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, 69685-69688 [2012-28176]
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Federal Register / Vol. 77, No. 224 / Tuesday, November 20, 2012 / Notices
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 20549–1090, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing will also be available for
inspection and copying at the NYSE’s
principal office and on its Internet Web
site at www.nyse.com. 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–
NYSEMKT–2012–60 and should be
submitted on or before December 11,
2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–28148 Filed 11–19–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68232; File No. SR–
NASDAQ–2012–127]
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
November 14, 2012.
wreier-aviles on DSK5TPTVN1PROD with
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that, on
November 1, 2012, The NASDAQ Stock
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
15:12 Nov 19, 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 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 Fees for Removing
Liquidity and the Customer Rebate to
Add Liquidity as well as the Penny Pilot
Options Customer Rebate to Add
Liquidity.
While the changes proposed herein
are effective upon filing, the Exchange
has designated that the amendments
related to fee increases will be operative
on November 2, 2012.3
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 and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASDAQ 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 increase certain Non-Penny Pilot
3 The amendments related to the Fees for
Removing Liquidity in Non-Penny Pilot Options
would be operative on November 2, 2012.
4 NOM Participants under common ownership
may aggregate their Customer volume to qualify for
1 15
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notice to solicit comments on the
proposed rule change from interested
persons.
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69685
Options Fees for Removing Liquidity in
order to offer increased Penny Pilot and
Non-Penny Pilot Options Customer
Rebates to Add Liquidity to attract
additional order flow to the Exchange to
the benefit of all market participants.
The Exchange proposes to amend the
Fees for Removing Liquidity in NonPenny Pilot Options. Today Customers
and NOM Market Makers are assessed a
$0.79 per contract Fee for Removing
Liquidity in Non-Penny Pilot Options
and Professionals, Firms and Non-NOM
Market Makers are assessed an $0.85 per
contract Fee for Removing Liquidity in
Non-Penny Pilot Options. The Exchange
proposes to increase the Customer and
NOM Market Maker Fees for Removing
Liquidity in Non-Penny Pilot Options
from $0.79 to $0.82 per contract and
also increase the Professional, Firm and
Non-NOM Market Maker Fees for
Removing Liquidity in Non-Penny Pilot
Options from $0.85 per to $0.89 per
contract. The Exchange proposes that
these amendments will become
operative on November 2, 2012.
The Exchange also proposes to amend
the Customer Rebate to Add Liquidity in
Non-Penny Pilot Options. Today, the
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options, including
NDX, is $0.75 per contract, unless a
market participant adds Customer
Liquidity in either or both Penny Pilot
or Non-Penny Pilot Options (including
NDX) of 115,000 contracts per day in a
month, then the Customer Rebate to
Add Liquidity in Non-Penny Pilot
Options is $0.77 per contract.4 The
Exchange proposes to increase the
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options, including
NDX, from $0.75 to $0.80 per contract
and also to increase the Customer
Rebate to Add Liquidity in Non-Penny
Pilot Options when a market participant
adds Customer Liquidity in either or
both Penny Pilot or Non-Penny Pilot
Options (including NDX) of 115,000
contracts per day in a month from $0.77
to $0.81 per contract. The Exchange
proposes that these amendments
become immediately effective.
The Exchange also proposes to amend
the Customer Rebate to Add Liquidity in
Penny Pilot Options. Today, the
Exchange pays Customer Rebates to Add
Liquidity on Penny Pilot Options as
follows:
the increased Customer rebate. Common ownership
is defined as 75 percent common ownership or
control.
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Federal Register / Vol. 77, No. 224 / Tuesday, November 20, 2012 / Notices
Rebate to add
liquidity
Monthly volume
Tier
Tier
Tier
Tier
1 ............
2 ............
3 ............
4 a .........
Tier 5 b,c .......
Participant adds Customer liquidity of up to 34,999 contracts per day in a month .................................................
Participant adds Customer liquidity of 35,000 to 74,999 contracts per day in a month ..........................................
Participant adds Customer liquidity of 75,000 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.
Participant has Total Volume of 130,000 or more contracts per day in a month ....................................................
$0.26
0.43
0.44
0.42
0.45
a 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 for 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.
b For purposes of Tier 5, ‘‘Total Volume’’ shall be defined as Customer, Professional, Firm, Non-NOM Market Maker and NOM Market Maker
volume in Penny Pilot Options and Non-Penny Pilot Options which either adds or removes liquidity.
c For purposes of Tier 5, the Exchange will allow NOM Participants under common ownership to aggregate their volume to qualify for the rebate. Common ownership is defined as 75 percent common ownership or control.
The Exchange proposes to amend the
Tier 5 rebate which pays a $0.45 per
contract Rebate to Add Liquidity to
NOM Options Participants that have
Total Volume of 130,000 or more
contracts per day in a month.5 Total
Volume is defined as Customer,
Professional, Firm, Non-NOM Market
Maker and NOM Market Maker volume
in Penny Pilot Options and Non-Penny
Pilot Options which either adds or
removes liquidity. The Exchange
proposes to amend the Tier 5 rebate
from $0.45 to $0.46 per contract.6 The
Exchange proposes that this amendment
become immediately effective.
2. Statutory Basis
wreier-aviles on DSK5TPTVN1PROD with
NASDAQ believes that the proposed
rule changes are consistent with the
provisions of Section 6 of the Act,7 in
general, and with Section 6(b)(4) of the
Act,8 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 increasing the
Fees for Removing Liquidity in NonPenny Pilot Options for all market
participants is reasonable because the
increased fees permit the Exchange to
offer increased Customer Rebates to Add
Liquidity in both Penny Pilot and NonPenny Pilot Options. Also, the proposed
Fees for Removing Liquidity are similar
to the non-Penny Pilot Options fees at
BATS Exchange, Inc. (‘‘BATS’’).9
5 For purposes of Tier 5, the Exchange allows
NOM Participants under common ownership to
aggregate their volume to qualify for the rebate.
Common ownership is defined as 75 percent
common ownership or control.
6 The Exchange is not proposing to otherwise
amend Tier 5 or any other Penny Pilot Options
Customer rebate tier.
7 15 U.S.C. 78f.
8 15 U.S.C. 78f(b)(4).
9 BATS is amending pricing effective November
1, 2012 to increase non-customer non-Penny pricing
from $0.80 to $0.84 per contract. See BATS alert
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The Exchange believes that increasing
the Professional, Firm and Non-NOM
Market Maker Fees for Removing
Liquidity from $0.85 to $0.89 per
contract is equitable and not unfairly
discriminatory because all market
participants would be assessed the same
Fees for Removing Liquidity in NonPenny Pilot Options, except Customers
and NOM Market Makers. The Exchange
believes that it is equitable and not
unfairly discriminatory to increase
Customer and NOM Market Maker NonPenny Pilot Fees for Removing Liquidity
from $0.79 to $0.82 per contract because
Customers and NOM Market Makers
each bring benefits to the market. The
Exchange believes that Customer order
flow brings unique benefits to the
market which benefits all market
participants through increased liquidity.
NOM Market Makers have obligations to
the market and regulatory
requirements,10 which normally do not
apply to other market participants. A
NOM Market Maker has the obligation
to make continuous markets, engage in
a 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 a course of dealings.
The proposed differentiation as between
Customers and NOM Market Makers
and other market participants
recognizes the differing contributions
titled ‘‘BATS Options Exchange Pricing Effective
November 1, 2012.’’
10 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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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 Customer Rebate to Add Liquidity in
Non-Penny Pilot Options, including
NDX, from $0.75 to $0.80 per contract
and also increasing the Customer Rebate
to Add Liquidity in Non-Penny Pilot
Options when a market participant adds
Customer Liquidity in either or both
Penny Pilot or Non-Penny Pilot Options
(including NDX) of 115,000 contracts
per day in a month from $0.77 to $0.81
per contract is reasonable because these
increased rebates would continue to
attract Customer order flow to the
Exchange in Non-Penny Pilot Options.
Today, NOM Options Participants have
the ability to earn a $0.75 per contract
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options and an
increased rebate of $0.77 when a market
participant adds Customer Liquidity in
either or both Penny Pilot or Non-Penny
Pilot Options (including NDX) of
115,000 contracts per day in a month.
By increasing both the Customer Rebate
to Add Liquidity to $0.80 per contract
and the Customer Rebate for market
participants that add Customer in either
or both Penny Pilot or Non-Penny Pilot
Options (including NDX) of 115,000
contracts per day in a month to $0.81
per contract should encourage market
participants to send additional order
flow to NOM to obtain an even greater
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options.
The Exchange believes that increasing
the Customer Rebate to Add Liquidity in
Non-Penny Pilot Options, including
NDX, from $0.75 to $0.80 per contract
and also increasing the Customer Rebate
to Add Liquidity in Non-Penny Pilot
Options when a market participant adds
Customer Liquidity in either or both
Penny Pilot or Non-Penny Pilot Options
(including NDX) of 115,000 contracts
E:\FR\FM\20NON1.SGM
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wreier-aviles on DSK5TPTVN1PROD with
Federal Register / Vol. 77, No. 224 / Tuesday, November 20, 2012 / Notices
per day in a month from $0.77 to $0.81
per contract is equitable and not
unfairly discriminatory because
Customer order flow brings unique
benefits to the market which benefits all
market participants. 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. These increased rebates are
available to all NOM Options
Participants acting as agent for
Customer orders and in the case of the
enhanced rebate of $0.81 per contract,
all NOM Options Participants that send
115,000 contracts per day in a month in
either or both Penny Pilot or Non-Penny
Pilot Options would be entitled to
receive the enhanced rebate.
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 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.11 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 $0.89 per contract level
equate to only 17.8% 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 $0.82 per contract, is receiving an
11 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.
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economic benefit of $4.18 ($0.05
improved tick = $5.00 in proceeds ¥
$0.82 access fee = $4.18). The Exchange
believes that encouraging NOM Market
Makers to quote more aggressively by
maintaining reducing transaction fees 12
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 Non-Penny Pilot Options are
reasonable, equitable and not unfairly
discriminatory.
The Exchange believes that the
proposed increase to the Tier 5
Customer Rebate to Add Liquidity in
Penny Pilot Options is reasonable
because the increased rebate would
encourage broker-dealers acting as agent
for Customer orders to select the
Exchange as a venue to post Customer
orders. The Exchange believes the
existing monthly volume thresholds
have incentivized firms to increase
Customer order flow to the Exchange.
The Exchange desires to continue to
encourage firms to route Customer
orders to the Exchange by offering an
increased Customer rebate.
The Exchange believes that the
proposed increase to the Tier 5
Customer Rebate to Add Liquidity in
Penny Pilot Options is equitable and not
unfairly discriminatory because the
Exchange is proposing to offer an even
higher Tier 5 Customer rebate in Penny
Pilot Options of $0.46 per contract to
NOM Participants which will be based
on Total Volume. NOM Participants
may total all Penny Pilot Option and
Non-Penny Pilot Option volume that
either adds or removes liquidity to reach
the 130,000 volume requirement and
qualify to obtain this rebate. All NOM
Participants that transact Customer
orders in Penny Pilot Options are
eligible for the Customer rebates.13
12 The Exchange notes that the proposed $0.25
per contract NOM Market Maker Fee for Adding in
Non-Penny Pilot Options 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.
13 Tier 1 pays a rebate for NOM Participants that
add Customer liquidity of up to 14,999 contracts
per day in a month of Penny Pilot Options. There
is no required minimum volume of Customer orders
to qualify for a Customer Rebate to Add Liquidity.
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69687
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
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.14 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.
14 15
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U.S.C. 78s(b)(3)(A)(ii).
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Federal Register / Vol. 77, No. 224 / Tuesday, November 20, 2012 / Notices
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 rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2012–127 on the
subject line.
Paper Comments
wreier-aviles on DSK5TPTVN1PROD with
• 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–2012–127. 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–2012–127 and should be
submitted on or before December 11,
2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–28176 Filed 11–19–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68229; File No. SR–NYSE–
2012–60]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Change the
Monthly Fees for the Use of Ports
November 14, 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
November 1, 2012, New York Stock
Exchange LLC (the ‘‘Exchange’’ or
‘‘NYSE’’) 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 the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Price List to change the monthly fees for
the use of ports. 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.
1 15
15 17
CFR 200.30–3(a)(12).
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00099
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
Price List to change the monthly fees for
the use of ports that provide
connectivity to the Exchange’s trading
systems (i.e., ports for entry of orders
and/or quotes (‘‘order/quote entry
ports’’)) and to implement a fee for ports
that allow for the receipt of ‘‘drop
copies’’ of order or transaction
information (‘‘drop copy ports’’ and,
together with order/quote entry ports,
‘‘ports’’).3 The Exchange proposes to
implement the fee changes on
November 1, 2012.
Order/Quote Entry Ports
The Exchange currently makes order/
quote entry ports available for
connectivity to its trading systems and
charges $300 per port pair per month for
up to five pairs of ports, then $1,500 per
month for each additional five pairs of
ports.4
The Exchange proposes to change the
current methodology for order/quote
entry port billing, such that order/quote
entry ports would be charged on a per
port basis, without billing in groups of
five and without requiring that ports be
in pairs.5 More specifically, the
Exchange proposes to charge $200 per
port per month for order/quote entry
ports, which are currently charged $300
per pair per month for activity on
3 Firms receive confirmations of their orders and
receive execution reports via the order/quote entry
port that is used to enter the order or quote. A ‘‘drop
copy’’ contains redundant information that a firm
chooses to have ‘‘dropped’’ to another destination
(e.g., to allow the firm’s back office and/or
compliance department, or another firm—typically
the firm’s clearing broker—to have immediate
access to the information). Such drop copies can
only be sent via a drop copy port. Drop copy ports
cannot be used to enter orders and/or quotes.
4 See Securities Exchange Act Release No. 63057
(October 6, 2010), 75 FR 63232 (October 14, 2010)
(SR–NYSE–2010–70) (the port fee ‘‘Adopting
Release’’). See also Securities Exchange Act Release
No. 66107 (January 5, 2012), 77 FR 1759 (January
11, 2012) (SR–NYSE–2011–72) (the port fee
‘‘Amending Release’’). For example, the current fee
for six pairs of ports would be $3,000 total per
month (i.e., $1,500 total for the first five pairs and
$1,500 for the sixth pair). The fee would remain
$3,000 for pairs seven through 10. The fee would
increase by $1,500, to $4,500 total, for pairs 11
through 15.
5 The Exchange stated in the Adopting Release
that the port fee is charged per participant. The
Exchange later clarified that ‘‘per participant’’
means per member organization for purposes of the
port fees. See Amending Release, at 1760. The
proposed fee change would change the current
methodology such that ports would not be charged
on a per member organization basis. Accordingly,
reference to per member organization would be
removed from the Price List related to port fees.
E:\FR\FM\20NON1.SGM
20NON1
]]>Agencies
[Federal Register Volume 77, Number 224 (Tuesday, November 20, 2012)]
[Notices]
[Pages 69685-69688]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28176]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68232; File No. SR-NASDAQ-2012-127]
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
November 14, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that, on November 1, 2012, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The 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 Fees
for Removing Liquidity and the Customer Rebate to Add Liquidity as well
as the Penny Pilot Options Customer Rebate to Add Liquidity.
While the changes proposed herein are effective upon filing, the
Exchange has designated that the amendments related to fee increases
will be operative on November 2, 2012.\3\
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\3\ The amendments related to the Fees for Removing Liquidity in
Non-Penny Pilot Options would be operative on November 2, 2012.
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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 and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ 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 increase certain
Non-Penny Pilot Options Fees for Removing Liquidity in order to offer
increased Penny Pilot and Non-Penny Pilot Options Customer Rebates to
Add Liquidity to attract additional order flow to the Exchange to the
benefit of all market participants.
The Exchange proposes to amend the Fees for Removing Liquidity in
Non-Penny Pilot Options. Today Customers and NOM Market Makers are
assessed a $0.79 per contract Fee for Removing Liquidity in Non-Penny
Pilot Options and Professionals, Firms and Non-NOM Market Makers are
assessed an $0.85 per contract Fee for Removing Liquidity in Non-Penny
Pilot Options. The Exchange proposes to increase the Customer and NOM
Market Maker Fees for Removing Liquidity in Non-Penny Pilot Options
from $0.79 to $0.82 per contract and also increase the Professional,
Firm and Non-NOM Market Maker Fees for Removing Liquidity in Non-Penny
Pilot Options from $0.85 per to $0.89 per contract. The Exchange
proposes that these amendments will become operative on November 2,
2012.
The Exchange also proposes to amend the Customer Rebate to Add
Liquidity in Non-Penny Pilot Options. Today, the Customer Rebate to Add
Liquidity in Non-Penny Pilot Options, including NDX, is $0.75 per
contract, unless a market participant adds Customer Liquidity in either
or both Penny Pilot or Non-Penny Pilot Options (including NDX) of
115,000 contracts per day in a month, then the Customer Rebate to Add
Liquidity in Non-Penny Pilot Options is $0.77 per contract.\4\ The
Exchange proposes to increase the Customer Rebate to Add Liquidity in
Non-Penny Pilot Options, including NDX, from $0.75 to $0.80 per
contract and also to increase the Customer Rebate to Add Liquidity in
Non-Penny Pilot Options when a market participant adds Customer
Liquidity in either or both Penny Pilot or Non-Penny Pilot Options
(including NDX) of 115,000 contracts per day in a month from $0.77 to
$0.81 per contract. The Exchange proposes that these amendments become
immediately effective.
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\4\ NOM Participants under common ownership may aggregate their
Customer volume to qualify for the increased Customer rebate. Common
ownership is defined as 75 percent common ownership or control.
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The Exchange also proposes to amend the Customer Rebate to Add
Liquidity in Penny Pilot Options. Today, the Exchange pays Customer
Rebates to Add Liquidity on Penny Pilot Options as follows:
[[Page 69686]]
------------------------------------------------------------------------
Rebate to add
Monthly volume liquidity
------------------------------------------------------------------------
Tier 1................... Participant adds Customer $0.26
liquidity of up to 34,999
contracts per day in a month.
Tier 2................... Participant adds Customer 0.43
liquidity of 35,000 to
74,999 contracts per day in
a month.
Tier 3................... Participant adds Customer 0.44
liquidity of 75,000 or more
contracts per day in a month.
Tier 4 \a\............... Participant adds (1) Customer 0.42
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.
Tier 5 \b,c\............. Participant has Total Volume 0.45
of 130,000 or more contracts
per day in a month.
------------------------------------------------------------------------
\a\ 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 for 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.
\b\ For purposes of Tier 5, ``Total Volume'' shall be defined as
Customer, Professional, Firm, Non-NOM Market Maker and NOM Market
Maker volume in Penny Pilot Options and Non-Penny Pilot Options which
either adds or removes liquidity.
\c\ For purposes of Tier 5, the Exchange will allow NOM Participants
under common ownership to aggregate their volume to qualify for the
rebate. Common ownership is defined as 75 percent common ownership or
control.
The Exchange proposes to amend the Tier 5 rebate which pays a $0.45
per contract Rebate to Add Liquidity to NOM Options Participants that
have Total Volume of 130,000 or more contracts per day in a month.\5\
Total Volume is defined as Customer, Professional, Firm, Non-NOM Market
Maker and NOM Market Maker volume in Penny Pilot Options and Non-Penny
Pilot Options which either adds or removes liquidity. The Exchange
proposes to amend the Tier 5 rebate from $0.45 to $0.46 per
contract.\6\ The Exchange proposes that this amendment become
immediately effective.
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\5\ For purposes of Tier 5, the Exchange allows NOM Participants
under common ownership to aggregate their volume to qualify for the
rebate. Common ownership is defined as 75 percent common ownership
or control.
\6\ The Exchange is not proposing to otherwise amend Tier 5 or
any other Penny Pilot Options Customer rebate tier.
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2. Statutory Basis
NASDAQ believes that the proposed rule changes are consistent with
the provisions of Section 6 of the Act,\7\ in general, and with Section
6(b)(4) of the Act,\8\ 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.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
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The Exchange believes increasing the Fees for Removing Liquidity in
Non-Penny Pilot Options for all market participants is reasonable
because the increased fees permit the Exchange to offer increased
Customer Rebates to Add Liquidity in both Penny Pilot and Non-Penny
Pilot Options. Also, the proposed Fees for Removing Liquidity are
similar to the non-Penny Pilot Options fees at BATS Exchange, Inc.
(``BATS'').\9\
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\9\ BATS is amending pricing effective November 1, 2012 to
increase non-customer non-Penny pricing from $0.80 to $0.84 per
contract. See BATS alert titled ``BATS Options Exchange Pricing
Effective November 1, 2012.''
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The Exchange believes that increasing the Professional, Firm and
Non-NOM Market Maker Fees for Removing Liquidity from $0.85 to $0.89
per contract is equitable and not unfairly discriminatory because all
market participants would be assessed the same Fees for Removing
Liquidity in Non-Penny Pilot Options, except Customers and NOM Market
Makers. The Exchange believes that it is equitable and not unfairly
discriminatory to increase Customer and NOM Market Maker Non-Penny
Pilot Fees for Removing Liquidity from $0.79 to $0.82 per contract
because Customers and NOM Market Makers each bring benefits to the
market. The Exchange believes that Customer order flow brings unique
benefits to the market which benefits all market participants through
increased liquidity. NOM Market Makers have obligations to the market
and regulatory requirements,\10\ which normally do not apply to other
market participants. A NOM Market Maker has the obligation to make
continuous markets, engage in a 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 a 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.
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\10\ 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 believes that increasing the Customer Rebate to Add
Liquidity in Non-Penny Pilot Options, including NDX, from $0.75 to
$0.80 per contract and also increasing the Customer Rebate to Add
Liquidity in Non-Penny Pilot Options when a market participant adds
Customer Liquidity in either or both Penny Pilot or Non-Penny Pilot
Options (including NDX) of 115,000 contracts per day in a month from
$0.77 to $0.81 per contract is reasonable because these increased
rebates would continue to attract Customer order flow to the Exchange
in Non-Penny Pilot Options. Today, NOM Options Participants have the
ability to earn a $0.75 per contract Customer Rebate to Add Liquidity
in Non-Penny Pilot Options and an increased rebate of $0.77 when a
market participant adds Customer Liquidity in either or both Penny
Pilot or Non-Penny Pilot Options (including NDX) of 115,000 contracts
per day in a month. By increasing both the Customer Rebate to Add
Liquidity to $0.80 per contract and the Customer Rebate for market
participants that add Customer in either or both Penny Pilot or Non-
Penny Pilot Options (including NDX) of 115,000 contracts per day in a
month to $0.81 per contract should encourage market participants to
send additional order flow to NOM to obtain an even greater Customer
Rebate to Add Liquidity in Non-Penny Pilot Options.
The Exchange believes that increasing the Customer Rebate to Add
Liquidity in Non-Penny Pilot Options, including NDX, from $0.75 to
$0.80 per contract and also increasing the Customer Rebate to Add
Liquidity in Non-Penny Pilot Options when a market participant adds
Customer Liquidity in either or both Penny Pilot or Non-Penny Pilot
Options (including NDX) of 115,000 contracts
[[Page 69687]]
per day in a month from $0.77 to $0.81 per contract is equitable and
not unfairly discriminatory because Customer order flow brings unique
benefits to the market which benefits all market participants. 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. These increased rebates are
available to all NOM Options Participants acting as agent for Customer
orders and in the case of the enhanced rebate of $0.81 per contract,
all NOM Options Participants that send 115,000 contracts per day in a
month in either or both Penny Pilot or Non-Penny Pilot Options would be
entitled to receive the enhanced rebate.
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 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.\11\ 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
$0.89 per contract level equate to only 17.8% 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 $0.82
per contract, is receiving an economic benefit of $4.18 ($0.05 improved
tick = $5.00 in proceeds - $0.82 access fee = $4.18). The Exchange
believes that encouraging NOM Market Makers to quote more aggressively
by maintaining reducing transaction fees \12\ 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 Non-Penny Pilot Options are
reasonable, equitable and not unfairly discriminatory.
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\11\ 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.
\12\ The Exchange notes that the proposed $0.25 per contract NOM
Market Maker Fee for Adding in Non-Penny Pilot Options 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.
---------------------------------------------------------------------------
The Exchange believes that the proposed increase to the Tier 5
Customer Rebate to Add Liquidity in Penny Pilot Options is reasonable
because the increased rebate would encourage broker-dealers acting as
agent for Customer orders to select the Exchange as a venue to post
Customer orders. The Exchange believes the existing monthly volume
thresholds have incentivized firms to increase Customer order flow to
the Exchange. The Exchange desires to continue to encourage firms to
route Customer orders to the Exchange by offering an increased Customer
rebate.
The Exchange believes that the proposed increase to the Tier 5
Customer Rebate to Add Liquidity in Penny Pilot Options is equitable
and not unfairly discriminatory because the Exchange is proposing to
offer an even higher Tier 5 Customer rebate in Penny Pilot Options of
$0.46 per contract to NOM Participants which will be based on Total
Volume. NOM Participants may total all Penny Pilot Option and Non-Penny
Pilot Option volume that either adds or removes liquidity to reach the
130,000 volume requirement and qualify to obtain this rebate. All NOM
Participants that transact Customer orders in Penny Pilot Options are
eligible for the Customer rebates.\13\
---------------------------------------------------------------------------
\13\ Tier 1 pays a rebate for NOM Participants that add Customer
liquidity of up to 14,999 contracts per day in a month of Penny
Pilot Options. There is no required minimum volume of Customer
orders to qualify for a Customer Rebate to Add Liquidity.
---------------------------------------------------------------------------
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
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.\14\ 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.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
[[Page 69688]]
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-2012-127 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-2012-127. 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-2012-127 and should
be submitted on or before December 11, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
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\15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-28176 Filed 11-19-12; 8:45 am]
BILLING CODE 8011-01-P
