Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Customer Rebates To Add Liquidity, 60103-60106 [2011-24868]

Download as PDF Federal Register / Vol. 76, No. 188 / Wednesday, September 28, 2011 / Notices Further, many Market-Makers have multiple connections into the Exchange due to capacity- and speed-related demands. Orders routed by the same Market-Makers via different connections may, in certain circumstances, trade against each other. Finally, the Exchange notes that offering the MMTP modifiers will streamline certain regulatory functions by reducing false positive results that may occur on Exchange-generated wash trading surveillance reports when orders are executed by the same Market-Maker. For these reasons, the Exchange believes the MMTP Order provides Market-Makers enhanced order processing functionality to prevent potentially unwanted trades from occurring. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act 5 and the rules and regulations thereunder and, in particular, the requirements of Section 6(b) of the Act.6 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 7 requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. The proposed rule change advances these objectives by making available to Market-Makers a type of order that will assist MarketMakers in preventing unwanted executions against themselves. B. Self-Regulatory Organization’s Statement on Burden on Competition C2 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. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others sroberts on DSK5SPTVN1PROD with NOTICES No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change is filed for immediate effectiveness pursuant to U.S.C. 78s(b)(1). U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(5). Section 19(b)(3)(A) 8 of the Securities Exchange Act of 1934 and Rule 19b– 4(f)(6) 9 thereunder because it effects a change that (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) by its terms, does not become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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: VerDate Mar<15>2010 18:20 Sep 27, 2011 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 a.m. and 3 p.m. Copies of such 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 No. SR–C2–2011– 017 and should be submitted on or before October 19, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–24867 Filed 9–27–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–C2–2011–017 on the subject line. [Release No. 34–65381; File No. SR– NASDAQ–2011–128] Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–C2–2011–017. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the September 22, 2011. 5 15 Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Customer Rebates To Add Liquidity 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 September 15, 2011, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by NASDAQ. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to modify Exchange Rule 7050 governing pricing for NASDAQ members using the NASDAQ Options Market (‘‘NOM’’), NASDAQ’s facility for executing and 10 17 6 15 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 8 15 U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b–4(f)(6). Jkt 223001 60103 PO 00000 Frm 00107 Fmt 4703 1 15 Sfmt 4703 E:\FR\FM\28SEN1.SGM 28SEN1 60104 Federal Register / Vol. 76, No. 188 / Wednesday, September 28, 2011 / Notices routing standardized equity and index options. Specifically, NOM proposes to increase pricing for the Penny Pilot 3 Options (‘‘Penny Options’’) with respect to the Customer Rebate to Add Liquidity. While changes pursuant to this proposal are effective upon filing, the Exchange has designated these changes to be operative for transactions on October 3, 2011. The text of the proposed rule change is available on the Exchange’s Web site at http:// www.nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change A. 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. 1. Purpose NASDAQ is proposing to modify Exchange Rule 7050 governing the rebates and fees assessed for option orders entered into NOM. The Exchange is proposing to modify pricing for the Customer Rebate to Add Liquidity in Penny Options by amending Rebates to Add Liquidity and eliminating certain tiers. The Exchange currently pays a Customer Rebate to Add Liquidity in Penny Options based on six volume tiers as follows: Monthly volume Tier 1 .............. Tier 2(a) .......... Tier 2(b) .......... Tier 3 .............. Tier 4 .............. Tier 5 a ............ Tier 6(a) .......... Tier 6(b) .......... Rebate to add liquidity Participant adds Customer liquidity of up to 24,999 contracts per day in a month .... Participant adds Customer liquidity of 25,000–59,999 contracts per day in a month Participant (1) qualifies for Tier 2(a) above, and (2) adds Customer liquidity of 750,000 contracts during the period from September 6 through September 30, 2011. Participant adds Customer liquidity of 60,000–124,999 contracts per day in a month. Participant adds Customer liquidity of 125,000 or more contracts per day in a month. Participant adds (1) Customer liquidity of 60,000 or more contracts per day in a month, and (2) NOM Market Maker liquidity of 60,000 or more contracts per day in a month. Participant adds Customer liquidity of 25,000 or more contracts per day in a month, and (2) the Participant simultaneously qualifies for credit under the Investor Support Program set forth in Rule 7014. Participant (1) Qualifies for Tier 6(a) above, and (2) adds Customer liquidity of 750,000 contracts during the period from September 6 through September 30, 2011. $0.26. $0.34. $0.36 for Customer Liquidity added from September 6 through September 30, 2011. $0.38. $0.40. $0.40. $0.35. $0.37 for Customer Liquidity added from September 6 through September 30, 2011. sroberts on DSK5SPTVN1PROD with NOTICES The Exchange is proposing to: (i) Increase the Tier 2(a) Rebate to Add Liquidity from $0.34 per contract to $0.36 per contract and amend the title from ‘‘Tier 2(a)’’ to ‘‘Tier 2’’; (ii) increase the Tier 6 Rebate to Add Liquidity from $0.35 per contract to $0.37 per contract and amend the title from ‘‘Tier 6(a)’’ to ‘‘Tier 6’’; and (iii) eliminate Tier 2(b) and Tier 6(b) language, which as of October 3, 2011 will be outdated as those terms expired after September 30, 2011. The Exchange adopted these monthly volume achievement tiers in September 2011.4 The Exchange subsequently offered a monthly volume target for NOM Participants that qualified for Tiers 2 and 6.5 Specifically, firms that qualified for Tier 2 by adding Customer Liquidity in Penny Options of 25,000 to 59,999 contracts per day for the month could receive a $0.02 per contract Rebate to Add Liquidity by contributing 750,000 contracts of Customer liquidity in Penny Options between September 6 and September 30, 2011. Also, firms that qualify for Tier 6 by adding Customer Liquidity in Penny Options of 25,000 or more contracts per day for the month and also qualifying for a credit under NASDAQ’s Investor Support Program (set forth in Rule 7014),6 could receive a $0.02 per contract Rebate to Add Liquidity by contributing 750,000 contracts of Customer liquidity in Penny Options between September 6 and September 30, 2011. These two incentives expired on close of business September 30, 2011 and will not be offered as of October 3, 2011. The Exchange is therefore proposing to delete the text associated with Tiers 2(b) and 6(b) as that text is outdated. The Exchange believes the existing monthly volume thresholds have incentivized firms that route Customer orders to the Exchange to increase 3 The Penny Pilot was established in March 2008 and in October 2009 was expanded and extended through December 31, 2011. See Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 18587 (April 4, 2008) (SR–NASDAQ–2008– 026) (notice of filing and immediate effectiveness establishing Penny Pilot); 60874 (October 23, 2009), 74 FR 56682 (November 2, 2009) (SR–NASDAQ– 2009–091) (notice of filing and immediate effectiveness expanding and extending Penny Pilot); 60965 (November 9, 2009), 74 FR 59292 (November 17, 2009) (SR–NASDAQ–2009–097) (notice of filing and immediate effectiveness adding seventy-five classes to Penny Pilot); 61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR–NASDAQ–2010–013) (notice of filing and immediate effectiveness adding seventy-five classes to Penny Pilot); and 62029 (May 4, 2010), 75 FR 25895 (May 10, 2010) (SR–NASDAQ–2010–053) (notice of filing and immediate effectiveness adding seventy-five classes to Penny Pilot). See also Exchange Rule Chapter VI, Section 5. 4 See Securities Exchange Act Release No. 65317 (September 12, 2011) (SR–NASDAQ–2011–127). 5 See Securities Exchange Act Release No. 65318 (September 12, 2011) (SR–NASDAQ–2011–124). 6 For a detailed description of the Investor Support Program, see Securities Exchange Act Release No. 63270 (November 8, 2010), 75 FR 69489 (November 12, 2010) (NASDAQ–2010–141) (notice of filing and immediate effectiveness) (the ‘‘ISP Filing’’). See also Securities Exchange Act Release Nos. 63414 (December 2, 2010), 75 FR 76505 (December 8, 2010) (NASDAQ–2010–153) (notice of filing and immediate effectiveness); and 63628 (January 3, 2011), 76 FR 1201 (January 7, 2011) (NASDAQ–2010–154) (notice of filing and immediate effectiveness). VerDate Mar<15>2010 18:20 Sep 27, 2011 Jkt 223001 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 76, No. 188 / Wednesday, September 28, 2011 / Notices Customer order flow to the Exchange. The Exchange desires to continue to encourage firms that route Customer orders to increase Customer order flow to the Exchange by offering greater Customer rebates for greater liquidity added to the Exchange. The Exchange is proposing two amendments to the Rebate to Add Liquidity tiers in addition to the elimination of the aforementioned language in Tier 2(b) and Tier 6(b). First, the Exchange is proposing to increase the rebate for newly named Tier 2 firms that add between 25,000 and 59,999 contracts per day in month 7 from a $0.34 per contract Rebate to Add Liquidity to a $0.36 per contract Rebate to Add Liquidity. The Exchange believes that the increased rebate will further incentivize firms to continue to contribute between 25,000 and 59,999 contracts per day. Second, the Exchange is proposing to increase the rebate for newly named Tier 6 from a $0.35 per contract Rebate to Add Liquidity to a $0.37 per contract Rebate to Add Liquidity. Tier 6 firms are required to meet two criteria: (1) Provide 25,000 or more contracts per day in a month; 8 and (2) the Participant simultaneously qualifies for credit under the Investor Support Program as set forth in Rule 7014.9 By meeting the two criteria, Participants will receive a $0.01 per contract rebate increase ($0.37 per contract for meeting both criteria as opposed to $0.36 per contract for meeting only the first of the two criteria and therefore only qualifying for a Tier 2 rebate). This proposal will continue to amount to a rebate of $0.01 per contract higher for any contracts between 25,000 and 59,999 per day for qualifying participants in both markets ($0.37 per contract as proposed in Tier 6) versus those that participate and qualify only on NOM ($0.36 per contract as proposed in Tier 2). The rebate in Tier 6 is proposed to continue to incentivize participants in the Exchange’s equity markets to also participate in the Exchange’s options market. The Exchange is not proposing any amendments to Tiers 1, 3, 4, and 5. sroberts on DSK5SPTVN1PROD with NOTICES 2. Statutory Basis NASDAQ believes that the proposed rule changes are consistent with the provisions of Section 6 of the Act,10 in 7 The per day average is based on a month containing 20 trading days, in this case between 500,000 and 799,999 [sic] contracts of liquidity per month. 8 The per day average is based on a month containing 20 trading days, in this case 500,000 contracts of liquidity per month. 9 See Rule 7014. See also note 6. 10 15 U.S.C. 78f. VerDate Mar<15>2010 18:20 Sep 27, 2011 Jkt 223001 general, and with Section 6(b)(4) of the Act,11 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system which NASDAQ operates or controls. The Exchange believes that the proposed new pricing tiers are equitable, reasonable and not unfairly discriminatory because they continue an existing program to encourage brokerdealers acting as agent for Customer orders to select the Exchange as a venue to post Customer orders. The Exchange believes that its success at attracting Customer order flow benefits all market participants by improving the quality of order interaction and executions at the Exchange. The Exchange believes that the proposed increased rebates for Tiers 2 and 6 are reasonable because as explained herein, the Exchange is seeking to further incentivize Participants to add liquidity to the Exchange. In addition, with respect to Tier 6, the Exchange believes the increased Rebates to Add Liquidity will incentivize participants in the Exchange’s equity markets to also participate in the Exchange’s options market. The Exchange believes that the proposed increased rebates for Tiers 2 and 6 are equitable and not unfairly discriminatory because the proposed Rebates to Add Liquidity will apply to all Customer order flow in a uniform manner. All Customers will have the opportunity to earn even higher rebates by adding liquidity and obtaining higher tier rebates as compared to all other market participants. The Exchange believes that its proposal to eliminate outdated language in Tier 2(b) and Tier 6(b) is reasonable and equitable because the elimination of outdated language will provide clarity to Exchange Rule 7050. The Exchange operates in a highly competitive market comprised of nine U.S. options exchanges in which sophisticated and knowledgeable market participants can and do send order flow to competing exchanges if they deem fee levels at a particular exchange to be excessive or rebate opportunities to be inadequate. The Exchange believes that the proposed rebate scheme is competitive and similar to other rebates and tiers opportunities in place on other exchanges. The Exchange believes that this competitive marketplace materially impacts the rebates present on the Exchange today and substantially influenced the proposal set forth above. 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. 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 12 and paragraph (f)(2) of Rule 19b–4 13 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2011–128 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2011–128. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will 12 15 11 15 PO 00000 U.S.C. 78f(b)(4). Frm 00109 Fmt 4703 13 17 Sfmt 4703 60105 E:\FR\FM\28SEN1.SGM U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 28SEN1 60106 Federal Register / Vol. 76, No. 188 / Wednesday, September 28, 2011 / Notices post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro/shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such 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 No. SR–NASDAQ– 2011–128 and should be submitted on or before September 28, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–24868 Filed 9–27–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65382; File No. SR–FINRA– 2011–050] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Update Rule CrossReferences and Make Non-Substantive Technical Changes to Certain FINRA and NASD Rules sroberts on DSK5SPTVN1PROD with NOTICES September 22, 2011. 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 September 14, 2011, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a National Association of Securities Dealers, Inc. (‘‘NASD’’)) filed with the Securities and Exchange Commission 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 18:20 Sep 27, 2011 Jkt 223001 (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under paragraph (f)(6) of Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of this filing by the Commission. 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 FINRA is proposing to update crossreferences within certain FINRA rules to reflect changes adopted in the consolidated FINRA rulebook and to make non-substantive technical changes to certain FINRA and NASD Rules. The text of the proposed rule change is available on FINRA’s Web site at http://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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, Proposed Rule Change 1. Purpose FINRA is in the process of developing a new consolidated rulebook (‘‘Consolidated FINRA Rulebook’’).4 That process involves FINRA submitting 3 17 CFR 240.19b–4(f)(6). current FINRA rulebook consists of (1) FINRA Rules; (2) NASD Rules; and (3) rules incorporated from NYSE (‘‘Incorporated NYSE Rules’’) (together, the NASD Rules and Incorporated NYSE Rules are referred to as the ‘‘Transitional Rulebook’’). While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE (‘‘Dual Members’’). The FINRA Rules apply to all FINRA members, unless such rules have a more limited application by their terms. For more information about the rulebook consolidation process, see Information Notice, March 12, 2008 (Rulebook Consolidation Process). 4 The PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 to the Commission for approval a series of proposed rule changes over time to adopt rules in the Consolidated FINRA Rulebook. The phased adoption and implementation of those rules necessitates periodic amendments to update rule cross-references and other non-substantive technical changes in the Consolidated FINRA Rulebook. The proposed rule change would update rule cross-references to reflect changes adopted in the Consolidated FINRA Rulebook. In this regard, the proposed rule change would update references in FINRA Rule 9217 (Violations Appropriate for Disposition Under Plan Pursuant to SEA Rule 19d– 1(c)(2)) that are needed as the result of Commission approval of a recent FINRA proposed rule changes [sic].5 Furthermore, the proposed rule change would make a technical change to paragraph (m) of FINRA Rule 7410 (Definitions) to update FINRA’s definition of ‘‘Program Trade’’ to correspond with that of the NYSE Rule 132B.6 The proposed rule change would also delete from FINRA Manual the Series heading for NASD Rule 3200 (Settlement) to reflect that the NASD Rule 3200 Series has been replaced by FINRA Rules 4311, 4320, and 5330.7 FINRA has filed the proposed rule change for immediate effectiveness. The implementation date for the proposed rule changes to FINRA Rules 7410, 9217, and NASD Rule 3200 will be October 17, 2011. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,8 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. FINRA believes the 5 See Securities Exchange Act Release No. 64687 (June 16, 2011), 76 FR 36586 (June 22, 2011) (Order Approving File No. SR–FINRA–2011–013). 6 See Securities Exchange Act Release No. 55793 (May 22, 2007), 72 FR 29567 (May 29, 2007) (Order Approving File No. SR–NYSE–2007–34); and Securities Exchange Act Release No. 56726 (October 31, 2007), 72 FR 62719 (November 6, 2007) (Notice of Filing and Immediate Effectiveness of File No. SR–NYSE–2007–96). 7 See Securities Exchange Act Release No. 61338 (January 12, 2010), 75 FR 2899 (January 19, 2010) (Order Approving File No. SR–FINRA–2009–084); Securities Exchange Act Release No. 62533 (July 20, 2010), 75 FR 43588 (July 26, 2010) (Order Approving File No. SR–FINRA–2010–028); and Securities Exchange Act Release No. 63999 (March 1, 2011), 76 FR 12380 (March 7, 2011) (Order Approving File No. SR–FINRA–2010–061). 8 15 U.S.C. 78o–3(b)(6). E:\FR\FM\28SEN1.SGM 28SEN1

Agencies

[Federal Register Volume 76, Number 188 (Wednesday, September 28, 2011)]
[Notices]
[Pages 60103-60106]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24868]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65381; File No. SR-NASDAQ-2011-128]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Customer Rebates To Add Liquidity

September 22, 2011.
    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 September 15, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by NASDAQ. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to modify Exchange Rule 7050 governing 
pricing for NASDAQ members using the NASDAQ Options Market (``NOM''), 
NASDAQ's facility for executing and

[[Page 60104]]

routing standardized equity and index options. Specifically, NOM 
proposes to increase pricing for the Penny Pilot \3\ Options (``Penny 
Options'') with respect to the Customer Rebate to Add Liquidity.
---------------------------------------------------------------------------

    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2011. See 
Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and 
immediate effectiveness establishing Penny Pilot); 60874 (October 
23, 2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-091) 
(notice of filing and immediate effectiveness expanding and 
extending Penny Pilot); 60965 (November 9, 2009), 74 FR 59292 
(November 17, 2009) (SR-NASDAQ-2009-097) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR-NASDAQ-
2010-013) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); and 62029 (May 4, 2010), 75 FR 
25895 (May 10, 2010) (SR-NASDAQ-2010-053) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot). 
See also Exchange Rule Chapter VI, Section 5.
---------------------------------------------------------------------------

    While changes pursuant to this proposal are effective upon filing, 
the Exchange has designated these changes to be operative for 
transactions on October 3, 2011.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaq.cchwallstreet.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change 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
    NASDAQ is proposing to modify Exchange Rule 7050 governing the 
rebates and fees assessed for option orders entered into NOM. The 
Exchange is proposing to modify pricing for the Customer Rebate to Add 
Liquidity in Penny Options by amending Rebates to Add Liquidity and 
eliminating certain tiers.
    The Exchange currently pays a Customer Rebate to Add Liquidity in 
Penny Options based on six volume tiers as follows:

----------------------------------------------------------------------------------------------------------------
                                                       Monthly volume                   Rebate to add liquidity
----------------------------------------------------------------------------------------------------------------
Tier 1...............................  Participant adds Customer liquidity of up to   $0.26.
                                        24,999 contracts per day in a month.
Tier 2(a)............................  Participant adds Customer liquidity of 25,000- $0.34.
                                        59,999 contracts per day in a month.
Tier 2(b)............................  Participant (1) qualifies for Tier 2(a)        $0.36 for Customer
                                        above, and (2) adds Customer liquidity of      Liquidity added from
                                        750,000 contracts during the period from       September 6 through
                                        September 6 through September 30, 2011.        September 30, 2011.
Tier 3...............................  Participant adds Customer liquidity of 60,000- $0.38.
                                        124,999 contracts per day in a month.
Tier 4...............................  Participant adds Customer liquidity of         $0.40.
                                        125,000 or more contracts per day in a month.
Tier 5 \a\...........................  Participant adds (1) Customer liquidity of     $0.40.
                                        60,000 or more contracts per day in a month,
                                        and (2) NOM Market Maker liquidity of 60,000
                                        or more contracts per day in a month.
Tier 6(a)............................  Participant adds Customer liquidity of 25,000  $0.35.
                                        or more contracts per day in a month, and
                                        (2) the Participant simultaneously qualifies
                                        for credit under the Investor Support
                                        Program set forth in Rule 7014.
Tier 6(b)............................  Participant (1) Qualifies for Tier 6(a)        $0.37 for Customer
                                        above, and (2) adds Customer liquidity of      Liquidity added from
                                        750,000 contracts during the period from       September 6 through
                                        September 6 through September 30, 2011.        September 30, 2011.
----------------------------------------------------------------------------------------------------------------

     The Exchange is proposing to: (i) Increase the Tier 2(a) Rebate to 
Add Liquidity from $0.34 per contract to $0.36 per contract and amend 
the title from ``Tier 2(a)'' to ``Tier 2''; (ii) increase the Tier 6 
Rebate to Add Liquidity from $0.35 per contract to $0.37 per contract 
and amend the title from ``Tier 6(a)'' to ``Tier 6''; and (iii) 
eliminate Tier 2(b) and Tier 6(b) language, which as of October 3, 2011 
will be outdated as those terms expired after September 30, 2011.
    The Exchange adopted these monthly volume achievement tiers in 
September 2011.\4\ The Exchange subsequently offered a monthly volume 
target for NOM Participants that qualified for Tiers 2 and 6.\5\ 
Specifically, firms that qualified for Tier 2 by adding Customer 
Liquidity in Penny Options of 25,000 to 59,999 contracts per day for 
the month could receive a $0.02 per contract Rebate to Add Liquidity by 
contributing 750,000 contracts of Customer liquidity in Penny Options 
between September 6 and September 30, 2011. Also, firms that qualify 
for Tier 6 by adding Customer Liquidity in Penny Options of 25,000 or 
more contracts per day for the month and also qualifying for a credit 
under NASDAQ's Investor Support Program (set forth in Rule 7014),\6\ 
could receive a $0.02 per contract Rebate to Add Liquidity by 
contributing 750,000 contracts of Customer liquidity in Penny Options 
between September 6 and September 30, 2011. These two incentives 
expired on close of business September 30, 2011 and will not be offered 
as of October 3, 2011. The Exchange is therefore proposing to delete 
the text associated with Tiers 2(b) and 6(b) as that text is outdated.
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    \4\ See Securities Exchange Act Release No. 65317 (September 12, 
2011) (SR-NASDAQ-2011-127).
    \5\ See Securities Exchange Act Release No. 65318 (September 12, 
2011) (SR-NASDAQ-2011-124).
    \6\ For a detailed description of the Investor Support Program, 
see Securities Exchange Act Release No. 63270 (November 8, 2010), 75 
FR 69489 (November 12, 2010) (NASDAQ-2010-141) (notice of filing and 
immediate effectiveness) (the ``ISP Filing''). See also Securities 
Exchange Act Release Nos. 63414 (December 2, 2010), 75 FR 76505 
(December 8, 2010) (NASDAQ-2010-153) (notice of filing and immediate 
effectiveness); and 63628 (January 3, 2011), 76 FR 1201 (January 7, 
2011) (NASDAQ-2010-154) (notice of filing and immediate 
effectiveness).
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    The Exchange believes the existing monthly volume thresholds have 
incentivized firms that route Customer orders to the Exchange to 
increase

[[Page 60105]]

Customer order flow to the Exchange. The Exchange desires to continue 
to encourage firms that route Customer orders to increase Customer 
order flow to the Exchange by offering greater Customer rebates for 
greater liquidity added to the Exchange. The Exchange is proposing two 
amendments to the Rebate to Add Liquidity tiers in addition to the 
elimination of the aforementioned language in Tier 2(b) and Tier 6(b).
    First, the Exchange is proposing to increase the rebate for newly 
named Tier 2 firms that add between 25,000 and 59,999 contracts per day 
in month \7\ from a $0.34 per contract Rebate to Add Liquidity to a 
$0.36 per contract Rebate to Add Liquidity. The Exchange believes that 
the increased rebate will further incentivize firms to continue to 
contribute between 25,000 and 59,999 contracts per day.
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    \7\ The per day average is based on a month containing 20 
trading days, in this case between 500,000 and 799,999 [sic] 
contracts of liquidity per month.
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    Second, the Exchange is proposing to increase the rebate for newly 
named Tier 6 from a $0.35 per contract Rebate to Add Liquidity to a 
$0.37 per contract Rebate to Add Liquidity. Tier 6 firms are required 
to meet two criteria: (1) Provide 25,000 or more contracts per day in a 
month; \8\ and (2) the Participant simultaneously qualifies for credit 
under the Investor Support Program as set forth in Rule 7014.\9\ By 
meeting the two criteria, Participants will receive a $0.01 per 
contract rebate increase ($0.37 per contract for meeting both criteria 
as opposed to $0.36 per contract for meeting only the first of the two 
criteria and therefore only qualifying for a Tier 2 rebate). This 
proposal will continue to amount to a rebate of $0.01 per contract 
higher for any contracts between 25,000 and 59,999 per day for 
qualifying participants in both markets ($0.37 per contract as proposed 
in Tier 6) versus those that participate and qualify only on NOM ($0.36 
per contract as proposed in Tier 2). The rebate in Tier 6 is proposed 
to continue to incentivize participants in the Exchange's equity 
markets to also participate in the Exchange's options market.
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    \8\ The per day average is based on a month containing 20 
trading days, in this case 500,000 contracts of liquidity per month.
    \9\ See Rule 7014. See also note 6.
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    The Exchange is not proposing any amendments to Tiers 1, 3, 4, and 
5.
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\10\ in general, and with 
Section 6(b)(4) of the Act,\11\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which NASDAQ operates or controls.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed new pricing tiers are 
equitable, reasonable and not unfairly discriminatory because they 
continue an existing program to encourage broker-dealers acting as 
agent for Customer orders to select the Exchange as a venue to post 
Customer orders. The Exchange believes that its success at attracting 
Customer order flow benefits all market participants by improving the 
quality of order interaction and executions at the Exchange.
    The Exchange believes that the proposed increased rebates for Tiers 
2 and 6 are reasonable because as explained herein, the Exchange is 
seeking to further incentivize Participants to add liquidity to the 
Exchange. In addition, with respect to Tier 6, the Exchange believes 
the increased Rebates to Add Liquidity will incentivize participants in 
the Exchange's equity markets to also participate in the Exchange's 
options market.
    The Exchange believes that the proposed increased rebates for Tiers 
2 and 6 are equitable and not unfairly discriminatory because the 
proposed Rebates to Add Liquidity will apply to all Customer order flow 
in a uniform manner. All Customers will have the opportunity to earn 
even higher rebates by adding liquidity and obtaining higher tier 
rebates as compared to all other market participants.
    The Exchange believes that its proposal to eliminate outdated 
language in Tier 2(b) and Tier 6(b) is reasonable and equitable because 
the elimination of outdated language will provide clarity to Exchange 
Rule 7050.
    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which sophisticated and knowledgeable 
market participants can and do send order flow to competing exchanges 
if they deem fee levels at a particular exchange to be excessive or 
rebate opportunities to be inadequate. The Exchange believes that the 
proposed rebate scheme is competitive and similar to other rebates and 
tiers opportunities in place on other exchanges. The Exchange believes 
that this competitive marketplace materially impacts the rebates 
present on the Exchange today and substantially influenced the proposal 
set forth above.

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.

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 \12\ and paragraph (f)(2) of Rule 19b-4 \13\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-128 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2011-128. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will

[[Page 60106]]

post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro/shtml). Copies of the submission, all subsequent 
amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of such 
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 No. SR-NASDAQ-2011-128 and should be submitted on or before 
September 28, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-24868 Filed 9-27-11; 8:45 am]
BILLING CODE 8011-01-P