Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Non-Penny Pilot and Penny Pilot Options, 63384-63388 [2012-25357]
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Federal Register / Vol. 77, No. 200 / Tuesday, October 16, 2012 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68029; File No. SR–
NASDAQ–2012–114]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Non-Penny Pilot and Penny Pilot
Options
October 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 October
1, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The NASDAQ Stock Market LLC
proposes to modify Chapter XV, entitled
‘‘Options Pricing,’’ at Section 2
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 Non-Penny
Pilot Options and Penny Pilot 3 Options
pricing.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b-4.
3 The Penny Pilot was established in March 2008
and in October 2009 was expanded and extended
through December 31, 2012. 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 seventyfive 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); and 67325 (June 29, 2012), 77 FR
40127 (July 6, 2012) (SR–NASDAQ–2012–075)
(notice of filing and immediate effectiveness and
extension and replacement of Penny Pilot through
December 31, 2012). See also NOM Rules, Chapter
VI, Section 5.
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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 Chapter
XV, entitled ‘‘Options Pricing,’’ at
Section 2(1) governing the rebates and
fees assessed for option orders entered
into NOM. The Exchange is proposing
to amend the Non-Penny Pilot pricing
and the Penny Pilot Options pricing.
This proposal seeks to incentivize NOM
Participants to send additional
Customer order flow to the Exchange in
both Penny Pilot Options and NonPenny Pilot Options in order to obtain
rebates.
The Exchange proposes to assess fees
and pay rebates on options overlying the
Nasdaq 100 Index traded under the
symbol NDX (‘‘NDX’’) as a Non-Penny
Pilot Option. Today, NDX has its own
pricing separate and apart from other
Non-Penny Pilot pricing. The Exchange
proposes to eliminate the separate NDX
pricing and instead assess fees and pay
rebates for NDX as a Non-Penny Pilot
Option. In addition, the Exchange
proposes to assess a surcharge to all
market participants, except Customers,
for transactions in NDX of $0.10 per
contract. The surcharge would be in
addition to both the Fee for Adding
Liquidity and the Fee for Removing
Liquidity in Non-Penny Pilot Options.
Customers would not be assessed a
surcharge for transactions in NDX.
The Exchange also proposes to amend
the Non-Penny Pilot Option pricing
(including NDX) to be equivalent to the
rebates and fees currently in place for
options overlying Facebook, Inc. (‘‘FB’’),
Google Inc. (‘‘GOOG’’) and Groupon,
Inc. (‘‘GRPN’’), except for the proposed
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changes to the Customer Rebate to Add
Liquidity, which the Exchange is
amending as described herein.4 The
Exchange would also eliminate the FB,
GOOG and GRPN separate pricing as
those symbols would be subject to the
Non-Penny Pilot Option pricing
pursuant to this proposal.
The Exchange proposes to amend the
Non-Penny Pilot Option Pricing, which
will include NDX, FB, GOOG and
GRPN, by increasing the Professional
Fee for Adding Liquidity from $0.30 to
$0.45 per contract and decreasing the
NOM Market Maker Fee for Adding
Liquidity from $0.30 to $0.25 per
contract. Pursuant to this proposal, a
Professional transacting NDX would be
assessed a decreased Fee for Adding
Liquidity, from $0.70 to $0.45 per
contract,5 and a NOM Market Maker
would be assessed an increased or
decreased fee depending on the market
participant that was on the contra-side
of the order. For example, today, if a
NOM Market Maker transacts an order
in NDX and the contra-party is a
Professional, Firm, NOM Market Maker
or Non-NOM Market Maker, the NOM
Market Maker is paid a Rebate to Add
Liquidity of $0.20 per contract or would
be assessed a $0.65 per contract Fee to
Add Liquidity if the contra-party is a
Customer. The Exchange proposes to
assess a NOM Market Maker a $0.25 per
contract Fee for Adding Liquidity in
Non-Penny Pilot Options, regardless of
the contra-party and proposes to not pay
a NOM Market Maker a Rebate to Add
Liquidity.
Likewise, a Customer today receives a
Rebate to Add Liquidity of $0.20 per
contra when the contra-party is a
Professional, Firm, NOM Market Maker
or Non-NOM Market Maker, and is
assessed a Fee to Add Liquidity of $0.65
per contract when contra to another
Customer. Under this proposal, a
Customer would be assessed no Fee for
Adding Liquidity in Non-Penny Pilot
Options and would receive a Rebate to
Add Liquidity of $0.75 per contract or
$0.77 per contract as described more
fully below.
4 The Exchange currently assesses FB, GOOG and
GRPN the following Fees for Adding Liquidity:
Customers are not assessed a fee, Professionals,
Firms and Non-NOM Market Makers are assessed a
$0.45 per contract fee and NOM Market Makers are
assessed a $0.25 per contract fee. The Fees for
Removing Liquidity are as follows: Customers and
NOM Market Makers are assessed a $0.79 per
contract fee and Professionals, Firms and Non-NOM
Market Makers are assessed an $0.85 per contract
fee. FB, GOOG and GRPN Customer transactions
receive a Rebate to Add Liquidity of $0.77 per
contract. This rebate is being amended by this
proposal for the Non-Penny Pilot Options.
5 Today a Professional is assessed a Fee to Add
Liquidity of $0.70 per contract in NDX.
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Federal Register / Vol. 77, No. 200 / Tuesday, October 16, 2012 / Notices
The Exchange is proposing to increase
the current Customer Rebate to Add
Liquidity in Non-Penny Pilot Options
(including NDX) from $0.20 to $0.75 per
contract, unless a market participant
adds Customer liquidity in either or
both Penny or Non-Penny Pilot Options
of 115,000 contracts per day in a month,
in which case the rebate would be
increased to $0.77 per contract. The
Exchange also proposes to permit NOM
Participants under 75 percent common
ownership or control to aggregate their
Customer volume to obtain the higher
rebate.6 The Exchange is also proposing
to eliminate the Customer Rebate to
Remove Liquidity in NDX along with
other NDX pricing. The Exchange is not
proposing to offer a Rebate to Remove
Liquidity in Non-Penny Pilot Options.7
The Exchange proposes to eliminate
note 1 which relates to the NDX Rebate
to Add Liquidity and Fee to Add
Liquidity, which pricing is eliminated
with this proposal. The Exchange also
proposes to rename note ‘‘+’’ as note 1.
The Exchange also proposes to add a
new note 2 to describe the $0.10 per
contract NDX surcharge described
herein as well as a new note 3 to reflect
the Customer Rebates to Add Liquidity
applicable to Non-Penny Pilot Options
described herein. The Exchange also
proposes to delete the pricing for
options on the one-tenth value of the
Nasdaq 100 Index traded under the
symbol MNX (‘‘MNX’’). This option was
delisted on September 13, 2012 from
NOM. The Exchange is proposing to
eliminate the MNX pricing from Sec. 2,
Chapter XV of the NOM Rules because
the pricing is no longer necessary.
The Exchange also proposes to amend
the Non-Penny Pilot Option (including
NDX) Fee for Removing Liquidity by
increasing those fees as follows: a
Customer that is today assessed $0.45
per contract would be assessed an
increased fee of $0.79 per contract; a
Professional, Firm and Non-NOM
Market Maker that today is assessed a
$0.50 per contract fee would be assessed
an increased fee of $0.85 per contract;
and a NOM Market Maker that today is
assessed $0.50 per contract fee would be
assessed a $0.79 per contract fee. With
respect to NDX, a Customer transacting
NDX today is not assessed a Fee for
Removing Liquidity. The Customer
would now be assessed an increased Fee
for Removing Liquidity of $0.79 per
contract in Non-Penny Pilot Options
6 As noted previously, the NDX pricing would be
removed from Section 2(1) of Chapter XV. Today,
a Customer receives a Rebate to Remove Liquidity
of $0.40 per contract.
7 No other market participant, other than a
Customer receives a Customer Rebate to Remove
Liquidity today.
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(including NDX). A Professional, Firm
or Non-NOM Market Maker that today
pays $0.70 per contract would pay an
increased Fee for Removing Liquidity of
$0.85 per contract in Non-Penny Pilot
Options (including NDX). Finally, a
NOM Market Maker that today pays a
$0.70 Fee for Removing Liquidity in
NDX would pay a $0.79 per contract fee
in Non-Penny Pilot Options (including
NDX).
The Exchange also proposes to amend
its Penny Pilot Option Customer Rebate
to Add Liquidity. The Exchange
proposes to amend Tier 1 which
currently pays a $0.26 per contract
rebate to market participants that add
Customer liquidity of up to 14,999
contracts per day in a month. The
Exchange would continue to pay a $0.26
per contract rebate, but would increase
the level of contracts from 14,999 to
34,999 contracts per day. The Exchange
proposes to eliminate current Tier 2
which pays a $0.38 per contract rebate
for market participants that add
Customer liquidity of 15,000 to 49,999
contracts per day in month. The
Exchange proposes to renumber Tier 3
as Tier 2. Tier 3 today pays market
participants $0.43 per contract for
market participants that add Customer
liquidity between 50,000 and 74,999
contracts per day in a month. The
Exchange would continue to pay $0.43
per contract for newly named Tier 2 but
would lower the level of contracts to
between 35,000 to 74,999 contracts per
day in a month. The Exchange proposes
to renumber Tier 4 as Tier 3, Tier 5 as
Tier 4 and Tier 6 as Tier 5 and not
otherwise amend these tiers.8 The
Exchange also proposes to conform
notes a, b and c to the new tiers by
reassigning the proper letters to
coordinate to the same tiers as today.
The Exchange also proposes to amend
the Penny Pilot Option Fee for
Removing Liquidity which today
provides that Professionals, Firms, NonNOM Market Makers and NOM Market
Makers Penny Pilot Options Fees for
Removing Liquidity will be reduced by
$0.01 per contract for transactions in
which the same NOM Participant is the
buyer and seller. The Exchange
proposes to also permit NOM
8 Tier 4 today pays $0.44 per contract for market
participants that add Customer liquidity of 75,000
or more contract per day in a month. Tier 5 today
pays market participants $0.42 per contact if they
(1) add Customer liquidity of 25,000 or more
contracts per day in a month, (2) have certified for
the Investor Support Program set forth in Rule 7014;
and (3) executed at least one order on NASDAQ’s
equity market. Tier 6 today pays market
participants $0.45 per contract if they have total
volume of 130,000 contracts per day in a month.
The Exchange is simply proposing to renumber
these last three tiers.
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63385
Participants under common ownership
to also receive the $0.01 per contract
reduction if a NOM Participant under
common ownership is the buyer and
seller. The Exchange is not amending
the Penny Pilot Option Fees for
Removing Liquidity otherwise.9
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 they provide
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 elimination of separate fees
and rebates for NDX and inclusion of
NDX in the Non-Penny Pilot Options is
reasonable, equitable and not unfairly
discriminatory because the Exchange is
proposing to amend the Non-Penny
Pilot Options fees and rebates to
approximate those fees and rebates
currently subject to FB, GOOG and
GRPN pricing. The Exchange believes
that it is reasonable to assess NDX the
amended Non-Penny Pilot Option fees
which are substantially similar to the
fees assessed today for FB, GOOG and
GRPN 12 because NDX has the same
minimum trading increments as other
Non-Penny Pilot Options. Additionally,
the Exchange believes that it is
reasonable to pay Customers transacting
options in NDX the amended NonPenny Pilot Options Rebate to Add
Liquidity because the higher Customer
Rebate to Add Liquidity of $0.75 per
contract with the possibility of
qualifying for a $0.77 per contract rebate
approximates the rebates currently
offered for FB, GOOG and GRPN.13 The
Exchange would also not assess
Customers a Fee for Adding Liquidity,
9 Today, the Exchange assesses the following
Penny Pilot Option Fees for Removing Liquidity:
Customers pay $0.45 per contract and Professionals,
Firms, Non-NOM Market Makers and NOM Market
Makers pay a $0.47 per contract fee.
10 15 U.S.C. 78f.
11 15 U.S.C. 78f(b)(4).
12 The Exchange currently assesses FB, GOOG
and GRPN the following Fees for Adding Liquidity:
Customers are not assessed a fee, Professionals,
Firm and Non-NOM Market Makers are assessed a
$0.45 per contract fee and NOM Market Makers are
assessed a $0.25 per contract fee. The Fees for
Removing Liquidity are as follows: Customers and
NOM Market Makers are assessed a $0.79 per
contract fee and Professionals, Firms and Non-NOM
Market Makers are assessed an $0.85 per contract
fee. FB, GOOG and GRPN Customer transactions
receive a Rebate to Add Liquidity of $0.77 per
contract. This rebate is being amended by this
proposal for the Non-Penny Pilot Options.
13 Today, FB, GOOG and GRPN pay a Customer
Rebate to Add Liquidity of $0.77 per contract.
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as is the case today with FB, GOOG and
GRPN and would also not continue to
pay a Rebate to Remove Liquidity as
that rebate would be eliminated. The
Exchange believes that it is reasonable
to assess Non-Penny Pilot Option fees
and pay rebates similar to FB, GOOG
and GRPN today, with the amended
Customer Rebate to Add Liquidity, and
eliminate NDX, FB, GRPN and GOOG
pricing, as well as the delisted MNX
pricing which is no longer necessary
from Section 2, Chapter XV.
The Exchange believes that it is
equitable and not unfairly
discriminatory to assess/pay the NonPenny Pilot Option pricing to the
various market participants as noted in
this proposal and not assess/pay
separate pricing for NDX, FB, GRPN and
GOOG. All market participants
transacting Non-Penny Pilot Options
would be subject to the fees and rebates
noted herein. The Exchange would no
longer pay a Rebate to Remove Liquidity
to any market participant under the
proposal. Customers would be subject to
a $0.79 per contract Fee to Remove
Liquidity in Non-Penny Pilot Options as
compared to no fee today in NDX. Also,
NOM Market Makers would be assessed
a $0.25 per contract Fee for Adding
Liquidity regardless of the contra-party
and would no longer be entitled to a
Rebate to Add Liquidity as is the case
with NDX today.14 Professionals would
be subject to the same decreased $0.45
per contract Fee for Adding Liquidity as
Firms and Non-NOM Market Makers.15
Also, the elimination of the MNX
pricing is equitable and not unfairly
discriminatory because no market
participant is subject to this pricing as
of the date it was delisted. In summary,
the Exchange believes that assessing all
Non-Penny Pilot Options securities the
amended Non-Penny Pilot Option
pricing is reasonable, equitable and not
unfairly discriminatory for the reasons
discussed hereafter which describes the
basis for the amendments to that
pricing. These amendments conform the
pricing for all Non-Penny Pilot options
symbols. Also, the additional $0.10 per
contact NDX surcharge that will be
added to the Fees for Adding and
Removing Liquidity in Non-Penny Pilot
Options for transactions in NDX, except
for Customers, is reasonable, equitable
14 Today, NOM Market Makers are assessed a
$0.65 per contract Fee to Add Liquidity when
transacting an order in NFX [sic] contra a Customer
and are paid a Rebate to Add Liquidity of $0.20 per
contract when transacting an order in NDX contra
a Professional, Firm, Non-NOM Market Maker or
NOM Market Maker.
15 Professionals currently are assessed a $0.70 per
contract Fee to Add Liquidity in NDX similar to
Firms and Non-NOM Market Makers.
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and not unfairly discriminatory because
the Exchange currently pays a license
fee 16 to list NDX on NOM and is
seeking to recoup a portion of that fee.17
The Exchange believes that increasing
the Professional Fee for Adding
Liquidity and the Fees for Removing
Liquidity in Non-Penny Pilot Options is
reasonable because the higher fees
would enable the Exchange to reward
Customers that remove liquidity with
higher Customer Rebates to Add
Liquidity in Non-Penny Pilot Options.
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. Additionally, the proposed
fees and rebates for Non-Penny Pilot
Options are similar to fees and rebates
currently in place at the BATS
Exchange, Inc. (‘‘BATS’’).18 The
Exchange also believes that decreasing
the NOM Market Maker Fee for
Removing [sic] Liquidity in Non-Penny
Pilot Options is reasonable because the
Exchange seeks to encourage NOM
Market Makers to post liquidity on
NOM.
The Exchange believes that increasing
the Professional Fee for Adding
Liquidity in Non-Penny Pilot Options is
equitable and not unfairly
discriminatory because Professionals,
Firms and Non-NOM Market Makers
will be assessed the same $0.45 per
contract fee. The Exchange also believes
that not assessing a Customer a Fee for
Adding Liquidity in Non-Penny Pilot
Options and assessing a NOM Market
Maker a lower Fee for Adding Liquidity
of $0.25 per contract, as compared to
Professionals, Firms and Non-NOM
Market Makers is equitable and not
unfairly discriminatory because
Customers and NOM Market Makers
differ from other market participants.
Customer order flow benefits all market
participants by improving liquidity, the
quality of order interaction and
16 NOM is assessed a license fee of $0.22 per
contract to list NDX.
17 Non-Penny Pilot Options, other than NDX, are
not subject to a license fee.
18 See BATS BZX Exchange Fee Schedule. BATS
assesses a Non-Penny Pilot Option Fee for
Accessing Liquidity of $0.80 per contract for a
Professional, Firm or Market Maker order that
removes liquidity from the BATS Options order
book and a $0.75 per contract rebate for a Customer
order that remove liquidity from the BATS Options
order book. Additionally, BATS pays a $0.70 per
contract rebate for a Professional, Firm or Market
Maker order that adds liquidity to the BATS
Options order book and a $0.75 rebate per contract
for a Customer order that adds liquidity to the
BATS Options order book. Also, the Fees for
Removing Liquidity for FB, GOOG and GRPN as
well as the Fees for Adding Liquidity are the same
as those proposed for Non-Penny Pilot Options.
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executions at the Exchange. Also, NOM
Market Makers have obligations to the
market and regulatory requirements,19
which normally do not apply to other
market participants. A NOM Market
Maker has the obligation to make
continuous markets, engage in course of
dealings reasonably calculated to
contribute to the maintenance of a fair
and orderly market, and not make bids
or offers or enter into transactions that
are inconsistent with course of dealings.
The proposed differentiation as between
Customers and NOM Market Makers
and other market participants
recognizes the differing contributions
made to the liquidity and trading
environment on the Exchange by
Customers and NOM Market Makers, as
well as the differing mix of orders
entered. The Exchange believes that
increasing the Professional, Firm and
Non-NOM Market Maker Fees for
Removing Liquidity in Non-Penny Pilot
Options to $0.85 per contract is
equitable and not unfairly
discriminatory because Professionals,
Firms and Non-NOM Market Makers
will be assessed the same fee. Customers
and NOM Market Makers would be
assessed a lower Fee for Removing
Liquidity in Non-Penny Pilot Options as
compared to Professionals, Firms and
Non-NOM Market Makers because as
mentioned herein the fees recognize the
differing contributions made to the
liquidity and trading environment on
the Exchange by Customers and NOM
Market Makers, as well as the differing
mix of orders entered.
The Exchange also believes that
overall the higher Fees for Removing
Liquidity are equitable and not unfairly
discriminatory because in the current
U.S. options market, many of the
contracts are quoted in pennies. Under
this pricing structure, the minimum
penny tick increment equates to a $1.00
economic value difference per contract,
given that a single standardized U.S.
option contract covers 100 shares of the
underlying stock. Where contracts are
quoted in $0.05 increments (nonpennies), the value per tick is $5.00 in
proceeds to the investor transacting in
these contracts. Liquidity rebate and
19 Pursuant to Chapter VII (Market Participants),
Section 5 (Obligations of Market Makers), in
registering as a market maker, an Options
Participant commits himself to various obligations.
Transactions of a Market Maker in its market
making capacity must constitute a course of
dealings reasonably calculated to contribute to the
maintenance of a fair and orderly market, and
Market Makers should not make bids or offers or
enter into transactions that are inconsistent with
such course of dealings. Further, all Market Makers
are designated as specialists on NOM for all
purposes under the Act or rules thereunder. See
Chapter VII, Section 5.
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access fee structures on the make-take
exchanges, including NOM, for
securities quoted in penny increments
are commonly in the $0.30 to $0.45 per
contract range.20 A $0.30 per contract
rebate in a penny quoted security is a
rebate equivalent to 30% of the value of
the minimum tick. A $0.45 per contract
fee in a penny quoted security is a
charge equivalent to 45% of the value of
that minimum tick. In other words, in
penny quoted securities, where the
price is improved by one tick with an
access fee of $0.45 per contract, an
investor paying to access that quote is
still $0.55 better off than trading at the
wider spread, even without the access
fee ($1.00 of price improvement—$0.45
access fee = $0.55 better economics).
This computation is equally true for
securities quoted in wider increments.
Rebates and access fees near the $0.85
per contract level equate to only 17% of
the value of the minimum tick in NonPenny Pilot Options, less than the
experience today in Penny Pilot
Options. For example, a retail investor
transacting a single contract in a nonpenny quoted security quoted a single
tick tighter than the rest of the market,
and paying an access fee of $0.79 per
contract, is receiving an economic
benefit of $4.21 ($0.05 improved tick =
$5.00 in proceeds ¥ $0.79 access fee =
$4.21). The Exchange believes that
encouraging NOM Market Makers to
quote more aggressively by reducing
transaction fees 21 and incentivizing
Customer orders to post on NOM will
narrow the spread in Non-Penny Pilot
Options to the benefit of investors and
all market participants by improving the
overall economics of the resulting
transactions that occur on the Exchange,
even if the access fee paid in connection
with such transactions is higher.
Accordingly, the Exchange believes that
the proposed fees and rebates for the
Non-Penny Pilot Options are reasonable,
equitable and not unfairly
discriminatory.
The Exchange believes that its
proposal to offer a higher Customer
Rebate to Add Liquidity in Non-Penny
20 NOM is proposing to only pay a Customer a
Rebate to Add Liquidity in Non-Penny Pilot
Options. Other market participants would not be
entitled to a rebate.
21 The Exchange notes that the proposed $0.25
per contract NOM Market Maker Fee for Adding in
FB, GOOG and GRPN is significantly less than
transaction fees plus payment for order flow fees
assessed by other options exchanges. For example,
on NASDAQ OMX PHLX LLC (‘‘Phlx’’), the
combined payment for order flow fee plus the
transaction fee is $0.92 per contract. See Phlx’s
Pricing Schedule. Unlike Penny Pilot Options, the
Exchange believes this significant reduction in fees
for adding liquidity will have the same effect as a
rebate in non-Penny Pilot Options in terms of a
narrower spread.
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Pilot Options (from $0.20 to $0.75 per
contract) is reasonable, equitable and
not unfairly discriminatory because
other market participants will benefit
from the increased order flow to the
Exchange. The proposal to offer an even
higher Customer Rebate to Add
Liquidity in Non-Penny Pilot Options
($0.77 per contract), provided a market
participant adds Customer liquidity of
115,000 contracts per day in a month in
either or both a Penny Pilot or NonPenny Pilot Option, is reasonable,
equitable and not unfairly
discriminatory because the benefits to
the Exchange of increased liquidity will
benefit all market participants because
market participants will strive to post
and remove liquidity on NOM to
achieve the higher rebate.
The Exchange believes that the
proposed amendments to the notes
associated with the Penny and NonPenny Pilot Options Pricing, specifically
renumbering note ‘‘+’’ as note 1,
eliminating current note 1 and adding
notes 3 and 4, are reasonable, equitable
and not unfairly discriminatory because
the notes add more clarity to the rule.
The Exchange believes that it is
reasonable, equitable and not unfairly
discriminatory to permit NOM
Participants with 75 percent common
ownership to aggregate their volume for
purposes of obtaining a higher Customer
Rebate to Add Liquidity in Non-Penny
Pilot Options. Certain NOM Participants
chose to segregate their businesses into
different legal entities for purposes of
conducting business. The Exchange
believes that these NOM Participants
should be treated as one entity for
purposes of qualifying for the increased
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options as long as
there is at least 75% common
ownership or control among the NOM
Participants. The Exchange also believes
that it is reasonable, equitable and not
unfairly discriminatory to provide that
Professionals, Firms, Non-NOM Market
Makers, and NOM Market Makers Penny
Pilot Option Fees will be reduced by
$0.01 per contract for transactions in
which the same NOM Participant or a
NOM Participant under common
ownership is the buyer and the seller.
For the reasons mentioned herein, the
Exchange believes that NOM
Participants that chose to segregate their
businesses into different legal entities
should still be afforded the opportunity
to receive the discount as if they were
the same NOM Participant on both sides
of the transaction.
The Exchange’s proposed
amendments to the Customer Rebate to
Add Liquidity in Penny Pilot Options
are reasonable because the Exchange is
PO 00000
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Fmt 4703
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63387
attempting to incentivize market
participants to send additional
Customer order flow to the Exchange.
By increasing the Tier 1 to encompass
up to 34,999 contracts per day in a
month and amending new Tier 2 to
between 35,000 and 74,999 contracts,
the Exchange is attempting to encourage
market participants that are receiving
rebates by qualifying for Tiers 1 and 2
to send additional orders to the
Exchange to continue to qualify for
those rebates. The Customer liquidity
that the Exchange attracts by offering
Customer rebates benefits all market
participants. The Exchange believes that
the amendments to the Customer Rebate
to Add Liquidity in Penny Pilot Options
are equitable and not unfairly
discriminatory because there is no
required minimum volume of Customer
orders to qualify for a Customer Rebate
to Add Liquidity. Tier 1 will pay a
rebate for NOM Participants that add
Customer liquidity from 1 contract to
34,999 contracts under the proposal. All
NOM Participants that transact
Customer orders in Penny Pilot Options
are eligible for the Customer rebates.
The Exchange believes that the
technical amendments to the Customer
Rebate to Add Liquidity in Penny Pilot
Options which assign a new letter to the
tiers to coordinate with the amended
rule are reasonable, equitable and not
unfairly discriminatory because they
clarify the Rule.
The Exchange operates in a highly
competitive market comprised of ten
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 and fees are competitive
and similar to other fees, rebates and
tier opportunities in place on other
exchanges. The Exchange believes that
this competitive marketplace materially
impacts rebates and fees present on the
Exchange today and substantially
influences the proposal set forth above.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASDAQ does not believe that the
proposed rule changes will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
To the contrary, NASDAQ has designed
its rebates and fees to compete
effectively for the execution and routing
of options contracts and to reduce the
overall cost to investors of options
trading. The Exchange believes that
E:\FR\FM\16OCN1.SGM
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63388
Federal Register / Vol. 77, No. 200 / Tuesday, October 16, 2012 / Notices
incentivizing NOM Participants to
transact greater Customer volume on the
Exchange benefits all market
participants because of the increased
liquidity to the market.
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.22 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:
tkelley on DSK3SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2012–114 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–2012–114. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml).
Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
rule change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2012–114 and should be
submitted on or before November 6,
2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–25357 Filed 10–15–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68024; File No. SR–NYSE–
2012–51]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Amending
Section 902.03 of the New York Stock
Exchange LLC Listed Company
Manual To Amend Annual Fees and
Certain Other Listing Fees Included
Therein and To Make Technical and
Conforming Changes
October 10, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on
September 28, 2012, New York Stock
Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
22 15
U.S.C. 78s(b)(3)(A)(ii).
VerDate Mar<15>2010
16:06 Oct 15, 2012
Jkt 229001
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Section 902.03 of its Listed Company
Manual to amend certain of the fees
included therein and to make technical
and conforming changes. The text of the
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Section 902.03 of its Listed Company
Manual to amend certain of the fees
included therein and to make technical
and conforming changes. The Exchange
proposes to immediately reflect the
proposed changes in the Listed
Company Manual, but not to implement
the proposed changes until January 1,
2013.3
The Exchange proposes to amend
Section 902.03 of the Listed Company
Manual, which currently provides, in
part, for minimum Listing Fees for
subsequent listing of additional equity
securities. The Exchange proposes to
increase the minimum Listing Fee from
$5,000 to $7,500. Section 902.03 also
currently provides, in part, for a fee for
applications for changes that involve
modifications to Exchange records (e.g.,
changes of name, par value, title of
security or designation) and for
applications relating to poison pills. The
3 The Exchange has proposed changes to the
Listed Company Manual, as reflected in the Exhibit
5 attached hereto, in a manner that would permit
readers of the Listed Company Manual to identify
the changes that would be implemented on January
1, 2013.
E:\FR\FM\16OCN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 200 (Tuesday, October 16, 2012)]
[Notices]
[Pages 63384-63388]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25357]
[[Page 63384]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68029; File No. SR-NASDAQ-2012-114]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Non-Penny Pilot and Penny Pilot Options
October 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 October 1, 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 Chapter XV, entitled
``Options Pricing,'' at Section 2 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 Non-Penny Pilot Options and
Penny Pilot \3\ Options pricing.
---------------------------------------------------------------------------
\3\ The Penny Pilot was established in March 2008 and in October
2009 was expanded and extended through December 31, 2012. 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); and 67325 (June 29,
2012), 77 FR 40127 (July 6, 2012) (SR-NASDAQ-2012-075) (notice of
filing and immediate effectiveness and extension and replacement of
Penny Pilot through December 31, 2012). See also NOM Rules, Chapter
VI, Section 5.
---------------------------------------------------------------------------
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 Chapter XV, entitled ``Options Pricing,''
at Section 2(1) governing the rebates and fees assessed for option
orders entered into NOM. The Exchange is proposing to amend the Non-
Penny Pilot pricing and the Penny Pilot Options pricing. This proposal
seeks to incentivize NOM Participants to send additional Customer order
flow to the Exchange in both Penny Pilot Options and Non-Penny Pilot
Options in order to obtain rebates.
The Exchange proposes to assess fees and pay rebates on options
overlying the Nasdaq 100 Index traded under the symbol NDX (``NDX'') as
a Non-Penny Pilot Option. Today, NDX has its own pricing separate and
apart from other Non-Penny Pilot pricing. The Exchange proposes to
eliminate the separate NDX pricing and instead assess fees and pay
rebates for NDX as a Non-Penny Pilot Option. In addition, the Exchange
proposes to assess a surcharge to all market participants, except
Customers, for transactions in NDX of $0.10 per contract. The surcharge
would be in addition to both the Fee for Adding Liquidity and the Fee
for Removing Liquidity in Non-Penny Pilot Options. Customers would not
be assessed a surcharge for transactions in NDX.
The Exchange also proposes to amend the Non-Penny Pilot Option
pricing (including NDX) to be equivalent to the rebates and fees
currently in place for options overlying Facebook, Inc. (``FB''),
Google Inc. (``GOOG'') and Groupon, Inc. (``GRPN''), except for the
proposed changes to the Customer Rebate to Add Liquidity, which the
Exchange is amending as described herein.\4\ The Exchange would also
eliminate the FB, GOOG and GRPN separate pricing as those symbols would
be subject to the Non-Penny Pilot Option pricing pursuant to this
proposal.
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\4\ The Exchange currently assesses FB, GOOG and GRPN the
following Fees for Adding Liquidity: Customers are not assessed a
fee, Professionals, Firms and Non-NOM Market Makers are assessed a
$0.45 per contract fee and NOM Market Makers are assessed a $0.25
per contract fee. The Fees for Removing Liquidity are as follows:
Customers and NOM Market Makers are assessed a $0.79 per contract
fee and Professionals, Firms and Non-NOM Market Makers are assessed
an $0.85 per contract fee. FB, GOOG and GRPN Customer transactions
receive a Rebate to Add Liquidity of $0.77 per contract. This rebate
is being amended by this proposal for the Non-Penny Pilot Options.
---------------------------------------------------------------------------
The Exchange proposes to amend the Non-Penny Pilot Option Pricing,
which will include NDX, FB, GOOG and GRPN, by increasing the
Professional Fee for Adding Liquidity from $0.30 to $0.45 per contract
and decreasing the NOM Market Maker Fee for Adding Liquidity from $0.30
to $0.25 per contract. Pursuant to this proposal, a Professional
transacting NDX would be assessed a decreased Fee for Adding Liquidity,
from $0.70 to $0.45 per contract,\5\ and a NOM Market Maker would be
assessed an increased or decreased fee depending on the market
participant that was on the contra-side of the order. For example,
today, if a NOM Market Maker transacts an order in NDX and the contra-
party is a Professional, Firm, NOM Market Maker or Non-NOM Market
Maker, the NOM Market Maker is paid a Rebate to Add Liquidity of $0.20
per contract or would be assessed a $0.65 per contract Fee to Add
Liquidity if the contra-party is a Customer. The Exchange proposes to
assess a NOM Market Maker a $0.25 per contract Fee for Adding Liquidity
in Non-Penny Pilot Options, regardless of the contra-party and proposes
to not pay a NOM Market Maker a Rebate to Add Liquidity.
---------------------------------------------------------------------------
\5\ Today a Professional is assessed a Fee to Add Liquidity of
$0.70 per contract in NDX.
---------------------------------------------------------------------------
Likewise, a Customer today receives a Rebate to Add Liquidity of
$0.20 per contra when the contra-party is a Professional, Firm, NOM
Market Maker or Non-NOM Market Maker, and is assessed a Fee to Add
Liquidity of $0.65 per contract when contra to another Customer. Under
this proposal, a Customer would be assessed no Fee for Adding Liquidity
in Non-Penny Pilot Options and would receive a Rebate to Add Liquidity
of $0.75 per contract or $0.77 per contract as described more fully
below.
[[Page 63385]]
The Exchange is proposing to increase the current Customer Rebate
to Add Liquidity in Non-Penny Pilot Options (including NDX) from $0.20
to $0.75 per contract, unless a market participant adds Customer
liquidity in either or both Penny or Non-Penny Pilot Options of 115,000
contracts per day in a month, in which case the rebate would be
increased to $0.77 per contract. The Exchange also proposes to permit
NOM Participants under 75 percent common ownership or control to
aggregate their Customer volume to obtain the higher rebate.\6\ The
Exchange is also proposing to eliminate the Customer Rebate to Remove
Liquidity in NDX along with other NDX pricing. The Exchange is not
proposing to offer a Rebate to Remove Liquidity in Non-Penny Pilot
Options.\7\
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\6\ As noted previously, the NDX pricing would be removed from
Section 2(1) of Chapter XV. Today, a Customer receives a Rebate to
Remove Liquidity of $0.40 per contract.
\7\ No other market participant, other than a Customer receives
a Customer Rebate to Remove Liquidity today.
---------------------------------------------------------------------------
The Exchange proposes to eliminate note 1 which relates to the NDX
Rebate to Add Liquidity and Fee to Add Liquidity, which pricing is
eliminated with this proposal. The Exchange also proposes to rename
note ``+'' as note 1. The Exchange also proposes to add a new note 2 to
describe the $0.10 per contract NDX surcharge described herein as well
as a new note 3 to reflect the Customer Rebates to Add Liquidity
applicable to Non-Penny Pilot Options described herein. The Exchange
also proposes to delete the pricing for options on the one-tenth value
of the Nasdaq 100 Index traded under the symbol MNX (``MNX''). This
option was delisted on September 13, 2012 from NOM. The Exchange is
proposing to eliminate the MNX pricing from Sec. 2, Chapter XV of the
NOM Rules because the pricing is no longer necessary.
The Exchange also proposes to amend the Non-Penny Pilot Option
(including NDX) Fee for Removing Liquidity by increasing those fees as
follows: a Customer that is today assessed $0.45 per contract would be
assessed an increased fee of $0.79 per contract; a Professional, Firm
and Non-NOM Market Maker that today is assessed a $0.50 per contract
fee would be assessed an increased fee of $0.85 per contract; and a NOM
Market Maker that today is assessed $0.50 per contract fee would be
assessed a $0.79 per contract fee. With respect to NDX, a Customer
transacting NDX today is not assessed a Fee for Removing Liquidity. The
Customer would now be assessed an increased Fee for Removing Liquidity
of $0.79 per contract in Non-Penny Pilot Options (including NDX). A
Professional, Firm or Non-NOM Market Maker that today pays $0.70 per
contract would pay an increased Fee for Removing Liquidity of $0.85 per
contract in Non-Penny Pilot Options (including NDX). Finally, a NOM
Market Maker that today pays a $0.70 Fee for Removing Liquidity in NDX
would pay a $0.79 per contract fee in Non-Penny Pilot Options
(including NDX).
The Exchange also proposes to amend its Penny Pilot Option Customer
Rebate to Add Liquidity. The Exchange proposes to amend Tier 1 which
currently pays a $0.26 per contract rebate to market participants that
add Customer liquidity of up to 14,999 contracts per day in a month.
The Exchange would continue to pay a $0.26 per contract rebate, but
would increase the level of contracts from 14,999 to 34,999 contracts
per day. The Exchange proposes to eliminate current Tier 2 which pays a
$0.38 per contract rebate for market participants that add Customer
liquidity of 15,000 to 49,999 contracts per day in month. The Exchange
proposes to renumber Tier 3 as Tier 2. Tier 3 today pays market
participants $0.43 per contract for market participants that add
Customer liquidity between 50,000 and 74,999 contracts per day in a
month. The Exchange would continue to pay $0.43 per contract for newly
named Tier 2 but would lower the level of contracts to between 35,000
to 74,999 contracts per day in a month. The Exchange proposes to
renumber Tier 4 as Tier 3, Tier 5 as Tier 4 and Tier 6 as Tier 5 and
not otherwise amend these tiers.\8\ The Exchange also proposes to
conform notes a, b and c to the new tiers by reassigning the proper
letters to coordinate to the same tiers as today.
---------------------------------------------------------------------------
\8\ Tier 4 today pays $0.44 per contract for market participants
that add Customer liquidity of 75,000 or more contract per day in a
month. Tier 5 today pays market participants $0.42 per contact if
they (1) add Customer liquidity of 25,000 or more contracts per day
in a month, (2) have certified for the Investor Support Program set
forth in Rule 7014; and (3) executed at least one order on NASDAQ's
equity market. Tier 6 today pays market participants $0.45 per
contract if they have total volume of 130,000 contracts per day in a
month. The Exchange is simply proposing to renumber these last three
tiers.
---------------------------------------------------------------------------
The Exchange also proposes to amend the Penny Pilot Option Fee for
Removing Liquidity which today provides that Professionals, Firms, Non-
NOM Market Makers and NOM Market Makers Penny Pilot Options Fees for
Removing Liquidity will be reduced by $0.01 per contract for
transactions in which the same NOM Participant is the buyer and seller.
The Exchange proposes to also permit NOM Participants under common
ownership to also receive the $0.01 per contract reduction if a NOM
Participant under common ownership is the buyer and seller. The
Exchange is not amending the Penny Pilot Option Fees for Removing
Liquidity otherwise.\9\
---------------------------------------------------------------------------
\9\ Today, the Exchange assesses the following Penny Pilot
Option Fees for Removing Liquidity: Customers pay $0.45 per contract
and Professionals, Firms, Non-NOM Market Makers and NOM Market
Makers pay a $0.47 per contract fee.
---------------------------------------------------------------------------
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 they provide 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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes that the proposed elimination of separate
fees and rebates for NDX and inclusion of NDX in the Non-Penny Pilot
Options is reasonable, equitable and not unfairly discriminatory
because the Exchange is proposing to amend the Non-Penny Pilot Options
fees and rebates to approximate those fees and rebates currently
subject to FB, GOOG and GRPN pricing. The Exchange believes that it is
reasonable to assess NDX the amended Non-Penny Pilot Option fees which
are substantially similar to the fees assessed today for FB, GOOG and
GRPN \12\ because NDX has the same minimum trading increments as other
Non-Penny Pilot Options. Additionally, the Exchange believes that it is
reasonable to pay Customers transacting options in NDX the amended Non-
Penny Pilot Options Rebate to Add Liquidity because the higher Customer
Rebate to Add Liquidity of $0.75 per contract with the possibility of
qualifying for a $0.77 per contract rebate approximates the rebates
currently offered for FB, GOOG and GRPN.\13\ The Exchange would also
not assess Customers a Fee for Adding Liquidity,
[[Page 63386]]
as is the case today with FB, GOOG and GRPN and would also not continue
to pay a Rebate to Remove Liquidity as that rebate would be eliminated.
The Exchange believes that it is reasonable to assess Non-Penny Pilot
Option fees and pay rebates similar to FB, GOOG and GRPN today, with
the amended Customer Rebate to Add Liquidity, and eliminate NDX, FB,
GRPN and GOOG pricing, as well as the delisted MNX pricing which is no
longer necessary from Section 2, Chapter XV.
---------------------------------------------------------------------------
\12\ The Exchange currently assesses FB, GOOG and GRPN the
following Fees for Adding Liquidity: Customers are not assessed a
fee, Professionals, Firm and Non-NOM Market Makers are assessed a
$0.45 per contract fee and NOM Market Makers are assessed a $0.25
per contract fee. The Fees for Removing Liquidity are as follows:
Customers and NOM Market Makers are assessed a $0.79 per contract
fee and Professionals, Firms and Non-NOM Market Makers are assessed
an $0.85 per contract fee. FB, GOOG and GRPN Customer transactions
receive a Rebate to Add Liquidity of $0.77 per contract. This rebate
is being amended by this proposal for the Non-Penny Pilot Options.
\13\ Today, FB, GOOG and GRPN pay a Customer Rebate to Add
Liquidity of $0.77 per contract.
---------------------------------------------------------------------------
The Exchange believes that it is equitable and not unfairly
discriminatory to assess/pay the Non-Penny Pilot Option pricing to the
various market participants as noted in this proposal and not assess/
pay separate pricing for NDX, FB, GRPN and GOOG. All market
participants transacting Non-Penny Pilot Options would be subject to
the fees and rebates noted herein. The Exchange would no longer pay a
Rebate to Remove Liquidity to any market participant under the
proposal. Customers would be subject to a $0.79 per contract Fee to
Remove Liquidity in Non-Penny Pilot Options as compared to no fee today
in NDX. Also, NOM Market Makers would be assessed a $0.25 per contract
Fee for Adding Liquidity regardless of the contra-party and would no
longer be entitled to a Rebate to Add Liquidity as is the case with NDX
today.\14\ Professionals would be subject to the same decreased $0.45
per contract Fee for Adding Liquidity as Firms and Non-NOM Market
Makers.\15\ Also, the elimination of the MNX pricing is equitable and
not unfairly discriminatory because no market participant is subject to
this pricing as of the date it was delisted. In summary, the Exchange
believes that assessing all Non-Penny Pilot Options securities the
amended Non-Penny Pilot Option pricing is reasonable, equitable and not
unfairly discriminatory for the reasons discussed hereafter which
describes the basis for the amendments to that pricing. These
amendments conform the pricing for all Non-Penny Pilot options symbols.
Also, the additional $0.10 per contact NDX surcharge that will be added
to the Fees for Adding and Removing Liquidity in Non-Penny Pilot
Options for transactions in NDX, except for Customers, is reasonable,
equitable and not unfairly discriminatory because the Exchange
currently pays a license fee \16\ to list NDX on NOM and is seeking to
recoup a portion of that fee.\17\
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\14\ Today, NOM Market Makers are assessed a $0.65 per contract
Fee to Add Liquidity when transacting an order in NFX [sic] contra a
Customer and are paid a Rebate to Add Liquidity of $0.20 per
contract when transacting an order in NDX contra a Professional,
Firm, Non-NOM Market Maker or NOM Market Maker.
\15\ Professionals currently are assessed a $0.70 per contract
Fee to Add Liquidity in NDX similar to Firms and Non-NOM Market
Makers.
\16\ NOM is assessed a license fee of $0.22 per contract to list
NDX.
\17\ Non-Penny Pilot Options, other than NDX, are not subject to
a license fee.
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The Exchange believes that increasing the Professional Fee for
Adding Liquidity and the Fees for Removing Liquidity in Non-Penny Pilot
Options is reasonable because the higher fees would enable the Exchange
to reward Customers that remove liquidity with higher Customer Rebates
to Add Liquidity in Non-Penny Pilot Options. 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. Additionally, the proposed fees and rebates
for Non-Penny Pilot Options are similar to fees and rebates currently
in place at the BATS Exchange, Inc. (``BATS'').\18\ The Exchange also
believes that decreasing the NOM Market Maker Fee for Removing [sic]
Liquidity in Non-Penny Pilot Options is reasonable because the Exchange
seeks to encourage NOM Market Makers to post liquidity on NOM.
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\18\ See BATS BZX Exchange Fee Schedule. BATS assesses a Non-
Penny Pilot Option Fee for Accessing Liquidity of $0.80 per contract
for a Professional, Firm or Market Maker order that removes
liquidity from the BATS Options order book and a $0.75 per contract
rebate for a Customer order that remove liquidity from the BATS
Options order book. Additionally, BATS pays a $0.70 per contract
rebate for a Professional, Firm or Market Maker order that adds
liquidity to the BATS Options order book and a $0.75 rebate per
contract for a Customer order that adds liquidity to the BATS
Options order book. Also, the Fees for Removing Liquidity for FB,
GOOG and GRPN as well as the Fees for Adding Liquidity are the same
as those proposed for Non-Penny Pilot Options.
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The Exchange believes that increasing the Professional Fee for
Adding Liquidity in Non-Penny Pilot Options is equitable and not
unfairly discriminatory because Professionals, Firms and Non-NOM Market
Makers will be assessed the same $0.45 per contract fee. The Exchange
also believes that not assessing a Customer a Fee for Adding Liquidity
in Non-Penny Pilot Options and assessing a NOM Market Maker a lower Fee
for Adding Liquidity of $0.25 per contract, as compared to
Professionals, Firms and Non-NOM Market Makers is equitable and not
unfairly discriminatory because Customers and NOM Market Makers differ
from other market participants. Customer order flow benefits all market
participants by improving liquidity, the quality of order interaction
and executions at the Exchange. Also, NOM Market Makers have
obligations to the market and regulatory requirements,\19\ which
normally do not apply to other market participants. A NOM Market Maker
has the obligation to make continuous markets, engage in course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and not make bids or offers or enter into
transactions that are inconsistent with course of dealings. The
proposed differentiation as between Customers and NOM Market Makers and
other market participants recognizes the differing contributions made
to the liquidity and trading environment on the Exchange by Customers
and NOM Market Makers, as well as the differing mix of orders entered.
The Exchange believes that increasing the Professional, Firm and Non-
NOM Market Maker Fees for Removing Liquidity in Non-Penny Pilot Options
to $0.85 per contract is equitable and not unfairly discriminatory
because Professionals, Firms and Non-NOM Market Makers will be assessed
the same fee. Customers and NOM Market Makers would be assessed a lower
Fee for Removing Liquidity in Non-Penny Pilot Options as compared to
Professionals, Firms and Non-NOM Market Makers because as mentioned
herein the fees recognize the differing contributions made to the
liquidity and trading environment on the Exchange by Customers and NOM
Market Makers, as well as the differing mix of orders entered.
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\19\ Pursuant to Chapter VII (Market Participants), Section 5
(Obligations of Market Makers), in registering as a market maker, an
Options Participant commits himself to various obligations.
Transactions of a Market Maker in its market making capacity must
constitute a course of dealings reasonably calculated to contribute
to the maintenance of a fair and orderly market, and Market Makers
should not make bids or offers or enter into transactions that are
inconsistent with such course of dealings. Further, all Market
Makers are designated as specialists on NOM for all purposes under
the Act or rules thereunder. See Chapter VII, Section 5.
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The Exchange also believes that overall the higher Fees for
Removing Liquidity are equitable and not unfairly discriminatory
because in the current U.S. options market, many of the contracts are
quoted in pennies. Under this pricing structure, the minimum penny tick
increment equates to a $1.00 economic value difference per contract,
given that a single standardized U.S. option contract covers 100 shares
of the underlying stock. Where contracts are quoted in $0.05 increments
(non-pennies), the value per tick is $5.00 in proceeds to the investor
transacting in these contracts. Liquidity rebate and
[[Page 63387]]
access fee structures on the make-take exchanges, including NOM, for
securities quoted in penny increments are commonly in the $0.30 to
$0.45 per contract range.\20\ A $0.30 per contract rebate in a penny
quoted security is a rebate equivalent to 30% of the value of the
minimum tick. A $0.45 per contract fee in a penny quoted security is a
charge equivalent to 45% of the value of that minimum tick. In other
words, in penny quoted securities, where the price is improved by one
tick with an access fee of $0.45 per contract, an investor paying to
access that quote is still $0.55 better off than trading at the wider
spread, even without the access fee ($1.00 of price improvement--$0.45
access fee = $0.55 better economics). This computation is equally true
for securities quoted in wider increments. Rebates and access fees near
the $0.85 per contract level equate to only 17% of the value of the
minimum tick in Non-Penny Pilot Options, less than the experience today
in Penny Pilot Options. For example, a retail investor transacting a
single contract in a non-penny quoted security quoted a single tick
tighter than the rest of the market, and paying an access fee of $0.79
per contract, is receiving an economic benefit of $4.21 ($0.05 improved
tick = $5.00 in proceeds - $0.79 access fee = $4.21). The Exchange
believes that encouraging NOM Market Makers to quote more aggressively
by reducing transaction fees \21\ and incentivizing Customer orders to
post on NOM will narrow the spread in Non-Penny Pilot Options to the
benefit of investors and all market participants by improving the
overall economics of the resulting transactions that occur on the
Exchange, even if the access fee paid in connection with such
transactions is higher. Accordingly, the Exchange believes that the
proposed fees and rebates for the Non-Penny Pilot Options are
reasonable, equitable and not unfairly discriminatory.
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\20\ NOM is proposing to only pay a Customer a Rebate to Add
Liquidity in Non-Penny Pilot Options. Other market participants
would not be entitled to a rebate.
\21\ The Exchange notes that the proposed $0.25 per contract NOM
Market Maker Fee for Adding in FB, GOOG and GRPN is significantly
less than transaction fees plus payment for order flow fees assessed
by other options exchanges. For example, on NASDAQ OMX PHLX LLC
(``Phlx''), the combined payment for order flow fee plus the
transaction fee is $0.92 per contract. See Phlx's Pricing Schedule.
Unlike Penny Pilot Options, the Exchange believes this significant
reduction in fees for adding liquidity will have the same effect as
a rebate in non-Penny Pilot Options in terms of a narrower spread.
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The Exchange believes that its proposal to offer a higher Customer
Rebate to Add Liquidity in Non-Penny Pilot Options (from $0.20 to $0.75
per contract) is reasonable, equitable and not unfairly discriminatory
because other market participants will benefit from the increased order
flow to the Exchange. The proposal to offer an even higher Customer
Rebate to Add Liquidity in Non-Penny Pilot Options ($0.77 per
contract), provided a market participant adds Customer liquidity of
115,000 contracts per day in a month in either or both a Penny Pilot or
Non-Penny Pilot Option, is reasonable, equitable and not unfairly
discriminatory because the benefits to the Exchange of increased
liquidity will benefit all market participants because market
participants will strive to post and remove liquidity on NOM to achieve
the higher rebate.
The Exchange believes that the proposed amendments to the notes
associated with the Penny and Non-Penny Pilot Options Pricing,
specifically renumbering note ``+'' as note 1, eliminating current note
1 and adding notes 3 and 4, are reasonable, equitable and not unfairly
discriminatory because the notes add more clarity to the rule.
The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to permit NOM Participants with 75 percent
common ownership to aggregate their volume for purposes of obtaining a
higher Customer Rebate to Add Liquidity in Non-Penny Pilot Options.
Certain NOM Participants chose to segregate their businesses into
different legal entities for purposes of conducting business. The
Exchange believes that these NOM Participants should be treated as one
entity for purposes of qualifying for the increased Customer Rebate to
Add Liquidity in Non-Penny Pilot Options as long as there is at least
75% common ownership or control among the NOM Participants. The
Exchange also believes that it is reasonable, equitable and not
unfairly discriminatory to provide that Professionals, Firms, Non-NOM
Market Makers, and NOM Market Makers Penny Pilot Option Fees will be
reduced by $0.01 per contract for transactions in which the same NOM
Participant or a NOM Participant under common ownership is the buyer
and the seller. For the reasons mentioned herein, the Exchange believes
that NOM Participants that chose to segregate their businesses into
different legal entities should still be afforded the opportunity to
receive the discount as if they were the same NOM Participant on both
sides of the transaction.
The Exchange's proposed amendments to the Customer Rebate to Add
Liquidity in Penny Pilot Options are reasonable because the Exchange is
attempting to incentivize market participants to send additional
Customer order flow to the Exchange. By increasing the Tier 1 to
encompass up to 34,999 contracts per day in a month and amending new
Tier 2 to between 35,000 and 74,999 contracts, the Exchange is
attempting to encourage market participants that are receiving rebates
by qualifying for Tiers 1 and 2 to send additional orders to the
Exchange to continue to qualify for those rebates. The Customer
liquidity that the Exchange attracts by offering Customer rebates
benefits all market participants. The Exchange believes that the
amendments to the Customer Rebate to Add Liquidity in Penny Pilot
Options are equitable and not unfairly discriminatory because there is
no required minimum volume of Customer orders to qualify for a Customer
Rebate to Add Liquidity. Tier 1 will pay a rebate for NOM Participants
that add Customer liquidity from 1 contract to 34,999 contracts under
the proposal. All NOM Participants that transact Customer orders in
Penny Pilot Options are eligible for the Customer rebates.
The Exchange believes that the technical amendments to the Customer
Rebate to Add Liquidity in Penny Pilot Options which assign a new
letter to the tiers to coordinate with the amended rule are reasonable,
equitable and not unfairly discriminatory because they clarify the
Rule.
The Exchange operates in a highly competitive market comprised of
ten 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 and fees are competitive and similar to other
fees, rebates and tier opportunities in place on other exchanges. The
Exchange believes that this competitive marketplace materially impacts
rebates and fees present on the Exchange today and substantially
influences the proposal set forth above.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule changes will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. To the contrary,
NASDAQ has designed its rebates and fees to compete effectively for the
execution and routing of options contracts and to reduce the overall
cost to investors of options trading. The Exchange believes that
[[Page 63388]]
incentivizing NOM Participants to transact greater Customer volume on
the Exchange benefits all market participants because of the increased
liquidity to the market.
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.\22\ 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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\22\ 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-2012-114 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-2012-114. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2012-114 and should
be submitted on or before November 6, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25357 Filed 10-15-12; 8:45 am]
BILLING CODE 8011-01-P
