Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Options Pricing at Chapter XV, Section 2, 24668-24674 [2016-09597]
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Federal Register / Vol. 81, No. 80 / Tuesday, April 26, 2016 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77661; File No. SR–
NASDAQ–2016–055]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Amend
Options Pricing at Chapter XV, Section
2
April 20, 2016.
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 April 13,
2016, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Chapter XV, entitled ‘‘Options Pricing,’’
at Section 2, which governs pricing for
Exchange members using the NASDAQ
Options Market (‘‘NOM’’), the
Exchange’s facility for executing and
routing standardized equity and index
options.3 The Exchange proposes to
amend certain Penny Pilot Options 4
and Non-Penny Pilot Options pricing.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaq.cchwallstreet.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 References in this proposal to Chapter and
Series refer to NOM rules, unless otherwise
indicated.
4 The Penny Pilot was established in March 2008
and was last extended in 2015. 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); and 75283 (June 24,
2015), 80 FR 37347 (June 30, 2015) (SR–NASDAQ–
2015–063) (notice of filing and immediate
effectiveness extending the Penny Pilot through
June 30, 2016). All Penny Pilot Options listed on
the Exchange can be found at https://
www.nasdaqtrader.com/Micro.aspx?id=phlx.
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2 17
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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 Exchange proposes certain
amendments to the NOM transaction
fees set forth at Chapter XV, Section 2,
for executing and routing standardized
equity and index Penny Pilot Options
and Non-Penny Pilot Options.
Specifically, the Exchange proposes to
(a) Modify the Non-Penny Pilot Options
fees and rebates schedule (per executed
contract) to make Customer 5 and
Professional 6 Fee for Adding Liquidity,
Fee for Removing Liquidity, and Rebate
to Add Liquidity the same; (b) modify
Tier 5 and Tier 8 that allow Customer
and Professional to earn a Penny Pilot
Options Rebate to Add Liquidity; (c)
modify note ‘‘c’’ and note ‘‘d’’ to
indicate that they have applicability to
Customer and/or Professional and to
increase the amount of additional rebate
from $0.03 to $0.05, and modify note
‘‘c’’ to indicate an alternative
requirement for earning a rebate; and (d)
modify which eligible contracts qualify
for the Market Access and Routing
Subsidy (‘‘MARS’’) payment. The
proposed changes are discussed below.
Today, the Exchange offers fees and
rebates for Non-Penny Options to
Customer, Professional, Firm,7 Non5 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)).
6 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.
7 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at OCC.
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NOM Market Maker,8 NOM Market
Maker,9 and/or Broker-Dealer 10; and
also offers fees and rebates for Penny
Pilot Options. The current fees and
rebates in Non-Penny-Pilot Options are
as follows: the Fee for Adding Liquidity
for Customer is N/A (not fee liable) and
for Professional is $0.45; the Fee for
Removing Liquidity for Customer is
$0.85 and for Professional is $1.10; and
the Rebate to Add Liquidity for
Customer is $0.80 11 and for
Professional is N/A (no rebate).
Today, the Exchange offers a Penny
Pilot Options Rebate to Add Liquidity to
Customers and Professionals that add
liquidity per Tier 1 through Tier 8.
These rebates range from $0.20 for Tier
1 to $ 0.48 for Tier 8 per contract,12 and
generally allow Participants 13 to earn a
greater rebate by bringing more liquidity
to the Exchange as specified in Tier 1
to Tier 8. Today, Tier 5 rebates are
offered where Participant adds
Customer, Professional, Firm, Non-NOM
Market Maker, and/or Broker-Dealer
liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.40%
to 0.75% of total industry customer
equity and exchange traded fund
(‘‘ETF’’) option average daily volume
(‘‘ADV’’) contracts per day in a month.
Or, in the alternative, Participant adds
(1) Customer and/or Professional
liquidity in Penny Pilot Options and/or
8 The term ‘‘Non-NOM Market Maker’’ or (‘‘O’’) is
a registered market maker on another options
exchange that is not a NOM Market Maker. A NonNOM Market Maker must append the proper NonNOM Market Maker designation to orders routed to
NOM.
9 ‘‘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.
‘‘Participant’’ means a firm, or organization that is
registered with the Exchange pursuant to Chapter
II of these Rules for purposes of participating in
options trading on NOM as a ‘‘Nasdaq Options
Order Entry Firm’’ or ‘‘Nasdaq Options Market
Maker’’, see Chapter I, Section (a)(40).
10 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.
11 Note ‘‘1’’, which is applicable to Rebate to Add
Liquidity for Customer, states: 1 A Participant that
qualifies for Customer or Professional Penny Pilot
Options Rebate to Add Liquidity 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 Customer or
Professional Penny Pilot Options Rebate to Add
Liquidity 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.
12 See Chapter XV, Section 2(1).
13 ‘‘Participant’’ (also known as ‘‘NOM
Participant’’) includes Options Market Makers and
Options Order Entry Firms that are registered to
enter orders into the System.
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Non-Penny Pilot Options of 25,000 or
more contracts per day in a month, (2)
the Participant has certified for the
Investor Support Program (‘‘ISP’’) set
forth in NASDAQ Rule 7014, and (3) the
Participant executed at least one order
on NASDAQ’s equity market. Today,
Tier 8 rebates are offered where
Participant 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 Participant adds (1) Customer
and/or Professional liquidity in Penny
Pilot Options and/or Non-Penny Pilot
Options of 30,000 or more contracts per
day in a month and (2) the Participant
has certified for the ISP set forth in
NASDAQ Rule 7014. No change is
proposed to the current Tier 5 and Tier
8 rebates; these Rebates to Add
Liquidity remain at $0.45 and $0.48,
respectively.14 Rather, as discussed
below, the Exchange proposes to delete
reference to the ISP, which is being
deleted.15
Today, notes ‘‘a’’ through ‘‘d’’ apply
to certain rebate Tiers. Note ‘‘a’’, which
references ISP,16 is currently applicable
to Tier 5 and Tier 8; the Exchange
proposes to delete note ‘‘a’’ as the ISP
references are no longer needed. Note
‘‘c’’, which indicates what liquidity
Participants need to bring to the
Exchange in order to earn an additional
rebate amount, is applicable to Tier 8;
the Exchange proposes to modify note
‘‘c’’ to change the available liquidityenhancing ways to earn addition
rebates. The Exchange proposes to make
note ‘‘d’’ as amended, which discusses
additional rebate opportunity through
MARS liquidity, applicable to
Professionals.17
Today, for the purpose of qualifying
for MARS payment, eligible contracts
may include Firm, Non-NOM Market
14 No change is proposed to the rebates offered by
achieving liquidity requirements set by the other
Tiers (1, 2, 3, 4, 6, 7). As such, other than to note
that these tiers continue to offer progressively larger
rebates, these tiers are not discussed in the
proposal.
15 See NASDAQ–2016–051 (filed as immediately
effective proposal deleting ISP). For the proposal to
initiate ISP, see also Securities Exchange Act
Release No. 63270 (November 8, 2010), 75 FR 69489
(November 12, 2010) (NASDAQ–2010–141) (notice
of filing and immediate effectiveness).
16 Note ‘‘a’’ states: a For purposes of Tiers 5 and
8, the Exchange will allow a NOM Participant to
qualify for the rebate if a NASDAQ member has
certified for the Investor Support Program and
executed at least one order on NASDAQ’s equity
market.
17 Note ‘‘d’’ will continue to be applicable to
Customer Rebate to Add Liquidity in Penny Pilot
Options.
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Maker, Broker-Dealer, Joint Back Office
or ‘‘JBO’’ or Professional equity option
orders that add liquidity and are
electronically delivered and executed.
In light of the harmonization of
Customer and Professional, described
below, the Exchange is removing
reference to Professional.
Change 1—Non-Penny Pilot Options:
Customer and Professional, MARS
Eligible Contracts
The Exchange proposes to modify the
Non-Penny Pilot Options fees and
rebates schedule (per executed contract)
to harmonize the Customer and
Professional Fee for Adding Liquidity,
Fee for Removing Liquidity, and Rebate
to Add Liquidity. The Exchange
proposes to harmonize or make the
relevant fees and rebates for Customer
and Professional the same: For Fee for
Adding Liquidity Customer and
Professional will each not pay anything
(currently, Professional pays $0.45); for
Fee for Removing Liquidity Customer
and Professional will each pay $0.85
(currently, Professional pays $1.10); and
for Rebate to Add Liquidity Customer
and Professional will each pay [sic]
$0.80 (currently, Professional is not
subject to a rebate for Non-Penny Pilot
Options). The Exchange believes that
this incentivizes Customers and
Professional to continue to transact
Non-Penny Pilot Options on the
Exchange.
Following on the harmonization of
Customer and Professional in fees and
rebates, the Exchange proposes to delete
Professional from the types of MARS
contracts that qualify for MARS
payment.18 This is because at this time
Customer equity option orders are not
included in the list of contracts that are
eligible for MARS payment.19 Removal
of Professional thus harmonizes the
18 To
qualify for MARS, the Participant’s routing
system (‘‘System’’) would be required to: (1) Enable
the electronic routing of orders to all of the U.S.
options exchanges, including NOM; (2) provide
current consolidated market data from the U.S.
options exchanges; and (3) be capable of interfacing
with NOM’s API to access current NOM match
engine functionality. Further, the Participant’s
System would also need to cause NOM to be the
one of the top three default destination exchanges
for individually executed marketable orders if NOM
is at the national best bid or offer (‘‘NBBO’’),
regardless of size or time, but allow any user to
manually override NOM as a default destination on
an order-by-order basis. Any NOM Participant
would be permitted to avail itself of this
arrangement, provided that its order routing
functionality incorporates the features described
above and satisfies NOM that it appears to be robust
and reliable. The Participant remains solely
responsible for implementing and operating its
System. Chapter XV, Section 2(6).
19 See Chapter XV, Section 2(6).
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24669
treatment of Customer and Professional
vis a vis MARS.20
Change 2—Penny Pilot Options: Modify
Tier 5 and Tier 8
The Exchange proposes to modify
Tier 5 and Tier 8 that allow Customer
and Professional to earn a Penny Pilot
Options Rebate to Add Liquidity.
The Exchange proposes to amend Tier
5 of the Rebate to Add Liquidity by
deleting the second volume alternative
for this Tier, which requires, among
other things, that the Participant has
certified for the ISP set forth in
NASDAQ Rule 7014. The Exchange
proposes to amend Tier 8 of the Penny
Pilot Options Rebate to Add Liquidity
by updating a volume alternative which
also requires that Participant has
certified for the ISP. In lieu of the ISP
reference in Tier 8, the Exchange
proposes to state that Participant may
provide liquidity in all securities
through one or more of its NASDAQ
Market Center ‘‘MPIDs’’ 21 that represent
1.00% or more of Consolidated
Volume 22 in a month or qualifies [sic]
for ‘‘MARS’’. MARS is the Market
Access and Routing Subsidy, which
offers rebates to certain NOM
Participants that have routed the
requisite number of contracts that were
executed on NOM.23
Commensurate with deletion in Tier 5
and Tier 8 of reference to ISP, the
Exchange also proposes to delete
applicable note ‘‘a’’. This note applies
only to Tier 5 and Tier 8 and, similarly,
refers to ISP. As such, note ‘‘a’’ is no
longer needed and is being deleted.
The Exchange believes that deleting
reference to ISP in Tier 5 and Tier 8
Customer and Professional Penny Pilot
Option Rebate to Add Liquidity and
updating how one can qualify for
rebates will continue to incentivize
market participants to send order flow
to NOM.
Change 3—Penny Pilot Options: Modify
Note ‘‘c’’ and Note ‘‘d’’
The Exchange proposes to modify
note ‘‘c’’ and note ‘‘d’’ to indicate that
they apply to Customer and Professional
20 The Exchange notes that Customer and
Professional fees and rebates applicable to Penny
Pilot Options are already harmonized. The
proposed change will treat Customer and
Professional similarly for Penny Pilot Options as
well as Non-Penny Pilot Options.
21 ‘‘MPID’’ is the market participant identifier,
which is a unique four-letter mnemonic assigned to
each Participant in the Nasdaq Market Center. See
NASDAQ Rule 4701(i).
22 ‘‘Consolidated volume’’ means the total
consolidated volume reported to all consolidated
transaction reporting plans by all exchanges and
trade reporting facilities, excluding executed orders
with a size of less than one round lot.
23 See Chapter XV, Section 2(6).
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and to increase the amount of additional
rebate from $0.03 to $0.05. The
Exchange also proposes to modify note
‘‘c’’ to indicate additional ways to earn
additional rebate.
The Exchange proposes language in
note ‘‘d’’ to ensure that the Penny Pilot
Options [sic] to Add Liquidity is for
Professional as well as for Customer.
Note ‘‘d’’ states, as proposed, that NOM
Participants that qualify for MARS
Payment Tiers 1, 2, or 3 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, in
addition to qualifying Penny Pilot
Options Customer and/or Professional
Rebate to Add Liquidity Tiers 1–8.24 To
further incentivize Customers and
Professionals to qualify for MARS
Payment Tiers and to bring flow to the
Exchange, in note ‘‘d’’ the Exchange
proposes that for each transaction which
adds liquidity in Penny Pilot Options in
that month instead of receiving an
additional $0.03 per contract one can
receive an ‘‘additional $0.05 per
contract’’; and that the Rebate to Add
Liquidity is for ‘‘Customer and/or
Professional’’.
Note ‘‘c’’ gives three different ways for
Participants that add Customer,
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity in
Penny Pilot Options and/or Non- Penny
Pilot Options to receive additional
Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity.
Subsection (1), (2), and (3) in note ‘‘c’’,
as proposed, offers additional rebates
that are $0.02, $0.05, and $0.05
(changed from $0.03) per contract,
respectively. To incentivize Customers
and Professionals to qualify for bringing
flow to the Exchange, in note ‘‘c’’ the
Exchange proposes, similarly to the
rebate and fees change, that each of the
subsections is applicable to both
‘‘Customer and/or Professional’’. To
further incentivize bringing flow to the
Exchange, the Exchange enhances the
means in subsection (3) 25 to earn
additional rebates, and states
Participants that: (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’’) 26 via Market-on-Close/Limit-onClose (‘‘MOC/LOC’’) 27 volume within
the NASDAQ Stock Market Closing
Cross 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 a month. The
Exchange believes that this proposed
change, which includes a new
methodology to earn rebates through CV
via MOC/LOC, will incentivize bringing
additional flow to the Exchange.
As proposed, in Chapter XV, Section
2, fees and rebates in Non-Penny Pilot
Options (per executed contract),
including Customer and Professional;
and MARS Eligible Contracts, will read
as follows:
FEES AND REBATES
[Per executed contract]
Customer
Non-Penny Pilot Options:
Fee for Adding Liquidity ....................
Fee for Removing Liquidity ...............
Rebate to Add Liquidity ....................
MARS Eligible Contracts
N/A
0.85
1 0.80
Professional
N/A
0.85
1 0.80
Firm
Non-NOM
market maker
$0.45
1.10
N/A
$0.45
1.10
N/A
NOM market
maker
$0.35
4 1.10
N/A
Broker-dealer
$0.45
1.10
N/A
MARS Payment would be made to NOM Participants that have System Eligibility and have routed the requisite number of Eligible Contracts
daily in a month, which were executed on NOM. For the purpose of qualifying for the MARS Payment, Eligible Contracts may include Firm,
Non-NOM Market Maker, Broker-Dealer, or Joint Back Office or ‘‘JBO’’ equity option orders that add liquidity and are electronically delivered
and executed. Eligible Contracts do not include Mini Option orders.
As proposed, in Chapter XV, Section
2 Tier 5 and Tier 8 in the Rebate to Add
Liquidity will read as follows:
Rebate to add
liquidity
Volume
Tier 5 ............
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Monthly
Participant adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options above 0.40% to 0.75% of total industry customer equity and
ETF option ADV contracts per day in a month.
24 Note ‘‘d’’ indicates that NOM Participants that
qualify for a note ‘‘c’’ incentive will receive the
greater of the note ‘‘c’’ or note ‘‘d’’ incentive.
25 Current subsection (3) requires that a
Participant: (a) [sic] 0.75% of total industry
customer equity and ETF option ADV contracts per
day in a month and (b) has added liquidity in all
securities through one or more of its Nasdaq Market
Center MPIDs that represent 1.10% or more of
Consolidated Volume in a month.
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26 Consolidated Volume means 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. See Chapter XV, Section
2(1), note ‘‘c’’.
27 MOC/LOC, as set forth in NASDAQ Rule 4754,
represents the volume in the NASDAQ Stock
Market Closing Cross that allows market
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$0.45
participants to contribute order flow that will result
in executions at the official closing price for the day
in the NASDAQ listed security. An ‘‘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. An
‘‘LOC Order’’ is an order type entered with a price
that may be executed only in the NASDAQ Closing
Cross.
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Rebate to add
liquidity
Monthly
Volume
Tier 8 ............
Participant 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 Participant adds: (1) Customer and/or Professional liquidity
in Penny Pilot Options and/or Non-Penny Pilot Options of 30,000 or more 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 (defined below).
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As proposed, in Chapter XV, Section
2 note ‘‘c’’ and note ‘‘d’’ will read as
follows:
c 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-onClose/Limit-on-Close (‘‘MOC/LOC’’) volume
within the NASDAQ Stock Market Closing
Cross 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 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.
d NOM Participants that qualify for MARS
Payment Tiers 1, 2 or 3 will receive an
additional $0.05 per contract Penny Pilot
Options Customer and/or Professional Rebate
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to Add Liquidity for each transaction which
adds liquidity in Penny Pilot Options in that
month, in addition to qualifying Penny Pilot
Options Customer and/or Professional Rebate
to Add Liquidity Tiers 1–8. NOM
Participants that qualify for a note ‘‘c’’
incentive will receive the greater of the note
‘‘c’’ or note ‘‘d’’ incentive.
In terms of housekeeping changes, the
Exchange is correcting a typographical
error in Non-Penny Options fees and
rebates by adding ‘‘N/A’’ to make it even
clearer that Broker-Dealer does not get a
Rebate to Add Liquidity (in fact, this
section of Rebate to Add Liquidity does
not currently indicate any rebate to
Broker-Dealer).
2. Statutory Basis
The Exchange believes that its
proposal to amend its Pricing Schedule
is consistent with Section 6(b) of the
Act,28 in general, and furthers the
objectives of Section 6(b)(4) and (b)(5) of
the Act,29 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 The Exchange operates or
controls, and is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
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
broader forms that are most important to
investors and listed companies.’’ 30
Likewise, in NetCoalition v. Securities
and Exchange Commission 31
28 15
24671
U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
30 Securities Exchange Act Release No. 51808 at
37499 (‘‘Regulation NMS Adopting Release’’ at
Securities Exchange [sic] Release No. 34–51808
(June 29, 2005), 70 FR 37496 (File No. S7–10–04)).
31 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
c $0.48
(‘‘NetCoalition’’) the DC 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 costbased approach.32 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.’’ 33
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 brokerdealers 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’ . . . .’’ 34 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.
The Exchange believes that the
proposed change is reasonable,
equitable and not unfairly
discriminatory for the following
reasons.
Change 1—Non-Penny Pilot Options:
Customer and Professional, MARS
Eligible Contracts
In Change 1, the Exchange proposes to
modify the Non-Penny Pilot Options
fees and rebates schedule (per executed
contract) to harmonize Customer and
Professional Fee for Adding Liquidity,
Fee for Removing Liquidity, and Rebate
to Add Liquidity. In particular, the
Exchange proposes to harmonize or
make the relevant fees and rebates for
Customer and Professional the same for
Fee for Adding Liquidity, Fee for
Removing Liquidity, and Rebate to Add
Liquidity. The Exchange believes that
29 15
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
32 See
id. at 534–535.
id. at 537.
34 Id. at 539 (quoting Securities Exchange
Commission at [sic] Release No. 59039 (December
2, 2008), 73 FR 74770 (December 9, 2008) (SR–
NYSEArca–2006–21) at 73 FR at 74782–74783).
33 See
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this incentivizes Customers and
Professional to continue to transact
Non-Penny Pilot Options on the
Exchange.
Similar to the harmonization of
Customer and Professional in fees and
rebates, the Exchange proposes to delete
Professional from the types of MARS
contracts that quality for MARS
payment. This is because at this time
Customer equity option orders are not
included in the list of contracts that are
eligible for MARS payment.35 Removal
of Professional thus harmonizes the
treatment of Customer and Professional
vis a vis MARS.
The proposed rule change is
reasonable because it continues to
encourage market participant behavior
through the fees and rebates system,
which is an accepted methodology
among options exchanges.36 It is
reasonable to encourage Customer and
Professional by putting them in the
same fees and rebates position, as
discussed above, in regards to NonPenny Pilot Options.37 It is also
reasonable to carry the Customer and
Professional harmonization through to
the MARS eligibility, so that Customer
and Professional are treated the same.
The Exchange believes it is equitable
and not unfairly discriminatory to make
the noted harmonization changes
regarding Customer and Professional,
who bring liquidity to the Exchange.
Such liquidity attracts other market
participants. Customer and Professional
liquidity benefits all market participants
by providing more trading
opportunities, which attract Market
Makers.38 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. Also, the Exchange
believes that it is equitable and not
unfairly discriminatory to make MARS
eligibility the same for Customer and
35 See
Chapter XV, Section 2(6).
e.g., fee and rebate schedules of other
options exchanges, including, but not limited to,
NYSE ARCA (‘‘ARCA’’) https://www.nyse.com/
publicdocs/nyse/markets/arca-options/NYSE_
Arca_Options_Fee_Schedule.pdf, and BATS BZX
OPTIONS (‘‘BATS’’) https://www.batsoptions.com/
support/fee_schedule/bzx/. See also NASDAQ BX
Options Market (‘‘BX Options’’), NASDAQ PHLX
LLC (‘‘Phlx’’), and Chicago Board Options Exchange
(‘‘CBOE’’).
37 The Exchange notes that Customer and
Professional fees and rebates applicable to Penny
Pilot Options are already harmonized. The
proposed change will treat Customer and
Professional similarly for Penny Pilot Options as
well as Non-Penny Pilot Options.
38 Market Makers on the Exchange are valuable
market participants that provide liquidity in the
marketplace. They also have obligations to the
market and regulatory requirements, which
normally do not apply to other market participants.
mstockstill on DSK4VPTVN1PROD with NOTICES
36 See,
VerDate Sep<11>2014
22:08 Apr 25, 2016
Jkt 238001
Professional. The Exchange believes that
the proposed change is equitable and
not unfairly discriminatory because it
will be applied uniformly to all
Customers and Professionals. The
proposed fees and rebates and MARS
change enhances the competitiveness of
the Exchange by continuing to
incentivize bringing flow to the
Exchange.
Change 2—Penny Pilot Options: Modify
Tier 5 and Tier 8
In Change 2, the Exchange’s proposal
to delete reference to a program that is
being deleted, ISP, in Tiers 5 and 8 of
the Rebate to Add Liquidity and to
substitute Consolidated Volume or
MARS volume in Tier 8, and to delete
note ‘‘a’’ that refers to ISP, is reasonable
because NOM Participants will continue
to be incentivized to send more order
flow to NOM. The Exchange believes
that deletion or substitution of reference
to ISP is reasonable because the ISP
program is being deleted and the
reference to ISP in the Payment
Schedule as discussed is no longer
valid.
The proposed deletion of the ISP
reference is reasonable because the
program is being retired.39 Substituting
ISP reference in Tier 8 with reference to
Consolidated Volume or MARS volume
is reasonable because it is designed to
attract volume to the Exchange. With
this proposal, in order to qualify for the
highest Tier 8 rebate ($0.48), a NOM
Participant must have added 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, in the alternative, Participant
must have added: (1) Customer and/or
Professional liquidity in Penny Pilot
Options and/or Non-Penny Pilot
Options of 30,000 or more contracts per
day in a month, and (2) must have, as
proposed, either added liquidity in all
securities through one or more Nasdaq
Market Center MPIDs that represent
1.00% or more of Consolidated Volume
in a month, or must qualify for MARS.
This brings liquidity to the Exchange.
The proposed rule change is reasonable
because it continues to encourage
market participant behavior through the
fees and rebates system, which is an
accepted methodology among options
exchanges.40 The Tiers and the
39 See NASDAQ–2016–051 (filed as immediately
effective proposal deleting ISP).
40 See, e.g., fee and rebate schedules of other
options exchanges, including, but not limited to,
NYSE ARCA (‘‘ARCA’’) https://www.nyse.com/
publicdocs/nyse/markets/arca-options/NYSE_
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
proposed change to Tier 8 continue to
reflect the progressively increasing
rebate requirements that offer incentives
to earn the highest Rebate to Add
Liquidity by bringing the most order
flow to the Exchange.
The Exchange believes it is equitable
and not unfairly discriminatory to
continue to offer rebate Tiers, and in
particular proposed Tier 8, in order to
incentivize Professionals and Customers
to bring liquidity to the Exchange. Such
liquidity, and in particular Customer
liquidity, attracts other market
participants. Customer liquidity benefits
all market participants by providing
more trading opportunities, which
attract 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. Also, the Exchange
believes that it is equitable and not
unfairly discriminatory to offer Tier 8
incentives to certain NOM Participants
because the ability to earn Tier 8
rebates, as well as the requirements to
earn such rebates, would apply
uniformly to qualifying NOM
Participants. By attracting flow to the
Exchange, the proposed Tier 8 liquidity
goals enhance the competitiveness of
the Exchange.
Change 3—Penny Pilot Options: Modify
Note ‘‘c’’ and Note ‘‘d’’
In Change 3, the Exchange proposes to
modify note ‘‘c’’ and note ‘‘d’’ to
indicate that they have applicability to
Customer and/or Professional and to
increase the amount of additional rebate
from $0.03 to $0.05. The Exchange also
proposes to modify note ‘‘c’’ to indicate
enhanced ways to earn additional
rebate.
It is reasonable to incentivize
Participants to bring flow to the
Exchange. To further incentivize
Participants on NOM to bring flow to
the Exchange, in note ‘‘d’’ the Exchange
proposes that if the Participants qualify
for MARS Payment Tiers 1, 2, or 3 and
to [sic] bring flow to the Exchange, then
such Participants will receive an
additional $0.05 per contract (now
$0.03) Penny Pilot Options Customer
and/or Professional Rebate to Add
Liquidity (in addition to qualifying
Penny Pilot Options Customer [sic]
Rebate to Add Liquidity Tiers 1–8). To
incentivize qualifying for additional
rebate by bringing flow to the Exchange,
Arca_Options_Fee_Schedule.pdf, and BATS BZX
OPTIONS (‘‘BATS’’) https://www.batsoptions.com/
support/fee_schedule/bzx/. See also NASDAQ BX
Options Market (‘‘BX Options’’), NASDAQ PHLX
LLC (‘‘Phlx’’), and Chicago Board Options Exchange
(‘‘CBOE’’).
E:\FR\FM\26APN1.SGM
26APN1
mstockstill on DSK4VPTVN1PROD with NOTICES
Federal Register / Vol. 81, No. 80 / Tuesday, April 26, 2016 / Notices
in note ‘‘c’’ the Exchange reasonably
proposes, similarly to the rebate and fee
change, that each of the subsections is
applicable to both ‘‘Customer and/or
Professional’’. To further incentivize
bringing flow to the Exchange, the
Exchange enhances the means in
subsection (3) of note ‘‘c’’ to earn
additional rebates and states that
Participants can receive an additional
$0.05 per contract Penny Pilot Options
Customer and/or Professional Rebate to
Add Liquidity through: (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 CV via MOC/LOC volume
within the NASDAQ Stock Market
Closing Cross in a month. It is
reasonable for the Exchange to further
incentivize bringing flow to the
Exchange by proposing a new
methodology to earn option rebates
through CV via MOC/LOC within the
NASDAQ Stock Market Closing Cross.
The proposed rule change is
reasonable because it continues to
encourage market participant behavior
through the fees and rebates system,
which is an accepted methodology
among options exchanges. It is
reasonable to incentivize bringing flow
to the Exchange by offering additional
or enhanced ways to bring liquidity to
the Exchange and earn payment for it.
It is also reasonable to make sure that
Customer and Professional are
harmonized and treated the same.
The Exchange believes it is equitable
and not unfairly discriminatory to make
the changes to note ‘‘c’’ and note ‘‘d’’
because they will be applied uniformly
across all similarly situated Participants,
while promoting bringing liquidity to
the Exchange.
Such liquidity attracts other market
participants. Customer and Professional
liquidity benefits all market participants
by providing more trading
opportunities, which attract 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 proposed changes
enhance the competitiveness of the
Exchange by continuing to incentivize
bringing flow to the Exchange.
VerDate Sep<11>2014
22:08 Apr 25, 2016
Jkt 238001
The Exchange desires to continue to
incentivize members and member
organizations, through the Exchange’s
rebate and fee structure, to select the
Exchange as a venue for bringing
liquidity and trading by offering
competitive pricing. Such competitive,
differentiated pricing exists today on
other options exchanges. The
Exchange’s goal is creating and
increasing incentives to attract orders to
the Exchange that will, in turn, benefit
all market participants through
increased liquidity at the Exchange.
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.
The Exchange 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
and rebate changes in this market may
impose any burden on competition is
extremely limited. In this instance, the
proposed changes regarding the NonPenny Pilot Options fees and rebates,
Tiers 5 and 8, notes ‘‘c’’ and ‘‘d’’, and
MARS eligibility do not impose a
burden on competition because the
Exchange’s execution services are
completely voluntary and subject to
extensive competition both from other
exchanges and from off-exchange
venues.
The proposed changes reflect this
competition and the Exchange’s desire
to offer better fees and rebates in return
for market-improving liquidity, which is
ultimately limited by the Exchange’s
need to cover costs and make a profit.
Thus, the Exchange must carefully
adjust its fees and rebates with the
understanding that if the proposed
changes are unattractive to market
participants, it is likely that the
Exchange will lose market share to other
exchanges and off-exchange venues as a
result.
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
24673
The Exchange is proposing changes
regarding the Non-Penny Pilot Options
fees and rebates, Tiers 5 and 8, notes
‘‘c’’ and ‘‘d’’, and MARS eligibility. The
Exchange believes that such proposed
changes will support liquidity on the
Exchange and are procompetitive, since
any other market is free to provide
similar, if not better, fees and rebates
should they choose to do so. For these
reasons, the Exchange does not believe
that the proposed changes will impair
the ability of its own members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
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.41
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2016–055 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.
41 15
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26APN1
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Federal Register / Vol. 81, No. 80 / Tuesday, April 26, 2016 / Notices
All submissions should refer to File
Number SR–NASDAQ–2016–055. 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 (https://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–2016–055 and
should be submitted on or before May
17, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–09597 Filed 4–25–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77658; File No. SR–
NYSEMKT–2016–45]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Modifying the NYSE
Amex Options Fee Schedule
April 20, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on April 11,
2016, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify the
NYSE Amex Options Fee Schedule
(‘‘Fee Schedule’’). The Exchange
proposes to implement the fee change
effective April 11, 2016. The proposed
change is available on the Exchange’s
Web site at www.nyse.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
self-regulatory organization included
ACE Program—Standard options
Tier
mstockstill on DSK4VPTVN1PROD with NOTICES
1 .....................
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to amend
Sections I. E. and G. of the Fee
Schedule 4 to adjust fees and credits
payable, effective on April 11, 2016.
Proposed changes to ACE Program
Section I.E. of the Fee Schedule
describes the Exchange’s ACE Program,
which features five tiers expressed as a
percentage of total industry Customer
equity and Exchange Traded Fund
(‘‘ETF’’) option average daily volume 5
and provides two alternative methods
through which Order Flow Providers
(each an ‘‘OFP’’) may receive per
contract credits for Electronic Customer
volume that the OFP, as agent, submits
to the Exchange.
The Exchange proposes to modify the
ACE Program by increasing certain of
the credits available for Tiers 2 through
5 as illustrated in the table below, with
proposed additions appearing
underscored and proposed deletions
appearing in brackets:
Credits payable on customer volume only
Customer electronic ADV as
a % of industry customer equity and ETF options ADV
OR
Total electronic ADV (of
which 20% or
greater of the minimum qualifying volume for
each tier must be customer)
as a % of
industry customer equity and
ETF options ADV
0.00% to 0.60% ....................
...................
N/A ........................................
42 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 See Fee Schedule, Sections I. E. (Amex
Customer Engagement (‘‘ACE’’) Program—Standard
Options) and G. (CUBE Auction Fees & Credits),
available here, https://www.nyse.com/publicdocs/
1 15
2 15
VerDate Sep<11>2014
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 those 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 parts of such
statements.
22:08 Apr 25, 2016
Jkt 238001
nyse/markets/amex-options/NYSE_Amex_Options_
Fee_Schedule.pdf.
5 The volume thresholds are based on an NYSE
Amex Options Market Makers’ volume transacted
Electronically as a percentage of total industry
Customer equity and ETF options volumes as
reported by the Options Clearing Corporation (the
‘‘OCC’’). Total industry Customer equity and ETF
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
Customer
volume credits
$0.00
1 Year
enhanced
customer volume credits
$0.00
3 Year
enhanced
customer volume credits
$0.00
option volume is comprised of those equity and
ETF contracts that clear in the Customer account
type at OCC and does not include contracts that
clear in either the Firm or Market Maker account
type at OCC or contracts overlying a security other
than an equity or ETF security. See OCC Monthly
Statistics Reports, available here, https://
www.theocc.com/webapps/monthly-volume-reports.
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]]>Agencies
[Federal Register Volume 81, Number 80 (Tuesday, April 26, 2016)]
[Notices]
[Pages 24668-24674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09597]
[[Page 24668]]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77661; File No. SR-NASDAQ-2016-055]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Amend Options Pricing at Chapter XV, Section 2
April 20, 2016.
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 April 13, 2016, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Chapter XV, entitled ``Options
Pricing,'' at Section 2, which governs pricing for Exchange members
using the NASDAQ Options Market (``NOM''), the Exchange's facility for
executing and routing standardized equity and index options.\3\ The
Exchange proposes to amend certain Penny Pilot Options \4\ and Non-
Penny Pilot Options pricing.
---------------------------------------------------------------------------
\3\ References in this proposal to Chapter and Series refer to
NOM rules, unless otherwise indicated.
\4\ The Penny Pilot was established in March 2008 and was last
extended in 2015. 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); and 75283 (June 24, 2015), 80 FR 37347 (June 30, 2015) (SR-
NASDAQ-2015-063) (notice of filing and immediate effectiveness
extending the Penny Pilot through June 30, 2016). All Penny Pilot
Options listed on the Exchange can be found at https://www.nasdaqtrader.com/Micro.aspx?id=phlx.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://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 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 certain amendments to the NOM transaction
fees set forth at Chapter XV, Section 2, for executing and routing
standardized equity and index Penny Pilot Options and Non-Penny Pilot
Options. Specifically, the Exchange proposes to (a) Modify the Non-
Penny Pilot Options fees and rebates schedule (per executed contract)
to make Customer \5\ and Professional \6\ Fee for Adding Liquidity, Fee
for Removing Liquidity, and Rebate to Add Liquidity the same; (b)
modify Tier 5 and Tier 8 that allow Customer and Professional to earn a
Penny Pilot Options Rebate to Add Liquidity; (c) modify note ``c'' and
note ``d'' to indicate that they have applicability to Customer and/or
Professional and to increase the amount of additional rebate from $0.03
to $0.05, and modify note ``c'' to indicate an alternative requirement
for earning a rebate; and (d) modify which eligible contracts qualify
for the Market Access and Routing Subsidy (``MARS'') payment. The
proposed changes are discussed below.
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\5\ 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)).
\6\ 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.
---------------------------------------------------------------------------
Today, the Exchange offers fees and rebates for Non-Penny Options
to Customer, Professional, Firm,\7\ Non-NOM Market Maker,\8\ NOM Market
Maker,\9\ and/or Broker-Dealer \10\; and also offers fees and rebates
for Penny Pilot Options. The current fees and rebates in Non-Penny-
Pilot Options are as follows: the Fee for Adding Liquidity for Customer
is N/A (not fee liable) and for Professional is $0.45; the Fee for
Removing Liquidity for Customer is $0.85 and for Professional is $1.10;
and the Rebate to Add Liquidity for Customer is $0.80 \11\ and for
Professional is N/A (no rebate).
---------------------------------------------------------------------------
\7\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\8\ The term ``Non-NOM Market Maker'' or (``O'') is a registered
market maker on another options exchange that is not a NOM Market
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market
Maker designation to orders routed to NOM.
\9\ ``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. ``Participant'' means a firm, or organization that is registered
with the Exchange pursuant to Chapter II of these Rules for purposes
of participating in options trading on NOM as a ``Nasdaq Options
Order Entry Firm'' or ``Nasdaq Options Market Maker'', see Chapter
I, Section (a)(40).
\10\ 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.
\11\ Note ``1'', which is applicable to Rebate to Add Liquidity
for Customer, states: \1\ A Participant that qualifies for Customer
or Professional Penny Pilot Options Rebate to Add Liquidity 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 Customer or Professional
Penny Pilot Options Rebate to Add Liquidity 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.
---------------------------------------------------------------------------
Today, the Exchange offers a Penny Pilot Options Rebate to Add
Liquidity to Customers and Professionals that add liquidity per Tier 1
through Tier 8. These rebates range from $0.20 for Tier 1 to $ 0.48 for
Tier 8 per contract,\12\ and generally allow Participants \13\ to earn
a greater rebate by bringing more liquidity to the Exchange as
specified in Tier 1 to Tier 8. Today, Tier 5 rebates are offered where
Participant adds Customer, Professional, Firm, Non-NOM Market Maker,
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options above 0.40% to 0.75% of total industry customer equity
and exchange traded fund (``ETF'') option average daily volume
(``ADV'') contracts per day in a month. Or, in the alternative,
Participant adds (1) Customer and/or Professional liquidity in Penny
Pilot Options and/or
[[Page 24669]]
Non-Penny Pilot Options of 25,000 or more contracts per day in a month,
(2) the Participant has certified for the Investor Support Program
(``ISP'') set forth in NASDAQ Rule 7014, and (3) the Participant
executed at least one order on NASDAQ's equity market. Today, Tier 8
rebates are offered where Participant 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 Participant adds (1) Customer and/or Professional liquidity
in Penny Pilot Options and/or Non-Penny Pilot Options of 30,000 or more
contracts per day in a month and (2) the Participant has certified for
the ISP set forth in NASDAQ Rule 7014. No change is proposed to the
current Tier 5 and Tier 8 rebates; these Rebates to Add Liquidity
remain at $0.45 and $0.48, respectively.\14\ Rather, as discussed
below, the Exchange proposes to delete reference to the ISP, which is
being deleted.\15\
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\12\ See Chapter XV, Section 2(1).
\13\ ``Participant'' (also known as ``NOM Participant'')
includes Options Market Makers and Options Order Entry Firms that
are registered to enter orders into the System.
\14\ No change is proposed to the rebates offered by achieving
liquidity requirements set by the other Tiers (1, 2, 3, 4, 6, 7). As
such, other than to note that these tiers continue to offer
progressively larger rebates, these tiers are not discussed in the
proposal.
\15\ See NASDAQ-2016-051 (filed as immediately effective
proposal deleting ISP). For the proposal to initiate ISP, see also
Securities Exchange Act Release No. 63270 (November 8, 2010), 75 FR
69489 (November 12, 2010) (NASDAQ-2010-141) (notice of filing and
immediate effectiveness).
---------------------------------------------------------------------------
Today, notes ``a'' through ``d'' apply to certain rebate Tiers.
Note ``a'', which references ISP,\16\ is currently applicable to Tier 5
and Tier 8; the Exchange proposes to delete note ``a'' as the ISP
references are no longer needed. Note ``c'', which indicates what
liquidity Participants need to bring to the Exchange in order to earn
an additional rebate amount, is applicable to Tier 8; the Exchange
proposes to modify note ``c'' to change the available liquidity-
enhancing ways to earn addition rebates. The Exchange proposes to make
note ``d'' as amended, which discusses additional rebate opportunity
through MARS liquidity, applicable to Professionals.\17\
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\16\ Note ``a'' states: \a\ For purposes of Tiers 5 and 8, the
Exchange will allow a NOM Participant to qualify for the rebate if a
NASDAQ member has certified for the Investor Support Program and
executed at least one order on NASDAQ's equity market.
\17\ Note ``d'' will continue to be applicable to Customer
Rebate to Add Liquidity in Penny Pilot Options.
---------------------------------------------------------------------------
Today, for the purpose of qualifying for MARS payment, eligible
contracts may include Firm, Non-NOM Market Maker, Broker-Dealer, Joint
Back Office or ``JBO'' or Professional equity option orders that add
liquidity and are electronically delivered and executed. In light of
the harmonization of Customer and Professional, described below, the
Exchange is removing reference to Professional.
Change 1--Non-Penny Pilot Options: Customer and Professional, MARS
Eligible Contracts
The Exchange proposes to modify the Non-Penny Pilot Options fees
and rebates schedule (per executed contract) to harmonize the Customer
and Professional Fee for Adding Liquidity, Fee for Removing Liquidity,
and Rebate to Add Liquidity. The Exchange proposes to harmonize or make
the relevant fees and rebates for Customer and Professional the same:
For Fee for Adding Liquidity Customer and Professional will each not
pay anything (currently, Professional pays $0.45); for Fee for Removing
Liquidity Customer and Professional will each pay $0.85 (currently,
Professional pays $1.10); and for Rebate to Add Liquidity Customer and
Professional will each pay [sic] $0.80 (currently, Professional is not
subject to a rebate for Non-Penny Pilot Options). The Exchange believes
that this incentivizes Customers and Professional to continue to
transact Non-Penny Pilot Options on the Exchange.
Following on the harmonization of Customer and Professional in fees
and rebates, the Exchange proposes to delete Professional from the
types of MARS contracts that qualify for MARS payment.\18\ This is
because at this time Customer equity option orders are not included in
the list of contracts that are eligible for MARS payment.\19\ Removal
of Professional thus harmonizes the treatment of Customer and
Professional vis a vis MARS.\20\
---------------------------------------------------------------------------
\18\ To qualify for MARS, the Participant's routing system
(``System'') would be required to: (1) Enable the electronic routing
of orders to all of the U.S. options exchanges, including NOM; (2)
provide current consolidated market data from the U.S. options
exchanges; and (3) be capable of interfacing with NOM's API to
access current NOM match engine functionality. Further, the
Participant's System would also need to cause NOM to be the one of
the top three default destination exchanges for individually
executed marketable orders if NOM is at the national best bid or
offer (``NBBO''), regardless of size or time, but allow any user to
manually override NOM as a default destination on an order-by-order
basis. Any NOM Participant would be permitted to avail itself of
this arrangement, provided that its order routing functionality
incorporates the features described above and satisfies NOM that it
appears to be robust and reliable. The Participant remains solely
responsible for implementing and operating its System. Chapter XV,
Section 2(6).
\19\ See Chapter XV, Section 2(6).
\20\ The Exchange notes that Customer and Professional fees and
rebates applicable to Penny Pilot Options are already harmonized.
The proposed change will treat Customer and Professional similarly
for Penny Pilot Options as well as Non-Penny Pilot Options.
---------------------------------------------------------------------------
Change 2--Penny Pilot Options: Modify Tier 5 and Tier 8
The Exchange proposes to modify Tier 5 and Tier 8 that allow
Customer and Professional to earn a Penny Pilot Options Rebate to Add
Liquidity.
The Exchange proposes to amend Tier 5 of the Rebate to Add
Liquidity by deleting the second volume alternative for this Tier,
which requires, among other things, that the Participant has certified
for the ISP set forth in NASDAQ Rule 7014. The Exchange proposes to
amend Tier 8 of the Penny Pilot Options Rebate to Add Liquidity by
updating a volume alternative which also requires that Participant has
certified for the ISP. In lieu of the ISP reference in Tier 8, the
Exchange proposes to state that Participant may provide liquidity in
all securities through one or more of its NASDAQ Market Center
``MPIDs'' \21\ that represent 1.00% or more of Consolidated Volume \22\
in a month or qualifies [sic] for ``MARS''. MARS is the Market Access
and Routing Subsidy, which offers rebates to certain NOM Participants
that have routed the requisite number of contracts that were executed
on NOM.\23\
---------------------------------------------------------------------------
\21\ ``MPID'' is the market participant identifier, which is a
unique four-letter mnemonic assigned to each Participant in the
Nasdaq Market Center. See NASDAQ Rule 4701(i).
\22\ ``Consolidated volume'' means the total consolidated volume
reported to all consolidated transaction reporting plans by all
exchanges and trade reporting facilities, excluding executed orders
with a size of less than one round lot.
\23\ See Chapter XV, Section 2(6).
---------------------------------------------------------------------------
Commensurate with deletion in Tier 5 and Tier 8 of reference to
ISP, the Exchange also proposes to delete applicable note ``a''. This
note applies only to Tier 5 and Tier 8 and, similarly, refers to ISP.
As such, note ``a'' is no longer needed and is being deleted.
The Exchange believes that deleting reference to ISP in Tier 5 and
Tier 8 Customer and Professional Penny Pilot Option Rebate to Add
Liquidity and updating how one can qualify for rebates will continue to
incentivize market participants to send order flow to NOM.
Change 3--Penny Pilot Options: Modify Note ``c'' and Note ``d''
The Exchange proposes to modify note ``c'' and note ``d'' to
indicate that they apply to Customer and Professional
[[Page 24670]]
and to increase the amount of additional rebate from $0.03 to $0.05.
The Exchange also proposes to modify note ``c'' to indicate additional
ways to earn additional rebate.
The Exchange proposes language in note ``d'' to ensure that the
Penny Pilot Options [sic] to Add Liquidity is for Professional as well
as for Customer. Note ``d'' states, as proposed, that NOM Participants
that qualify for MARS Payment Tiers 1, 2, or 3 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, in addition to
qualifying Penny Pilot Options Customer and/or Professional Rebate to
Add Liquidity Tiers 1-8.\24\ To further incentivize Customers and
Professionals to qualify for MARS Payment Tiers and to bring flow to
the Exchange, in note ``d'' the Exchange proposes that for each
transaction which adds liquidity in Penny Pilot Options in that month
instead of receiving an additional $0.03 per contract one can receive
an ``additional $0.05 per contract''; and that the Rebate to Add
Liquidity is for ``Customer and/or Professional''.
---------------------------------------------------------------------------
\24\ Note ``d'' indicates that NOM Participants that qualify for
a note ``c'' incentive will receive the greater of the note ``c'' or
note ``d'' incentive.
---------------------------------------------------------------------------
Note ``c'' gives three different ways for Participants that add
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer
liquidity in Penny Pilot Options and/or Non- Penny Pilot Options to
receive additional Penny Pilot Options Customer and/or Professional
Rebate to Add Liquidity. Subsection (1), (2), and (3) in note ``c'', as
proposed, offers additional rebates that are $0.02, $0.05, and $0.05
(changed from $0.03) per contract, respectively. To incentivize
Customers and Professionals to qualify for bringing flow to the
Exchange, in note ``c'' the Exchange proposes, similarly to the rebate
and fees change, that each of the subsections is applicable to both
``Customer and/or Professional''. To further incentivize bringing flow
to the Exchange, the Exchange enhances the means in subsection (3) \25\
to earn additional rebates, and states Participants that: (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'') \26\ via Market-on-Close/Limit-on-Close
(``MOC/LOC'') \27\ volume within the NASDAQ Stock Market Closing Cross
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 a month. The
Exchange believes that this proposed change, which includes a new
methodology to earn rebates through CV via MOC/LOC, will incentivize
bringing additional flow to the Exchange.
---------------------------------------------------------------------------
\25\ Current subsection (3) requires that a Participant: (a)
[sic] 0.75% of total industry customer equity and ETF option ADV
contracts per day in a month and (b) has added liquidity in all
securities through one or more of its Nasdaq Market Center MPIDs
that represent 1.10% or more of Consolidated Volume in a month.
\26\ Consolidated Volume means 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. See Chapter XV, Section 2(1), note ``c''.
\27\ 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. An ``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. An ``LOC Order'' is an order
type entered with a price that may be executed only in the NASDAQ
Closing Cross.
---------------------------------------------------------------------------
As proposed, in Chapter XV, Section 2, fees and rebates in Non-
Penny Pilot Options (per executed contract), including Customer and
Professional; and MARS Eligible Contracts, will read as follows:
Fees and Rebates
[Per executed contract]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-NOM market NOM market
Customer Professional Firm maker maker Broker-dealer
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Penny Pilot Options:
Fee for Adding Liquidity............................ N/A N/A $0.45 $0.45 $0.35 $0.45
Fee for Removing Liquidity.......................... 0.85 0.85 1.10 1.10 \4\ 1.10 1.10
Rebate to Add Liquidity............................. \1\ 0.80 \1\ 0.80 N/A N/A N/A N/A
MARS Eligible Contracts
-----------------------------------------------------------------------------------------------
MARS Payment would be made to NOM Participants that have System Eligibility and have routed the requisite number of Eligible Contracts daily in a month,
which were executed on NOM. For the purpose of qualifying for the MARS Payment, Eligible Contracts may include Firm, Non-NOM Market Maker, Broker-
Dealer, or Joint Back Office or ``JBO'' equity option orders that add liquidity and are electronically delivered and executed. Eligible Contracts do
not include Mini Option orders.........................................................................................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
As proposed, in Chapter XV, Section 2 Tier 5 and Tier 8 in the
Rebate to Add Liquidity will read as follows:
----------------------------------------------------------------------------------------------------------------
Rebate to add
Monthly Volume liquidity
----------------------------------------------------------------------------------------------------------------
Tier 5............................. Participant adds Customer, Professional, Firm, Non-NOM $0.45
Market Maker and/or Broker-Dealer liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options above 0.40% to
0.75% of total industry customer equity and ETF option ADV
contracts per day in a month.
[[Page 24671]]
Tier 8............................. Participant adds Customer, Professional, Firm, Non-NOM \c\ $0.48
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 Participant adds: (1)
Customer and/or Professional liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options of 30,000 or more
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 (defined below).
----------------------------------------------------------------------------------------------------------------
As proposed, in Chapter XV, Section 2 note ``c'' and note ``d''
will read as follows:
\c\ 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 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 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.
\d\ NOM Participants that qualify for MARS Payment Tiers 1, 2 or
3 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, in addition to qualifying Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity Tiers 1-8. NOM Participants
that qualify for a note ``c'' incentive will receive the greater of
the note ``c'' or note ``d'' incentive.
In terms of housekeeping changes, the Exchange is correcting a
typographical error in Non-Penny Options fees and rebates by adding
``N/A'' to make it even clearer that Broker-Dealer does not get a
Rebate to Add Liquidity (in fact, this section of Rebate to Add
Liquidity does not currently indicate any rebate to Broker-Dealer).
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act,\28\ in general,
and furthers the objectives of Section 6(b)(4) and (b)(5) of the
Act,\29\ 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 The
Exchange operates or controls, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78f(b).
\29\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------
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 broader forms that are most
important to investors and listed companies.'' \30\ Likewise, in
NetCoalition v. Securities and Exchange Commission \31\
(``NetCoalition'') the DC 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.\32\ 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.'' \33\
---------------------------------------------------------------------------
\30\ Securities Exchange Act Release No. 51808 at 37499
(``Regulation NMS Adopting Release'' at Securities Exchange [sic]
Release No. 34-51808 (June 29, 2005), 70 FR 37496 (File No. S7-10-
04)).
\31\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\32\ See id. at 534-535.
\33\ See id. at 537.
---------------------------------------------------------------------------
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' . . . .'' \34\ 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.
---------------------------------------------------------------------------
\34\ Id. at 539 (quoting Securities Exchange Commission at [sic]
Release No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008)
(SR-NYSEArca-2006-21) at 73 FR at 74782-74783).
---------------------------------------------------------------------------
The Exchange believes that the proposed change is reasonable,
equitable and not unfairly discriminatory for the following reasons.
Change 1--Non-Penny Pilot Options: Customer and Professional, MARS
Eligible Contracts
In Change 1, the Exchange proposes to modify the Non-Penny Pilot
Options fees and rebates schedule (per executed contract) to harmonize
Customer and Professional Fee for Adding Liquidity, Fee for Removing
Liquidity, and Rebate to Add Liquidity. In particular, the Exchange
proposes to harmonize or make the relevant fees and rebates for
Customer and Professional the same for Fee for Adding Liquidity, Fee
for Removing Liquidity, and Rebate to Add Liquidity. The Exchange
believes that
[[Page 24672]]
this incentivizes Customers and Professional to continue to transact
Non-Penny Pilot Options on the Exchange.
Similar to the harmonization of Customer and Professional in fees
and rebates, the Exchange proposes to delete Professional from the
types of MARS contracts that quality for MARS payment. This is because
at this time Customer equity option orders are not included in the list
of contracts that are eligible for MARS payment.\35\ Removal of
Professional thus harmonizes the treatment of Customer and Professional
vis a vis MARS.
---------------------------------------------------------------------------
\35\ See Chapter XV, Section 2(6).
---------------------------------------------------------------------------
The proposed rule change is reasonable because it continues to
encourage market participant behavior through the fees and rebates
system, which is an accepted methodology among options exchanges.\36\
It is reasonable to encourage Customer and Professional by putting them
in the same fees and rebates position, as discussed above, in regards
to Non-Penny Pilot Options.\37\ It is also reasonable to carry the
Customer and Professional harmonization through to the MARS
eligibility, so that Customer and Professional are treated the same.
---------------------------------------------------------------------------
\36\ See, e.g., fee and rebate schedules of other options
exchanges, including, but not limited to, NYSE ARCA (``ARCA'')
https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf, and BATS BZX OPTIONS (``BATS'')
https://www.batsoptions.com/support/fee_schedule/bzx/. See also
NASDAQ BX Options Market (``BX Options''), NASDAQ PHLX LLC
(``Phlx''), and Chicago Board Options Exchange (``CBOE'').
\37\ The Exchange notes that Customer and Professional fees and
rebates applicable to Penny Pilot Options are already harmonized.
The proposed change will treat Customer and Professional similarly
for Penny Pilot Options as well as Non-Penny Pilot Options.
---------------------------------------------------------------------------
The Exchange believes it is equitable and not unfairly
discriminatory to make the noted harmonization changes regarding
Customer and Professional, who bring liquidity to the Exchange. Such
liquidity attracts other market participants. Customer and Professional
liquidity benefits all market participants by providing more trading
opportunities, which attract Market Makers.\38\ 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. Also, the Exchange believes that
it is equitable and not unfairly discriminatory to make MARS
eligibility the same for Customer and Professional. The Exchange
believes that the proposed change is equitable and not unfairly
discriminatory because it will be applied uniformly to all Customers
and Professionals. The proposed fees and rebates and MARS change
enhances the competitiveness of the Exchange by continuing to
incentivize bringing flow to the Exchange.
---------------------------------------------------------------------------
\38\ Market Makers on the Exchange are valuable market
participants that provide liquidity in the marketplace. They also
have obligations to the market and regulatory requirements, which
normally do not apply to other market participants.
---------------------------------------------------------------------------
Change 2--Penny Pilot Options: Modify Tier 5 and Tier 8
In Change 2, the Exchange's proposal to delete reference to a
program that is being deleted, ISP, in Tiers 5 and 8 of the Rebate to
Add Liquidity and to substitute Consolidated Volume or MARS volume in
Tier 8, and to delete note ``a'' that refers to ISP, is reasonable
because NOM Participants will continue to be incentivized to send more
order flow to NOM. The Exchange believes that deletion or substitution
of reference to ISP is reasonable because the ISP program is being
deleted and the reference to ISP in the Payment Schedule as discussed
is no longer valid.
The proposed deletion of the ISP reference is reasonable because
the program is being retired.\39\ Substituting ISP reference in Tier 8
with reference to Consolidated Volume or MARS volume is reasonable
because it is designed to attract volume to the Exchange. With this
proposal, in order to qualify for the highest Tier 8 rebate ($0.48), a
NOM Participant must have added 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, in
the alternative, Participant must have added: (1) Customer and/or
Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of 30,000 or more contracts per day in a month, and (2) must
have, as proposed, either added liquidity in all securities through one
or more Nasdaq Market Center MPIDs that represent 1.00% or more of
Consolidated Volume in a month, or must qualify for MARS. This brings
liquidity to the Exchange. The proposed rule change is reasonable
because it continues to encourage market participant behavior through
the fees and rebates system, which is an accepted methodology among
options exchanges.\40\ The Tiers and the proposed change to Tier 8
continue to reflect the progressively increasing rebate requirements
that offer incentives to earn the highest Rebate to Add Liquidity by
bringing the most order flow to the Exchange.
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\39\ See NASDAQ-2016-051 (filed as immediately effective
proposal deleting ISP).
\40\ See, e.g., fee and rebate schedules of other options
exchanges, including, but not limited to, NYSE ARCA (``ARCA'')
https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf, and BATS BZX OPTIONS (``BATS'')
https://www.batsoptions.com/support/fee_schedule/bzx/. See also
NASDAQ BX Options Market (``BX Options''), NASDAQ PHLX LLC
(``Phlx''), and Chicago Board Options Exchange (``CBOE'').
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The Exchange believes it is equitable and not unfairly
discriminatory to continue to offer rebate Tiers, and in particular
proposed Tier 8, in order to incentivize Professionals and Customers to
bring liquidity to the Exchange. Such liquidity, and in particular
Customer liquidity, attracts other market participants. Customer
liquidity benefits all market participants by providing more trading
opportunities, which attract 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. Also, the Exchange believes that it is equitable
and not unfairly discriminatory to offer Tier 8 incentives to certain
NOM Participants because the ability to earn Tier 8 rebates, as well as
the requirements to earn such rebates, would apply uniformly to
qualifying NOM Participants. By attracting flow to the Exchange, the
proposed Tier 8 liquidity goals enhance the competitiveness of the
Exchange.
Change 3--Penny Pilot Options: Modify Note ``c'' and Note ``d''
In Change 3, the Exchange proposes to modify note ``c'' and note
``d'' to indicate that they have applicability to Customer and/or
Professional and to increase the amount of additional rebate from $0.03
to $0.05. The Exchange also proposes to modify note ``c'' to indicate
enhanced ways to earn additional rebate.
It is reasonable to incentivize Participants to bring flow to the
Exchange. To further incentivize Participants on NOM to bring flow to
the Exchange, in note ``d'' the Exchange proposes that if the
Participants qualify for MARS Payment Tiers 1, 2, or 3 and to [sic]
bring flow to the Exchange, then such Participants will receive an
additional $0.05 per contract (now $0.03) Penny Pilot Options Customer
and/or Professional Rebate to Add Liquidity (in addition to qualifying
Penny Pilot Options Customer [sic] Rebate to Add Liquidity Tiers 1-8).
To incentivize qualifying for additional rebate by bringing flow to the
Exchange,
[[Page 24673]]
in note ``c'' the Exchange reasonably proposes, similarly to the rebate
and fee change, that each of the subsections is applicable to both
``Customer and/or Professional''. To further incentivize bringing flow
to the Exchange, the Exchange enhances the means in subsection (3) of
note ``c'' to earn additional rebates and states that Participants can
receive an additional $0.05 per contract Penny Pilot Options Customer
and/or Professional Rebate to Add Liquidity through: (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 CV via MOC/LOC volume
within the NASDAQ Stock Market Closing Cross in a month. It is
reasonable for the Exchange to further incentivize bringing flow to the
Exchange by proposing a new methodology to earn option rebates through
CV via MOC/LOC within the NASDAQ Stock Market Closing Cross.
The proposed rule change is reasonable because it continues to
encourage market participant behavior through the fees and rebates
system, which is an accepted methodology among options exchanges. It is
reasonable to incentivize bringing flow to the Exchange by offering
additional or enhanced ways to bring liquidity to the Exchange and earn
payment for it. It is also reasonable to make sure that Customer and
Professional are harmonized and treated the same.
The Exchange believes it is equitable and not unfairly
discriminatory to make the changes to note ``c'' and note ``d'' because
they will be applied uniformly across all similarly situated
Participants, while promoting bringing liquidity to the Exchange.
Such liquidity attracts other market participants. Customer and
Professional liquidity benefits all market participants by providing
more trading opportunities, which attract 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 proposed changes enhance the
competitiveness of the Exchange by continuing to incentivize bringing
flow to the Exchange.
The Exchange desires to continue to incentivize members and member
organizations, through the Exchange's rebate and fee structure, to
select the Exchange as a venue for bringing liquidity and trading by
offering competitive pricing. Such competitive, differentiated pricing
exists today on other options exchanges. The Exchange's goal is
creating and increasing incentives to attract orders to the Exchange
that will, in turn, benefit all market participants through increased
liquidity at the Exchange.
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.
The Exchange 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 and rebate changes in this market may impose any burden on
competition is extremely limited. In this instance, the proposed
changes regarding the Non-Penny Pilot Options fees and rebates, Tiers 5
and 8, notes ``c'' and ``d'', and MARS eligibility do not impose a
burden on competition because the Exchange's execution services are
completely voluntary and subject to extensive competition both from
other exchanges and from off-exchange venues.
The proposed changes reflect this competition and the Exchange's
desire to offer better fees and rebates in return for market-improving
liquidity, which is ultimately limited by the Exchange's need to cover
costs and make a profit. Thus, the Exchange must carefully adjust its
fees and rebates with the understanding that if the proposed changes
are unattractive to market participants, it is likely that the Exchange
will lose market share to other exchanges and off-exchange venues as a
result.
The Exchange is proposing changes regarding the Non-Penny Pilot
Options fees and rebates, Tiers 5 and 8, notes ``c'' and ``d'', and
MARS eligibility. The Exchange believes that such proposed changes will
support liquidity on the Exchange and are procompetitive, since any
other market is free to provide similar, if not better, fees and
rebates should they choose to do so. For these reasons, the Exchange
does not believe that the proposed changes will impair the ability of
its own members or competing order execution venues to maintain their
competitive standing in the financial markets.
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.\41\
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\41\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2016-055 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.
[[Page 24674]]
All submissions should refer to File Number SR-NASDAQ-2016-055. 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 (https://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-2016-055 and
should be submitted on or before May 17, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-09597 Filed 4-25-16; 8:45 am]
BILLING CODE 8011-01-P
