[Federal Register Volume 82, Number 14 (Tuesday, January 24, 2017)]
[Notices]
[Pages 8230-8235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01464]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79809; File No. SR-NASDAQ-2017-001]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Transaction Fees To Implement New Incentive
January 17, 2017.
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 January 3, 2017, 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 the
Exchange. 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
The Exchange proposes to amend the Exchange's transaction fees at
Chapter XV, Section 2, entitled ``NASDAQ Options Market--Fees and
Rebates,'' which governs pricing for Nasdaq members using the NASDAQ
Options Market (``NOM''), Nasdaq's facility for executing and routing
standardized equity and index options. Nasdaq proposes to implement a
new incentive for NOM Participants that add liquidity for Customer and
Professional orders in Penny and Non-Penny Pilot Options as described
further below.
The text of the proposed rule change is available on the Exchange's
Web site at http://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 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
[[Page 8231]]
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 Exchange proposes to create an alternative method for earning a
rebate for adding liquidity for both Customers \3\ and Professionals
\4\ in Penny Pilot \5\ and Non-Penny Pilot Options. For Customers and
Professionals transacting in Penny Pilot Options, the Exchange
currently pays a volume-based tiered rebate to add liquidity. That
rebate consists of 8 tiers, ranging from $0.20 per contract to $0.48
per contract, with the volume requirements increasing with each tier.
Thus, a NOM Participant would qualify for a rebate of $0.20 per
contract in Tier 1 for Customers and Professionals if it added
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of up
to 0.10% of total industry customer equity and ETF option average daily
volume (``ADV'') contracts per day in a month. In comparison, a
Participant would qualify for a rebate of $0.48 in Tier 8 for Customers
and Professionals if it adds Customer, Professional, Firm, Non-NOM
Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options above 0.75% or more of total industry
customer equity and ETF option ADV contracts per day in a month, or if
the Participant adds: (1) Customer and/or Professional liquidity in
Penny Pilot Options and/or Non-Penny Pilot Options of 0.25% or more of
total industry customer equity and ETF option ADV contracts per day in
a month, and (2) has added liquidity in all securities through one or
more of its Nasdaq Market Center MPIDs that represent 1.00% or more of
Consolidated Volume in a month or qualifies for MARS.\6\
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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\ The term ``Professional'' or (``P'') 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 Penny Pilot was established in March 2008. See
Securities Exchange Act Release No. 57579 (March 28, 2008), 73 FR
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and
immediate effectiveness establishing Penny Pilot). Since that date,
the Penny Pilot has been expanded and is currently extended through
December 31, 2016 or the date of permanent approval, if earlier. See
Securities Exchange Act Release No. 78037 (June 10, 2016), 81 FR
39299 (June 16, 2016) (SR-NASDAQ-2016-052).
\6\ MARS refers to the Market Access and Routing Subsidy, which
is set forth in Chapter XV, Section 6 [sic]. The MARS payment
comprises four volume-based tiers, and is paid to NOM Participants
that route eligible contracts to NOM through a participating NOM
Participant's System. The MARS Payment will be paid on all executed
Eligible Contracts that add liquidity. See NOM Rules at Chapter XV,
Section 6 [sic].
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Currently, Customers and Professionals transacting in Non-Penny
Pilot Options on NOM receive a $0.80 per contract Rebate to Add
Liquidity. In addition, a Participant that qualifies for a Customer or
Professional Penny Pilot Options Rebate to Add Liquidity in Tiers 2, 3,
4, 5 or 6 in a month will receive an additional $0.10 per contract Non-
Penny Pilot Options Rebate to Add Liquidity for each transaction which
adds liquidity in Non-Penny Pilot Options in that month. A Participant
that qualifies for a Customer or Professional Penny Pilot Options
Rebate to Add Liquidity in Tiers 7 or 8 in a month will receive an
additional $0.20 per contract Non-Penny Pilot Options Rebate to Add
Liquidity for each transaction which adds liquidity in Non-Penny Pilot
Options in that month.
Furthermore, a Participant that may receive a $0.53 per contract
Rebate to Add Liquidity in Penny Pilot Options as a Customer or
Professional, and $1.00 per contract Rebate to Add Liquidity in Non-
Penny Pilot Options as a Customer or Professional, if that NOM
Participant transacts on the NASDAQ Stock Market through one or more of
its Nasdaq Market Center MPIDs in the same month, and such transactions
in all securities on the NASDAQ Stock Market that month through all of
its Nasdaq Market Center MPIDs represent 3.00% or more of Consolidated
Volume.\7\ Participants that qualify for this rebate would not be
eligible for any other rebates in Tiers 1 through 8 or other rebate
incentives on NOM for Customer and Professional order flow in Chapter
XV, Section 2(1) of NOM Rules.\8\
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\7\ Consolidated Volume would be determined as set forth in
Nasdaq Rule 7018(a).
\8\ In calculating total volume, the Exchange will add the NOM
Participant's total volume transacted on the NASDAQ Stock Market in
a given month across its Nasdaq Market Center MPIDs, and will divide
this number by the total industry Consolidated Volume.
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The Exchange proposes an additional incentive to a Participant that
adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
above 1.45% of total industry customer equity and ETF option ADV
contracts per day in a month, (b) executes greater than 0.04% of
Consolidated Volume (``CV'') \9\ via Market-on-Close/Limit-on-Close
(``MOC/LOC'') \10\ volume within the NASDAQ Stock Market Closing Cross
within a month, and (c) adds greater than 1.5 million shares per day of
non-displayed volume within the NASDAQ Stock Market within a month. The
Participant would receive a $0.55 per contract rebate to add liquidity
in Penny Pilot Options as Customer or Professional and $1.05 per
contract rebate to add liquidity in Non-Penny Pilot Options as Customer
or Professional. Participants that qualify for this rebate would not be
eligible for any other rebates in Tiers 1-8 or other rebate incentives
on NOM for Customer and Professional order flow in Chapter XV, Section
2(1). The Exchange believes that the new incentives will attract a
greater amount of order flow on NOM by offering a discounted rate.
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\9\ See note 7 above.
\10\ MOC/LOC, as set forth in NASDAQ Rule 4754, represents the
volume in the NASDAQ Stock Market Closing Cross that allows market
participants to contribute order flow that will result in executions
at the official closing price for the day in the NASDAQ listed
security. A ``MOC Order'' is an order type entered without a price
that may be executed only during the NASDAQ Closing Cross, which
refers to the equity closing cross. A ``LOC Order'' is an order type
entered with a price that may be executed only in the NASDAQ Closing
Cross.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4) and (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its
[[Page 8232]]
broader forms that are most important to investors and listed
companies.'' \13\
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\13\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\14\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of
a market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\15\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \16\
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\14\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\15\ See NetCoalition, at 534-535.
\16\ Id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers' . . . . '' \17\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes that these views apply with equal force to the options
markets.
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\17\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
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The Exchange notes that the purpose of the proposed rebates is to
incentivize NOM Participants to transact greater volume on NOM and the
NASDAQ Stock Market in order to qualify for a higher rebate on NOM. The
Exchange believes that the amount of the rebate ($0.55 per contract for
Penny Pilot Options and $1.05 per contract for Non-Penny Pilot Options)
along with the various criteria for qualifying for the rebate ((a) add
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above
1.45% of total industry customer equity and ETF option ADV contracts
per day in a month, (b) execute greater than 0.04% of Consolidated
Volume (``CV'') via Market-on-Close/Limit-on-Close (``MOC/LOC'') volume
within the NASDAQ Stock Market Closing Cross within a month, and (c)
add greater than 1.5 million shares per day of non-displayed within the
NASDAQ Stock Market within a month) are reasonable. With respect to the
rebate for Penny Pilot Options, the Exchange notes that the proposed
$0.55 per contract rebate is higher than the currently highest rebate
available ($0.53 per contract) to Customers and Professionals for
adding liquidity in Penny Pilot Options.\18\ The Exchange believes the
proposed rebate of $0.55 per contract is reasonable because the
proposed rebate requires three components ((a) add Customer,
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-Penny Pilot Options above 1.45% of
total industry customer equity and ETF option ADV contracts per day in
a month, (b) execute greater than 0.04% of Consolidated Volume (``CV'')
via Market-on-Close/Limit-on-Close (``MOC/LOC'') volume within the
NASDAQ Stock Market Closing Cross within a month, and (c) add greater
than 1.5 million shares per day of non-displayed volume within the
NASDAQ Stock Market within a month) to be met by NOM Participants in
order to qualify for that rebate. These requirements require more
volume to be submitted on NOM than the current highest rebate requires
today. Similarly, the Exchange believes the proposed $1.05 rebate per
contract for Non-Penny Pilot Options is reasonable for similar reasons.
The requirements to obtain this rebate require more volume to be
submitted on NOM.
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\18\ As noted above, a NOM Participant will receive a rebate of
$0.48 per contract for adding liquidity as a Customer or
Professional in Penny Pilot Options if it qualifies for Tier 8. In
addition, as noted in footnote c of Chapter XV, Section 2, a NOM
Participant may receive an additional rebate of up to $0.05 per
contract in Penny Pilot Options, for a total rebate of $0.53 per
contract. Specifically, Participants that: (1) Add Customer,
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer
liquidity in Penny Pilot Options and/or Non- Penny Pilot Options of
1.15% or more of total industry customer equity and ETF option ADV
contracts per day in a month will receive an additional $0.02 per
contract Penny Pilot Options Customer and/or Professional Rebate to
Add Liquidity for each transaction which adds liquidity in Penny
Pilot Options in that month; or (2) add Customer, Professional,
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options of 1.30% or more of
total industry customer equity and ETF option ADV contracts per day
in a month will receive an additional $0.05 per contract Penny Pilot
Options Customer and/or Professional Rebate to Add Liquidity for
each transaction which adds liquidity in Penny Pilot Options in that
month; or (3) (a) add Customer, Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.80% of total industry customer
equity and ETF option ADV contracts per day in a month, (b) add
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Non-Penny Pilot Options above 0.15% of total
industry customer equity and ETF option ADV contracts per day in a
month, and (c) execute greater than 0.04% of Consolidated Volume
(``CV'') via Market-on-Close/Limit-on-Close (``MOC/LOC'') volume
within the NASDAQ Stock Market Closing Cross within a month will
receive an additional $0.05 per contract Penny Pilot Options
Customer and/or Professional Rebate to Add Liquidity for each
transaction which adds liquidity in Penny Pilot Options in a month.
Consolidated Volume shall mean the total consolidated volume
reported to all consolidated transaction reporting plans by all
exchanges and trade reporting facilities during a month in equity
securities, excluding executed orders with a size of less than one
round lot. For purposes of calculating Consolidated Volume and the
extent of an equity member's trading activity, expressed as a
percentage of or ratio to Consolidated Volume, the date of the
annual reconstitution of the Russell Investments Indexes shall be
excluded from both total Consolidated Volume and the member's
trading activity.
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The Exchange believes that the requirement that a NOM Participant
add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
above 1.45% of total industry customer equity and ETF option ADV
contracts per day in a month, execute greater than 0.04% of
Consolidated Volume (``CV'') via Market-on-Close/Limit-on-Close (``MOC/
LOC'') volume within the NASDAQ Stock Market Closing Cross within a
month, and add greater than 1.5 million shares per day of non-displayed
volume within the NASDAQ Stock Market within a month is reasonable
because the Exchange is offering to pay a rebate of $0.55 per contract,
the highest rebate. These more stringent volume-based requirements
bring a greater amount of volume to both NOM and the NASDAQ Stock
Market. The first volume requirement, which requires volume to be added
to NOM, is reasonable because it is similar to that required to qualify
for certain NOM Market Maker discounted remove fees.\19\ The second
volume requirement
[[Page 8233]]
to execute greater than 0.04% of Consolidated Volume (``CV'') via
Market-on-Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ
Stock Market Closing Cross within a month is reasonable because it is
one of the same requirements to qualify for note ``c'' in Chapter XV,
Section 2 of NOM Rules.\20\ The third volume requirement to add greater
than 1.5 million shares per day of non-displayed volume within the
NASDAQ Stock Market within a month is a new requirement, which must be
met in addition to the first and second volume requirements. The
Exchange believes that this requirement is reasonable because linking
rebates on NOM to activity on the NASDAQ Stock Market is not novel. The
Exchange believes that requiring Participants to add non-displayed
volume within the NASDAQ Stock Market is reasonable because this type
of liquidity benefits all market participants by way of interacting
with that liquidity on the equity market.\21\ By encouraging market
participants to increase their participation on the equities market by
delivering non-displayed volume, the Exchange is rewarding Participants
with an opportunity to earn an additional options incentive, provided
all requirements are met. The Exchange notes that previous and current
rebates offered by NOM relate to activity on the NASDAQ Stock
Market.\22\ Similarly, the NASDAQ Stock Market offers enhanced rebates
that are based on activity on NOM.\23\ Moreover, the Exchange notes
that any NOM Options Participant may trade equities on the NASDAQ Stock
Market because they are approved members.\24\
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\19\ See note ``2'' of Chapter XV, Section 2 of NOM Rules. The
note ``2 ``rebate is offered to Non-NOM Market Makers and NOM Market
Makers that add 1.30% of Customer, Professional, Firm, Broker-Dealer
or Non-NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of total industry customer equity and ETF option
ADV contracts per day in a month will be subject to the following
pricing applicable to executions: A $0.48 per contract Penny Pilot
Options Fee for Removing Liquidity when the Participant is (i) both
the buyer and the seller or (ii) the Participant removes liquidity
from another Participant under Common Ownership. In the alternative,
Participants that add 1.50% of Customer, Professional, Firm, Broker-
Dealer or Non-NOM Market Maker liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options of total industry customer equity and ETF
option ADV contracts per day in a month and meet or exceed the cap
for the NASDAQ Stock Market Opening Cross during the month will be
subject to the following pricing applicable to executions less than
10,000 contracts: A $0.32 per contract Penny Pilot Options Fee for
Removing Liquidity when the Participant is (i) both the buyer and
seller or (ii) the Participant removes liquidity from another
Participant under Common Ownership. Finally, Participants that add
1.75% of Customer, Professional, Firm, Broker-Dealer or Non-NOM
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of total industry customer equity and ETF option ADV
contracts per day in a month will be subject to the following
pricing applicable to executions less than 10,000 contracts: A $0.32
per contract Penny Pilot Options Fee for Removing Liquidity when the
Participant is (i) both the buyer and seller or (ii) the Participant
removes liquidity from another Participant under Common Ownership.
\20\ Note ``c'' of Chapter XV, Section 2 pays an additional
$0.05 per contract Penny Pilot Options Customer and/or Professional
Rebate to Add Liquidity, in addition to the Tier 8 rebate of $0.48
per contract if a Participant: (1) Adds Customer, Professional,
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options of 1.15% or more of
total industry customer equity and ETF option ADV contracts per day
in a month will receive an additional $0.02 per contract Penny Pilot
Options Customer and/or Professional Rebate to Add Liquidity for
each transaction which adds liquidity in Penny Pilot Options in that
month; or (2) adds Customer, Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options of 1.30% or more of total industry customer
equity and ETF option ADV contracts per day in a month will receive
an additional $0.05 per contract Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity for each transaction which adds
liquidity in Penny Pilot Options in that month; or (3) (a) adds
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options above 0.80% of total industry customer equity and ETF option
ADV contracts per day in a month, (b) adds Customer, Professional,
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Non-
Penny Pilot Options above 0.15% of total industry customer equity
and ETF option ADV contracts per day in a month, and (c) executes
greater than 0.04% of Consolidated Volume (``CV'') via Market-on-
Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ Stock
Market Closing Cross within a month.
\21\ Orders that are non-displayed would not be disseminated on
the NASDAQ Stock Market Order Book feed. A Participant may be
incentivized to increase their participation on the NASDAQ Stock
Market, which may result in interacting with such non-displayed
volume. Increased order interaction benefits all market
participants.
\22\ See current note ``e'' of Chapter XV, Section IV [sic] of
NOM Rules which provides a rebate to NOM Participants that transact
in all securities through one or more of its Nasdaq Market Center
MPIDs that represent 3.00% or more of Consolidated Volume in the
same month on the NASDAQ Stock Market.
\23\ For example, Nasdaq provides an enhanced rebate on the
NASDAQ Stock Market of $0.00295 if the member adds Customer,
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of
1.15% or more of total industry ADV in the customer clearing range
for Equity and ETF option contracts per day in a month on NOM. See
Nasdaq Rule 7018.
\24\ Although a NOM Participant may incur additional labor and/
or costs to establish connectivity to the NASDAQ Stock Market, there
are no additional membership fees for NOM Participants that want to
transact on the NASDAQ Stock Market.
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Further, the Exchange believes it is reasonable to make this rebate
exclusive of any other rebates in Tiers 1 through 8 or other rebate
incentives on NOM for Customer and Professional order flow in Chapter
XV, Section 2(1) of NOM Rules. As noted above, the proposed rebates are
higher, and in some cases significantly higher, than the rebates that a
NOM Participant may currently receive for adding liquidity in Penny
Pilot and Non-Penny Pilot Options as a Customer or Professional. Given
the size of the proposed rebates, the Exchange believes it is
reasonable to make these rebates exclusive of other rebates on NOM for
Customer and Professional order flow. Finally, the Exchange also
believes the proposal is reasonable because the proposed rebates apply
to both transactions in Penny Pilot and Non-Penny Pilot Options.
The Exchange believes that the amount of the rebate ($0.55 per
contract for Penny Pilot Options and $1.05 per contract for Non-Penny
Pilot Options) along with the various criteria for qualifying for the
rebate ((a) add Customer, Professional, Firm, Non-NOM Market Maker and/
or Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options above 1.45% of total industry customer equity and ETF
option ADV contracts per day in a month, (b) execute greater than 0.04%
of Consolidated Volume (``CV'') via Market-on-Close/Limit-on-Close
(``MOC/LOC'') volume within the NASDAQ Stock Market Closing Cross
within a month, and (c) add greater than 1.5 million shares per day of
non-displayed within the NASDAQ Stock Market within a month) is
equitable and not unfairly discriminatory because any Participant that
qualifies for this rebate will be uniformly paid $0.55 per contract for
Penny Pilot Options and $1.05 per contract for Non-Penny Pilot Options.
The requirements for earning this rebate will be applied uniformly to
all market participants. The Exchange believes that requiring
Participants to add non-displayed volume is equitable and not unfairly
discriminatory because the Exchange will pay the incentive, in a
uniform manner, to Participants that have met all criteria required for
the rebate.
The Exchange believes that the requirement that a NOM Participant
add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
above 1.45% of total industry customer equity and ETF option ADV
contracts per day in a month, execute greater than 0.04% of
Consolidated Volume (``CV'') via Market-on-Close/Limit-on-Close (``MOC/
LOC'') volume within the NASDAQ Stock Market Closing Cross within a
month, and add greater than 1.5 million shares per day of non-displayed
volume within the NASDAQ Stock Market within a month is equitable and
not unfairly discriminatory because while the requirements for
qualifying for the proposed rebates may be more stringent than other
requirements for qualifying for other rebates currently offered by NOM,
the Exchange believes that these requirements are proportionate to the
amount of the proposed rebates and equitably reflect the purpose of the
proposed rebates, which is to incentivize NOM Participants to transact
greater volume on NOM and the NASDAQ Stock Market. Moreover, all
similarly-situated NOM Participants, e.g., those that add liquidity in
either Penny Pilot or Non-Penny Pilot Options as either Customers or
Professionals and also transact on the NASDAQ Stock
[[Page 8234]]
Market, are equally capable of qualifying for the proposed rebates, and
the same rebates will be paid to all NOM Participants that qualify for
them. Further, the Exchange believes that it is equitable and not
unfairly discriminatory to offer this rebate to NOM Participants that
add liquidity as Customers or Professionals, and not to offer this
rebate to NOM Participants that add liquidity as Firms,\25\ NOM Market
Makers,\26\ Non-NOM Market Makers, or Broker-Dealers.\27\ Nasdaq notes
that Customer liquidity offers unique benefits to the market which
benefits all market participants by providing more trading
opportunities, which attracts Specialists and Market Makers. An
increase in the activity of these market participants in turn
facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The Exchange believes that encouraging Participants to add Professional
liquidity is similarly beneficial, as the rebates may cause market
participants to select NOM as a venue to send Professional order flow,
increasing competition among the exchanges. As with Customer liquidity,
the Exchange believes that increased Professional additional order flow
should benefit other market participants.
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\25\ The term ``Firm'' or (``F'') applies to any transaction
that is identified by a Participant for clearing in the Firm range
at OCC.
\26\ The term ``NOM Market Maker'' or (``M'') 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.
\27\ The term ``Broker-Dealer'' or (``B'') applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
The Exchange does not believe that the proposed rebates will impose
any burden on competition that is not necessary or appropriate. The
Exchange notes that the purpose of the proposed rebate is to
incentivize NOM Participants to transact on NOM and the NASDAQ Stock
Market. All similarly-situated NOM Participants, e.g., those that add
liquidity in either Penny Pilot or Non-Penny Pilot Options as either
Customers or Professionals and also transact the requisite volumes on
the NASDAQ Stock Market, are equally capable of qualifying for the
proposed rebates. Additionally, the Exchange will pay the same rebates,
in a uniform manner, to all NOM Participants that qualify for them. The
Exchange believes that Customer and Professional order flow provides
unique benefits to all participants on the Exchange and may even
facilitate inter-market competition, and is therefore offering the
proposed rebates to NOM Participants that add liquidity as either a
Customer or a Professional accordingly. With respect to linking the
proposed rebates to a participant's activity on the NASDAQ Stock
Market, NOM currently offers rebates that are based on activity on the
NASDAQ Stock Market.\28\ Similarly, the NASDAQ Stock Market currently
offers reduced transaction fees that are based on activity on NOM.\29\
Finally, because they are approved members, any NOM Options Participant
may trade equities on the NASDAQ Stock Market and therefore attempt to
qualify for the proposed rebates.\30\
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\28\ See note 22 above.
\29\ See note 23 above.
\30\ See note 24 above.
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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.\31\
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\31\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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.
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-2017-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2017-001.
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
[[Page 8235]]
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-2017-001 and should be submitted on or before
February 14, 2017.
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\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01464 Filed 1-23-17; 8:45 am]
BILLING CODE 8011-01-P