Self-Regulatory Organizations; The NASDAQ Stock Market LLC Notice; of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Penny Pilot Options, 3060-3064 [2013-00634]

Download as PDF 3060 Federal Register / Vol. 78, No. 10 / Tuesday, January 15, 2013 / Notices basis to ensure that it remains reasonable, equitable and not unfairly discriminatory among all ETP Holders. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Order Delivery Notification Fee is a mechanism under which the Exchange can recoup the costs associated with Order Delivery Mode. Order Delivery Participants are eligible to submit (or not submit) liquidity adding quotes, and may do so at their discretion in the daily volumes they choose during any given trading day. The Order Delivery Notification Fee is designed solely to allow the Exchange to recover the costs associated with operating Order Delivery Mode and applies to all Order Delivery participants. Therefore, the Exchange does not believe the modified Order Delivery Notification Fee imposes any burden on completion that is not necessary or appropriate in furtherance of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change has taken effect upon filing pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act 13 and subparagraph (f)(2) of Rule 19b–4.14 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. srobinson on DSK4SPTVN1PROD with 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: 13 15 14 17 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4. VerDate Mar<15>2010 17:00 Jan 14, 2013 Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NSX–2012–27 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–NSX–2012–27. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices 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–NSX– 2012–27, and should be submitted on or before February 5, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–00663 Filed 1–14–13; 8:45 am] BILLING CODE 8011–01–P 15 17 Jkt 229001 PO 00000 CFR 200.30–3(a)(12). Frm 00122 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68613; File No. SR– NASDAQ–2012–141] Self-Regulatory Organizations; The NASDAQ Stock Market LLC Notice; of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Penny Pilot Options January 9, 2013. 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 December 31, 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 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 NASDAQ proposes to modify Chapter XV, Section 2 of the rules governing the NASDAQ Options Market (‘‘NOM’’), NASDAQ’s facility for executing and routing standardized equity and index options. Specifically, NOM proposes to amend its pricing to modify the Professional Rebate to Add Liquidity in Penny Pilot Options.3 While the changes proposed herein are effective upon filing, the Exchange 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Penny Pilot was established in March 2008, expanded in October 2009, and, through a series of orders, 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. 2 17 E:\FR\FM\15JAN1.SGM 15JAN1 Federal Register / Vol. 78, No. 10 / Tuesday, January 15, 2013 / Notices has designated that the amendments be operative on January 2, 2013. The text of the proposed rule change is available on the Exchange’s Web site at http:// www.nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change. 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 the 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 Professional Rebate to Add Liquidity in Penny Pilot Options to attract additional order flow to the Exchange. The Exchange currently pays a flat Professional Rebate to Add Liquidity in Penny Pilot Options of $0.29 per contract. The Exchange is now proposing to pay Professionals, a tiered rebate instead. Specifically, the Exchange proposes to eliminate the flat $0.29 per contract Professional Rebate to Add Liquidity and instead pay Professionals rebates based on total number of Customer and Professional contracts that add liquidity in Penny Pilot Options in a given month as follows: srobinson on DSK4SPTVN1PROD with Monthly volume Tier 1—Participant adds Customer and Professional liquidity of up to 34,999 contracts per day in a month ................................ Tier 2—Participant adds Customer and Professional liquidity of 35,000 to 74,999 contracts per day in a month ......................... VerDate Mar<15>2010 17:00 Jan 14, 2013 Rebate to add liquidity $0.26 0.43 Jkt 229001 3061 more contracts per day in a month.6 Total Volume is defined to include Customer, Professional, Firm, Non-NOM Tier 3—Participant adds Market Maker and NOM Market Maker Customer and Professional volume in Penny Pilot Options and liquidity of 75,000 or more Non-Penny Pilot Options which either contracts per day in a 7 month ................................ 0.44 adds or removes liquidity. The Exchange proposes to apply the Tier 4—Participant adds (1) Rebate to Add Liquidity tiers to Customer and Professional Professionals transacting Penny Pilot liquidity of 25,000 or more contracts per day in a Options. The Exchange proposes to month, (2) the Participant amend Chapter XV, Section 2 by noting has certified for the Investhat the tiers would apply to tor Support Program set Professionals. forth in Rule 7014; and (3) Additionally, the Exchange also the Participant executed at proposes to add contracts executed in least one order on NASDAQ’s equity market 0.42 the ‘‘Professional’’ capacity to the tier requirements. NOM Participants would Tier 5—Participant has Total be able to count Customer and Volume of 130,000 or Professional contracts toward the more contracts per day in a month ............................. 0.46 number of contracts eligible to qualify for a tier as specified herein. The Professionals would be entitled to the addition of Professional orders to the same Rebate to Add Liquidity in Penny number of contracts eligible for each Pilot Options that Customers receive rebate tier will enable NOM Participants today. The Exchange would pay a Tier to achieve higher rebates. 1 rebate of $0.26 per contract to market 2. Statutory Basis participants that add Customer and NASDAQ believes that the proposed Professional liquidity of up to 34,999 rule changes are consistent with the contracts per day in a month. A Tier 2 provisions of Section 6 of the Act,8 in rebate would pay $0.43 per contract to general, and with Section 6(b)(4) of the market participants that add Customer Act,9 in particular, in that it provides for and Professional liquidity between the equitable allocation of reasonable 35,000 and 74,999 contracts per day in dues, fees and other charges among a month. A Tier 3 rebate would pay a members and issuers and other persons $0.44 per contract rebate to market using any facility or system which participants that add Customer and NASDAQ operates or controls. Professional liquidity of 75,000 The Exchange believes that the contracts or more per day in a month. proposed tier structure for Professional The Tier 4 rebate would pay a $0.42 Rebates to Add Liquidity in Penny Pilot rebate to market participants that add Options is reasonable, equitable and not Customer and Professional liquidity of unfairly discriminatory because by 25,000 or more contracts per day in a month. In addition, to qualify for Tier 4, incentivizing NOM Participants to select the Exchange as a venue to post the Participant must have certified for the Investor Support Program (‘‘ISP’’) as Customer and Professional orders, the set forth in Rule 7014; 4 and executed at Exchange will attract additional Professional order flow to the benefit of least one order on NASDAQ’s equity all market participants. market.5 The Tier 5 rebate would pay a The Exchange believes that the $0.46 per contract Rebate to Add proposed monthly volume tier Rebates Liquidity to NOM Options Participants to Add Liquidity in Penny Pilot Options that have Total Volume of 130,000 or are equitable and not unfairly 4 For a detailed description of the ISP, see discriminatory because members that Securities Exchange Act Release No. 63270 account for more volume would be able (November 8, 2010), 75 FR 69489 (November 12, to add greater value to the Exchange’s 2010) (NASDAQ–2010–141) (notice of filing and trading environment. Additionally, with immediate effectiveness). See also Securities the exception of Tier 1, Professionals Exchange Act Release Nos. 63414 (December 2, 2010), 75 FR 76505 (December 8, 2010) (NASDAQ– will have an opportunity to earn higher 2010–153) (notice of filing and immediate rebates than they earned in the past. Monthly volume Rebate to add liquidity effectiveness); and 63628 (January 3, 2011), 76 FR 1201 (January 7, 2011) (NASDAQ–2010–154) (notice of filing and immediate effectiveness). 5 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. PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 6 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. 7 See the Exchange’s Rules at Chapter XV, Section 2. 8 15 U.S.C. 78f. 9 15 U.S.C. 78f(b)(4). E:\FR\FM\15JAN1.SGM 15JAN1 3062 Federal Register / Vol. 78, No. 10 / Tuesday, January 15, 2013 / Notices srobinson on DSK4SPTVN1PROD with With respect to Tier 1, the Exchange is proposing to pay a $0.26 per contract Rebate to Add Liquidity in Penny Pilot Options as compared to a $0.29 per contract rebate. The Exchange believes that this proposal is equitable and not unfairly discriminatory because the Professional has an opportunity to earn higher rebates with the tier structure as compared the current $0.29 per contract Rebate to Add Liquidity in Penny Pilot Options. In addition, the Exchange believes that the proposed monthly tier structure for Professional Rebates to Add Liquidity in Penny Pilot Options is equitable and not unfairly discriminatory because the Exchange would uniformly pay a Rebate to Add Liquidity to Professionals executing Penny Pilot Options based on the monthly tiers proposed herein. The Exchange believes that paying Professionals a tiered Rebate to Add Liquidity in Penny Pilot Options as proposed herein is equitable and not unfairly discriminatory as compared to other market participants. For example, Customers are entitled to the same rebates. NOM Market Makers are entitled to a $0.30 per contract Rebate to Add Liquidity in Penny Pilot Options, and that rebate is higher than Professionals that achieve a Tier 1 rebate because NOM Market Makers add value through continuous quoting 10 and the commitment of capital. With respect to Tiers 2, 3 and 4, pursuant to this proposal, a Professional earns a higher rebate as compared to a NOM Market Maker. In addition, a Professional would earn a higher rebate with any tier as compared to a Firm and Non-NOM Market Maker. Today, Professionals are paid a higher Rebate to Add Liquidity in Penny Pilot Options as compared to Firms and Non-NOM Market Makers however the differential would become larger. The Exchange believes that paying Professionals higher Tier 2, 3 and 4 rebates as compared to NOM Market Makers and paying Professionals higher rebates as compared to Firms and Non-NOM Market Makers is equitable and not unfairly discriminatory because the Exchange does not believe that the amount of the rebate offered by the 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. VerDate Mar<15>2010 17:00 Jan 14, 2013 Jkt 229001 Exchange has a material impact on a NOM Participant’s ability to execute orders in Penny Pilot Options. The Exchange has been assessing the impact of rebates since it first began to offer them and has also observed the impact of fees and rebates on other options exchanges in terms of quoting and liquidity. The Exchange believes that the Fees for Adding Liquidity in Penny Pilot Options, as compared to rebates, impact a market participant’s decisionmaking more prominently with respect to posting order flow on different venues and price. In modifying its rebates, the Exchange hopes to simply remain competitive with other venues so that it remains a choice for market participants when posting orders and the result may be additional Professional order flow for the Exchange. In addition, a NOM Participant may not be able to gauge the exact rebate tier it would qualify for until the end of the month because Professional volume would be commingled with Customer volume in calculating tier volume. Other participants have a known rebate rate at which they would execute the entire month. A Professional could only otherwise presume the Tier 1 rebate would be achieved in a month when determining price. The Exchange initially established Professional pricing in order to ‘‘* * * bring additional revenue to the Exchange.’’ 11 The Exchange noted in the Professional Filing that it believes ‘‘* * * that the increased revenue from the proposal would assist the Exchange to recoup fixed costs.’’ 12 Further, the Exchange noted in that filing that it believes that establishing separate pricing for a Professional, which ranges between that of a Customer and market maker, accomplishes this objective.13 Herein, the Exchange is not proposing to amend fees, which fees continue to meet the objectives noted in the Professional 11 See Securities Exchange Act Release No. 64494 (May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– NASDAQ–2011–066) (‘‘Professional Filing’’). In this filing, the Exchange addressed the perceived favorable pricing of Professionals who were assessed fees and paid rebates like a Customer prior to the filing. The Exchange noted in that filing that a Professional, unlike a retail Customer, has access to sophisticated trading systems that contain functionality not available to retail Customers. 12 See Securities Exchange Act Release No. 64494 (May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– NASDAQ–2011–066). 13 See Securities Exchange Act Release No. 64494 (May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– NASDAQ–2011–066) The Exchange also in the Professional Filing that it believes the role of the retail Customer in the marketplace is distinct from that of the Professional and the Exchange’s fee proposal at that time accounted for this distinction by pricing each market participant according to their roles and obligations. PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 Filing. Rather, the Exchange desires to amend the rebates it pays because it believes that NOM Participants would view NOM as a favorable venue to transact Professional volume. The Exchange does not believe that providing Professionals with the opportunity to obtain higher rebates would create a competitive environment where Professionals would be necessarily advantaged on NOM as compared to other NOM Market Makers, Firms or Non-NOM Market Makers. First, a Professional would be assessed the same fees as these other market participants, as is the case today. Second, a Professional only has the opportunity to achieve the higher rebate by sending in more than 35,000 contracts, otherwise the Professional only achieves a Tier 1 rebate with at least one trade and the differential in that scenario as between market participants remain the same.14 The Exchange recognizes that the rebate tiers provide an incentive to Professionals, but it is not a guaranteed rebate. Additionally, the Exchange believes the proposed tiered Rebates to Add Liquidity in Penny Pilot Options are reasonable, equitable and not unfairly discriminatory because the rebates are similar to a tiered rebate offered by NYSE Arca, Inc. (‘‘NYSE Arca’’). NYSE Arca pays a per contract rate on all posted liquidity in Customer Penny Pilot Issues by aggregating total contracts from customer posted orders in Penny Pilot Issues in a given month.15 Of note, NYSE Arca does not have a professional category similar to NOM and therefore, orders that would otherwise be classified as Professionals orders on NOM 16 are being counted towards customer volume at NYSE Arca. The Exchange proposes to count both Customer and Professional orders in the number of contracts eligible for the Rebate to Add Liquidity in Penny Pilot Options. NOM Participants would 14 If a Professional earned a Tier 1 rebate, the Professional would continue to receive a lower rebate as compared to a NOM Market Maker and a higher rebate as compared to a Firm and a NonNOM Market Maker, as is the case today. The rebate differential, however, for a Professional as compared to a Firm and a Non-NOM Market Maker would be lower than it is today. 15 See NYSE Arca’s Fee Schedule. 16 See Securities Exchange Act Release No. 63028 (October 1, 2010), 75 FR 62443 (October 8, 2010) (SR–NASDAQ–2012–099). In this rule filing, the Exchange noted that NOM Participants will be required appropriately to mark all Professional orders. To comply with this requirement, Participants will be required to review their Public Customers’ activity on at least a quarterly basis to determine whether orders that are not for the account of a broker-dealer should be represented as Professional orders. E:\FR\FM\15JAN1.SGM 15JAN1 Federal Register / Vol. 78, No. 10 / Tuesday, January 15, 2013 / Notices benefit from the addition of Professional orders to the number of contracts eligible for the rebate and as a result may qualify for a higher tier. The Exchange believes the addition of Professional orders to the types of orders eligible for a rebate tier is reasonable because it will incentivize NOM Participants to send additional Professional orders to the Exchange as well as Customer orders. The Exchange believes that adding Professional orders to the types of orders eligible for a rebate tier is equitable and not unfairly discriminatory because all NOM Participants will benefit from the additional liquidity the amendment may attract to the Exchange as a result of the increased incentive to send Professional as well as Customer orders. Also, all NOM Participants are eligible for the rebate and are able to earn a rebate by simply transacting one Customer or Professional order in a Penny Pilot Option.17 srobinson on DSK4SPTVN1PROD with 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. While the Exchange’s proposal would result in a Professional receiving a higher rebate as compared to a NOM Market Maker if a Professional qualified for a Tier 2, 3 or 4 rebate and the differential in the rebate would increase as between a Professional and a Firm and a Non-NOM Market Maker, the Exchange does not believe the proposed rebate tiers would result in any burden on competition as between market participants on NOM. The Exchange does not believe that the amount of the rebate offered by the Exchange has a material impact on a NOM Participant’s ability to execute orders in Penny Pilot Options. The Exchange has been assessing the impact of rebates since it first began to offer them and has also observed the impact of fees and rebates on other options exchanges in terms of quoting and liquidity. The Exchange believes that the Fees for Adding Liquidity, as compared to rebates, impact a market participant’s decision-making more prominently with respect to posting order flow on different venues and price. The Exchange does not believe that allowing a Professional to obtain a higher rebate than other market 17 A NOM Participant qualifies for a Tier 1 rebate of $0.26 per contract by adding Customer and Professional liquidity of up to 34,999 contracts per day in a month. VerDate Mar<15>2010 17:00 Jan 14, 2013 Jkt 229001 participants, if a certain number of contracts where to be executed on the Exchange, results in a burden on competition among market participants on NOM for the reasons noted herein. The Exchange believes that offering Professionals the proposed tiered rebates creates competition among options exchanges because the Exchange believes that the rebates may cause market participants to select NOM as a venue to send Professional order flow. The fees that the Exchange assesses are not being amended with this proposal, rather the Exchange is offering to pay increased rebates in exchange for additional Professional order flow being executed at the Exchange, which additional order flow should benefit other market participants. The Exchange operates in a highly competitive market comprised of eleven U.S. options exchanges in which sophisticated and knowledgeable market participants can readily send order flow to competing exchanges if they deem fee levels at a particular exchange to be excessive. The Exchange believes that the proposed rebate structure and tiers are competitive with rebates and tiers in place on other exchanges. The Exchange believes that this competitive marketplace impacts the rebates present on the Exchange today and substantially influences the proposals set forth above. 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.18 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. 18 15 PO 00000 IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2012–141 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–2012–141. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549–1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2012–141, and should be submitted on or before February 5, 2013. U.S.C. 78s(b)(3)(A)(ii). Frm 00125 Fmt 4703 Sfmt 4703 3063 E:\FR\FM\15JAN1.SGM 15JAN1 3064 Federal Register / Vol. 78, No. 10 / Tuesday, January 15, 2013 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–00634 Filed 1–14–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Increasing the Fees Paid by Participants in the Exchange’s Medallion Signature Program From $1,000 per Year to $1,300 per Year January 9, 2013. 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 December 28, 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 increase the fees paid by participants in the Exchange’s medallion signature program from $1,000 per year to $1,300 per year. 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. srobinson on DSK4SPTVN1PROD with 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. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 17:00 Jan 14, 2013 Jkt 229001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose [Release No. 34–68607; File No. SR–NYSE– 2012–80] 19 17 The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. The Exchange proposes to change the application and annual charge to be paid by participants in the medallion signature program (‘‘MSP’’) maintained by the NYSE from $1,000 to $1,300 per year. In 1992, the Securities and Exchange Commission (‘‘Commission’’) approved NYSE’s conversion of its existing signature service program to a signature guarantee program, now referred to as the MSP.3 At that time, the NYSE specified that participants in the MSP would bear the administrative expenses in connection with the program, which at that time was a charge of $300 to be paid upon filing an application to the program and annually thereafter. The $300 charge to participants in the MSP was increased to $1,000 as of January 1, 2005.4 The Exchange has recently entered into a new agreement with the outside vendor that administers the MSP and the fees paid by the Exchange to that outside vendor have increased significantly. In addition, the Exchange’s internal administrative and regulatory costs in relation to the MSP have increased significantly since the fees were last increased eight years ago. Consequently, effective January 1, 2013, the Exchange will increase the charge to members participating in the MSP to $1,300. This charge will be payable upon a participant’s filing of an application to the MSP and annually thereafter. The NYSE will bill MSP participants the increased fee for 2013 in January 2013. The proposed changes are not otherwise intended to address any other problem, and the Exchange is not aware of any significant problem that the affected market participants would have in complying with the proposed changes. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with 3 See Securities Exchange Act Release No. 31388 (October 30, 1992), 57 FR 53366 (November 9, 1992) (SR–NYSE–92–16) (order approving implementation of a signature guarantee program). The MSP is governed by NYSE Rule 200. 4 See Securities Exchange Act Release No. 51190 (February 11, 2005), 70 FR 8867 (February 23, 2005) (SR–NYSE–2005–06). PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 Section 6(b) 5 of the Securities Exchange Act of 1934 (the ‘‘Act’’), in general, and furthers the objectives of Sections 6(b)(4) 6 and 6(b)(5) 7 of the Act, in particular, because it provides for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers, or dealers. The Exchange believes that the proposed fee is equitable and not unfairly discriminatory in that it is charged only to those member organizations that voluntarily participate in the MSP. The Exchange believes that the proposed fee is reasonable in that it is closely related to the Exchange’s actual costs in administering the program. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. In particular, the proposed fee only will be charged to those member organizations that voluntarily participate in the MSP. In addition, the increased fee amount correlates to the increased costs to the Exchange for administering the program. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 8 of the Act and subparagraph (f)(2) of Rule 19b–4 9 thereunder, because it establishes a due, fee, or other charge imposed by NYSE. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 5 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). 7 15 U.S.C. 78a. 8 15 U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b–4(f)(2). 6 15 E:\FR\FM\15JAN1.SGM 15JAN1

Agencies

[Federal Register Volume 78, Number 10 (Tuesday, January 15, 2013)]
[Notices]
[Pages 3060-3064]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00634]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68613; File No. SR-NASDAQ-2012-141]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC 
Notice; of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Penny Pilot Options

January 9, 2013.
    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 December 31, 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 NASDAQ. 
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.
---------------------------------------------------------------------------

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

    NASDAQ proposes to modify Chapter XV, Section 2 of the rules 
governing the NASDAQ Options Market (``NOM''), NASDAQ's facility for 
executing and routing standardized equity and index options. 
Specifically, NOM proposes to amend its pricing to modify the 
Professional Rebate to Add Liquidity in Penny Pilot Options.\3\
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    \3\ The Penny Pilot was established in March 2008, expanded in 
October 2009, and, through a series of orders, 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.
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    While the changes proposed herein are effective upon filing, the 
Exchange

[[Page 3061]]

has designated that the amendments be operative on January 2, 2013.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaq.cchwallstreet.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change. 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 the 
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 
Professional Rebate to Add Liquidity in Penny Pilot Options to attract 
additional order flow to the Exchange.
    The Exchange currently pays a flat Professional Rebate to Add 
Liquidity in Penny Pilot Options of $0.29 per contract. The Exchange is 
now proposing to pay Professionals, a tiered rebate instead. 
Specifically, the Exchange proposes to eliminate the flat $0.29 per 
contract Professional Rebate to Add Liquidity and instead pay 
Professionals rebates based on total number of Customer and 
Professional contracts that add liquidity in Penny Pilot Options in a 
given month as follows:

------------------------------------------------------------------------
                                                           Rebate to add
                     Monthly volume                          liquidity
------------------------------------------------------------------------
Tier 1--Participant adds Customer and Professional                 $0.26
 liquidity of up to 34,999 contracts per day in a month.
Tier 2--Participant adds Customer and Professional                  0.43
 liquidity of 35,000 to 74,999 contracts per day in a
 month..................................................
Tier 3--Participant adds Customer and Professional                  0.44
 liquidity of 75,000 or more contracts per day in a
 month..................................................
Tier 4--Participant adds (1) Customer and Professional              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--Participant has Total Volume of 130,000 or more             0.46
 contracts per day in a month...........................
------------------------------------------------------------------------

    Professionals would be entitled to the same Rebate to Add Liquidity 
in Penny Pilot Options that Customers receive today. The Exchange would 
pay a Tier 1 rebate of $0.26 per contract to market participants that 
add Customer and Professional liquidity of up to 34,999 contracts per 
day in a month. A Tier 2 rebate would pay $0.43 per contract to market 
participants that add Customer and Professional liquidity between 
35,000 and 74,999 contracts per day in a month. A Tier 3 rebate would 
pay a $0.44 per contract rebate to market participants that add 
Customer and Professional liquidity of 75,000 contracts or more per day 
in a month. The Tier 4 rebate would pay a $0.42 rebate to market 
participants that add Customer and Professional liquidity of 25,000 or 
more contracts per day in a month. In addition, to qualify for Tier 4, 
the Participant must have certified for the Investor Support Program 
(``ISP'') as set forth in Rule 7014; \4\ and executed at least one 
order on NASDAQ's equity market.\5\ The Tier 5 rebate would pay a $0.46 
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.\6\ 
Total Volume is defined to include 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.\7\
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    \4\ For a detailed description of the ISP, see Securities 
Exchange Act Release No. 63270 (November 8, 2010), 75 FR 69489 
(November 12, 2010) (NASDAQ-2010-141) (notice of filing and 
immediate effectiveness). See also Securities Exchange Act Release 
Nos. 63414 (December 2, 2010), 75 FR 76505 (December 8, 2010) 
(NASDAQ-2010-153) (notice of filing and immediate effectiveness); 
and 63628 (January 3, 2011), 76 FR 1201 (January 7, 2011) (NASDAQ-
2010-154) (notice of filing and immediate effectiveness).
    \5\ 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.
    \6\ 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.
    \7\ See the Exchange's Rules at Chapter XV, Section 2.
---------------------------------------------------------------------------

    The Exchange proposes to apply the Rebate to Add Liquidity tiers to 
Professionals transacting Penny Pilot Options. The Exchange proposes to 
amend Chapter XV, Section 2 by noting that the tiers would apply to 
Professionals.
    Additionally, the Exchange also proposes to add contracts executed 
in the ``Professional'' capacity to the tier requirements. NOM 
Participants would be able to count Customer and Professional contracts 
toward the number of contracts eligible to qualify for a tier as 
specified herein. The addition of Professional orders to the number of 
contracts eligible for each rebate tier will enable NOM Participants to 
achieve higher rebates.
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\8\ in general, and with Section 
6(b)(4) of the Act,\9\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system 
which NASDAQ operates or controls.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed tier structure for 
Professional Rebates to Add Liquidity in Penny Pilot Options is 
reasonable, equitable and not unfairly discriminatory because by 
incentivizing NOM Participants to select the Exchange as a venue to 
post Customer and Professional orders, the Exchange will attract 
additional Professional order flow to the benefit of all market 
participants.
    The Exchange believes that the proposed monthly volume tier Rebates 
to Add Liquidity in Penny Pilot Options are equitable and not unfairly 
discriminatory because members that account for more volume would be 
able to add greater value to the Exchange's trading environment. 
Additionally, with the exception of Tier 1, Professionals will have an 
opportunity to earn higher rebates than they earned in the past.

[[Page 3062]]

With respect to Tier 1, the Exchange is proposing to pay a $0.26 per 
contract Rebate to Add Liquidity in Penny Pilot Options as compared to 
a $0.29 per contract rebate. The Exchange believes that this proposal 
is equitable and not unfairly discriminatory because the Professional 
has an opportunity to earn higher rebates with the tier structure as 
compared the current $0.29 per contract Rebate to Add Liquidity in 
Penny Pilot Options. In addition, the Exchange believes that the 
proposed monthly tier structure for Professional Rebates to Add 
Liquidity in Penny Pilot Options is equitable and not unfairly 
discriminatory because the Exchange would uniformly pay a Rebate to Add 
Liquidity to Professionals executing Penny Pilot Options based on the 
monthly tiers proposed herein.
    The Exchange believes that paying Professionals a tiered Rebate to 
Add Liquidity in Penny Pilot Options as proposed herein is equitable 
and not unfairly discriminatory as compared to other market 
participants. For example, Customers are entitled to the same rebates. 
NOM Market Makers are entitled to a $0.30 per contract Rebate to Add 
Liquidity in Penny Pilot Options, and that rebate is higher than 
Professionals that achieve a Tier 1 rebate because NOM Market Makers 
add value through continuous quoting \10\ and the commitment of 
capital. With respect to Tiers 2, 3 and 4, pursuant to this proposal, a 
Professional earns a higher rebate as compared to a NOM Market Maker. 
In addition, a Professional would earn a higher rebate with any tier as 
compared to a Firm and Non-NOM Market Maker. Today, Professionals are 
paid a higher Rebate to Add Liquidity in Penny Pilot Options as 
compared to Firms and Non-NOM Market Makers however the differential 
would become larger. The Exchange believes that paying Professionals 
higher Tier 2, 3 and 4 rebates as compared to NOM Market Makers and 
paying Professionals higher rebates as compared to Firms and Non-NOM 
Market Makers is equitable and not unfairly discriminatory because the 
Exchange does not believe that the amount of the rebate offered by the 
Exchange has a material impact on a NOM Participant's ability to 
execute orders in Penny Pilot Options. The Exchange has been assessing 
the impact of rebates since it first began to offer them and has also 
observed the impact of fees and rebates on other options exchanges in 
terms of quoting and liquidity. The Exchange believes that the Fees for 
Adding Liquidity in Penny Pilot Options, as compared to rebates, impact 
a market participant's decision-making more prominently with respect to 
posting order flow on different venues and price. In modifying its 
rebates, the Exchange hopes to simply remain competitive with other 
venues so that it remains a choice for market participants when posting 
orders and the result may be additional Professional order flow for the 
Exchange. In addition, a NOM Participant may not be able to gauge the 
exact rebate tier it would qualify for until the end of the month 
because Professional volume would be commingled with Customer volume in 
calculating tier volume. Other participants have a known rebate rate at 
which they would execute the entire month. A Professional could only 
otherwise presume the Tier 1 rebate would be achieved in a month when 
determining price.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    The Exchange initially established Professional pricing in order to 
``* * * bring additional revenue to the Exchange.'' \11\ The Exchange 
noted in the Professional Filing that it believes ``* * * that the 
increased revenue from the proposal would assist the Exchange to recoup 
fixed costs.'' \12\ Further, the Exchange noted in that filing that it 
believes that establishing separate pricing for a Professional, which 
ranges between that of a Customer and market maker, accomplishes this 
objective.\13\ Herein, the Exchange is not proposing to amend fees, 
which fees continue to meet the objectives noted in the Professional 
Filing. Rather, the Exchange desires to amend the rebates it pays 
because it believes that NOM Participants would view NOM as a favorable 
venue to transact Professional volume. The Exchange does not believe 
that providing Professionals with the opportunity to obtain higher 
rebates would create a competitive environment where Professionals 
would be necessarily advantaged on NOM as compared to other NOM Market 
Makers, Firms or Non-NOM Market Makers. First, a Professional would be 
assessed the same fees as these other market participants, as is the 
case today. Second, a Professional only has the opportunity to achieve 
the higher rebate by sending in more than 35,000 contracts, otherwise 
the Professional only achieves a Tier 1 rebate with at least one trade 
and the differential in that scenario as between market participants 
remain the same.\14\ The Exchange recognizes that the rebate tiers 
provide an incentive to Professionals, but it is not a guaranteed 
rebate.
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066) 
(``Professional Filing''). In this filing, the Exchange addressed 
the perceived favorable pricing of Professionals who were assessed 
fees and paid rebates like a Customer prior to the filing. The 
Exchange noted in that filing that a Professional, unlike a retail 
Customer, has access to sophisticated trading systems that contain 
functionality not available to retail Customers.
    \12\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
    \13\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066) The Exchange 
also in the Professional Filing that it believes the role of the 
retail Customer in the marketplace is distinct from that of the 
Professional and the Exchange's fee proposal at that time accounted 
for this distinction by pricing each market participant according to 
their roles and obligations.
    \14\ If a Professional earned a Tier 1 rebate, the Professional 
would continue to receive a lower rebate as compared to a NOM Market 
Maker and a higher rebate as compared to a Firm and a Non-NOM Market 
Maker, as is the case today. The rebate differential, however, for a 
Professional as compared to a Firm and a Non-NOM Market Maker would 
be lower than it is today.
---------------------------------------------------------------------------

    Additionally, the Exchange believes the proposed tiered Rebates to 
Add Liquidity in Penny Pilot Options are reasonable, equitable and not 
unfairly discriminatory because the rebates are similar to a tiered 
rebate offered by NYSE Arca, Inc. (``NYSE Arca''). NYSE Arca pays a per 
contract rate on all posted liquidity in Customer Penny Pilot Issues by 
aggregating total contracts from customer posted orders in Penny Pilot 
Issues in a given month.\15\ Of note, NYSE Arca does not have a 
professional category similar to NOM and therefore, orders that would 
otherwise be classified as Professionals orders on NOM \16\ are being 
counted towards customer volume at NYSE Arca.
---------------------------------------------------------------------------

    \15\ See NYSE Arca's Fee Schedule.
    \16\ See Securities Exchange Act Release No. 63028 (October 1, 
2010), 75 FR 62443 (October 8, 2010) (SR-NASDAQ-2012-099). In this 
rule filing, the Exchange noted that NOM Participants will be 
required appropriately to mark all Professional orders. To comply 
with this requirement, Participants will be required to review their 
Public Customers' activity on at least a quarterly basis to 
determine whether orders that are not for the account of a broker-
dealer should be represented as Professional orders.
---------------------------------------------------------------------------

    The Exchange proposes to count both Customer and Professional 
orders in the number of contracts eligible for the Rebate to Add 
Liquidity in Penny Pilot Options. NOM Participants would

[[Page 3063]]

benefit from the addition of Professional orders to the number of 
contracts eligible for the rebate and as a result may qualify for a 
higher tier. The Exchange believes the addition of Professional orders 
to the types of orders eligible for a rebate tier is reasonable because 
it will incentivize NOM Participants to send additional Professional 
orders to the Exchange as well as Customer orders. The Exchange 
believes that adding Professional orders to the types of orders 
eligible for a rebate tier is equitable and not unfairly discriminatory 
because all NOM Participants will benefit from the additional liquidity 
the amendment may attract to the Exchange as a result of the increased 
incentive to send Professional as well as Customer orders. Also, all 
NOM Participants are eligible for the rebate and are able to earn a 
rebate by simply transacting one Customer or Professional order in a 
Penny Pilot Option.\17\
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    \17\ A NOM Participant qualifies for a Tier 1 rebate of $0.26 
per contract by adding Customer and Professional liquidity of up to 
34,999 contracts per day in a month.
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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.
    While the Exchange's proposal would result in a Professional 
receiving a higher rebate as compared to a NOM Market Maker if a 
Professional qualified for a Tier 2, 3 or 4 rebate and the differential 
in the rebate would increase as between a Professional and a Firm and a 
Non-NOM Market Maker, the Exchange does not believe the proposed rebate 
tiers would result in any burden on competition as between market 
participants on NOM. The Exchange does not believe that the amount of 
the rebate offered by the Exchange has a material impact on a NOM 
Participant's ability to execute orders in Penny Pilot Options.
    The Exchange has been assessing the impact of rebates since it 
first began to offer them and has also observed the impact of fees and 
rebates on other options exchanges in terms of quoting and liquidity. 
The Exchange believes that the Fees for Adding Liquidity, as compared 
to rebates, impact a market participant's decision-making more 
prominently with respect to posting order flow on different venues and 
price. The Exchange does not believe that allowing a Professional to 
obtain a higher rebate than other market participants, if a certain 
number of contracts where to be executed on the Exchange, results in a 
burden on competition among market participants on NOM for the reasons 
noted herein.
    The Exchange believes that offering Professionals the proposed 
tiered rebates creates competition among options exchanges because the 
Exchange believes that the rebates may cause market participants to 
select NOM as a venue to send Professional order flow. The fees that 
the Exchange assesses are not being amended with this proposal, rather 
the Exchange is offering to pay increased rebates in exchange for 
additional Professional order flow being executed at the Exchange, 
which additional order flow should benefit other market participants.
    The Exchange operates in a highly competitive market comprised of 
eleven U.S. options exchanges in which sophisticated and knowledgeable 
market participants can readily send order flow to competing exchanges 
if they deem fee levels at a particular exchange to be excessive. The 
Exchange believes that the proposed rebate structure and tiers are 
competitive with rebates and tiers in place on other exchanges. The 
Exchange believes that this competitive marketplace impacts the rebates 
present on the Exchange today and substantially influences the 
proposals set forth above.

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.\18\ 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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2012-141 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-2012-141. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549-1090, on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2012-141, and should be submitted on or before February 5, 2013.


[[Page 3064]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00634 Filed 1-14-13; 8:45 am]
BILLING CODE 8011-01-P