Self-Regulatory Organizations; the NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Penny Pilot and Non-Penny Pilot Options, 16898-16903 [2013-06292]
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16898
Federal Register / Vol. 78, No. 53 / Tuesday, March 19, 2013 / Notices
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 20549–1090 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
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–CBOE–
2013–033, and should be submitted on
or before April 9, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–06239 Filed 3–18–13; 8:45 am]
BILLING CODE 8011–01–P
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Penny Pilot was established in March 2008
and in October 2009 was expanded and extended
through June 30, 2013. 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
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SECURITIES AND EXCHANGE
COMMISSION
Exchange, and at the Commission’s
Public Reference Room.
[Release No. 34–69132; File No. SR–
NASDAQ–2013–041]
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations; the
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Penny Pilot and Non-Penny Pilot
Options
March 13, 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 March 1,
2013, 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.
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
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ 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
certain Penny Pilot Options 3 Rebates to
Add Liquidity and certain Non-Penny
Pilot Options 4 Fees for Adding and
Removing Liquidity.
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
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 Customer,5 Professional,6
Non-NOM Market Maker 7 and NOM
Market Maker 8 Penny Pilot Options
Rebates to Add Liquidity and the NOM
Market Maker Non-Penny Pilot Options
Fees for Adding and Removing
Liquidity.
The Exchange proposes to reduce the
current Non-NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options
from $0.25 to $0.10 per contract in order
that a Non-NOM Market Maker would
be paid the same rebates as a Firm 9 and
Broker-Dealer.10 The Exchange also
proposes to amend the Tier 6 Customer
and Professional Rebate to Add
Liquidity in Penny Pilot Options and
add a new Tier 7 rebate. Currently, the
effectiveness extension and replacement of Penny
Pilot); 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); and 68519 (December 21, 2012), 78 FR 136
(January 2, 2013) (SR–NASDAQ–2012–143) (notice
of filing and immediate effectiveness and extension
and replacement of Penny Pilot through June 30,
2013). See also NOM Rules, Chapter VI, Section 5.
4 Non-Penny Pilot Pricing includes NDX. For
transactions in NDX, a surcharge of $0.10 per
contract is added to the Fee for Adding Liquidity
and the Fee for Removing Liquidity in Non-Penny
Pilot Options, except for a Customer who will not
be assessed a surcharge.
5 The term ‘‘Customer’’ or (‘‘C’’) applies to any
transaction that is identified by a Participant for
clearing in the Customer range at The Options
Clearing Corporation (‘‘OCC’’) which is not for the
account of broker or dealer or for the account of a
‘‘Professional’’ (as that term is defined in Chapter
I, Section 1(a)(48)).
6 The term ‘‘Professional’’ or (‘‘P’’) means any
person or entity that (i) is not a broker or dealer in
securities, and (ii) places more than 390 orders in
listed options per day on average during a calendar
month for its own beneficial account(s) pursuant to
Chapter I, Section 1(a)(48). All Professional orders
shall be appropriately marked by Participants.
7 The term ‘‘Non-NOM Market Maker’’ or (‘‘O’’) is
a registered market maker on another options
exchange that is not a NOM Market Maker. A NonNOM Market Maker must append the proper NonNOM Market Maker designation to orders routed to
NOM.
8 The term ‘‘NOM Market Maker’’ or (‘‘M’’) is a
Participant that has registered as a Market Maker on
NOM pursuant to Chapter VII, Section 2, and must
also remain in good standing pursuant to Chapter
VII, Section 4. In order to receive NOM Market
Maker pricing in all securities, the Participant must
be registered as a NOM Market Maker in at least one
security.
9 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at OCC.
10 The term ‘‘Broker-Dealer’’ or (‘‘B’’) applies to
any transaction which is not subject to any of the
other transaction fees applicable within a particular
category.
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Federal Register / Vol. 78, No. 53 / Tuesday, March 19, 2013 / Notices
Exchange offers Customers and
Professionals a Rebate to Add Liquidity
if they qualify for a tier based on their
monthly volume. The Exchange has a
six tier rebate structure as follows:
Rebate to
add liquidity
Monthly volume
Tier 1 Participant adds Customer and Professional liquidity of up to 24,999 contracts per day in a month ................................
Tier 2 Participant adds Customer and Professional liquidity of 25,000 to 34,999 contracts per day in a month .........................
Tier 3 Participant adds Customer and Professional liquidity of 35,000 to 74,999 contracts per day in a month .........................
Tier 4 Participant adds Customer and Professional liquidity of 75,000 or more contracts per day in a month ............................
Tier 5 Participant adds (1) Customer and Professional 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 6 Participant has Total Volume of 130,000 or more contracts per day in a month ................................................................
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The Exchange proposes to amend Tier
6 to qualify the current requirement that
a Participant with Total Volume of
130,000 or more contacts per day in a
month will receive a rebate of $0.46 per
contract to require that 25,000 or more
of the Total Volume to qualify for Tier
6 must be Customer or Professional
liquidity. In addition, the Exchange also
proposes to add a new Tier 7 which
would pay an increased rebate of $0.48
per contract if a Participant has Total
Volume of 325,000 or more contracts
per day in a month, or (2) adds
Customer and Professional liquidity of
1.00% or more of national customer
volume in multiply-listed equity and
ETF options classes in a month 11 or (3)
adds Customer and Professional
liquidity of 60,000 or more contracts per
day in a month and NOM Market Maker
liquidity of 30,000 or more per day per
month. Similar to Tier 6, the Exchange
shall define Total Volume as Customer,
Professional, Firm, Broker-Dealer, NonNOM Market Maker and NOM Market
Maker volume in Penny Pilot Options
and Non-Penny Pilot Options which
either adds or removes liquidity on
NOM.12 For purposes of Tier 7, the
Exchange would allow NOM
Participants under Common
11 The reference to national volume refers to
volume on all options markets. NASDAQ OMX
PHLX LLC (‘‘Phlx’’) and the Chicago Board Options
Exchange Incorporated (‘‘CBOE’’) utilize a similar
national volume number to calculate rebates. Phlx
pays customer rebates based on relative contracts
per month as a percentage of total national
customer volume in multiply-listed options
transacted on Phlx. See Phlx’s Pricing Schedule at
Section A. CBOE offers each Trading Permit Holder
(‘‘TPH’’) a credit for each public customer order
transmitted by the TPH which is executed
electronically in all multiply-listed option classes,
excluding QCC trades and executions related to
contracts that are routed to one or more exchanges
in connection with the Options Order Protection
and Locked/Crossed Market Plan, provided the TPH
meets certain percentage thresholds in a month as
described in the Volume Incentive Program. See
CBOE’s Fees Schedule.
12 The Exchange is proposing to add the words
‘‘on NOM’’ to the Total Volume definition solely to
clarify that this volume refers to transactions on the
Exchange.
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Ownership 13 to aggregate their volume
to qualify for the rebate. The Exchange
believes that the amendment to Tier 6
and the addition of Tier 7 will
incentivize Participants to transact
additional Customer and Professional
volume. The addition of Tier 7 will also
incentivize Participants to post NOM
Market Maker liquidity on NOM.
The Exchange proposes to amend the
NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options from
$0.30 per contract to a four tier rebate
structure. The Exchange proposes to pay
a Tier 1 rebate of $0.25 per contract for
Participants that add NOM Market
Maker liquidity in Penny Pilot and NonPenny Pilot Options of up to 39,999
contracts per day in a month. The
Exchange proposes to pay a Tier 2
rebate of $0.30 per contract for
Participants that add NOM Market
Maker liquidity in Penny Pilot and NonPenny Pilot Options of 40,000 to 89,999
contracts per day in a month. The
Exchange proposes to pay a Tier 3
rebate of $0.32 per contract for
Participants and its affiliates under
Common Ownership 14 that qualify for
the Tier 7 Customer and Professional
Rebate to Add Liquidity in Penny Pilot
Options. The Exchange proposes to pay
a Tier 4 rebate of $0.32 15 or $0.38 per
contract in the following symbols,
iShares MSCI Emerging Markets Index
(‘‘EEM’’), SPDR Gold Shares (‘‘GLD’’),
iShares Russell 2000 Index (‘‘IWM’’),
PowerShares QQQ (‘‘QQQ’’), SPDR S&P
500 (‘‘SPY’’), iPath S&P 500 VIX ST
Futures ETN (‘‘VXX’’) and Financial
Select Sector SPDR (‘‘XLF’’), if
Participants add NOM Market Maker
liquidity of 90,000 or more contracts per
day in a month. The Exchange believes
that offering NOM Market Makers the
13 Common ownership is defined in Chapter XV
as Participants under 75% common ownership or
control.
14 See note 12.
15 The Exchange would pay $0.32 per contract
rebate for all other qualifying Penny Pilot Options
excluding EEM, GLD, IWM, QQQ, SPY, VXX and
XLF.
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$0.26
0.40
0.43
0.44
0.42
0.46
ability to obtain higher rebates will
encourage NOM Market Makers to post
greater liquidity on NOM.
The Exchange also proposes to
increase the NOM Market Maker NonPenny Pilot Fee for Adding Liquidity
from $0.25 to $0.35 per contract and the
Fee for Removing Liquidity from $0.82
to $0.85 per contract. The Exchange
proposes to increase these fees in order
to offer NOM Market Makers an
opportunity to earn higher rebates in
Penny Pilot Options for transacting both
Penny and Non-Penny Pilot Options.
The Exchange also proposes technical
amendments to capitalize the term
‘‘common ownership’’ as that term is
defined in Chapter XV and add the
words ‘‘on NOM’’ to the definition of
Total Volume as described herein.
2. Statutory Basis
NASDAQ believes that the proposed
rule changes are consistent with the
provisions of Section 6 of the Act,16 in
general, and with Section 6(b)(4) of the
Act,17 in particular, in that they provide
for the equitable allocation of reasonable
dues, fees and other charges among
members and issuers and other persons
using any facility or system which
NASDAQ operates or controls.
The Exchange believes that its
proposal to reduce the Non-NOM
Market Maker Rebate to Add Liquidity
in Penny Pilot Options from $0.25 to
$0.10 per contract is reasonable because
the Exchange proposes to offer NonNOM Market Makers the same rebate as
Firms and Broker Dealers. The Exchange
believes that offering Customers,
Professionals and NOM Market Makers
the opportunity to earn higher rebates is
reasonable because by incentivizing
Participants to select the Exchange as a
venue to post Customer and
Professional liquidity will attract
additional order flow to the benefit of
all market participants and
incentivizing NOM Market Makers to
16 15
17 15
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U.S.C. 78f.
U.S.C. 78f(b)(4).
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Federal Register / Vol. 78, No. 53 / Tuesday, March 19, 2013 / Notices
post liquidity will also benefit
participants through increased order
interaction. Today, the Exchange
assesses Non-NOM Market Makers,
Firms and Broker-Dealers the same fees
for adding and removing liquidity in all
symbols. The Exchange is proposing to
likewise pay these market participants
the same rebates.
The Exchange believes that the
amendments to the Penny Pilot Options
Rebates to Add Liquidity are equitable
and not unfairly discriminatory for
various reasons. The Exchange believes
that paying Customers and 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. Pursuant to this
proposal, the Exchange would pay the
highest Tier 1 Rebate to Add Liquidity
in Penny Pilot Options of $0.26 per
contract to Customers and Professionals
for transacting one qualifying contract
as compared to other market
participants.18 The Exchange believes
that Customers are entitled to higher
rebates because Customer order flow
brings unique benefits to the market
through increased liquidity which
benefits all market participants. The
Exchange believes that continuing to
offer Professional the same Penny Pilot
Options Rebates to Add Liquidity as
Customers is equitable and not unfairly
discriminatory because the Exchange is
offering Professionals the same rebates
as today, with the exception of Tier 6,
which is being amended, and Tier 7,
which is new. The Exchange believes
that offering Professionals the
opportunity to earn the same rebates as
Customers, as is the case today, and
higher rebates as compared to Firms,
Broker-Dealers and Non-NOM Market
Makers, and in some cases 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 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 to Add Liquidity,
impact a market participant’s decision18 The NOM Market Maker Tier 1 Rebate to Add
Liquidity in Penny Pilot Options would be $0.25
per contract pursuant to this proposal and all [sic]
other market participants would receive a $0.10 per
contract rebate.
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making more prominently with respect
to posting order flow on different
venues and price. In modifying its
rebates and offering Professionals, as
well as Customers, higher 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 to increased
Customer order flow. In addition, a
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. A Professional
could only otherwise presume the Tier
1 rebate would be achieved in a month
when determining price. Further, the
Exchange initially established
Professional pricing in order to ‘‘* * *
bring additional revenue to the
Exchange.’’ 19 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.’’ 20 The Exchange
also 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.21 The
Exchange does not believe that
providing Professionals with the
opportunity to obtain higher rebates
equivalent to that of a Customer creates
a competitive environment where
Professionals would be necessarily
advantaged on NOM as compared to
NOM Market Makers, Firms, BrokerDealers or Non-NOM Market Makers.
Also, a Professional is assessed the same
fees as other market participants, except
Customers.22 For these reasons, the
Exchange believes that continuing to
19 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.
20 See Securities Exchange Act Release No. 64494
(May 13, 2011), 76 FR 29014 (May 19, 2011) (SR–
NASDAQ–2011–066).
21 See Securities Exchange Act Release No. 64494
(May 13, 2011), 76 FR 29014 (May 19, 2011) (SR–
NASDAQ–2011–066). The Exchange noted in this
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.
22 The Fee for Removing Liquidity in Penny Pilot
Options is $0.47 per contract for all market
participants, except Customers. Customers are
assessed $0.45 per contract.
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offer Professionals the same rebates as
Customers is equitable and not unfairly
discriminatory. Finally, the Exchange
believes that NOM Market Makers
should be offered the opportunity to
earn higher rebates as compared to NonNOM Market Makers, Firms and Broker
Dealers because NOM Market Makers
add value through continuous quoting 23
and the commitment of capital.
The Exchange believes the amended
Tier 6 rebate and new Tier 7 Customer
and Professional Rebates to Add
Liquidity in Penny Pilot Options are
reasonable, equitable and not unfairly
discriminatory because the Exchange is
offering Participants meaningful
incentives to increase their participation
on NOM in terms of higher Penny Pilot
Options Rebates to Add Liquidity and
fee reductions which reduce costs. The
Exchange’s proposal to amend the Tier
6 Customer and Professional Rebate to
Add Liquidity in Penny Pilot Options is
reasonable because the Exchange
believes that requiring a certain amount
of the Total Volume to consist of
Customer or Professional liquidity will
continue to attract liquidity to the
Exchange to the benefit of all market
participants. The Exchange believes the
amendment to the Tier 6 Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options is equitable and not
unfairly discriminatory because all
Participants may qualify for the rebate
and such incentives will benefit other
market participants through the
increased liquidity that such Customer
and Professional order flow will bring to
the Exchange.
The Exchange’s proposal to add a new
Tier 7 Customer and Professional Rebate
to Add Liquidity in Penny Pilot Options
and pay an increased rebate of $0.48 per
contract to Participants that transact
Total Volume of 325,000 contracts or
more per day, in a month, add Customer
and Professional liquidity of 1.00% or
more of national customer volume in
multiply-listed equity and ETF options
classes in a month or add Customer and
Professional liquidity of 60,000 or more
contracts per day in a month and NOM
Market Maker liquidity of 30,000 or
more per day per month is reasonable,
23 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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equitable and not unfairly
discriminatory because the Exchange
believes that Participants will be
incentivized to execute an even greater
number of orders on the Exchange, add
a greater amount of Customer and
Professional liquidity on NOM and post
a greater amount of NOM Market Maker
liquidity, which in turn benefits all
market participants. The Exchange
believes the existing monthly volume
thresholds have incentivized
Participants to increase Customer and
Professional order flow to the Exchange.
The Exchange desires to continue to
encourage Participants to route
Customer and Professional orders, and
post NOM Market Maker orders, to the
Exchange by offering increased
Customer and Professional Rebates to
Add Liquidity in Penny Pilot Options.
All Participants that transact Customer
and Professional orders in Penny Pilot
Options are and will continue to be
eligible for the Customer and
Professional rebates.24
The Exchange’s proposal to permit
Participants to qualify for Tier 7
Customer and Professional Rebate to
Add Liquidity in Penny Pilot Options
by adding Customer and Professional
liquidity of 1.00% or more of national
customer volume in multiply-listed
equity and ETF options classes in a
month is reasonable because measuring
Customer and Professional liquidity as a
percentage of national customer volume
in the industry relative to those
contracts executed on NOM allows the
Exchange to control and account for
changes in national industry-wide
multiply-listed options volume. Further,
allowing Participants to combine equity
options volume with that of ETFs will
provide Participants an opportunity to
qualify for this rebate tier. The
Exchange’s proposal to permit
Participants to qualify for Tier 7 by
adding Customer and Professional
liquidity of 1.00% or more of national
customer volume in multiply-listed
equity and ETF options classes in a
month is equitable and not unfairly
discriminatory because it will be
applied to all Participants in a uniform
matter. Any Participant is eligible to
receive the rebate provided they transact
a qualifying amount of electronic
Customer and Professional volume as
required. The Exchange believes that
permitting Participants to otherwise
24 Pursuant to this proposal, Tier 1 pays a rebate
of $0.26 per contract to Participants that add
Customer and Professional liquidity of up to 24,999
contracts per day in a month of Penny Pilot
Options. There is no required minimum volume of
Customer and Professional orders to qualify for the
Customer or Professional Rebate to Add Liquidity
in Penny Pilot Options.
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qualify for Tier 7 by transacting Total
Volume of 325,000 contracts or more
per day, in a month, or adding Customer
and Professional liquidity of 60,000 or
more contracts per day in a month and
NOM Market Maker liquidity of 30,000
or more per day per month is reasonable
because the Exchange already allows
Participants to obtain rebates today
based on Total Volume and offering to
allow Participants to qualify for Tier 7
by adding a certain mix of Customer,
Professional and NOM Market Maker
liquidity provides Participants
additional opportunities to obtain a
higher rebate and benefit other market
participants by the liquidity and order
interaction that such order flow will
bring to NOM. As stated previously, the
other means to qualify for Tier 7 (other
than adding Customer and Professional
liquidity of 1.00% or more of national
customer volume in multiply-listed
equity and ETF options classes in a
month), transacting Total Volume of
325,000 contracts or more per day, in a
month, or adding Customer and
Professional liquidity of 60,000 or more
contracts per day in a month and NOM
Market Maker liquidity of 30,000 or
more per day per month, is equitable
and not unfairly discriminatory because
all Participants may achieve this rebate
by transacting the appropriate level of
volume required by Tier 7.
The Exchange believes that the new
NOM Market Maker Penny Pilot
Options Rebates to Add Liquidity tiers
are reasonable because the Exchange is
offering NOM Market Makers the ability
to obtain higher rebates by posting
liquidity on NOM. The Exchange
proposes to pay NOM Market Makers a
Tier 1 Rebate to Add Liquidity of $0.25
per contract in Penny Pilot Options for
adding up to 39,999 contracts per day in
a month of Penny or Non-Penny Pilot
Options. While the Exchange is paying
Customers and Professionals higher
rebates for adding Penny Pilot Options
Customer and Professional liquidity in
Tiers 1 and 2 for volume up to 39,999
contracts,25 the NOM Market Maker can
achieve that volume by aggregating
Penny and Non-Penny Pilot Options in
order to obtain a $0.25 per contract Tier
1 NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options and
may be able to achieve the $0.30 per
25 The Exchange pays $0.26 per contract for
Customer and Professional Penny Pilot Options
liquidity up to 24,999 contracts per day in a month
(Tier 1), $0.40 per contract for Customer and
Professional Penny Pilot Options liquidity between
25,000 and 34,999 contracts per day in a month
(Tier 2) and $0.43 per contract for Customer and
Professional Penny Pilot Options liquidity between
35,000 to 74,999 contracts per day in a month (Tier
3).
PO 00000
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16901
contract Tier 2 rebate, as is the case
today, by adding Penny and Non-Penny
Pilot Options contract volume. The
highest rebate a NOM Market Maker can
achieve with the proposed tier structure
is $0.38 per contract, which is higher
than the current NOM Market Maker
rebate of $0.30 per contract and remains
lower than the Customer and
Professional Tier 2 rebate, as is the case
today. The Exchange believes that the
proposed NOM Market Maker rebate tier
structure is reasonable because the
Exchange is incentivizing NOM Market
Makers to earn higher rebates by posting
a greater number of contracts on NOM.
NOM Market Makers are valuable
market participants that provide
liquidity in the marketplace and incur
costs unlike other market participants.
The Exchange believes that encouraging
NOM Market Makers to be more
aggressive when posting liquidity
benefits all market participants through
increased liquidity. The Exchange
believes that the NOM Market Maker
rebate proposal is equitable and not
unfairly discriminatory because it does
not misalign the current rebate structure
because NOM Market Makers will
continue to earn higher rebates as
compared to Firms, Non-NOM Market
Makers and Broker-Dealers and will
continue to earn lower rebates as
compared to Customers and
Professionals for most rebate tiers
except as described herein, a NOM
Market Maker will earn a lower Tier 1
rebate as compared to the current $0.30
rebate.
With respect to the rebate tiers, the
Exchange believes that the tiers are
reasonable because although Tier 1 pays
a lower rebate of $0.25 per contract as
compared to today’s NOM Market
Maker rebate, as mentioned herein,
Participants may add NOM Market
Maker liquidity in either Penny Pilot or
Non-Penny Pilot Options, up to 39,999
contracts per day in a month, to obtain
that rebate. Today, the Exchange
similarly allows Customers and
Professionals to obtain rebates by
transacting Customer, Professional,
Firm, Broker-Dealer, Non-NOM Market
Maker or NOM Market Maker volume in
Penny Pilot Options or Non-Penny Pilot
Options which either adds or removes
liquidity on NOM (known as ‘‘Total
Volume’’) to qualify for a rebate.
Likewise, the Exchange is proposing
that NOM Market Makers may qualify
for Rebates to Add Liquidity in Penny
Pilot Options by transacting either
Penny or Non-Penny Pilot Options. The
Exchange believes that incentivizing
NOM Market Makers to post liquidity in
Penny and Non-Penny Pilot Options in
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order to obtain a rebate is reasonable,
equitable and not unfairly
discriminatory because participants will
benefit through increased order
interaction and all NOM Market Makers
have a similar opportunity to obtain the
rebate. As mentioned, the Exchange
believes that NOM Market Makers are
provided an opportunity to qualify for a
Tier 2 rebate, and obtain the same $0.30
per contract rebate as today, because
they can aggregate Penny and NonPenny Pilot Options volume. A
Participant that adds NOM Market
Maker liquidity in either Penny Pilot or
Non-Penny Pilot Options of 40,000 to
89,999 contracts per day in a month
would achieve the same $0.30 per
contract rebate as NOM Market Makers
receive today. The Exchange believes
that these first two NOM Market Maker
rebate tiers are reasonable because NOM
Market Makers will be incentivized to
be more aggressive in posting liquidity
on NOM to achieve higher rebates or the
same rebate. The Exchange believes that
rebate Tiers 1 and 2 are equitable and
not unfairly discriminatory because all
NOM Market Makers may qualify for the
tiers and every NOM Market Maker is
entitled to a rebate solely by adding one
contract of NOM Market Maker liquidity
on NOM. Also, as mentioned, the NOM
Market Maker would receive a higher
rebate in Tier 1 as compared to a Firm,
Non-NOM Market Maker or BrokerDealer because of the obligations borne
by NOM Market Makers as compared to
other market participants.
The Exchange’s proposal to pay a Tier
3 NOM Market Maker rebate of $0.32
per contract for Participants and its
affiliates under Common Ownership
that qualify for the Tier 7 Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options is reasonable
because as mentioned herein, NOM
Market Makers are valuable market
participants that provide liquidity in the
marketplace and incur costs unlike
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. Encouraging NOM Market
Makers to add greater liquidity benefits
all Participants in the quality of order
interaction. By further incentivizing
Participants to achieve the Tier 7
Customer and Professional Rebate to
Add Liquidity, the Exchange is seeking
to add a greater amount of Customer and
Professional liquidity to the marketplace
which benefits all Participants as well
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17:00 Mar 18, 2013
Jkt 229001
as reduce costs not only to Professionals
and Customers in paying the Tier 7
Customer and Professional rebate, but
also NOM Market Makers by offering the
Tier 3 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options.
The Exchange’s proposal to pay a Tier
3 rebate of $0.32 per contract for
Participants and its affiliates under
Common Ownership that qualify for the
Tier 7 Customer and Professional Rebate
to Add Liquidity in Penny Pilot Options
is equitable and not unfairly
discriminatory because all NOM Market
Makers may qualify for the Tier 3 NOM
Market Maker rebate provided they are
able to qualify for the Tier 7 Customer
and Professional Rebate to Add
Liquidity in Penny Pilot Options. As
mentioned herein, there are various
opportunities to achieve a Tier 7
Customer and Professional Rebate to
Add Liquidity in Penny Pilot Options.
The Exchange’s proposal to pay a Tier
4 NOM Market Maker rebate of $0.3226
or $0.38 per contract in EEM, GLD,
IWM, QQQ, SPY, VXX and XLF if the
Participant adds NOM Market Maker
liquidity of 90,000 or more contracts per
day in a month is reasonable because
the Exchange believes that offering
NOM Market Makers the ability to
obtain higher rebates will encourage
additional order interaction. The
Exchange’s proposal to pay a Tier 4
NOM Market Maker rebate of $0.3227 or
$0.38 per contract in EEM, GLD, IWM,
QQQ, SPY, VXX and XLF if the
Participant adds NOM Market Maker
liquidity of 90,000 or more contracts per
day in a month is equitable and not
unfairly discriminatory because all
NOM Market Makers may qualify for the
Tier 4 NOM Market Maker rebate.
The Exchange believes that it is
reasonable, equitable, and not unfairly
discriminatory to adopt specific pricing
for EEM, GLD, IWM, QQQ, SPY, VXX
and XLF because pricing by symbol is
a common practice on many U.S.
options exchanges as a means to
incentivize order flow to be sent to an
exchange for execution in the most
actively traded options classes, in this
case actively traded Penny Pilot
Options.28 The Exchange notes that
EEM, GLD, IWM, QQQ, SPY, VXX and
XLF are some of the most actively
26 The Exchange would pay $0.32 per contract
rebate for all other qualifying Penny Pilot Options
excluding EEM, GLD, IWM, QQQ, SPY, VXX and
XLF.
27 The Exchange would pay $0.32 per contract
rebate for all other qualifying Penny Pilot Options
excluding EEM, GLD, IWM, QQQ, SPY, VXX and
XLF.
28 See Phlx’s Pricing Schedule. See also the
International Securities Exchange LLC’s Fee
Schedule. Both of these markets segment pricing by
symbol.
PO 00000
Frm 00073
Fmt 4703
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traded options in the U.S. The Exchange
believes that this pricing will
incentivize members to transact options
on EEM, GLD, IWM, QQQ, SPY, VXX
and XLF on NOM in order to obtain the
higher $0.38 per contract rebate.
The Exchange believes that its
proposal to increase the NOM Market
Maker Non-Penny Pilot Fee for Adding
Liquidity from $0.25 to $0.35 per
contract and the Fee for Removing
Liquidity from $0.82 to $0.85 per
contract is reasonable because the
Exchange desires to offer NOM Market
Makers the opportunity to earn higher
rebates by transacting Penny and NonPenny Pilot Options, which order flow
benefits other market participants.
These fees will assist the Exchange in
offering such rebates. The Exchange
believes that its proposal to increase the
NOM Market Maker Non-Penny Pilot
Fee for Adding Liquidity from $0.25 to
$0.35 per contract and the Fee for
Removing Liquidity from $0.82 to $0.85
per contract is equitable and not
unfairly discriminatory because the
Exchange would continue to assess
lower fees to NOM Market Makers, as
compared to all other Participants
except Customers,29 as is the case today,
because NOM Market Makers add value
through continuous quoting30 and the
commitment of capital.
With respect to Tier 3, the Exchange
proposes to pay the $0.32 per contract
rebate to Participants or its affiliates
under Common Ownership that qualify
for Tier 7. The Exchange proposes to
allow Participants to aggregate their
volume with affiliates in order to qualify
for this Tier of the NOM Market Maker
Rebate to Add Liquidity in Penny Pilot
Options. The Exchange also proposes to
permit Participants to allow NOM
Participants under Common Ownership
to aggregate their volume to qualify for
the rebate. The Exchange believes that
its proposal to permit Participants under
Common Ownership to aggregate their
volume is reasonable, equitable and not
unfairly discriminatory because the
Exchange would permit all Participants
29 Customers do not pay Non-Penny Pilot Fees for
Adding Liquidity and today are assessed an $0.82
per contract Non-Penny Pilot Fee for Removing
Liquidity.
30 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 ability to aggregate for purposes of
the rebates if certain Participants chose
to operate under separate entities.
the rebates present on the Exchange
today and substantially influences the
proposals 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.
Customers have traditionally been paid
the highest rebates offered by options
exchanges. While the Exchange’s
proposal results in a Professional
receiving a higher rebate as compared to
a NOM Market Maker, in certain
circumstances, the Exchange does not
believe the proposed rebate tiers would
result in any burden on competition as
between market participants. The
Exchange’s proposal also aligns the
Non-NOM Market Maker Penny Pilot
Rebate to Add Liquidity with that of a
Firm and Broker-Dealer. The Exchange’s
proposal to increase Non-Penny Pilot
Options Fees for Adding and Removing
Liquidity does not misalign the current
fees as NOM Market Makers will
continue to be assessed lower fees as
compared to a Non-NOM Market Maker,
Firm or Broker-Dealer because of the
additional obligations that are required
of NOM Market Makers as compared to
these market participants. Customers
continue to pay a lower Fee for
Removing Liquidity in Non-Penny Pilot
Options, which is currently the case for
most fees on NOM which are either not
assessed to a Customer or where a
Customer is assessed the lowest fee
because of the liquidity such order flow
brings to the Exchange.
The Exchange believes that offering
Customers and 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
Customer and Professional order flow.
The Exchange believes that
incentivizing NOM Market Makers to
post liquidity on NOM benefits market
participants through increased order
interaction.
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
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.
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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.31 At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2013–041 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–2013–041. 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 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–2013–041, and should be
submitted on or before April 9, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–06292 Filed 3–18–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69130; File No. SR–C2–
2013–012]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend the Fees Schedule
March 13, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b-4 thereunder,2
notice is hereby given that on March 1,
2013, C2 Options Exchange,
Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
31 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
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]]>Agencies
[Federal Register Volume 78, Number 53 (Tuesday, March 19, 2013)]
[Notices]
[Pages 16898-16903]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06292]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69132; File No. SR-NASDAQ-2013-041]
Self-Regulatory Organizations; the NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Penny Pilot and Non-Penny Pilot Options
March 13, 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 March 1, 2013, 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.
---------------------------------------------------------------------------
\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, 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 certain Penny Pilot Options \3\ Rebates to Add Liquidity and
certain Non-Penny Pilot Options \4\ Fees for Adding and Removing
Liquidity.
---------------------------------------------------------------------------
\3\ The Penny Pilot was established in March 2008 and in October
2009 was expanded and extended through June 30, 2013. 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); 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);
and 68519 (December 21, 2012), 78 FR 136 (January 2, 2013) (SR-
NASDAQ-2012-143) (notice of filing and immediate effectiveness and
extension and replacement of Penny Pilot through June 30, 2013). See
also NOM Rules, Chapter VI, Section 5.
\4\ Non-Penny Pilot Pricing includes NDX. For transactions in
NDX, a surcharge of $0.10 per contract is added to the Fee for
Adding Liquidity and the Fee for Removing Liquidity in Non-Penny
Pilot Options, except for a Customer who will not be assessed a
surcharge.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaq.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and 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
Customer,\5\ Professional,\6\ Non-NOM Market Maker \7\ and NOM Market
Maker \8\ Penny Pilot Options Rebates to Add Liquidity and the NOM
Market Maker Non-Penny Pilot Options Fees for Adding and Removing
Liquidity.
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\5\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Chapter I, Section
1(a)(48)).
\6\ The term ``Professional'' or (``P'') means any person or
entity that (i) is not a broker or dealer in securities, and (ii)
places more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s) pursuant
to Chapter I, Section 1(a)(48). All Professional orders shall be
appropriately marked by Participants.
\7\ The term ``Non-NOM Market Maker'' or (``O'') is a registered
market maker on another options exchange that is not a NOM Market
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market
Maker designation to orders routed to NOM.
\8\ The term ``NOM Market Maker'' or (``M'') is a Participant
that has registered as a Market Maker on NOM pursuant to Chapter
VII, Section 2, and must also remain in good standing pursuant to
Chapter VII, Section 4. In order to receive NOM Market Maker pricing
in all securities, the Participant must be registered as a NOM
Market Maker in at least one security.
---------------------------------------------------------------------------
The Exchange proposes to reduce the current Non-NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options from $0.25 to $0.10 per
contract in order that a Non-NOM Market Maker would be paid the same
rebates as a Firm \9\ and Broker-Dealer.\10\ The Exchange also proposes
to amend the Tier 6 Customer and Professional Rebate to Add Liquidity
in Penny Pilot Options and add a new Tier 7 rebate. Currently, the
[[Page 16899]]
Exchange offers Customers and Professionals a Rebate to Add Liquidity
if they qualify for a tier based on their monthly volume. The Exchange
has a six tier rebate structure as follows:
---------------------------------------------------------------------------
\9\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\10\ The term ``Broker-Dealer'' or (``B'') applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category.
------------------------------------------------------------------------
Rebate to add
Monthly volume liquidity
------------------------------------------------------------------------
Tier 1 Participant adds Customer and Professional $0.26
liquidity of up to 24,999 contracts per day in a month
Tier 2 Participant adds Customer and Professional 0.40
liquidity of 25,000 to 34,999 contracts per day in a
month.................................................
Tier 3 Participant adds Customer and Professional 0.43
liquidity of 35,000 to 74,999 contracts per day in a
month.................................................
Tier 4 Participant adds Customer and Professional 0.44
liquidity of 75,000 or more contracts per day in a
month.................................................
Tier 5 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 6 Participant has Total Volume of 130,000 or more 0.46
contracts per day in a month..........................
------------------------------------------------------------------------
The Exchange proposes to amend Tier 6 to qualify the current
requirement that a Participant with Total Volume of 130,000 or more
contacts per day in a month will receive a rebate of $0.46 per contract
to require that 25,000 or more of the Total Volume to qualify for Tier
6 must be Customer or Professional liquidity. In addition, the Exchange
also proposes to add a new Tier 7 which would pay an increased rebate
of $0.48 per contract if a Participant has Total Volume of 325,000 or
more contracts per day in a month, or (2) adds Customer and
Professional liquidity of 1.00% or more of national customer volume in
multiply-listed equity and ETF options classes in a month \11\ or (3)
adds Customer and Professional liquidity of 60,000 or more contracts
per day in a month and NOM Market Maker liquidity of 30,000 or more per
day per month. Similar to Tier 6, the Exchange shall define Total
Volume as Customer, Professional, Firm, Broker-Dealer, Non-NOM Market
Maker and NOM Market Maker volume in Penny Pilot Options and Non-Penny
Pilot Options which either adds or removes liquidity on NOM.\12\ For
purposes of Tier 7, the Exchange would allow NOM Participants under
Common Ownership \13\ to aggregate their volume to qualify for the
rebate. The Exchange believes that the amendment to Tier 6 and the
addition of Tier 7 will incentivize Participants to transact additional
Customer and Professional volume. The addition of Tier 7 will also
incentivize Participants to post NOM Market Maker liquidity on NOM.
---------------------------------------------------------------------------
\11\ The reference to national volume refers to volume on all
options markets. NASDAQ OMX PHLX LLC (``Phlx'') and the Chicago
Board Options Exchange Incorporated (``CBOE'') utilize a similar
national volume number to calculate rebates. Phlx pays customer
rebates based on relative contracts per month as a percentage of
total national customer volume in multiply-listed options transacted
on Phlx. See Phlx's Pricing Schedule at Section A. CBOE offers each
Trading Permit Holder (``TPH'') a credit for each public customer
order transmitted by the TPH which is executed electronically in all
multiply-listed option classes, excluding QCC trades and executions
related to contracts that are routed to one or more exchanges in
connection with the Options Order Protection and Locked/Crossed
Market Plan, provided the TPH meets certain percentage thresholds in
a month as described in the Volume Incentive Program. See CBOE's
Fees Schedule.
\12\ The Exchange is proposing to add the words ``on NOM'' to
the Total Volume definition solely to clarify that this volume
refers to transactions on the Exchange.
\13\ Common ownership is defined in Chapter XV as Participants
under 75% common ownership or control.
---------------------------------------------------------------------------
The Exchange proposes to amend the NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options from $0.30 per contract to a four tier
rebate structure. The Exchange proposes to pay a Tier 1 rebate of $0.25
per contract for Participants that add NOM Market Maker liquidity in
Penny Pilot and Non-Penny Pilot Options of up to 39,999 contracts per
day in a month. The Exchange proposes to pay a Tier 2 rebate of $0.30
per contract for Participants that add NOM Market Maker liquidity in
Penny Pilot and Non-Penny Pilot Options of 40,000 to 89,999 contracts
per day in a month. The Exchange proposes to pay a Tier 3 rebate of
$0.32 per contract for Participants and its affiliates under Common
Ownership \14\ that qualify for the Tier 7 Customer and Professional
Rebate to Add Liquidity in Penny Pilot Options. The Exchange proposes
to pay a Tier 4 rebate of $0.32 \15\ or $0.38 per contract in the
following symbols, iShares MSCI Emerging Markets Index (``EEM''), SPDR
Gold Shares (``GLD''), iShares Russell 2000 Index (``IWM''),
PowerShares QQQ (``QQQ''), SPDR S&P 500 (``SPY''), iPath S&P 500 VIX ST
Futures ETN (``VXX'') and Financial Select Sector SPDR (``XLF''), if
Participants add NOM Market Maker liquidity of 90,000 or more contracts
per day in a month. The Exchange believes that offering NOM Market
Makers the ability to obtain higher rebates will encourage NOM Market
Makers to post greater liquidity on NOM.
---------------------------------------------------------------------------
\14\ See note 12.
\15\ The Exchange would pay $0.32 per contract rebate for all
other qualifying Penny Pilot Options excluding EEM, GLD, IWM, QQQ,
SPY, VXX and XLF.
---------------------------------------------------------------------------
The Exchange also proposes to increase the NOM Market Maker Non-
Penny Pilot Fee for Adding Liquidity from $0.25 to $0.35 per contract
and the Fee for Removing Liquidity from $0.82 to $0.85 per contract.
The Exchange proposes to increase these fees in order to offer NOM
Market Makers an opportunity to earn higher rebates in Penny Pilot
Options for transacting both Penny and Non-Penny Pilot Options.
The Exchange also proposes technical amendments to capitalize the
term ``common ownership'' as that term is defined in Chapter XV and add
the words ``on NOM'' to the definition of Total Volume as described
herein.
2. Statutory Basis
NASDAQ believes that the proposed rule changes are consistent with
the provisions of Section 6 of the Act,\16\ in general, and with
Section 6(b)(4) of the Act,\17\ 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.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f.
\17\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes that its proposal to reduce the Non-NOM
Market Maker Rebate to Add Liquidity in Penny Pilot Options from $0.25
to $0.10 per contract is reasonable because the Exchange proposes to
offer Non-NOM Market Makers the same rebate as Firms and Broker
Dealers. The Exchange believes that offering Customers, Professionals
and NOM Market Makers the opportunity to earn higher rebates is
reasonable because by incentivizing Participants to select the Exchange
as a venue to post Customer and Professional liquidity will attract
additional order flow to the benefit of all market participants and
incentivizing NOM Market Makers to
[[Page 16900]]
post liquidity will also benefit participants through increased order
interaction. Today, the Exchange assesses Non-NOM Market Makers, Firms
and Broker-Dealers the same fees for adding and removing liquidity in
all symbols. The Exchange is proposing to likewise pay these market
participants the same rebates.
The Exchange believes that the amendments to the Penny Pilot
Options Rebates to Add Liquidity are equitable and not unfairly
discriminatory for various reasons. The Exchange believes that paying
Customers and 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. Pursuant to
this proposal, the Exchange would pay the highest Tier 1 Rebate to Add
Liquidity in Penny Pilot Options of $0.26 per contract to Customers and
Professionals for transacting one qualifying contract as compared to
other market participants.\18\ The Exchange believes that Customers are
entitled to higher rebates because Customer order flow brings unique
benefits to the market through increased liquidity which benefits all
market participants. The Exchange believes that continuing to offer
Professional the same Penny Pilot Options Rebates to Add Liquidity as
Customers is equitable and not unfairly discriminatory because the
Exchange is offering Professionals the same rebates as today, with the
exception of Tier 6, which is being amended, and Tier 7, which is new.
The Exchange believes that offering Professionals the opportunity to
earn the same rebates as Customers, as is the case today, and higher
rebates as compared to Firms, Broker-Dealers and Non-NOM Market Makers,
and in some cases 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
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 to Add Liquidity, impact a market participant's
decision-making more prominently with respect to posting order flow on
different venues and price. In modifying its rebates and offering
Professionals, as well as Customers, higher 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 to
increased Customer order flow. In addition, a 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. A Professional could only
otherwise presume the Tier 1 rebate would be achieved in a month when
determining price. Further, the Exchange initially established
Professional pricing in order to ``* * * bring additional revenue to
the Exchange.'' \19\ 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.'' \20\ The Exchange also
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.\21\ The Exchange does not
believe that providing Professionals with the opportunity to obtain
higher rebates equivalent to that of a Customer creates a competitive
environment where Professionals would be necessarily advantaged on NOM
as compared to NOM Market Makers, Firms, Broker-Dealers or Non-NOM
Market Makers. Also, a Professional is assessed the same fees as other
market participants, except Customers.\22\ For these reasons, the
Exchange believes that continuing to offer Professionals the same
rebates as Customers is equitable and not unfairly discriminatory.
Finally, the Exchange believes that NOM Market Makers should be offered
the opportunity to earn higher rebates as compared to Non-NOM Market
Makers, Firms and Broker Dealers because NOM Market Makers add value
through continuous quoting \23\ and the commitment of capital.
---------------------------------------------------------------------------
\18\ The NOM Market Maker Tier 1 Rebate to Add Liquidity in
Penny Pilot Options would be $0.25 per contract pursuant to this
proposal and all [sic] other market participants would receive a
$0.10 per contract rebate.
\19\ 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.
\20\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
\21\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066). The Exchange
noted in this 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.
\22\ The Fee for Removing Liquidity in Penny Pilot Options is
$0.47 per contract for all market participants, except Customers.
Customers are assessed $0.45 per contract.
\23\ 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 believes the amended Tier 6 rebate and new Tier 7
Customer and Professional Rebates to Add Liquidity in Penny Pilot
Options are reasonable, equitable and not unfairly discriminatory
because the Exchange is offering Participants meaningful incentives to
increase their participation on NOM in terms of higher Penny Pilot
Options Rebates to Add Liquidity and fee reductions which reduce costs.
The Exchange's proposal to amend the Tier 6 Customer and Professional
Rebate to Add Liquidity in Penny Pilot Options is reasonable because
the Exchange believes that requiring a certain amount of the Total
Volume to consist of Customer or Professional liquidity will continue
to attract liquidity to the Exchange to the benefit of all market
participants. The Exchange believes the amendment to the Tier 6
Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options is equitable and not unfairly discriminatory because all
Participants may qualify for the rebate and such incentives will
benefit other market participants through the increased liquidity that
such Customer and Professional order flow will bring to the Exchange.
The Exchange's proposal to add a new Tier 7 Customer and
Professional Rebate to Add Liquidity in Penny Pilot Options and pay an
increased rebate of $0.48 per contract to Participants that transact
Total Volume of 325,000 contracts or more per day, in a month, add
Customer and Professional liquidity of 1.00% or more of national
customer volume in multiply-listed equity and ETF options classes in a
month or add Customer and Professional liquidity of 60,000 or more
contracts per day in a month and NOM Market Maker liquidity of 30,000
or more per day per month is reasonable,
[[Page 16901]]
equitable and not unfairly discriminatory because the Exchange believes
that Participants will be incentivized to execute an even greater
number of orders on the Exchange, add a greater amount of Customer and
Professional liquidity on NOM and post a greater amount of NOM Market
Maker liquidity, which in turn benefits all market participants. The
Exchange believes the existing monthly volume thresholds have
incentivized Participants to increase Customer and Professional order
flow to the Exchange. The Exchange desires to continue to encourage
Participants to route Customer and Professional orders, and post NOM
Market Maker orders, to the Exchange by offering increased Customer and
Professional Rebates to Add Liquidity in Penny Pilot Options. All
Participants that transact Customer and Professional orders in Penny
Pilot Options are and will continue to be eligible for the Customer and
Professional rebates.\24\
---------------------------------------------------------------------------
\24\ Pursuant to this proposal, Tier 1 pays a rebate of $0.26
per contract to Participants that add Customer and Professional
liquidity of up to 24,999 contracts per day in a month of Penny
Pilot Options. There is no required minimum volume of Customer and
Professional orders to qualify for the Customer or Professional
Rebate to Add Liquidity in Penny Pilot Options.
---------------------------------------------------------------------------
The Exchange's proposal to permit Participants to qualify for Tier
7 Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options by adding Customer and Professional liquidity of 1.00% or more
of national customer volume in multiply-listed equity and ETF options
classes in a month is reasonable because measuring Customer and
Professional liquidity as a percentage of national customer volume in
the industry relative to those contracts executed on NOM allows the
Exchange to control and account for changes in national industry-wide
multiply-listed options volume. Further, allowing Participants to
combine equity options volume with that of ETFs will provide
Participants an opportunity to qualify for this rebate tier. The
Exchange's proposal to permit Participants to qualify for Tier 7 by
adding Customer and Professional liquidity of 1.00% or more of national
customer volume in multiply-listed equity and ETF options classes in a
month is equitable and not unfairly discriminatory because it will be
applied to all Participants in a uniform matter. Any Participant is
eligible to receive the rebate provided they transact a qualifying
amount of electronic Customer and Professional volume as required. The
Exchange believes that permitting Participants to otherwise qualify for
Tier 7 by transacting Total Volume of 325,000 contracts or more per
day, in a month, or adding Customer and Professional liquidity of
60,000 or more contracts per day in a month and NOM Market Maker
liquidity of 30,000 or more per day per month is reasonable because the
Exchange already allows Participants to obtain rebates today based on
Total Volume and offering to allow Participants to qualify for Tier 7
by adding a certain mix of Customer, Professional and NOM Market Maker
liquidity provides Participants additional opportunities to obtain a
higher rebate and benefit other market participants by the liquidity
and order interaction that such order flow will bring to NOM. As stated
previously, the other means to qualify for Tier 7 (other than adding
Customer and Professional liquidity of 1.00% or more of national
customer volume in multiply-listed equity and ETF options classes in a
month), transacting Total Volume of 325,000 contracts or more per day,
in a month, or adding Customer and Professional liquidity of 60,000 or
more contracts per day in a month and NOM Market Maker liquidity of
30,000 or more per day per month, is equitable and not unfairly
discriminatory because all Participants may achieve this rebate by
transacting the appropriate level of volume required by Tier 7.
The Exchange believes that the new NOM Market Maker Penny Pilot
Options Rebates to Add Liquidity tiers are reasonable because the
Exchange is offering NOM Market Makers the ability to obtain higher
rebates by posting liquidity on NOM. The Exchange proposes to pay NOM
Market Makers a Tier 1 Rebate to Add Liquidity of $0.25 per contract in
Penny Pilot Options for adding up to 39,999 contracts per day in a
month of Penny or Non-Penny Pilot Options. While the Exchange is paying
Customers and Professionals higher rebates for adding Penny Pilot
Options Customer and Professional liquidity in Tiers 1 and 2 for volume
up to 39,999 contracts,\25\ the NOM Market Maker can achieve that
volume by aggregating Penny and Non-Penny Pilot Options in order to
obtain a $0.25 per contract Tier 1 NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options and may be able to achieve the $0.30
per contract Tier 2 rebate, as is the case today, by adding Penny and
Non-Penny Pilot Options contract volume. The highest rebate a NOM
Market Maker can achieve with the proposed tier structure is $0.38 per
contract, which is higher than the current NOM Market Maker rebate of
$0.30 per contract and remains lower than the Customer and Professional
Tier 2 rebate, as is the case today. The Exchange believes that the
proposed NOM Market Maker rebate tier structure is reasonable because
the Exchange is incentivizing NOM Market Makers to earn higher rebates
by posting a greater number of contracts on NOM. NOM Market Makers are
valuable market participants that provide liquidity in the marketplace
and incur costs unlike other market participants. The Exchange believes
that encouraging NOM Market Makers to be more aggressive when posting
liquidity benefits all market participants through increased liquidity.
The Exchange believes that the NOM Market Maker rebate proposal is
equitable and not unfairly discriminatory because it does not misalign
the current rebate structure because NOM Market Makers will continue to
earn higher rebates as compared to Firms, Non-NOM Market Makers and
Broker-Dealers and will continue to earn lower rebates as compared to
Customers and Professionals for most rebate tiers except as described
herein, a NOM Market Maker will earn a lower Tier 1 rebate as compared
to the current $0.30 rebate.
---------------------------------------------------------------------------
\25\ The Exchange pays $0.26 per contract for Customer and
Professional Penny Pilot Options liquidity up to 24,999 contracts
per day in a month (Tier 1), $0.40 per contract for Customer and
Professional Penny Pilot Options liquidity between 25,000 and 34,999
contracts per day in a month (Tier 2) and $0.43 per contract for
Customer and Professional Penny Pilot Options liquidity between
35,000 to 74,999 contracts per day in a month (Tier 3).
---------------------------------------------------------------------------
With respect to the rebate tiers, the Exchange believes that the
tiers are reasonable because although Tier 1 pays a lower rebate of
$0.25 per contract as compared to today's NOM Market Maker rebate, as
mentioned herein, Participants may add NOM Market Maker liquidity in
either Penny Pilot or Non-Penny Pilot Options, up to 39,999 contracts
per day in a month, to obtain that rebate. Today, the Exchange
similarly allows Customers and Professionals to obtain rebates by
transacting Customer, Professional, Firm, Broker-Dealer, Non-NOM Market
Maker or NOM Market Maker volume in Penny Pilot Options or Non-Penny
Pilot Options which either adds or removes liquidity on NOM (known as
``Total Volume'') to qualify for a rebate. Likewise, the Exchange is
proposing that NOM Market Makers may qualify for Rebates to Add
Liquidity in Penny Pilot Options by transacting either Penny or Non-
Penny Pilot Options. The Exchange believes that incentivizing NOM
Market Makers to post liquidity in Penny and Non-Penny Pilot Options in
[[Page 16902]]
order to obtain a rebate is reasonable, equitable and not unfairly
discriminatory because participants will benefit through increased
order interaction and all NOM Market Makers have a similar opportunity
to obtain the rebate. As mentioned, the Exchange believes that NOM
Market Makers are provided an opportunity to qualify for a Tier 2
rebate, and obtain the same $0.30 per contract rebate as today, because
they can aggregate Penny and Non-Penny Pilot Options volume. A
Participant that adds NOM Market Maker liquidity in either Penny Pilot
or Non-Penny Pilot Options of 40,000 to 89,999 contracts per day in a
month would achieve the same $0.30 per contract rebate as NOM Market
Makers receive today. The Exchange believes that these first two NOM
Market Maker rebate tiers are reasonable because NOM Market Makers will
be incentivized to be more aggressive in posting liquidity on NOM to
achieve higher rebates or the same rebate. The Exchange believes that
rebate Tiers 1 and 2 are equitable and not unfairly discriminatory
because all NOM Market Makers may qualify for the tiers and every NOM
Market Maker is entitled to a rebate solely by adding one contract of
NOM Market Maker liquidity on NOM. Also, as mentioned, the NOM Market
Maker would receive a higher rebate in Tier 1 as compared to a Firm,
Non-NOM Market Maker or Broker-Dealer because of the obligations borne
by NOM Market Makers as compared to other market participants.
The Exchange's proposal to pay a Tier 3 NOM Market Maker rebate of
$0.32 per contract for Participants and its affiliates under Common
Ownership that qualify for the Tier 7 Customer and Professional Rebate
to Add Liquidity in Penny Pilot Options is reasonable because as
mentioned herein, NOM Market Makers are valuable market participants
that provide liquidity in the marketplace and incur costs unlike 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. Encouraging NOM Market Makers
to add greater liquidity benefits all Participants in the quality of
order interaction. By further incentivizing Participants to achieve the
Tier 7 Customer and Professional Rebate to Add Liquidity, the Exchange
is seeking to add a greater amount of Customer and Professional
liquidity to the marketplace which benefits all Participants as well as
reduce costs not only to Professionals and Customers in paying the Tier
7 Customer and Professional rebate, but also NOM Market Makers by
offering the Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny
Pilot Options. The Exchange's proposal to pay a Tier 3 rebate of $0.32
per contract for Participants and its affiliates under Common Ownership
that qualify for the Tier 7 Customer and Professional Rebate to Add
Liquidity in Penny Pilot Options is equitable and not unfairly
discriminatory because all NOM Market Makers may qualify for the Tier 3
NOM Market Maker rebate provided they are able to qualify for the Tier
7 Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options. As mentioned herein, there are various opportunities to
achieve a Tier 7 Customer and Professional Rebate to Add Liquidity in
Penny Pilot Options.
The Exchange's proposal to pay a Tier 4 NOM Market Maker rebate of
$0.32\26\ or $0.38 per contract in EEM, GLD, IWM, QQQ, SPY, VXX and XLF
if the Participant adds NOM Market Maker liquidity of 90,000 or more
contracts per day in a month is reasonable because the Exchange
believes that offering NOM Market Makers the ability to obtain higher
rebates will encourage additional order interaction. The Exchange's
proposal to pay a Tier 4 NOM Market Maker rebate of $0.32\27\ or $0.38
per contract in EEM, GLD, IWM, QQQ, SPY, VXX and XLF if the Participant
adds NOM Market Maker liquidity of 90,000 or more contracts per day in
a month is equitable and not unfairly discriminatory because all NOM
Market Makers may qualify for the Tier 4 NOM Market Maker rebate.
---------------------------------------------------------------------------
\26\ The Exchange would pay $0.32 per contract rebate for all
other qualifying Penny Pilot Options excluding EEM, GLD, IWM, QQQ,
SPY, VXX and XLF.
\27\ The Exchange would pay $0.32 per contract rebate for all
other qualifying Penny Pilot Options excluding EEM, GLD, IWM, QQQ,
SPY, VXX and XLF.
---------------------------------------------------------------------------
The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to adopt specific pricing for EEM, GLD, IWM,
QQQ, SPY, VXX and XLF because pricing by symbol is a common practice on
many U.S. options exchanges as a means to incentivize order flow to be
sent to an exchange for execution in the most actively traded options
classes, in this case actively traded Penny Pilot Options.\28\ The
Exchange notes that EEM, GLD, IWM, QQQ, SPY, VXX and XLF are some of
the most actively traded options in the U.S. The Exchange believes that
this pricing will incentivize members to transact options on EEM, GLD,
IWM, QQQ, SPY, VXX and XLF on NOM in order to obtain the higher $0.38
per contract rebate.
---------------------------------------------------------------------------
\28\ See Phlx's Pricing Schedule. See also the International
Securities Exchange LLC's Fee Schedule. Both of these markets
segment pricing by symbol.
---------------------------------------------------------------------------
The Exchange believes that its proposal to increase the NOM Market
Maker Non-Penny Pilot Fee for Adding Liquidity from $0.25 to $0.35 per
contract and the Fee for Removing Liquidity from $0.82 to $0.85 per
contract is reasonable because the Exchange desires to offer NOM Market
Makers the opportunity to earn higher rebates by transacting Penny and
Non-Penny Pilot Options, which order flow benefits other market
participants. These fees will assist the Exchange in offering such
rebates. The Exchange believes that its proposal to increase the NOM
Market Maker Non-Penny Pilot Fee for Adding Liquidity from $0.25 to
$0.35 per contract and the Fee for Removing Liquidity from $0.82 to
$0.85 per contract is equitable and not unfairly discriminatory because
the Exchange would continue to assess lower fees to NOM Market Makers,
as compared to all other Participants except Customers,\29\ as is the
case today, because NOM Market Makers add value through continuous
quoting\30\ and the commitment of capital.
---------------------------------------------------------------------------
\29\ Customers do not pay Non-Penny Pilot Fees for Adding
Liquidity and today are assessed an $0.82 per contract Non-Penny
Pilot Fee for Removing Liquidity.
\30\ 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.
---------------------------------------------------------------------------
With respect to Tier 3, the Exchange proposes to pay the $0.32 per
contract rebate to Participants or its affiliates under Common
Ownership that qualify for Tier 7. The Exchange proposes to allow
Participants to aggregate their volume with affiliates in order to
qualify for this Tier of the NOM Market Maker Rebate to Add Liquidity
in Penny Pilot Options. The Exchange also proposes to permit
Participants to allow NOM Participants under Common Ownership to
aggregate their volume to qualify for the rebate. The Exchange believes
that its proposal to permit Participants under Common Ownership to
aggregate their volume is reasonable, equitable and not unfairly
discriminatory because the Exchange would permit all Participants
[[Page 16903]]
the ability to aggregate for purposes of the rebates if certain
Participants chose to operate under separate entities.
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. Customers have
traditionally been paid the highest rebates offered by options
exchanges. While the Exchange's proposal results in a Professional
receiving a higher rebate as compared to a NOM Market Maker, in certain
circumstances, the Exchange does not believe the proposed rebate tiers
would result in any burden on competition as between market
participants. The Exchange's proposal also aligns the Non-NOM Market
Maker Penny Pilot Rebate to Add Liquidity with that of a Firm and
Broker-Dealer. The Exchange's proposal to increase Non-Penny Pilot
Options Fees for Adding and Removing Liquidity does not misalign the
current fees as NOM Market Makers will continue to be assessed lower
fees as compared to a Non-NOM Market Maker, Firm or Broker-Dealer
because of the additional obligations that are required of NOM Market
Makers as compared to these market participants. Customers continue to
pay a lower Fee for Removing Liquidity in Non-Penny Pilot Options,
which is currently the case for most fees on NOM which are either not
assessed to a Customer or where a Customer is assessed the lowest fee
because of the liquidity such order flow brings to the Exchange.
The Exchange believes that offering Customers and 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 Customer and Professional
order flow. The Exchange believes that incentivizing NOM Market Makers
to post liquidity on NOM benefits market participants through increased
order interaction.
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.\31\ 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.
---------------------------------------------------------------------------
\31\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2013-041 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-2013-041. 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 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-2013-041, and should
be submitted on or before April 9, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06292 Filed 3-18-13; 8:45 am]
BILLING CODE 8011-01-P
