breaching the continuous quoting requirement when
failing to meet the specified quote amount during the trading day (as
proposed) in more than one series in an appointed class. Nasdaq
Regulation may consider exceptions to the requirement to quote 60% (or
higher) of the trading day based on demonstrated legal or regulatory
requirements or other mitigating circumstances. This quoting obligation
will apply to all of a Market Maker's registered options collectively
on a daily basis, rather than on an option-by-option basis. This
quoting obligation will be reviewed on a monthly basis, and allows the
Exchange to review the Market Makers' daily compliance in the aggregate
and determine the appropriate disciplinary action for single or
multiple failures to comply with the continuous quoting requirement
during the month period. However, determining compliance with the
continuous quoting requirement on a monthly basis does not relieve a
Market Maker of the obligation to provide continuous two-sided quotes
on a daily basis, nor will it prohibit the Exchange from taking
disciplinary action against a Market Maker for failing to meet the
continuous quoting obligation each trading day. This is the same
requirement as on other options exchanges.\6\
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\6\ See NYSE Arca Rule 6.37B(c) and NYSE MKT Rule 925.1NY(c).
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The Exchange believes that the proposal will not diminish, and in
fact may increase, market making activity on the Exchange, by
establishing quoting compliance standards that are reasonable and are
already in place on other options exchanges. By amending Section 6 of
Chapter VII to state that quoting obligations apply to a Market Maker's
appointed issues collectively, this proposal is similar to that of
other options markets and puts the Exchange on an equal competitive
footing.\7\ Moreover, as discussed the Exchange believes that the
proposal may increase market making activity on the Exchange by
establishing quoting compliance standards that are reasonable and
already in place on other options exchanges.
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\7\ The proposed rule text is, as noted, similar in all material
respects to BX Rules at Chapter VII, Section 6.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \8\ in general, and furthers the objectives of Section
6(b)(5) of the Act \9\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system and, in general, to protect
investors and the public interest. NOM operates in an intensely
competitive environment and seeks to offer the same services that its
competitors offer and in which its customers find value.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that requiring NOM Market Makers to provide
continuous two-sided quotations 60% of the trading day (as a percentage
of the total number of minutes in such trading day) or such higher
percentage as the Exchange may announce in advance continues to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities. Further, the Exchange would apply the propose rule change
to all of a Market Maker's registered options collectively to all
appointed issues, rather than on an option-by-option basis and
compliance with this obligation will be determined on a monthly basis.
The proposal supports the quality of the Exchange's market by
helping to ensure that Market Makers will continue to be obligated to
quote in series when necessary. Ultimately, the benefit the proposed
rule change confers upon Market Makers is offset by the continued
responsibilities to provide significant liquidity to the market to the
benefit of market participants. While under the proposal there are
quoting requirements changes, the Exchange
[[Page 52088]]
does not believe that these changes reduce the overall obligations
applicable to Market Makers.\10\ Moreover, the Exchange believes that
the proposal may increase market making activity on the Exchange and
the quality of the Exchange's market by establishing quoting compliance
standards that are reasonable and already in place on other options
exchanges.\11\
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\10\ In this respect, the Exchange notes that such Market Makers
are subject to many obligations aside from quoting, including, for
example, the obligation to maintain a fair and orderly market in
their appointed classes, and the obligation to conduct the opening
and enter continuous quotations in all of the series of their
appointed options classes within maximum spread requirements.
\11\ See BX Rules at Chapter VII, Section 6.
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The proposed rule change also protects investors and the public
interest by creating more uniformity and consistency among the
Exchange's rules related to NOM Market Maker quoting obligations.
Providing Market Makers with flexibility by providing the continuous
quoting obligation collectively across all option classes will not
diminish the Market Makers' obligation to continuously quote a
significant part of the trading day in a significant percentage of
series. Additionally, with respect to compliance standards, the
Exchange believes that adopting the proposed standards will enhance
compliance efforts by Market Makers and the Exchange, and are
consistent with requirements currently in place on BX.\12\ The proposal
ensures that compliance standards for continuous quoting, in particular
regarding quoting obligations applying to all of a Market Maker's
appointed issues collectively, will be the same on the Exchange as on
other options exchanges. The Exchange believes that the proposal will
not diminish and in fact may increase, market making activity on the
Exchange by establishing quoting compliance standards that are
reasonable and already in place on other options exchanges.
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\12\ Id.
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BX's recent rule proposal lowered the BX Market Maker's obligations
in the same manner as proposed herein. BX also heightened its
requirements \13\ with respect to Lead Market Makers (``LMM'') because
LMM's were also being offered certain participation entitlements \14\
that are not offered BX Market Markers that were not LMMs. In that
filing, BX reasoned, ``[t]he Exchange believes that offering LMMs
participation entitlements promotes just and equitable principles of
trade because LMMs will be held to a higher standard as compared to
other market participants including Market Makers. A Market Maker would
be required, pursuant to this proposal, to quote 60% of the trading
day. LMMs are being held to a higher obligation and therefore are being
rewarded with participation entitlements. Similar to Market Makers,
LMMs add value through continuous quoting and the commitment of
capital.'' \15\ Further, ``[a]ccordingly, the proposed rule change
supports the quality of the Exchange's trading markets by helping to
ensure that LMMs will be required to meet a higher quoting standard in
order to reap the benefits of the participation entitlements.'' \16\
The Exchange is not offering NOM Market Makers such participation
entitlements as BX offers its LMMs.
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\13\ A BX LMM must provide continuous two-sided quotations
throughout the trading day in its appointed issues for 90% of the
time the Exchange is open for trading in each issue. Such quotations
must meet the legal quote width requirements. These obligations will
apply to all of the LMMs appointed issues collectively, rather than
on an option-by-option basis. Compliance with this obligation will
be determined on a monthly basis. BX Regulation may consider
exceptions to the requirement to quote 90% (or higher) of the
trading day based on demonstrated legal or regulatory requirements
or other mitigating circumstances. However, determining compliance
with the continuous quoting requirement on a monthly basis does not
relieve an LMM of the obligation to provide continuous two-sided
quotes on a daily basis, nor will it prohibit the Exchange from
taking disciplinary action against an LMM for failing to meet the
continuous quoting obligation each trading day.
\14\ See BX Rules at Chapter VI, Section 10 for LMM
participation entitlements.
\15\ See Securities Exchange Act Release No. 72883 (August 20,
2014), 79 FR 50971 (August 26, 2014) (SR-BX-2014-035).
\16\ Id.
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Finally, the Exchange believes that subjecting NOM Market Makers to
the same requirements as those offered on other exchanges removes
impediments to and allows for a free and open market. NOM Market Makers
would have the same requirements as BX Options Market Makers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. Market Makers will be subject to quoting obligations which are
similar to those at BX.\17\ The Exchange would apply to all of a Market
Maker's registered options collectively to all appointed issues, rather
than on an option-by-option basis and compliance with this obligation
will be determined on a monthly basis. Further, the Exchange believes
that because this proposal establishes quoting compliance standards
that are already in place on other options exchanges, the proposal will
not diminish, and in fact may increase, market making activity on the
Exchange and thereby enhance intermarket competition. Moreover, the
proposed rule change will not impose any burden on intramarket
competition because it will affect all Market Makers the same.
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\17\ See BX Rules at Chapter VII, Section 6.
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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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \18\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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. The Exchange has
provided the Commission written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date of
filing of the proposed rule change
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:
[[Page 52089]]
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-2014-084 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-2014-084. 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-2014-084 and
should be submitted on or before September 23, 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. 2014-20702 Filed 8-29-14; 8:45 am]
BILLING CODE 8011-01-P