Self-Regulatory Organizations; NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Customer Rebate To Add Liquidity in Penny Pilot Options, 2335-2340 [2012-685]
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Federal Register / Vol. 77, No. 10 / Tuesday, January 17, 2012 / Notices
ATSs operate profitably with
fragmentary shares of consolidated
market volume.
In this environment, a supercompetitive increase in the fees charged
for either transactions or data has the
potential to impair revenues from both
products. A broker-dealer that shifted its
order flow from one platform to another
in response to order execution price
differentials would both reduce the
value of that platform’s market data and
reduce its own need to consume data
from the disfavored platform. If a
platform increases its market data fees,
the change may affect the overall cost of
doing business with the platform, and
affected market participants will assess
whether they can lower their trading
costs by directing orders elsewhere,
thereby lessening the need for the more
expensive data, or simply not purchase
the data.
In establishing the price for the NYSE
Arca Integrated Data Feed, the Exchange
considered the competitiveness of the
market for data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish fair, reasonable, and not
unreasonably discriminatory fees and an
equitable allocation of fees among all
users. The existence of alternatives to
the Exchange’s product, including realtime consolidated data, free delayed
consolidated data, and proprietary data
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continued availability of the Exchange’s
separate data feeds at a lower price,
ensures that the Exchange cannot set
unreasonable fees, or fees that are
unreasonably discriminatory, when
vendors and subscribers can elect these
alternatives. Accordingly, the Exchange
believes that the acceptance of data feed
products in the marketplace
demonstrates the consistency of these
fees with applicable statutory standards.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were 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 foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 20 of the Act and
subparagraph (f)(2) of Rule 19b–4 21
20 15
21 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
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thereunder, because it establishes a due,
fee, or other charge imposed by the
NYSE Arca.
At any time within 60 days of the
filing of such 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:
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2011–96 and should be
submitted on or before February 7, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–686 Filed 1–13–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66126; File No. SR–
NASDAQ–2012–003]
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–
NYSEArca–2011–96 on the subject line.
Self-Regulatory Organizations;
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to the
Customer Rebate To Add Liquidity in
Penny Pilot Options
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–NYSEArca–2011–96. 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
a.m. and 3 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
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 3,
2012, 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.
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January 10, 2012.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The NASDAQ Stock Market LLC
proposes to modify Rule 7050,
governing pricing for NASDAQ
members using the NASDAQ Options
Market (‘‘NOM’’), NASDAQ’s facility for
executing and routing standardized
equity and index options. Specifically,
NOM proposes to amend the
applicability of the Customer Rebate to
Add Liquidity for the Penny Pilot 3
Options (‘‘Penny Options’’).
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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–
1 15
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Federal Register / Vol. 77, No. 10 / Tuesday, January 17, 2012 / Notices
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nasdaq.
cchwallstreet.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change. The text of
these statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASDAQ proposes to modify
Exchange Rule 7050 governing the
rebates and fees assessed for option
orders entered into NOM. Specifically,
the Exchange is proposing to modify the
six tier structure for paying Customer
Rebates to Add Liquidity in Penny Pilot
Options. The Exchange proposes to
reduce the tiers to four tiers and further
incentivize NOM Participants to route
Customer orders to the Exchange by
paying an additional rebate for certain
orders after the NOM Participant has
met a volume criteria. The Exchange
believes that incentivizing NOM
Participants to send additional
Customer orders to the Exchange will
benefit all market participants by adding
liquidity to the market.
Specifically, the Exchange currently
pays a Customer Rebate to Add
Liquidity in Penny Pilot Options based
on the following tier structure:
Rebate to
add liquidity
Monthly volume
Tier
Tier
Tier
Tier
Tier
1
2
3
4
5
Tier 6
...................
...................
...................
...................
a ................
b
................
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 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.
$0.26
0.36
0.38
0.40
0.40
0.37
a For purposes of Tier 5, the Exchange will aggregate the trading activity of separate NOM Participants when computing average daily volumes
where 75 percent common ownership or control exists between NOM Participants.
b For purposes of Tier 6, the Exchange will allow a NOM Participant to qualify for the rebate if a NASDAQ member under common ownership
with the NOM Participant qualifies for a credit under the Investor Support Program. Common ownership is defined as 75 percent common ownership or control.
The Exchange proposes to amend the
Customer Rebate to Add Liquidity in
Penny Pilot Options to a four tier
structure as follows:
Rebate to
add liquidity
Monthly volume
Tier 1 ...................
Tier 2 ...................
Tier 3 a .................
Tier 4 b .................
Participant adds Customer liquidity of up to 49,999 contracts per day in a month ..............................................
Participant adds Customer liquidity of 50,000 or more contracts per day in a month .........................................
Participant adds (1) Customer liquidity of 100,000 or more contracts per day in a month, and (2) NOM Market
Maker liquidity of 40,000 or more contracts per day in a month.
Participant adds (1) Customer liquidity of 25,000 or more contracts per day in a month, (2) the Participant
has certified for the Investor Support Program set forth in Rule 7014; and (3) the Participant executed at
least one order on NASDAQ’s equity market.
$0.26
0.42
0.43
0.40
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a For purposes of Tier 3, the Exchange will aggregate the trading activity of separate NOM Participants when computing average daily volumes
where 75 percent common ownership or control exists between NOM Participants.
b For purposes of Tier 4, the Exchange will allow a NOM Participant to qualify for the rebate if a NASDAQ member under common ownership
with the NOM Participant has certified under the Investor Support Program and executed at least one order on NASDAQ’s equity market. Common ownership is defined as 75 percent common ownership or control.
Currently, Tier 1 firms that add up to
24,999 contracts per day in a month of
liquidity receive a rebate of $0.26 per
contract. The Exchange is proposing to
amend Tier 1 to cover up to 49,999
contracts per day in a month, and to pay
the same $0.26 per contract rebate.
Based on past experience, the Exchange
anticipates that all firms currently
receiving the $0.26 rebate will maintain
their current level of rebate.
Currently, Tier 2 firms that add
between 25,000 and 59,999 contracts
per day in a month receive a rebate of
$0.36 per contract. The Exchange is
proposing to amend Tier 2 to cover
50,000 or more contracts per day in a
month, and to pay a rebate of $0.42 per
contract. As a result, firms that currently
contribute between 25,000 and 49,999
per day of liquidity in Customer
contracts will receive a lower rebate
(down from $0.36 to $0.26 per contract).
However, firms that contribute between
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); 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); 65969 (December 15,
2011, 76 FR 79268 (December 21, 2011) (SR–
NASDAQ–2011–169) (notice of filing and
immediate effectiveness extension and replacement
of Penny Pilot). See also Exchange Rule Chapter VI,
Section 5.
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Federal Register / Vol. 77, No. 10 / Tuesday, January 17, 2012 / Notices
50,000 and 59,999 contracts per day of
Customer order liquidity will receive a
higher rebate (up from $0.36 to $0.42
per contract). Based upon current
volume levels and past trading patterns,
the Exchange anticipates that firms will
contribute sufficient liquidity to avoid
receiving reduced rebates.
Currently, Tier 3 firms that add
between 60,000 and 124,999 contracts
per day in a month receive a rebate of
$0.38 per contract. This tier is being
eliminated. NOM Participants who
previously qualified for Tier 3 would
now qualify for Tier 2, which is now
50,000 or more contracts, and would
receive a higher rebate in Tier 2 (up
from $0.38 to $0.42 per contract).
Currently, Tier 4 firms that add
125,000 contracts or more per day in a
month receive a rebate of $0.40 per
contract. This tier is being eliminated.
NOM Participants who previously
qualified for Tier 4 would now qualify
for Tier 2, which is now 50,000 or more
contracts, and would receive a higher
rebate in Tier 2 rebate (up from $0.40 to
$0.42 per contract).
Currently, Tier 5 firms that (1)
provide 60,000 or more contracts per
day in a month of Customer order
liquidity in Penny Pilot Options, and (2)
provide 60,000 or more contracts per
day of NOM Market Maker liquidity
receive a rebate of $0.40 per contract if
both criteria are met. For purposes of
determining qualification for this tier,
the Exchange aggregates 4 the trading
activity of separate NOM Participants in
calculating the average daily volume if
there is at least 75% common
ownership between the NOM
Participants. The Exchange proposes to
rename this Tier 5 as ‘‘Tier 3’’ and
modify the Customer volume to require
that firms: (1) Provide 100,000 or more
contracts per day in a month of
Customer order liquidity in Penny Pilot
Options (an increase from 60,000), and
(2) provide 40,000 or more contracts per
day of NOM Market Maker liquidity (a
decrease from 60,000). If a firm meets
both criteria, the Exchange would pay
an increased rebate of $0.43 per
contract. Based upon current volume
levels and past trading patterns, the
Exchange anticipates that firms will
contribute sufficient liquidity to receive
an increased rebate.
Currently, Tier 6 firms that (1)
provide 25,000 or more contracts per
day in a month of Customer order
liquidity in Penny Pilot Options, and (2)
simultaneously qualify for credit under
4 Aggregation is necessary and appropriate
because certain NOM participants conduct
Customer and NOM Market Maker trading activity
through separate but related broker-dealers.
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the Investor Support Program (‘‘ISP’’) as
set forth in NASDAQ Rule 7014 5
receive a rebate of $0.37 per contract.
Specifically, firms that qualify for a
credit under the ISP by providing retail
investor liquidity to NASDAQ’s equity
market can qualify for a higher rebate on
NASDAQ’s options market if they
contribute 25,000 or more contracts per
day of Customer order liquidity in
Penny Pilot Options on NOM. The
Exchange proposes to rename this Tier
6 as ‘‘Tier 4’’ and pay an increased
rebate of $0.40 per contract for firms
that meet the criteria for this tier. In
addition, the Exchange proposes to
revise the requirement of newly named
Tier 4 to state that firms (1) that provide
25,000 or more contracts per day in a
month of Customer order liquidity in
Penny Pilot Options, (2) where the
Participant has certified for the ISP as
set forth in Rule 7014; and (3) where the
Participant executed at least one order
on NASDAQ’s equity market will
receive the $0.40 per contract rebate. A
member desiring to participate in the
ISP must submit an application to the
Exchange and designate one or more of
its NASDAQ ports for ISP use.6 The
Exchange’s proposal to qualify for
newly named Tier 4 would not require
the Participant to transact any ISP
volume, however, the Participant would
be required to execute at least one order
on NASDAQ’s equity market.7 The
5 For a detailed description of the ISP, 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).
6 See Exchange Rule 7014.
7 Currently, in order to comply with Tier 6, a
participant must qualify for credit under the ISP. In
order to qualify for an ISP credit, a Participant
would need to transact a certain amount of
displayed liquidity through an ISP-designated port
which results in an increase in the overall liquidity
that the member provides to NASDAQ measured as
a proportion of the consolidated share volume
traded by all market participants across all trading
venues. To this end, a member’s ‘‘Baseline
Participation Ratio’’ is determined by measuring the
number of shares in liquidity-providing orders
entered by the member (through any NASDAQ port)
and executed on NASDAQ and dividing this
number by the consolidated (across all trading
venues) share volume of System Securities traded
in a given month. To determine whether a member
added liquidity to NASDAQ in a given month,
NASDAQ would perform the same calculation on
a monthly basis for the then-current month and
compare the resulting ratio to the Baseline
Participation Ratio. For a detailed description of the
ISP, 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
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2337
Exchange provides a methodology by
which members can demonstrate their
compliance with the requirements of
Rule 7014. A member shall certify to the
reasonable satisfaction of the Exchange:
(i) Its Baseline Participation Ratio; 8 and
(ii) if requested by the Exchange, its
compliance with any other sections or
requirements of Rule 7014, but not more
often than once a month during
participation in ISP. The Exchange
would permit a NOM Participant to
qualify for newly named Tier 4 if that
NOM Participant meets the Customer
liquidity volume of 25,000 or more
contracts per day in a month, has
certified under Rule 7014 and has
executed at least one order on
NASDAQ’s equity market. Based upon
current volume levels and past trading
patterns, the Exchange anticipates that
firms will contribute sufficient liquidity
to receive an increased rebate in this
tier. The Exchange believes the
increased rebate would encourage
participants in the Exchange’s equity
markets to also participate in the
Exchange’s options market.
The Exchange also proposes to further
incentivize those NOM Participants that
qualify for proposed Tiers 2, 3 and 4 by
offering to pay an additional $0.01 per
contract rebate on each Customer order
of 5,000 or more, displayed or nondisplayed contracts, which adds
liquidity in a Penny Pilot Option, as
long as that NOM Participant has
qualified for a rebate in Tier 2, 3 or 4
for that month. This would be in
addition to the rebate for the qualifying
tier.9
The Exchange is not otherwise
amending the Customer Rebates to Add
Liquidity.
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
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). [sic] by transacting a certain volume.
8 The term ‘‘Baseline Participation Ratio’’ shall
mean, with respect to a member, the lower of such
member’s Participation Ratio for the month of
August 2010 or the month of August 2011, provided
that in calculating such Participation Ratios, the
numerator shall be increased by the amount (if any)
of the member’s Indirect Order Flow for such
month, and provided further that if the result is
zero for either month, the Baseline Participation
Ratio shall be deemed to be 0.485% (when rounded
to three decimal places). See NASDAQ Rule
7014(g)(1).
9 The rebate would be paid for a partial execution.
10 15 U.S.C. 78f.
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Federal Register / Vol. 77, No. 10 / Tuesday, January 17, 2012 / Notices
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
reasonable, equitable and not unfairly
discriminatory because they continue an
existing program 12 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 the
existing monthly volume thresholds
have incentivized firms that route
Customer orders to the Exchange to
increase 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.
Specifically, the Exchange believes
that the increased rebates would further
incentivize firms to continue to send
more Customer volume to the Exchange.
Today, the Exchange pays any Customer
order up to 24,999 contracts per day in
a given month a rebate of $0.26 per
contract for adding liquidity in Penny
Pilot Options. The Exchange would
continue to pay this same rebate, but
would pay such a rebate for any
Customer order up to 49,999 contracts
per day in a given month that adds
liquidity in Penny Pilot Options. This
would result in a decreased rebate to
certain Participants that currently
qualify for Tier 2. The Exchange
believes that this increase in the number
of Customer orders that qualify for Tier
1 is reasonable, equitable and not
unfairly discriminatory because all
Customer orders that add liquidity in
Penny Pilot Options have the ability to
earn the rebate; there is no minimum
order requirement. Also, all NOM
Participants transacting Customer orders
in Penny Pilot Options are eligible to
receive this rebate. The Exchange
currently pays a higher rebate for Tier
2 Customer orders in Penny Pilot
Options between 25,000 and 59,999
contracts per day in a given month of
11 15
U.S.C. 78f(b)(4).
Exchange adopted these monthly volume
achievement tiers in September 2011. See Securities
Exchange Act Release Nos. 65317 (September 12,
2011), 76 FR 57778 (September 16, 2011) (SR–
NASDAQ–2011–124) and 65317 (September 12,
2011), 76 FR 61129 (October 3, 2011) (SR–
NASDAQ–2011–127).
12 The
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$0.36 per contract. The Exchange
believes that offering the Tier 1 rebate
up to 49,999 contracts per day and
starting the Tier 2 rebate at 50,000
Customer contracts per day would
encourage NOM Participants to send a
greater number of Customer orders to
the Exchange to obtain the increased
rebate of $0.42 per contract.
The Exchange believes that amending
Tier 2 from between 25,000 and 59,999
Customer orders per day in a given
month to 50,000 or more Customer
contracts per day in a given month
(capturing those Customer contracts
between 50,000 and 59,999) is
reasonable because the Exchange is also
offering a higher rebate of $0.42 per
contract, an increase from the current
$0.36 per contract. The Exchange
believes that simplifying the current
Tiers 1, 2, 3 and 4, which have no other
qualifier than Customer volume, down
to two tiers and offering a higher rebate
of $0.42 per contract for any Customer
order volume over 50,000 contracts per
day in a given month, in Penny Pilot
Options, would allow a greater number
of NOM Participants to obtain a higher
rebate. Those NOM Participants that
currently qualify for Tiers 3 and 4
would be eligible for a higher rebate and
a portion of those NOM Participants that
currently qualify for Tier 2 would be
eligible for the higher rebate. The
Exchange believes that for these reasons,
the proposal is equitable and not
unfairly discriminatory.
The Exchange also proposes to amend
current Tier 5, which would be renamed
Tier 3, to increase the number of
Customer contracts from 60,000 to
100,000 contracts per day in a given
month and also decrease the second
qualifier, concerning NOM Market
Maker liquidity, from 60,000 to 40,000
per day in a given month. The Exchange
believes that this amendment is
reasonable because the Exchange is
seeking to incentivize NOM Participants
to transact a greater number of Customer
orders. By increasing the number of
Customer orders to 100,000 per day and
lowering the second qualifier on Market
Maker liquidity to 40,000 per day the
Exchange desires to further incentivize
NOM Participants to send additional
Customer order flow, in Penny Pilot
Options, to the Exchange and provide
incentives for Market Makers to increase
liquidity on the Exchange for the benefit
of all NOM participants. The Exchange
believes that Broker Dealers that make
markets and also route Customer order
flow to the Exchange today, would be
incentivized to meet the new criteria
and qualify for Tier 3 because of the
lower Market Maker liquidity volume
and the increased rebate. The Exchange
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proposes to increase the rebate from
$0.40 per contract to $0.43 per contract
in order to incentivize NOM
Participants that also route Customer
order flow to register to make markets
on the Exchange. The Exchange believes
that this newly named Tier 3 is
equitable and not unfairly
discriminatory because Market Makers
have obligations to the market and
regulatory requirements, which
normally do not apply to other market
participants. The Exchange has set a
reasonable goal of 40,000 or more
contracts per day of Market Maker
liquidity on NOM, an achievable goal
that should encourage increased Market
Maker registration and liquidity on the
Exchange. The Exchange believes that
paying an increased rebate of $0.43 per
contract ($0.01 per contract higher than
Tier 2) is equitable and not unfairly
discriminatory because increased
Market Maker liquidity would, in turn,
improve the amount of liquidity
available on the Exchange and improve
the quality of order interaction and
executions on the Exchange.
The Exchange also proposes to amend
current Tier 6, which would be renamed
Tier 4, to increase the rebate from $0.37
per contract to $0.40 per contract to
incentivize NOM Participants to
transact additional Customer orders in
Penny Pilot Options and encourage
participants in the Exchange’s equity
markets to also participate in the
Exchange’s options market. The
Exchange believes that this proposed
amendment is reasonable because the
Exchange seeks to incentivize NOM
Participants to transact a greater number
of Customer orders in Penny Pilot
Options. Furthermore, the Exchange
believes that it is reasonable to allow
NOM Participants with a certain amount
of Customer orders, to qualify for a
Customer rebate by allowing a related
NASDAQ member, under common
ownership, to qualify for the rebate as
specified herein. The Exchange also
believes that the amendments to the
newly named Tier 4 criteria, namely
25,000 or more Customer contracts, has
certified for ISP and executed at least
one order on NASDAQ’s equity market,
are reasonable because, as stated above,
the Exchange believes that this proposal
would incentivize NOM Participants to
transact additional Customer orders and
encourage participants in the
Exchange’s equity markets to also
participate in the Exchange’s options
market. The Exchange believes this
would encourage participants in the
Exchange’s equity markets to also
participate in the Exchange’s options
market particularly because the
E:\FR\FM\17JAN1.SGM
17JAN1
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srobinson on DSK4SPTVN1PROD with NOTICES
Exchange’s proposal to qualify for
newly named Tier 4 would not require
the Participant to transact any volume,
but only to certify for ISP.
The Exchange believes that the
requirement to certify in combination
with requiring the Participant to execute
at least one order on NASDAQ’s equity
market would promote the submission
of liquidity-providing orders to
NASDAQ. The ISP encourages members
to add targeted liquidity that is executed
in the NASDAQ Market Center. The
Exchange believes that the ISP promotes
submission of liquidity-providing orders
to NASDAQ, which would benefit all
NASDAQ members and all investors. By
allowing members to certify under Rule
7014, while also meeting the volume
criteria of 25,000 or more Customer
contracts in Penny Pilot Options, the
Exchange believes that the proposal
would encourage greater participation
in the options market. The Exchange
believes that increased rebate and the
amended criteria for newly named Tier
4 are equitable and not unfairly
discriminatory because together these
amendments are intended to encourage
increased activity in both the NASDAQ
Options Market and in the ISP of the
NASDAQ equity market. The goal of the
ISP is to incentivize members 13 to
provide liquidity from individual equity
investors to the NASDAQ Market
Center. The increased rebate in newly
named Tier 4 would encourage firms
that certify pursuant to Rule 7014 to
increase the amount of Customer order
liquidity provided to the NASDAQ
Options Market. The addition of such
liquidity, either through the ISP or
through increased Customer order flow,
would benefit all Exchange members
13 The Commission has expressed its concern that
a significant percentage of the orders of individual
investors are executed at over the counter (‘‘OTC’’)
markets, that is, at off-exchange markets; and that
a significant percentage of the orders of institutional
investors are executed in dark pools. See Securities
Exchange Act Release No. 61358 (January 14, 2010),
75 FR 3594 (January 21, 2010) (Concept Release on
Equity Market Structure, ‘‘Concept Release’’). In the
Concept Release, the Commission has recognized
the strong policy preference under the Act in favor
of price transparency and displayed markets. The
Commission published the Concept Release to
invite public comment on a wide range of market
structure issues, including high frequency trading
and un-displayed, or ‘‘dark,’’ liquidity. See also
Mary L. Schapiro, Strengthening Our Equity Market
Structure (Speech at the Economic Club of New
York, Sept. 7, 2010) (‘‘Schapiro Speech,’’ available
on the Commission Web site) (comments of
Commission Chairman on what she viewed as a
troubling trend of reduced participation in the
equity markets by individual investors, and that
nearly 30 percent of volume in U.S.-listed equities
is executed in venues that do not display their
liquidity or make it generally available to the
public).
VerDate Mar<15>2010
16:12 Jan 13, 2012
Jkt 226001
that participate in those markets.14 The
Exchange believes that amending newly
named Tier 4 to require firms to be
certified for ISP instead of qualifying for
a credit would provide further incentive
for firms to add volume to NOM and
also participate in the equities market
because the firm has to execute at least
one order in the equity market.
The Exchange believes that it is
reasonable to offer a rebate of $0.01 per
contract on each Customer order of
5,000 or more displayed or nondisplayed contracts, which adds
liquidity in a Penny Pilot Option, as
long as that NOM Participant has
qualified for a rebate in Tier 2, 3 or 4
for that month. This $0.01 per contract
rebate would be in addition to the rebate
for the qualifying tier. The Exchange
believes that this enhanced incentive
will encourage NOM Participants to
send larger orders to the Exchange,
which in turn would also assist those
Participants that send Customer orders
in Penny Pilot Options to earn higher
rebates by qualifying for a higher tier as
well as bringing additional liquidity to
the Exchange. The Exchange further
believes that limiting the enhanced
$0.01 per contract rebate to firms
already qualifying for Tiers 3, 4 or 5
(and not those that qualify for Tier 1) is
equitable and not unfairly
discriminatory because generally NOM
Participants in Tier 1 today are not
sending Customer orders of 5,000 or
more contracts. If those Participants in
Tier 1 sent ten Customer orders of 5,000
or more per day in a given month to the
Exchange, they would qualify for Tier 2
and would be paid the additional
enhanced rebate. The Exchange believes
that it is equitable and not unfairly
discriminatory to incentivize those
NOM Participants that qualify for higher
volume tiers as they are the most likely
to obtain the enhanced rebate and
continue to send larger orders, which
provides more liquidity to the
Exchange. Finally, the Exchange would
pay the enhanced rebate uniformly to
those NOM Participants that qualify for
Tiers 2, 3 or 4 and meet the Customer
order volume discussed herein for
Penny Pilot Options.
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
14 NASDAQ Rule 7018(a) already provides
incentives for firms to participate in both
NASDAQ’s equity market and its options market.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
2339
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.15 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. 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–2012–003 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.
15 15
E:\FR\FM\17JAN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
17JAN1
2340
Federal Register / Vol. 77, No. 10 / Tuesday, January 17, 2012 / Notices
All submissions should refer to File
Number SR–NASDAQ–2012–003. 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
a.m. and 3 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–2012–003 and should be
submitted on or before February 7, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–685 Filed 1–13–12; 8:45 am]
independent advice and
recommendations on plans and
activities to create an occupational
information system (OIS) tailored
specifically for our disability programs
and adjudicative needs. We require
advice and recommendations on the use
of occupational information in our
disability programs and the research
design of the OIS, including the
development and testing of an OIS
content model and taxonomy, work
analysis instrumentation, sampling, and
data collection and analysis.
Membership includes professionals
from academia, private sector, and
public entities, (e.g., Department of
Labor) with expertise in one or more of
the following subject areas: (a)
Occupational analysis, design and
development of occupational
classifications, instrument design, labor
market economics, sampling, data
collection and analyses; (b) disability
evaluation, vocational rehabilitation,
forensic vocational assessment, and
physical or occupational therapy; (c)
occupational or physical rehabilitation
medicine, psychiatry, or psychology;
and (d) disability claimant advocacy.
The Panel will function solely as an
advisory body and in compliance with
the provisions of the Federal Advisory
Committee Act. The charter was filed
with the appropriate congressional
committees.
For further information contact, Ms.
Leola S. Brooks, Designated Federal
Officer, Occupational Information
Development Advisory Panel, Social
Security Administration, 6401 Security
Boulevard 3–E–26 Richard Ball
Building, Baltimore, MD 21235–0001.
Fax to (410) 597–0825, or Email to
OIDAP@ssa.gov.
BILLING CODE 8011–01–P
Leola S. Brooks,
Designated Federal Officer, Occupational
Information Development Advisory Panel.
SOCIAL SECURITY ADMINISTRATION
[FR Doc. 2012–678 Filed 1–13–12; 8:45 am]
[Docket No. SSA–2012–0003]
BILLING CODE 4191–02–P
Occupational Information Development
Advisory Panel
AGENCY:
Social Security Administration
(SSA).
Notice of the Charter Renewal
for the Occupational Information
Development Advisory Panel.
srobinson on DSK4SPTVN1PROD with NOTICES
ACTION:
Notice is hereby given that on
January 6, 2012; our Commissioner
renewed the Charter for the
Occupational Information Development
Advisory Panel (Panel). This
discretionary Panel will provide
SUMMARY:
16 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
16:12 Jan 13, 2012
Jkt 226001
DEPARTMENT OF STATE
[Public Notice: 7719]
Advisory Committee on International
Postal and Delivery Services
Department of State.
Notice of renewal of the
Advisory Committee charter.
AGENCY:
ACTION:
Renewal of Advisory Committee: The
Secretary of State announces the
renewal of the charter of the Advisory
Committee on International Postal and
Delivery Services in fulfillment of the
provisions of the 2006 Postal
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
Accountability and Enhancement Act
(Pub. L. 109–435) and in accordance
with the Federal Advisory Committee
Act.
Purpose: The purpose of the Advisory
Committee is to serve the Department of
State in an advisory capacity with
respect to the formulation, coordination,
and oversight of foreign policy related to
international postal services and other
international delivery services. The
Committee provides a forum for
government employees, representatives
of the industry sector and members of
the public to present their advice and
views directly to the Department of
State.
For further information, please
contact Dennis Delehanty, Office of
Global Systems (IO/GS), Bureau of
International Organization Affairs, U.S.
Department of State, at (202) 647–4197.
Dated: January 10, 2012.
Dennis M. Delehanty,
Foreign Affairs Officer, Department of State.
[FR Doc. 2012–741 Filed 1–13–12; 8:45 am]
BILLING CODE P
DEPARTMENT OF STATE
[Public Notice: 7757]
Culturally Significant Objects Imported
for Exhibition Determinations:
‘‘Snapshot: Painters and Photography,
Bonnard to Vuillard’’
Notice is hereby given of the
following determinations: Pursuant to
the authority vested in me by the Act of
October 19, 1965 (79 Stat. 985; 22 U.S.C.
2459), Executive Order 12047 of March
27, 1978, the Foreign Affairs Reform and
Restructuring Act of 1998 (112 Stat.
2681, et seq.; 22 U.S.C. 6501 note, et
seq.), Delegation of Authority No. 234 of
October 1, 1999, Delegation of Authority
No. 236–3 of August 28, 2000 (and, as
appropriate, Delegation of Authority No.
257 of April 15, 2003), I hereby
determine that the objects to be
included in the exhibition ‘‘Snapshot:
Painters and Photography, Bonnard to
Vuillard’’ imported from abroad for
temporary exhibition within the United
States, are of cultural significance. The
objects are imported pursuant to loan
agreements with the foreign owners or
custodians. I also determine that the
exhibition or display of the exhibit
objects at The Phillips Collection,
Washington, DC, from on or about
February 4, 2012, until on or about May
6, 2012, the Indianapolis Museum of
Art, Indianpolis, IN, from on or about
June 8, 2012, until on or about
September 2, 2012, and at possible
additional exhibitions or venues yet to
SUMMARY:
E:\FR\FM\17JAN1.SGM
17JAN1
]]>Agencies
[Federal Register Volume 77, Number 10 (Tuesday, January 17, 2012)]
[Notices]
[Pages 2335-2340]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-685]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66126; File No. SR-NASDAQ-2012-003]
Self-Regulatory Organizations; NASDAQ Stock Market LLC; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change Relating
to the Customer Rebate To Add Liquidity in Penny Pilot Options
January 10, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 3, 2012, 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 Substance
of the Proposed Rule Change
The NASDAQ Stock Market LLC proposes to modify Rule 7050, governing
pricing for NASDAQ members using the NASDAQ Options Market (``NOM''),
NASDAQ's facility for executing and routing standardized equity and
index options. Specifically, NOM proposes to amend the applicability of
the Customer Rebate to Add Liquidity for the Penny Pilot \3\ Options
(``Penny Options'').
---------------------------------------------------------------------------
\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); 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); 65969
(December 15, 2011, 76 FR 79268 (December 21, 2011) (SR-NASDAQ-2011-
169) (notice of filing and immediate effectiveness extension and
replacement of Penny Pilot). See also Exchange Rule Chapter VI,
Section 5.
---------------------------------------------------------------------------
[[Page 2336]]
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaq.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ proposes to modify Exchange Rule 7050 governing the rebates
and fees assessed for option orders entered into NOM. Specifically, the
Exchange is proposing to modify the six tier structure for paying
Customer Rebates to Add Liquidity in Penny Pilot Options. The Exchange
proposes to reduce the tiers to four tiers and further incentivize NOM
Participants to route Customer orders to the Exchange by paying an
additional rebate for certain orders after the NOM Participant has met
a volume criteria. The Exchange believes that incentivizing NOM
Participants to send additional Customer orders to the Exchange will
benefit all market participants by adding liquidity to the market.
Specifically, the Exchange currently pays a Customer Rebate to Add
Liquidity in Penny Pilot Options based on the following tier structure:
----------------------------------------------------------------------------------------------------------------
Rebate to
Monthly volume add
liquidity
----------------------------------------------------------------------------------------------------------------
Tier 1.......................................... Participant adds Customer liquidity of up to $0.26
24,999 contracts per day in a month.
Tier 2.......................................... Participant adds Customer liquidity of 25,000-- 0.36
59,999 contracts per day in a month.
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 125,000 or 0.40
more contracts per day in a month.
Tier 5 \a\...................................... Participant adds (1) Customer liquidity of 60,000 0.40
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 \b\...................................... Participant adds Customer liquidity of 25,000 or 0.37
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.
----------------------------------------------------------------------------------------------------------------
\a\ For purposes of Tier 5, the Exchange will aggregate the trading activity of separate NOM Participants when
computing average daily volumes where 75 percent common ownership or control exists between NOM Participants.
\b\ For purposes of Tier 6, the Exchange will allow a NOM Participant to qualify for the rebate if a NASDAQ
member under common ownership with the NOM Participant qualifies for a credit under the Investor Support
Program. Common ownership is defined as 75 percent common ownership or control.
The Exchange proposes to amend the Customer Rebate to Add Liquidity
in Penny Pilot Options to a four tier structure as follows:
----------------------------------------------------------------------------------------------------------------
Rebate to
Monthly volume add
liquidity
----------------------------------------------------------------------------------------------------------------
Tier 1.......................................... Participant adds Customer liquidity of up to $0.26
49,999 contracts per day in a month.
Tier 2.......................................... Participant adds Customer liquidity of 50,000 or 0.42
more contracts per day in a month.
Tier 3 \a\...................................... Participant adds (1) Customer liquidity of 0.43
100,000 or more contracts per day in a month,
and (2) NOM Market Maker liquidity of 40,000 or
more contracts per day in a month.
Tier 4 \b\...................................... Participant adds (1) Customer liquidity of 25,000 0.40
or more contracts per day in a month, (2) the
Participant has certified for the Investor
Support Program set forth in Rule 7014; and (3)
the Participant executed at least one order on
NASDAQ's equity market.
----------------------------------------------------------------------------------------------------------------
\a\ For purposes of Tier 3, the Exchange will aggregate the trading activity of separate NOM Participants when
computing average daily volumes where 75 percent common ownership or control exists between NOM Participants.
\b\ For purposes of Tier 4, the Exchange will allow a NOM Participant to qualify for the rebate if a NASDAQ
member under common ownership with the NOM Participant has certified under the Investor Support Program and
executed at least one order on NASDAQ's equity market. Common ownership is defined as 75 percent common
ownership or control.
Currently, Tier 1 firms that add up to 24,999 contracts per day in
a month of liquidity receive a rebate of $0.26 per contract. The
Exchange is proposing to amend Tier 1 to cover up to 49,999 contracts
per day in a month, and to pay the same $0.26 per contract rebate.
Based on past experience, the Exchange anticipates that all firms
currently receiving the $0.26 rebate will maintain their current level
of rebate.
Currently, Tier 2 firms that add between 25,000 and 59,999
contracts per day in a month receive a rebate of $0.36 per contract.
The Exchange is proposing to amend Tier 2 to cover 50,000 or more
contracts per day in a month, and to pay a rebate of $0.42 per
contract. As a result, firms that currently contribute between 25,000
and 49,999 per day of liquidity in Customer contracts will receive a
lower rebate (down from $0.36 to $0.26 per contract). However, firms
that contribute between
[[Page 2337]]
50,000 and 59,999 contracts per day of Customer order liquidity will
receive a higher rebate (up from $0.36 to $0.42 per contract). Based
upon current volume levels and past trading patterns, the Exchange
anticipates that firms will contribute sufficient liquidity to avoid
receiving reduced rebates.
Currently, Tier 3 firms that add between 60,000 and 124,999
contracts per day in a month receive a rebate of $0.38 per contract.
This tier is being eliminated. NOM Participants who previously
qualified for Tier 3 would now qualify for Tier 2, which is now 50,000
or more contracts, and would receive a higher rebate in Tier 2 (up from
$0.38 to $0.42 per contract).
Currently, Tier 4 firms that add 125,000 contracts or more per day
in a month receive a rebate of $0.40 per contract. This tier is being
eliminated. NOM Participants who previously qualified for Tier 4 would
now qualify for Tier 2, which is now 50,000 or more contracts, and
would receive a higher rebate in Tier 2 rebate (up from $0.40 to $0.42
per contract).
Currently, Tier 5 firms that (1) provide 60,000 or more contracts
per day in a month of Customer order liquidity in Penny Pilot Options,
and (2) provide 60,000 or more contracts per day of NOM Market Maker
liquidity receive a rebate of $0.40 per contract if both criteria are
met. For purposes of determining qualification for this tier, the
Exchange aggregates \4\ the trading activity of separate NOM
Participants in calculating the average daily volume if there is at
least 75% common ownership between the NOM Participants. The Exchange
proposes to rename this Tier 5 as ``Tier 3'' and modify the Customer
volume to require that firms: (1) Provide 100,000 or more contracts per
day in a month of Customer order liquidity in Penny Pilot Options (an
increase from 60,000), and (2) provide 40,000 or more contracts per day
of NOM Market Maker liquidity (a decrease from 60,000). If a firm meets
both criteria, the Exchange would pay an increased rebate of $0.43 per
contract. Based upon current volume levels and past trading patterns,
the Exchange anticipates that firms will contribute sufficient
liquidity to receive an increased rebate.
---------------------------------------------------------------------------
\4\ Aggregation is necessary and appropriate because certain NOM
participants conduct Customer and NOM Market Maker trading activity
through separate but related broker-dealers.
---------------------------------------------------------------------------
Currently, Tier 6 firms that (1) provide 25,000 or more contracts
per day in a month of Customer order liquidity in Penny Pilot Options,
and (2) simultaneously qualify for credit under the Investor Support
Program (``ISP'') as set forth in NASDAQ Rule 7014 \5\ receive a rebate
of $0.37 per contract. Specifically, firms that qualify for a credit
under the ISP by providing retail investor liquidity to NASDAQ's equity
market can qualify for a higher rebate on NASDAQ's options market if
they contribute 25,000 or more contracts per day of Customer order
liquidity in Penny Pilot Options on NOM. The Exchange proposes to
rename this Tier 6 as ``Tier 4'' and pay an increased rebate of $0.40
per contract for firms that meet the criteria for this tier. In
addition, the Exchange proposes to revise the requirement of newly
named Tier 4 to state that firms (1) that provide 25,000 or more
contracts per day in a month of Customer order liquidity in Penny Pilot
Options, (2) where the Participant has certified for the ISP as set
forth in Rule 7014; and (3) where the Participant executed at least one
order on NASDAQ's equity market will receive the $0.40 per contract
rebate. A member desiring to participate in the ISP must submit an
application to the Exchange and designate one or more of its NASDAQ
ports for ISP use.\6\ The Exchange's proposal to qualify for newly
named Tier 4 would not require the Participant to transact any ISP
volume, however, the Participant would be required to execute at least
one order on NASDAQ's equity market.\7\ The Exchange provides a
methodology by which members can demonstrate their compliance with the
requirements of Rule 7014. A member shall certify to the reasonable
satisfaction of the Exchange: (i) Its Baseline Participation Ratio; \8\
and (ii) if requested by the Exchange, its compliance with any other
sections or requirements of Rule 7014, but not more often than once a
month during participation in ISP. The Exchange would permit a NOM
Participant to qualify for newly named Tier 4 if that NOM Participant
meets the Customer liquidity volume of 25,000 or more contracts per day
in a month, has certified under Rule 7014 and has executed at least one
order on NASDAQ's equity market. Based upon current volume levels and
past trading patterns, the Exchange anticipates that firms will
contribute sufficient liquidity to receive an increased rebate in this
tier. The Exchange believes the increased rebate would encourage
participants in the Exchange's equity markets to also participate in
the Exchange's options market.
---------------------------------------------------------------------------
\5\ For a detailed description of the ISP, 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).
\6\ See Exchange Rule 7014.
\7\ Currently, in order to comply with Tier 6, a participant
must qualify for credit under the ISP. In order to qualify for an
ISP credit, a Participant would need to transact a certain amount of
displayed liquidity through an ISP-designated port which results in
an increase in the overall liquidity that the member provides to
NASDAQ measured as a proportion of the consolidated share volume
traded by all market participants across all trading venues. To this
end, a member's ``Baseline Participation Ratio'' is determined by
measuring the number of shares in liquidity-providing orders entered
by the member (through any NASDAQ port) and executed on NASDAQ and
dividing this number by the consolidated (across all trading venues)
share volume of System Securities traded in a given month. To
determine whether a member added liquidity to NASDAQ in a given
month, NASDAQ would perform the same calculation on a monthly basis
for the then-current month and compare the resulting ratio to the
Baseline Participation Ratio. For a detailed description of the ISP,
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). [sic] by transacting a certain volume.
\8\ The term ``Baseline Participation Ratio'' shall mean, with
respect to a member, the lower of such member's Participation Ratio
for the month of August 2010 or the month of August 2011, provided
that in calculating such Participation Ratios, the numerator shall
be increased by the amount (if any) of the member's Indirect Order
Flow for such month, and provided further that if the result is zero
for either month, the Baseline Participation Ratio shall be deemed
to be 0.485% (when rounded to three decimal places). See NASDAQ Rule
7014(g)(1).
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The Exchange also proposes to further incentivize those NOM
Participants that qualify for proposed Tiers 2, 3 and 4 by offering to
pay an additional $0.01 per contract rebate on each Customer order of
5,000 or more, displayed or non-displayed contracts, which adds
liquidity in a Penny Pilot Option, as long as that NOM Participant has
qualified for a rebate in Tier 2, 3 or 4 for that month. This would be
in addition to the rebate for the qualifying tier.\9\
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\9\ The rebate would be paid for a partial execution.
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The Exchange is not otherwise amending the Customer Rebates to Add
Liquidity.
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
[[Page 2338]]
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).
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The Exchange believes that the proposed new pricing tiers are
reasonable, equitable and not unfairly discriminatory because they
continue an existing program \12\ 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 the existing monthly volume thresholds have
incentivized firms that route Customer orders to the Exchange to
increase 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.
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\12\ The Exchange adopted these monthly volume achievement tiers
in September 2011. See Securities Exchange Act Release Nos. 65317
(September 12, 2011), 76 FR 57778 (September 16, 2011) (SR-NASDAQ-
2011-124) and 65317 (September 12, 2011), 76 FR 61129 (October 3,
2011) (SR-NASDAQ-2011-127).
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Specifically, the Exchange believes that the increased rebates
would further incentivize firms to continue to send more Customer
volume to the Exchange. Today, the Exchange pays any Customer order up
to 24,999 contracts per day in a given month a rebate of $0.26 per
contract for adding liquidity in Penny Pilot Options. The Exchange
would continue to pay this same rebate, but would pay such a rebate for
any Customer order up to 49,999 contracts per day in a given month that
adds liquidity in Penny Pilot Options. This would result in a decreased
rebate to certain Participants that currently qualify for Tier 2. The
Exchange believes that this increase in the number of Customer orders
that qualify for Tier 1 is reasonable, equitable and not unfairly
discriminatory because all Customer orders that add liquidity in Penny
Pilot Options have the ability to earn the rebate; there is no minimum
order requirement. Also, all NOM Participants transacting Customer
orders in Penny Pilot Options are eligible to receive this rebate. The
Exchange currently pays a higher rebate for Tier 2 Customer orders in
Penny Pilot Options between 25,000 and 59,999 contracts per day in a
given month of $0.36 per contract. The Exchange believes that offering
the Tier 1 rebate up to 49,999 contracts per day and starting the Tier
2 rebate at 50,000 Customer contracts per day would encourage NOM
Participants to send a greater number of Customer orders to the
Exchange to obtain the increased rebate of $0.42 per contract.
The Exchange believes that amending Tier 2 from between 25,000 and
59,999 Customer orders per day in a given month to 50,000 or more
Customer contracts per day in a given month (capturing those Customer
contracts between 50,000 and 59,999) is reasonable because the Exchange
is also offering a higher rebate of $0.42 per contract, an increase
from the current $0.36 per contract. The Exchange believes that
simplifying the current Tiers 1, 2, 3 and 4, which have no other
qualifier than Customer volume, down to two tiers and offering a higher
rebate of $0.42 per contract for any Customer order volume over 50,000
contracts per day in a given month, in Penny Pilot Options, would allow
a greater number of NOM Participants to obtain a higher rebate. Those
NOM Participants that currently qualify for Tiers 3 and 4 would be
eligible for a higher rebate and a portion of those NOM Participants
that currently qualify for Tier 2 would be eligible for the higher
rebate. The Exchange believes that for these reasons, the proposal is
equitable and not unfairly discriminatory.
The Exchange also proposes to amend current Tier 5, which would be
renamed Tier 3, to increase the number of Customer contracts from
60,000 to 100,000 contracts per day in a given month and also decrease
the second qualifier, concerning NOM Market Maker liquidity, from
60,000 to 40,000 per day in a given month. The Exchange believes that
this amendment is reasonable because the Exchange is seeking to
incentivize NOM Participants to transact a greater number of Customer
orders. By increasing the number of Customer orders to 100,000 per day
and lowering the second qualifier on Market Maker liquidity to 40,000
per day the Exchange desires to further incentivize NOM Participants to
send additional Customer order flow, in Penny Pilot Options, to the
Exchange and provide incentives for Market Makers to increase liquidity
on the Exchange for the benefit of all NOM participants. The Exchange
believes that Broker Dealers that make markets and also route Customer
order flow to the Exchange today, would be incentivized to meet the new
criteria and qualify for Tier 3 because of the lower Market Maker
liquidity volume and the increased rebate. The Exchange proposes to
increase the rebate from $0.40 per contract to $0.43 per contract in
order to incentivize NOM Participants that also route Customer order
flow to register to make markets on the Exchange. The Exchange believes
that this newly named Tier 3 is equitable and not unfairly
discriminatory because Market Makers have obligations to the market and
regulatory requirements, which normally do not apply to other market
participants. The Exchange has set a reasonable goal of 40,000 or more
contracts per day of Market Maker liquidity on NOM, an achievable goal
that should encourage increased Market Maker registration and liquidity
on the Exchange. The Exchange believes that paying an increased rebate
of $0.43 per contract ($0.01 per contract higher than Tier 2) is
equitable and not unfairly discriminatory because increased Market
Maker liquidity would, in turn, improve the amount of liquidity
available on the Exchange and improve the quality of order interaction
and executions on the Exchange.
The Exchange also proposes to amend current Tier 6, which would be
renamed Tier 4, to increase the rebate from $0.37 per contract to $0.40
per contract to incentivize NOM Participants to transact additional
Customer orders in Penny Pilot Options and encourage participants in
the Exchange's equity markets to also participate in the Exchange's
options market. The Exchange believes that this proposed amendment is
reasonable because the Exchange seeks to incentivize NOM Participants
to transact a greater number of Customer orders in Penny Pilot Options.
Furthermore, the Exchange believes that it is reasonable to allow NOM
Participants with a certain amount of Customer orders, to qualify for a
Customer rebate by allowing a related NASDAQ member, under common
ownership, to qualify for the rebate as specified herein. The Exchange
also believes that the amendments to the newly named Tier 4 criteria,
namely 25,000 or more Customer contracts, has certified for ISP and
executed at least one order on NASDAQ's equity market, are reasonable
because, as stated above, the Exchange believes that this proposal
would incentivize NOM Participants to transact additional Customer
orders and encourage participants in the Exchange's equity markets to
also participate in the Exchange's options market. The Exchange
believes this would encourage participants in the Exchange's equity
markets to also participate in the Exchange's options market
particularly because the
[[Page 2339]]
Exchange's proposal to qualify for newly named Tier 4 would not require
the Participant to transact any volume, but only to certify for ISP.
The Exchange believes that the requirement to certify in
combination with requiring the Participant to execute at least one
order on NASDAQ's equity market would promote the submission of
liquidity-providing orders to NASDAQ. The ISP encourages members to add
targeted liquidity that is executed in the NASDAQ Market Center. The
Exchange believes that the ISP promotes submission of liquidity-
providing orders to NASDAQ, which would benefit all NASDAQ members and
all investors. By allowing members to certify under Rule 7014, while
also meeting the volume criteria of 25,000 or more Customer contracts
in Penny Pilot Options, the Exchange believes that the proposal would
encourage greater participation in the options market. The Exchange
believes that increased rebate and the amended criteria for newly named
Tier 4 are equitable and not unfairly discriminatory because together
these amendments are intended to encourage increased activity in both
the NASDAQ Options Market and in the ISP of the NASDAQ equity market.
The goal of the ISP is to incentivize members \13\ to provide liquidity
from individual equity investors to the NASDAQ Market Center. The
increased rebate in newly named Tier 4 would encourage firms that
certify pursuant to Rule 7014 to increase the amount of Customer order
liquidity provided to the NASDAQ Options Market. The addition of such
liquidity, either through the ISP or through increased Customer order
flow, would benefit all Exchange members that participate in those
markets.\14\ The Exchange believes that amending newly named Tier 4 to
require firms to be certified for ISP instead of qualifying for a
credit would provide further incentive for firms to add volume to NOM
and also participate in the equities market because the firm has to
execute at least one order in the equity market.
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\13\ The Commission has expressed its concern that a significant
percentage of the orders of individual investors are executed at
over the counter (``OTC'') markets, that is, at off-exchange
markets; and that a significant percentage of the orders of
institutional investors are executed in dark pools. See Securities
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594
(January 21, 2010) (Concept Release on Equity Market Structure,
``Concept Release''). In the Concept Release, the Commission has
recognized the strong policy preference under the Act in favor of
price transparency and displayed markets. The Commission published
the Concept Release to invite public comment on a wide range of
market structure issues, including high frequency trading and un-
displayed, or ``dark,'' liquidity. See also Mary L. Schapiro,
Strengthening Our Equity Market Structure (Speech at the Economic
Club of New York, Sept. 7, 2010) (``Schapiro Speech,'' available on
the Commission Web site) (comments of Commission Chairman on what
she viewed as a troubling trend of reduced participation in the
equity markets by individual investors, and that nearly 30 percent
of volume in U.S.-listed equities is executed in venues that do not
display their liquidity or make it generally available to the
public).
\14\ NASDAQ Rule 7018(a) already provides incentives for firms
to participate in both NASDAQ's equity market and its options
market.
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The Exchange believes that it is reasonable to offer a rebate of
$0.01 per contract on each Customer order of 5,000 or more displayed or
non-displayed contracts, which adds liquidity in a Penny Pilot Option,
as long as that NOM Participant has qualified for a rebate in Tier 2, 3
or 4 for that month. This $0.01 per contract rebate would be in
addition to the rebate for the qualifying tier. The Exchange believes
that this enhanced incentive will encourage NOM Participants to send
larger orders to the Exchange, which in turn would also assist those
Participants that send Customer orders in Penny Pilot Options to earn
higher rebates by qualifying for a higher tier as well as bringing
additional liquidity to the Exchange. The Exchange further believes
that limiting the enhanced $0.01 per contract rebate to firms already
qualifying for Tiers 3, 4 or 5 (and not those that qualify for Tier 1)
is equitable and not unfairly discriminatory because generally NOM
Participants in Tier 1 today are not sending Customer orders of 5,000
or more contracts. If those Participants in Tier 1 sent ten Customer
orders of 5,000 or more per day in a given month to the Exchange, they
would qualify for Tier 2 and would be paid the additional enhanced
rebate. The Exchange believes that it is equitable and not unfairly
discriminatory to incentivize those NOM Participants that qualify for
higher volume tiers as they are the most likely to obtain the enhanced
rebate and continue to send larger orders, which provides more
liquidity to the Exchange. Finally, the Exchange would pay the enhanced
rebate uniformly to those NOM Participants that qualify for Tiers 2, 3
or 4 and meet the Customer order volume discussed herein for Penny
Pilot Options.
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.\15\ 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. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2012-003 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.
[[Page 2340]]
All submissions should refer to File Number SR-NASDAQ-2012-003. 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 a.m. and 3
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-2012-003 and should be submitted
on or before February 7, 2012.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-685 Filed 1-13-12; 8:45 am]
BILLING CODE 8011-01-P
