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, 21691-21699 [2013-08468]
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Federal Register / Vol. 78, No. 70 / Thursday, April 11, 2013 / Notices
meets or exceeds the proposed Incentive
Program LMM performance standards
for an assigned ETP, as determined by
the Exchange. The Exchange further
believes that the range of credits, which
would be paid from the Exchange’s
general revenues, is fair and equitable in
light of the LMM’s obligations and
proposed Incentive Program LMM
performance standards, which would be
higher than the standards for LMMs not
participating in the Incentive Program.
Finally, for the reasons stated above,
the Exchange believes that the Incentive
Program would be designed to mitigate
risks and concerns that FINRA Rule
5250 addresses and that the
Commission should provide exemptive
relief from Rule 102 of Regulation M for
the Incentive Program.38
B. Self-Regulatory Organization’s
Statement on Burden on Competition
TKELLEY on DSK3SPTVN1PROD with NOTICES
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange believes that the
Incentive Program, which is entirely
voluntary, would encourage
competition among markets for issuers’
listings and among Market Makers for
LMM assignments. The Incentive
Program is designed to improve the
quality of market for lower-volume
ETPs, thereby incentivizing them to list
on the Exchange. The competition for
listings among the exchanges is fierce.
The Exchange notes that BATS
Exchange, Inc. (‘‘BATS’’) has already
implemented a program similar to the
Exchange’s proposed Incentive
Program,39 and NASDAQ has received
approval to do so as well.40
In addition, the Exchange believes
that the Incentive Program will properly
promote competition among Market
Makers to seek assignment as the LMM
for eligible ETPs. As described in detail
above, the Exchange believes that
market quality is significantly enhanced
for ETPs with an LMM as compared to
ETPs without an LMM. The Exchange
believes that market quality would be
even further enhanced as a result of the
proposed Incentive Program LMM
performance standards that the
Exchange would impose on LMMs in
38 See
supra note 33.
Interpretation and Policy .02 of BATS Rule
11.8. See also Securities Exchange Act Release Nos.
66307 (February 2, 2012), 77 FR 6608 (February 8,
2012) (SR–BATS–2011–051) and 66427 (February
21, 2012), 77 FR 11608 (February 27, 2012) (SR–
BATS–2012–011).
40 See Securities Exchange Act Release No. 69195
(March 20, 2013), 78 FR 18393 (March 26, 2013)
(SR–NASDAQ–2012–137).
39 See
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the Incentive Program. The Exchange
anticipates that the increased activity of
these LMMs would attract other market
participants to the Exchange, and could
thereby lead to increased liquidity on
the Exchange in such ETPs. For these
reasons, the Exchange does not believe
that the proposed rule change would
impose any unnecessary or
inappropriate burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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. The
Commission previously received
comments on SR–NYSEArca–2012–37,
which proposed rule change was
withdrawn by the Exchange,41 and all
such comments are available on the
Commission’s Internet Web site (https://
www.sec.gov/rules/sro.shtml.
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–NYSEArca–2013–34 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
41 See
PO 00000
supra note 4.
Frm 00102
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100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2013–34. 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 Section, 100 F Street NE.,
Washington, DC 20549–1090, on official
business days between 10:00 a.m. and
3:00 p.m. Copies of the filing also will
be available for inspection and copying
at the principal office of the Exchange.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2013–34 and
should be submitted on or before May
2, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–08444 Filed 4–10–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69321; File No. SR–
NASDAQ–2013–062]
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
April 5, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
42 17
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CFR 200.30–3(a)(12).
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Federal Register / Vol. 78, No. 70 / Thursday, April 11, 2013 / Notices
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 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.
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.
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 Fees for Removing
Liquidity and the Customer Non-Penny
Pilot Options 4 Rebate to Add Liquidity.
While the changes proposed herein
are effective upon filing, the Exchange
has designated that the amendments be
operative on April 1, 2013.
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.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
fees assessed for option orders entered
into NOM. First, the Exchange proposes
to amend the Customer,5 Professional 6
and NOM Market Maker 7 Penny Pilot
Options Rebates to Add Liquidity.
Second, the Exchange proposes to
increase the Professional, Firm,8 NonNOM Market Maker 9 and BrokerDealer 10 Penny Pilot Options Fees for
Removing Liquidity. Third, the
Exchange proposes to amend the
Customer Non-Penny Pilot Rebate to
Add Liquidity.
Penny Pilot Rebates to Add Liquidity
The Exchange proposes to amend the
Customer and Professional Rebates to
Add Liquidity in Penny Pilot Options in
order to continue to offer competitive
Customer and Professional rebates to
attract liquidity to the market.
Currently, the Exchange has a seven tier
Customer and Professional Rebate to
Add Liquidity structure in Penny Pilot
Options as follows:
1. Purpose
NASDAQ proposes to modify Chapter
XV, entitled ‘‘Options Pricing,’’ at
Section 2(1) governing the rebates and
Rebate to
Add Liquidity
Monthly Volume
Tier 1 ...........................
Tier 2 ...........................
Tier 3 ...........................
Tier 4 ...........................
Tier 5 ...........................
Participant adds Customer and Professional liquidity of up to 24,999 contracts per day in a
month.
Participant adds Customer and Professional liquidity of 25,000 to 34,999 contracts per day
in a month.
Participant adds Customer and Professional liquidity of 35,000 to 74,999 contracts per day
in a month.
Participant adds Customer and Professional liquidity of 75,000 or more contracts per day in
a month.
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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Penny Pilot was established in March 2008
and in October 2009 was expanded and extended
through 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
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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’’ 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’’ means any person or
entity that (i) is not a broker or dealer in securities,
and (ii) places more than 390 orders in listed
PO 00000
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$0.26
0.40
0.43
0.44
0.42
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 ‘‘NOM Market Maker’’ 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.
8 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at OCC.
9 The term ‘‘Non-NOM Market Maker’’ 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.
10 The term ‘‘Broker-Dealer’’ applies to any
transaction which is not subject to any of the other
transaction fees applicable within a particular
category.
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Rebate to
Add Liquidity
Monthly Volume
Tier 6 ...........................
Tier 7 ...........................
21693
Participant has Total Volume of 130,000 or more contracts per day in a month, of which
25,000 or more contracts per day in a month must be Customer or Professional liquidity.
Participant (1) has Total Volume of 325,000 or more contracts per day in a month, or (2)
adds Customer or Professional liquidity of 1.00% or more of national customer volume in
multiply-listed equity and ETF options classes in a month or (3) adds Customer or 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.
0.46
0.48
TKELLEY on DSK3SPTVN1PROD with NOTICES
Today, the Exchange determines if a
Participant qualifies for a Customer or
Professional Rebate to Add Liquidity in
Penny Pilot Options for purposes of
Tiers 1 through 4 by totaling Customer
and Professional contracts per day in
month. The Exchange proposes to
modify the manner in which
Participants qualify for Tiers 1 through
4 of the Customer and Professional
Rebate to Add Liquidity in Penny Pilot
Options by amending the metric from a
fixed average daily volume number to a
percentage of total industry customer
equity and ETF options average daily
volume (‘‘ADV’’) in Tiers 1 through 4.11
Currently, a Participant that adds
Customer and Professional liquidity of
up to 24,999 contracts per day in a
month qualifies for the $0.26 per
contract Tier 1 Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options. The Exchange
proposes to amend Tier 1 to require a
Participant to add Customer and
Professional liquidity of up to 0.20% of
total industry customer equity and ETF
option ADV contracts per day in a
month to earn a Tier 1 rebate. In
addition, the Exchange proposes to
lower the current Tier 1 Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options from $0.26 to $0.25
per contract. Currently, a Participant
that adds Customer and Professional
liquidity of 25,000 to 34,999 contracts
per day in a month qualifies for a $0.40
per contract Tier 2 Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options. The Exchange
proposes to amend Tier 2 to require a
Participant to add Customer and
Professional liquidity of 0.21% to 0.30%
of total industry customer equity and
ETF option ADV contracts per day in a
month to receive a $0.40 per contract
rebate. Currently, the Tier 3 Customer
and Professional rebate pays $0.43 per
contract to Participants that add
Customer and Professional liquidity of
35,000 to 74,999 contracts per day in a
month. The Exchange proposes to
amend Tier 3 to require a Participant to
add Customer and Professional liquidity
of 0.31% to 0.49% of total industry
customer equity and ETF option ADV
contracts per day in a month to receive
a rebate of $0.43 per contract. Currently,
the Tier 4 Customer and Professional
rebate pays $0.44 per contract to
Participants that add Customer and
Professional liquidity of 75,000 or more
contracts per day in a month. The
Exchange proposes to amend Tier 4 to
require a Participant to add Customer
and Professional liquidity of 0.5% or
more of total industry customer equity
and ETF option ADV contracts per day
in a month. In addition, the Exchange
proposes to increase the current Tier 4
Customer and Professional Rebate to
Add Liquidity in Penny Pilot Options
from $0.44 to $0.45 per contract. The
Exchange does not propose to amend
the Customer and Professional Tier 5
rebate.12 The Exchange proposes to
lower the current Tier 6 Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options, for Participants
that have Total Volume 13 of 130,000 or
more contracts per day in a month, of
which 25,000 or more contracts per day
in a month must be Customer or
Professional liquidity, from $0.46 to
$0.45 per contract. The Exchange
proposes to rename current Tier 7,
which currently pays a $0.48 per
contract rebate to Participants that have
(1) Total Volume of 325,000 or more
contracts per day in a month, or (2) add
Customer or Professional liquidity of
1.00% or more of national customer
volume in multiply-listed equity and
ETF options classes in a month or (3)
add Customer or Professional liquidity
of 60,000 or more contracts per day in
a month and NOM Market Maker
liquidity of 30,000 or more contracts per
day per month, as Tier 8. The Exchange
also proposes to amend the third prong
of the qualifications for newly named
Tier 8 to increase the amount of NOM
Market Maker liquidity from 30,000 to
40,000 or more contracts per day per
month.14 The Exchange proposes to
adopt a new Tier 7 Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options which would pay
$0.47 per contract to Participants that
have Total Volume of 175,000 or more
contracts per day in a month, of which
50,000 or more contracts per day in a
month must be Customer or Professional
liquidity. The Exchange also proposes to
amend corresponding notes b and c to
reflect the addition of new Tier 7 and
renamed Tier 8 and refer to both tiers
in the notes which describe the
application of the Total Volume
definition and Common Ownership
aggregation.
The Exchange also proposes to amend
the NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options to
incentivize NOM Market Makers to post
liquidity on the Exchange. Currently,
the Exchange has a four tier NOM
Market Maker Rebate to Add Liquidity
structure in Penny Pilot Options as
follows:
11 Other options exchanges similarly utilize a
number representative of the industry. See the
Chicago Board Options Exchange, Incorporated’s
(‘‘CBOE’’) Fees Schedule. 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 also NASDAQ OMX PHLX
LLC (‘‘Phlx’’) which calculates Customer Rebates
based on a certain number contracts transacted in
a month with a tier structure based on relative
contracts per month as a percentage of total national
customer volume in multiply-listed options
transacted on Phlx would serve to control and
account for industry-wide movements. See Phlx’s
Pricing Schedule.
12 The Tier 5 rebate pays a $0.42 per contract
rebate to Participants that add (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.
13 ‘‘Total Volume’’ is defined 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.
14 The Exchange proposes to add the word
‘‘contracts’’ to the text of renamed Tier 8 for clarity.
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Federal Register / Vol. 78, No. 70 / Thursday, April 11, 2013 / Notices
Monthly Volume
Tier 1 ............................
Tier 2 ............................
Tier 3 ............................
TKELLEY on DSK3SPTVN1PROD with NOTICES
Tier 4 ............................
Participant adds NOM Market Maker liquidity in Penny Pilot Options and Non-Penny Pilot
Options of up to 39,999 contracts per day in a month.
Participant adds NOM Market Maker liquidity in Penny Pilot Options and Non-Penny Pilot
Options of 40,000 to 89,999 contracts per day in a month.
Participant and its affiliate under Common Ownership qualifies for Tier 7 of the Customer
and Professional Rebate to Add Liquidity in Penny Pilot Options.
Participant adds NOM Market Maker liquidity of 90,000 or more contracts per day in a month
Currently, the Tier 1 NOM Market
Maker Penny Pilot rebate pays $0.25 per
contract to 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 amend the
Tier 1 rebate to state that Participants
that add NOM Market Maker liquidity
in Penny Pilot Options of up to 39,999
contracts per day in a month qualify for
the $0.25 per contract rebate. The
Exchange would not include Non-Penny
Pilot Options volume when calculating
the rebate. Currently, the Tier 2 NOM
Market Maker Penny Pilot rebate pays
$0.30 per contract for Participants that
add NOM Market Maker liquidity in
Penny Pilot Options and Non-Penny
Pilot Options of 40,000 to 89,999
contracts per day in a month. The
Exchange proposes to amend the Tier 2
NOM Market Maker rebate to state that
Participants that add NOM Market
Maker liquidity in Penny Pilot Options
of 40,000 to 109,999 contracts per day
in a month qualify for the $0.30 per
contract rebate. The Exchange would
not include Non-Penny Pilot Options
volume when calculating the rebate.
The Exchange is proposing to amend the
number of qualifying contracts in Tier 2
of the NOM Market Maker rebate from
40,000 to 89,999 contracts to 40,000 to
109,999 contracts. Today Participants
that transact 90,000 or more Penny Pilot
Options contracts qualify for the $0.32
per contract Tier 4 rebate, or in the case
of certain symbols (BAC, GLD, IWM,
QQQ, VXX and SPY) 15 a $0.38 per
contract rebate. The proposed Tier 2
amendment would offer Participants
that transact between 90,000 to 109,999
Penny Pilot Options contracts the Tier
2 rebate of $0.30 per contract. If a
Participant transacts 110,000 or more
Penny Pilot Options contracts the
Participant would qualify for the
proposed Tier 4 rebate as described
more fully below. Currently, the Tier 3
NOM Market Maker Penny Pilot rebate
15 The Tier 4 symbols eligible for an increased
NOM Market Maker rebate are described more fully
below.
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pays $0.32 per contract to Participants
and its affiliates under Common
Ownership 16 that qualify for the Tier 7
Customer and Professional Rebate to
Add Liquidity in Penny Pilot Options.
The Exchange proposes to amend Tier 3
to increase the rebate from $0.32 to
$0.37 per contract and pay such a rebate
to Participants and its affiliates under
Common Ownership that qualify for the
Tier 8 Customer and Professional Rebate
to Add Liquidity in Penny Pilot
Options. The Exchange proposes to
replace the reference to Tier 7 with
renamed Tier 8. Finally, the Tier 4 NOM
Market Maker rebate currently pays
$0.32 17 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 proposes to amend Tier 4 to
pay a rebate of $0.28 18 or $0.38 in the
following symbols, Bank of America
Corporation (‘‘BAC’’),19 SPDR Gold
Shares (‘‘GLD’’), iShares Russell 2000
Index (‘‘IWM’’), PowerShares QQQ
(‘‘QQQ’’), iPath S&P 500 VIX ST Futures
16 The
term ‘‘Common Ownership’’ shall mean
Participants under 75% common ownership or
control.
17 Today, the Exchange pays a $0.32 per contract
rebate for all other qualifying Penny Pilot Options
excluding EEM, GLD, IWM, QQQ, SPY, VXX and
XLF.
18 The $0.28 per contract Tier 4 NOM Market
Maker rebate would be paid on all qualifying Penny
Pilot Options, excluding BAC, GLD, IWM, QQQ,
VXX and SPY. This is a reduction from the current
$0.32 per contract rebate paid on qualifying
contracts. The Exchange proposes to amend the text
of Tier 3 to change the word ‘‘qualifies’’ to
‘‘qualify.’’
19 Participants transacting a qualifying number of
BAC contracts today receive a $0.32 per contract
Tier 4 NOM Market Maker rebate. Pursuant to this
proposal, Participants transacting a qualifying
number of BAC contracts would receive a $0.38 per
contract Tier 4 NOM Market Maker rebate.
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$0.25
$0.30
$0.32
$0.32 or $0.38 in the
following symbols
EEM, GLD, IWM,
QQQ, SPY, VXX
and XLF
ETN (‘‘VXX’’),20 or $0.40 per contract in
SPDR S&P 500 (‘‘SPY’’) 21 if Participants
add NOM Market Maker liquidity in
Penny Pilot Options of 110,000 or more
contracts per day in a month. Today all
NOM Market Maker liquidity counts
toward qualifying for the Tier 4 NOM
Market Maker rebate and the Exchange
proposes to include only Penny Pilot
Options as qualifying volume. Also, the
number of contracts is increasing from
90,000 to 110,000 or more contracts per
day in a month. As described above,
Participants transacting between 90,000
to 109,999 Penny Pilot Options
contracts would now qualify for the
proposed NOM Market Maker Tier 2
rebate and would receive a $0.30 per
contract rebate. The Exchange believes
that offering NOM Market Makers the
ability to obtain higher rebates in highly
liquid symbols will encourage NOM
Market Makers to post greater liquidity
on NOM. In the instance that a
Participant qualifies for both a Tier 3
and a Tier 4 NOM Market Maker Penny
Pilot Option rebate, the Exchange would
pay the Participant the Tier 3 rebate
($0.37 per contract) unless the
Participant is eligible for an increased
rebate in one of the following symbols:
BAC, GLD, IWM, QQQ, VXX and SPY,
then the Tier 4 rebate would be applied
(either $0.38 or $0.40 per contract). The
Exchange would not pay both rebates.
Penny Pilot Fees for Removing Liquidity
The Exchange proposes to amend the
Fees for Removing Liquidity in Penny
Pilot Options. Today, Professionals,
Firms, Non-NOM Market Makers, NOM
Market Makers and Broker-Dealers are
currently assessed a $0.47 per contract
Fee for Removing Liquidity in a Penny
20 The Exchange is eliminating EEM and XLF
from the symbols eligible for the higher $0.38 per
contract rebate for Participants that qualify for the
Tier 4 NOM Market Maker Rebate to Add Liquidity.
Participants that transact a qualifying number of
EEM and XLF contracts would be entitled to the
proposed $0.28 per contract Tier 4 NOM Market
Maker rebate.
21 The Exchange increased the rebate applicable
for SPY for Participants qualifying for the Tier 4
NOM Market Maker Rebate to Add Liquidity from
$0.38 to $0.40 per contract.
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Pilot Option.22 Today, this Penny Pilot
Option Fee for Removing Liquidity is
reduced by $0.01 per contract for
Professionals, Firms, Non-NOM Market
Makers, NOM Market Makers and
Broker-Dealers for transactions in which
the same NOM Participant or a NOM
Participant under common ownership is
the buyer and the seller. First, the
Exchange proposes to increase the
Penny Pilot Fee for Removing Liquidity
for Professionals, Firms, Non-NOM
Market Makers and Broker-Dealers from
$0.47 to $0.48 per contract.23 Second,
the Exchange proposes to eliminate the
$0.01 per contract reduction for
Professionals, Firms, Non-NOM Market
Makers, NOM Market Makers and
Broker-Dealers for transactions in which
the same NOM Participant or a NOM
Participant under common ownership is
the buyer and the seller.24 The Exchange
is increasing the Fees for Removing
Liquidity in Penny Pilot Options so that
it will be able to continue to offer
additional rebates to Customers,
Professionals and NOM Market Makers
to attract liquidity and encourage order
interaction on NOM.
TKELLEY on DSK3SPTVN1PROD with NOTICES
Non-Penny Pilot Rebate to Add
Liquidity
The Exchange proposes to amend the
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options. Today, the
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options, including
NDX, is $0.80 per contract, unless a
market participant adds Customer
Liquidity in either or both Penny Pilot
or Non-Penny Pilot Options (including
NDX) of 115,000 contracts per day in a
month, then the Customer Rebate to
Add Liquidity in Non-Penny Pilot
Options is $0.81 per contract.25 The
Exchange proposes to eliminate the
current Customer rebates that are
specified for the Customer Rebate to
Add Liquidity in Non-Penny Pilot
Options in note 3 and instead pay a flat
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options of $0.81 per
contract. Today, no other market
22 The Customer Penny Pilot Fee for Removing
Liquidity is $0.45 per contract. This fee is not being
amended.
23 The NOM Market Maker Penny Pilot Fee for
Removing Liquidity will remain at $0.47 per
contract although, similar to other market
participants, NOM Market Makers will no longer
receive a $0.01 per contract fee reduction for
transactions in which the same NOM Participant or
a NOM Participant under common ownership is the
buyer and the seller. The elimination of the $0.01
per contract fee is discussed below.
24 Today, Customers are not offered the $0.01
reduction to the Penny Pilot Option Fee for
Removing Liquidity.
25 NOM Participants under common ownership
may aggregate their Customer volume to qualify for
the increased Customer rebate.
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participant receives a Rebate to Add
Liquidity in Non-Penny Pilot Options.
The Exchange also proposes to
renumber note 2 as note 1 because
current note 1 is being deleted from
Chapter XV, Section 2 along with note
3, as described herein. The Exchange
also made other technical amendments
for grammatical purposes to the Chapter
XV, Section 2 pricing.
2. Statutory Basis
NASDAQ believes that the proposed
rule changes are consistent with the
provisions of Section 6 of the Act,26 in
general, and with Section 6(b)(4) of the
Act,27 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 as
described in detail below.
Penny Pilot Rebates to Add Liquidity
The Exchange’s proposal to amend
the Penny Pilot Rebates to Add
Liquidity is reasonable because the
Exchange will continue to offer
competitive Customer and Professional
rebates in order to attract liquidity to the
market to the benefit of all market
participants. The Exchange also 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
post liquidity will also benefit
participants through increased order
interaction.
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 continuing to pay Customers and
Professionals tiered Rebates 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 Rebates to Add
Liquidity in Penny Pilot Options of
$0.25 per contract to Customers,
Professionals and NOM Market Makers
for transacting one qualifying contract
as compared to other market
26 15
27 15
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U.S.C. 78f(b)(4).
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21695
participants.28 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 Professionals the same Penny Pilot
Options Rebates to Add Liquidity as
Customers is equitable and not unfairly
discriminatory for the reasons which
follow. 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. 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.’’ 29 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.’’ 30 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,
28 Firms, Non-NOM Market Makers and BrokerDealers receive a $0.10 per contract Penny Pilot
Option Rebate to Add Liquidity.
29 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.
30 See Securities Exchange Act Release No. 64494
(May 13, 2011), 76 FR 29014 (May 19, 2011) (SR–
NASDAQ–2011–066).
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TKELLEY on DSK3SPTVN1PROD with NOTICES
accomplishes this objective.31 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 and NOM Market Makers, as
discussed herein.32 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 NonNOM Market Makers, Firms and Broker
Dealers because NOM Market Makers
add value through continuous quoting33
and the commitment of capital.
The Exchange’s proposal to amend
the Customer and Professional Rebates
to Add Liquidity in Penny Pilot Options
is reasonable 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. The
Exchange’s proposal to convert the
qualification for Customer and
Professional rebate Tiers 1 through 4
from a metric which calculates the fixed
average daily volume to a percentage of
total industry customer equity and ETF
options ADV 34 is reasonable because it
31 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.
32 The Fee for Removing Liquidity in Penny Pilot
Options would be $0.48 per contract for all market
participants, except Customers and NOM Market
Makers. Customers are assessed $0.45 per contract
and NOM Market Makers would continue to be
assessed $0.47 per contract.
33 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.
34 It is important to note that the Exchange
utilizes data from OCC to determine the total
industry customer equity and ETF options ADV
figure. OCC classifies equity and ETF options
volume under the equity options category. Also,
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allows the Exchange to control and
account for changes in the national
industry-wide customer volume. Market
participants will continue to receive
rebates on Customer and Professional
volume as is the case today and in most
cases similar to the rebates that they
receive today. The proposed tier
percentages approximate the contract
volume numbers that are captured in
the Customer and Professional rebate
tiers today. For example, Tier 2 of the
Customer and Professional rebate
requires Participants to transact between
25,000 and 34,999 contacts per day in
a month. The proposed percentages of
total industry customer equity and ETF
volume for Tier 2, which are 0.21% to
0.30%, are approximately the volume
numbers that are required today to
qualify for a Tier 2 Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options.35 The same is true
for Tiers 1 and 3 in terms of volume
requirements. The Exchange proposes to
reduce the qualifying number of
contracts per day in a month with
respect to the Tier 4 Customer and
Professional rebates. Currently, a
Participant must transact 75,000 or more
contracts per day in a month to qualify
for a Tier 4 Customer and Professional
rebate. The Exchange is proposing to
amend the Tier 4 Customer and
Professional Rebate to Add Liquidity
today in Penny Pilot Options to require
Participants to transact 0.5% or more of
total industry customer equity and ETF
option ADV to qualify for the rebate.
This percentage is a lower
approximation of the volume required
today to qualify for the Tier 4 rebate.
With this proposal, Participants should
be able to qualify for Tier 4 with less
volume than is the case today. The
Exchange’s proposal to amend current
Tier 7 to rename it Tier 8 and amend the
third prong of the qualifications for
newly named Tier 8 to increase the
amount of NOM Market Maker liquidity
from 30,000 to 40,000 or more contracts
per day in a month should incentivize
NOM Market Makers to post additional
liquidity. Current Tier 7 allows
Participants to achieve the rebate in a
both customer and professional orders that are
transacted on options exchanges clear in the
customer range at OCC and therefore both customer
and professional volume would be included in the
total industry figure to calculate rebate tiers. This
is the case today for the Total Volume number that
appears in Tiers 6 and 7 of the Customer and
Professional rebate today, which includes Customer
and Professional numbers in both the numerator
and denominator of that percentage.
35 The month to date volume number for March
2013, utilizing OCC total industry customer equity
and ETF option ADV, is 11,248,136. Therefore, in
this example, 0.31% would be ∼34,869 contracts
and 0.49% would be ∼55,115 contracts per day.
PO 00000
Frm 00107
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number of ways,36 and this amendment
only impacts one of the ways in which
a Participant may obtain the rebate.
With respect to the current Customer
and Professional rebate tiers, the
Exchange is lowering the Tier 1 rebate
from $0.26 to $0.25 per contract. This
would equate the Tier 1 rebate for
Customers and Professionals with the
Tier 1 rebate paid to NOM Market
Makers. While the Exchange is reducing
this rebate, it believes that Participants
will continue to be incentivized to
transact Customer and Professional
Penny Pilot Orders on NOM to receive
the rebate. 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
first qualifying order is entitled to the
rebate. The Exchange is increasing the
rebate for the Tier 4 Customer and
Professional rebate from $0.44 to $0.45
per contract. In combination with
requiring less qualifying contracts, given
today’s current industry volume, and
offering a higher rebate, the Exchange
believes that Participants may be
incentivized to transact the requisite
number of orders to qualify for the Tier
4 Customer and Professional rebate in
Penny Pilot Options. The Exchange also
proposes to decrease the rebate offered
on the Tier 6 Customer and Professional
rebate 37 from $0.46 to $0.45 per
contract. The Exchange believes that
Participants will continue to be
incentivized to transact Total Volume 38
of 130,000 or more contracts per day in
a month of which 25,000 or more
contracts must be Customer or
Professional liquidity. In addition, the
Exchange is offering Participants the
opportunity to earn a higher rebate of
$0.47 per contract with new Tier 7.39
The Exchange believes that its proposal
to adopt a new Tier 7 Customer and
36 Today, a Participant may qualify for the Tier 7
rebate if the Participant (1) has Total Volume of
325,000 or more contracts per day in a month, or
(2) adds Customer or Professional liquidity of
1.00% or more of national customer volume in
multiply-listed equity and ETF options classes in a
month or (3) adds Customer or 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.
37 In order to qualify for a Tier 6 Customer and
Professional Rebate to Add Liquidity in Penny Pilot
Options, a Participant must have Total Volume of
130,000 or more contracts per day in a month, of
which 25,000 or more contracts per day in a month
must be Customer or Professional liquidity.
38 Total Volume is defined 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.
39 Current Tier 7 of the Customer and Professional
Penny Pilot Rebate to Add Liquidity is being
renamed Tier 8.
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TKELLEY on DSK3SPTVN1PROD with NOTICES
Professional rebate which requires
Participants to transact a Total Volume
of 175,000 or more contracts per day in
a month, of which 50,000 or more
contracts per day in a month must be
Customer or Professional liquidity is
reasonable because it offers Participants
an additional opportunity to earn a
higher rebate.
The Exchange believes that the
addition of new Tier 7 and the
aforementioned amendments to the
Customer and Professional Rebates to
Add Liquidity in Penny Pilot Options
are reasonable because these
amendments should incentivize market
participants to increase the amount of
Customer and Professional orders that
are transacted on NOM in order to
obtain rebates. In addition, other
exchanges employ similar incentive
programs.40 The Exchange believes that
the addition of new Tier 7 and the
aforementioned amendments to the
Customer and Professional Rebates to
Add Liquidity in Penny Pilot Options
are equitable and not unfairly
discriminatory because these
amendments will be applied to all
market participants in a uniform matter.
Any market participant is eligible to
receive the rebate provided they transact
a qualifying amount of Customer and
Professional volume in Penny Pilot
Options.
The Exchange’s proposal to amend
corresponding notes b and c is
reasonable, equitable and not unfairly
discriminatory because the amendments
conform the notes to the amendments in
the Customer and Professional rebate
tiers and provide clarity to the rebates.
The Exchange’s proposal to amend
the NOM Market Maker Rebates to Add
Liquidity in Penny Pilot Options is
reasonable because it should incentivize
NOM Market Makers to post liquidity
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
40 See CBOE Fees Schedule. CBOE offers each
Trading Permit Holder (‘‘TPH’’) a credit for each
public customer order transmitted by the TPH
which is executed electronically in all multiplylisted 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 also Phlx’s
Pricing Schedule at Section B which contains the
Customer Rebate Program.
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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
earn the same or lower rebates as
compared to Customers and
Professionals.41 The Exchange’s
proposal to amend Tiers 1 and 2 of the
NOM Market Maker Penny Pilot Rebates
to Add Liquidity to exclude Non-Penny
Pilot Options is reasonable because the
Exchange believes that permitting only
Penny Pilot Options to count toward the
rebate would continue to incentivize
NOM Market Makers to post liquidity.
The Exchange’s proposal to amend the
number of qualifying contracts in Tier 2
of the NOM Market Maker rebate from
40,000 to 89,999 contracts to 40,000 to
109,999 contracts is reasonable because
Participants that transact between
90,000 to 109,999 contracts of Penny
Pilot Options would be entitled to
receive a $0.30 per contract rebate as
compared to the proposed $0.28 per
contract Tier 4 rebate, provided the
liquidity is in a symbol other than BAC,
GLD, IWM, QQQ, VXX and SPY, in
which case the Participant would
receive a decreased rebate compared to
the $0.38 per contract rebate. The
Exchange’s proposal seeks to encourage
Participants to add liquidity in BAC,
GLD, IWM, QQQ, VXX and SPY in order
to obtain a higher rebate of $0.38 or
$0.40 (SPY) per contract and otherwise
offers Participants a higher rebate
between 90,000 to 109,999 contracts in
other symbols. The Exchange’s proposal
to increase the Tier 3 NOM Market
Maker Rebate to Add Liquidity in Penny
Pilot Options42 from $0.32 to $0.37 per
contract is reasonable because the
increased rebate will continue to
incentivize NOM Market Makers to post
liquidity in order to obtain the higher
rebate. The Exchange’s proposal to
amend the text of Tier 3 of the NOM
Market Maker Rebate to Add Liquidity
in Penny Pilot Options to refer to
renamed ‘‘Tier 8’’ is reasonable because
pursuant to this proposal, the Exchange
renamed current Tier 7 of the Customer
and Professional Rebate to Add
Liquidity in Penny Pilot Options as Tier
8. The Exchange is simply amending the
41 The Tier 1 NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options is the same rebate
as the proposed Tier 1 Customer and Professional
rebate in Penny Pilot Options.
42 Today, in order to qualify for the Tier 3 NOM
Market Maker Rebate to Add Liquidity in Penny
Pilot Options, a Participant and its affiliate under
Common Ownership (75% common ownership or
control) must qualify for Tier 7 of the Customer and
Professional Rebate to Add Liquidity in Penny Pilot
Options.
PO 00000
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21697
text of Tier 3 to continue to reference
the same Customer and Professional
rebate tier as today. Finally, the
Exchange believes that its proposal to
amend Tier 4 of the NOM Market Maker
rebate in Penny Pilot Options is
reasonable because the proposed
amendments should continue to
incentivize NOM Market Makers to post
liquidity. The Exchange is amending the
text of Tier 4 of the NOM Market Maker
rebate to specify that the liquidity must
be Penny Pilot Option liquidity (similar
to proposed amendments to Tiers 1 and
2 of the NOM Market Maker rebate) and
is increasing the number of qualifying
contracts from 90,000 to 110,000 or
more contracts per day in a month. The
Exchange believes that the amendment
is reasonable because while the
Exchange is limiting the types of
contracts that will qualify for the rebate
and increasing the number of contracts,
the Exchange is continuing to
incentivize NOM Market Makers to post
liquidity. The Exchange’s proposal to
amend the number of qualifying
contracts in Tier 2 of the NOM Market
Maker rebate from 40,000 to 89,999
contracts to 40,000 to 109,999 contracts
is equitable and not unfairly
discriminatory because the amendments
applies uniformly to all Participants.
The Exchange’s amendment to the Tier
4 rebate is also reasonable because the
Exchange is offering different rebate
incentives to remain competitive while
continuing to encourage NOM Market
Makers to aggressively post liquidity on
NOM. The $0.32 per contract rebate,
applicable to all symbols other than
BAC, GLD, IWM, QQQ, VXX and SPY,
is being lowered to $0.28 per contract
while the $0.38 per contract rebate will
remain the same for GLD, IWM, QQQ
and VXX. Participants transacting a
qualifying number of Tier 4 EEM and
XLF contracts would be entitled to
receive the lower NOM Market Maker
$0.28 per contract rebate instead of the
$0.38 per contract rebate. Participants
transacting a qualifying number of Tier
4 BAC contracts would be entitled to
receive a higher NOM Market Maker
$0.38 rebate instead of the current $0.32
per contract rebate they are entitled to
receive today. Participants transacting
the requisite number of SPY options to
qualify for the Tier 4 NOM Market
Maker rebate would receive an
increased rebate of $0.40 per contract as
compared to the $0.38 per contract
rebate that they receive today. The
Exchange believes the proposed
symbols selected for higher rebates will
assist the Exchange in remaining
competitive. Although the rebate for all
other symbols is being lowered to $0.28
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per contract, for Participants qualifying
for the Tier 4 rebate, the Exchange
believes that this rebate remains
competitive. Further, the Exchange
believes that it is reasonable, equitable,
and not unfairly discriminatory to adopt
specific pricing for BAC, GLD, IWM,
QQQ, VXX and SPY 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.43 The Exchange notes that
BAC, GLD, IWM, QQQ, VXX and SPY
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 BAC, GLD, IWM, QQQ, VXX and
SPY on NOM in order to obtain the
higher $0.38, or in the case of SPY $0.40
per contract rebate if they transact the
proposed qualifying number of Tier 4
contracts required for the NOM Market
Maker rebate. The Exchange believes
that it is reasonable to only pay a
Participant that qualifies for both a Tier
3 and a Tier 4 NOM Market Maker
Penny Pilot Option rebate, the Tier 3
rebate ($0.37 per contract) unless the
Participant is eligible for an increased
rebate in one of the following symbols:
BAC, GLD, IWM, QQQ, VXX and SPY,
then the Tier 4 rebate would be paid
because the Exchange is offering to pay
the Participant the higher rebate as
between Tiers 4 and 5.
The Exchange believes offering NOM
Market Makers the opportunity to
receive higher rebates as compared to
Firms, Non-NOM Market Makers and
Broker-Dealers is equitable and not
unfairly discriminatory because all
NOM Market Makers may qualify for the
NOM Market Maker rebate 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 the same rebate in
Tier 1 as compared Customers and
Professionals and a higher rebate in all
other tiers as compared to a Firm, NonNOM Market Maker or Broker-Dealer
because of the obligations44 borne by
NOM Market Makers as compared to
other market participants. Encouraging
NOM Market Makers to add greater
liquidity benefits all Participants in the
quality of order interaction. The
Exchange believes that it is equitable
43 See Phlx’s Pricing Schedule. See also the
International Securities Exchange LLC’s Fee
Schedule. Both of these markets segment pricing by
symbol.
44 See note 33.
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and not unfairly discriminatory to only
pay a Participant that qualifies for both
a Tier 3 and a Tier 4 NOM Market
Maker Penny Pilot Option rebate, the
Tier 3 rebate ($0.37 per contract) unless
the Participant is eligible for an
increased rebate in one of the following
symbols: BAC, GLD, IWM, QQQ, VXX
and SPY, then the Tier 4 rebate would
be paid because the Exchange would
uniformly pay only one NOM Market
Maker rebate per month to each
Participant.
Penny Pilot Fees for Removing Liquidity
The Exchange’s proposal to increase
the Professional, Firm, Non-NOM
Market Maker and Broker-Dealer Fees
for Removing Liquidity in Penny Pilot
Options from $0.47 to $0.48 per contract
is reasonable because the increase will
afford the Exchange the opportunity to
offer additional and increased rebates to
Customers, Professionals and NOM
Market Makers which should benefit all
market participants through increased
liquidity and order interaction. The
Exchange believes that it is equitable
and not unfairly discriminatory to
increase Fees for Removing Liquidity in
Penny Pilot Options for Professionals,
Firms, Non-NOM Market Makers and
Broker-Dealers because all market
participants, other than Customers and
NOM Market Makers will be assessed a
uniform fee. As explained herein,
Customers order flow brings unique
benefits to the market through increased
liquidity which benefits all market
participants and NOM Market Makers
add value through continuous quoting45
and the commitment of capital.
The Exchange’s proposal to eliminate
the $0.01 per contract reduction for
Professionals, Firms, Non-NOM Market
Makers, NOM Market Makers and
Broker-Dealers for transactions in which
the same NOM Participant or a NOM
Participant under Common Ownership
is the buyer and the seller is reasonable
because the Exchange does not believe
it is necessary to continue to offer this
incentive in order to remain
competitive. Also, the Exchange prefers
to reward market participants by
offering additional rebates to incentivize
Participants to send additional order
flow to the Exchange and encourage
NOM Market Makers to aggressively
post liquidity on NOM. The Exchange
believes that its proposal to eliminate
the $0.01 per contract reduction for
Professionals, Firms, Non-NOM Market
Makers, NOM Market Makers and
Broker-Dealers is equitable and not
unfairly discriminatory because the
45 See
PO 00000
note 33.
Frm 00109
Fmt 4703
Sfmt 4703
Exchange would not offer such a
reduction to any market participant.46
Non-Penny Pilot Rebate to Add
Liquidity
The Exchange’s proposal to amend
the Customer Rebate to Add Liquidity in
Non-Penny Pilot Options is reasonable
because the Exchange proposes to
eliminate the current Customer Rebate
to Add Liquidity in Non-Penny Pilot
Options, including NDX, of $0.80 or
$0.81 per contract, depending on
whether the Participant added Customer
Liquidity in either or both Penny Pilot
or Non-Penny Pilot Options (including
NDX) of 115,000 contracts per day in a
month, would be replaced with a flat
rebate of $0.81 per contract regardless of
volume. The Exchange believes that
offering Customers the opportunity to
receive a $0.81 per contract Rebate to
Add Liquidity on each transaction in a
Non-Penny Pilot Option where liquidity
was added will incentivize Participants
to post Customer liquidity in NonPenny Pilot Options. The Exchange
believes its proposal to amend the
Customer Rebate to Add Liquidity in
Non-Penny Pilot Options is equitable
and not unfairly discriminatory because
it will apply uniformly to all Customers.
Today, no other market participant
receives a Rebate to Add Liquidity in
Non-Penny Pilot Options. The Exchange
believes that it is equitable and not
unfairly discriminatory to only pay
Customers a rebate in Non-Penny Pilot
Options because Customer order flow is
unique and benefits all market
participants through the increased
liquidity that such order flow brings to
the market.
The Exchange’s proposal to renumber
note 2 as note 1 because current note 1
is being deleted from Chapter XV,
Section 2 along with note 3 is
reasonable, equitable and not unfairly
discriminatory because these
amendments will add clarity to the
pricing.
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 the same or a
higher rebate as compared to a NOM
46 Today, Customers are not offered the $0.01
reduction to the Penny Pilot Option Fee for
Removing Liquidity.
E:\FR\FM\11APN1.SGM
11APN1
TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 70 / Thursday, April 11, 2013 / Notices
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
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’s proposal to pay the
higher Customer Rebate to Add
Liquidity in Non-Penny Pilot Options
on each transaction continues to
incentivize Participants to direct
Customer Non-Penny Pilot Option order
flow to NOM to the benefit of all other
market participants. The Exchange
believes that Customer order flow is
unique and therefore only paying a
Customer a Rebate to Add Liquidity in
Non-Penny Pilot Options is consistent
with rebates at other options
exchanges.47 The Exchange’s proposal
to increase the Professional, Firm, NonNOM Market Maker and Broker-Dealer
Fees for Removing Liquidity in Penny
Pilot Options does not misalign the
current fees on NOM. The Exchange
believes that other market participants
benefit from incentivizing Customer
order flow as explained herein.
Customers continue to pay a lower Fee
for Removing Liquidity in 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. Also, NOM
Market Makers have obligations48 to the
market which are not borne by other
market participants and therefore the
Exchange believes that NOM Market
Makers are entitled to a lower fee.
For the reasons specified herein, the
Exchange does not believe this proposal
will result in any burden on
competition. 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 or rebate incentives
at a particular exchange to be excessive
47 See Phlx’s Pricing Schedule with respect to
Complex Orders in Section I and NASDAQ OMX
BX, Inc.’s pricing for Non-Penny Pilot Options at
Chapter XV, Section 2.
48 See note 32.
VerDate Mar<15>2010
17:37 Apr 10, 2013
Jkt 229001
or inadequate. 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.49 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:
21699
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–2013–062, and should be
submitted on or before May 2, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–08468 Filed 4–10–13; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
Electronic Comments
[Public Notice 8271]
• 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–2013–062 on the
subject line.
Notice of the Next CAFTA–DR
Environmental Affairs Council Meeting
Paper Comments
SUMMARY:
• 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–2013–062. 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
49 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00110
Fmt 4703
Sfmt 4703
Department of State.
Notice of the CAFTA–DR
Environmental Affairs Council Meeting
and request for comments.
AGENCY:
ACTION:
The Department of State and
the Office of the United States Trade
Representative are providing notice that
the government parties to the
Dominican Republic-Central AmericaUnited States Free Trade Agreement
(CAFTA–DR) intend to hold the seventh
meeting of the Environmental Affairs
Council (Council) established under
Chapter 17 of that agreement in Santo
Domingo, Dominican Republic on May
9, 2013 at a venue to be announced. All
interested persons are invited to attend
50 17
E:\FR\FM\11APN1.SGM
CFR 200.30–3(a)(12).
11APN1
]]>Agencies
[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21691-21699]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08468]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69321; File No. SR-NASDAQ-2013-062]
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
April 5, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 21692]]
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 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 Fees
for Removing Liquidity and the Customer Non-Penny Pilot Options \4\
Rebate to Add 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.
---------------------------------------------------------------------------
While the changes proposed herein are effective upon filing, the
Exchange has designated that the amendments be operative on April 1,
2013.
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. First, the Exchange proposes to amend the
Customer,\5\ Professional \6\ and NOM Market Maker \7\ Penny Pilot
Options Rebates to Add Liquidity. Second, the Exchange proposes to
increase the Professional, Firm,\8\ Non-NOM Market Maker \9\ and
Broker-Dealer \10\ Penny Pilot Options Fees for Removing Liquidity.
Third, the Exchange proposes to amend the Customer Non-Penny Pilot
Rebate to Add Liquidity.
---------------------------------------------------------------------------
\5\ The term ``Customer'' 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'' 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 ``NOM Market Maker'' 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.
\8\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\9\ The term ``Non-NOM Market Maker'' 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.
\10\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
---------------------------------------------------------------------------
Penny Pilot Rebates to Add Liquidity
The Exchange proposes to amend the Customer and Professional
Rebates to Add Liquidity in Penny Pilot Options in order to continue to
offer competitive Customer and Professional rebates to attract
liquidity to the market. Currently, the Exchange has a seven tier
Customer and Professional Rebate to Add Liquidity structure in Penny
Pilot Options as follows:
----------------------------------------------------------------------------------------------------------------
Monthly Volume Rebate to Add Liquidity
----------------------------------------------------------------------------------------------------------------
Tier 1......................................... Participant adds Customer and $0.26
Professional liquidity of up to
24,999 contracts per day in a month.
Tier 2......................................... Participant adds Customer and 0.40
Professional liquidity of 25,000 to
34,999 contracts per day in a month.
Tier 3......................................... Participant adds Customer and 0.43
Professional liquidity of 35,000 to
74,999 contracts per day in a month.
Tier 4......................................... Participant adds Customer and 0.44
Professional liquidity of 75,000 or
more contracts per day in a month.
Tier 5......................................... Participant adds (1) Customer and 0.42
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.
[[Page 21693]]
Tier 6......................................... Participant has Total Volume of 0.46
130,000 or more contracts per day in
a month, of which 25,000 or more
contracts per day in a month must be
Customer or Professional liquidity.
Tier 7......................................... Participant (1) has Total Volume of 0.48
325,000 or more contracts per day in
a month, or (2) adds Customer or
Professional liquidity of 1.00% or
more of national customer volume in
multiply-listed equity and ETF
options classes in a month or (3)
adds Customer or 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.
----------------------------------------------------------------------------------------------------------------
Today, the Exchange determines if a Participant qualifies for a
Customer or Professional Rebate to Add Liquidity in Penny Pilot Options
for purposes of Tiers 1 through 4 by totaling Customer and Professional
contracts per day in month. The Exchange proposes to modify the manner
in which Participants qualify for Tiers 1 through 4 of the Customer and
Professional Rebate to Add Liquidity in Penny Pilot Options by amending
the metric from a fixed average daily volume number to a percentage of
total industry customer equity and ETF options average daily volume
(``ADV'') in Tiers 1 through 4.\11\ Currently, a Participant that adds
Customer and Professional liquidity of up to 24,999 contracts per day
in a month qualifies for the $0.26 per contract Tier 1 Customer and
Professional Rebate to Add Liquidity in Penny Pilot Options. The
Exchange proposes to amend Tier 1 to require a Participant to add
Customer and Professional liquidity of up to 0.20% of total industry
customer equity and ETF option ADV contracts per day in a month to earn
a Tier 1 rebate. In addition, the Exchange proposes to lower the
current Tier 1 Customer and Professional Rebate to Add Liquidity in
Penny Pilot Options from $0.26 to $0.25 per contract. Currently, a
Participant that adds Customer and Professional liquidity of 25,000 to
34,999 contracts per day in a month qualifies for a $0.40 per contract
Tier 2 Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options. The Exchange proposes to amend Tier 2 to require a Participant
to add Customer and Professional liquidity of 0.21% to 0.30% of total
industry customer equity and ETF option ADV contracts per day in a
month to receive a $0.40 per contract rebate. Currently, the Tier 3
Customer and Professional rebate pays $0.43 per contract to
Participants that add Customer and Professional liquidity of 35,000 to
74,999 contracts per day in a month. The Exchange proposes to amend
Tier 3 to require a Participant to add Customer and Professional
liquidity of 0.31% to 0.49% of total industry customer equity and ETF
option ADV contracts per day in a month to receive a rebate of $0.43
per contract. Currently, the Tier 4 Customer and Professional rebate
pays $0.44 per contract to Participants that add Customer and
Professional liquidity of 75,000 or more contracts per day in a month.
The Exchange proposes to amend Tier 4 to require a Participant to add
Customer and Professional liquidity of 0.5% or more of total industry
customer equity and ETF option ADV contracts per day in a month. In
addition, the Exchange proposes to increase the current Tier 4 Customer
and Professional Rebate to Add Liquidity in Penny Pilot Options from
$0.44 to $0.45 per contract. The Exchange does not propose to amend the
Customer and Professional Tier 5 rebate.\12\ The Exchange proposes to
lower the current Tier 6 Customer and Professional Rebate to Add
Liquidity in Penny Pilot Options, for Participants that have Total
Volume \13\ of 130,000 or more contracts per day in a month, of which
25,000 or more contracts per day in a month must be Customer or
Professional liquidity, from $0.46 to $0.45 per contract. The Exchange
proposes to rename current Tier 7, which currently pays a $0.48 per
contract rebate to Participants that have (1) Total Volume of 325,000
or more contracts per day in a month, or (2) add Customer or
Professional liquidity of 1.00% or more of national customer volume in
multiply-listed equity and ETF options classes in a month or (3) add
Customer or Professional liquidity of 60,000 or more contracts per day
in a month and NOM Market Maker liquidity of 30,000 or more contracts
per day per month, as Tier 8. The Exchange also proposes to amend the
third prong of the qualifications for newly named Tier 8 to increase
the amount of NOM Market Maker liquidity from 30,000 to 40,000 or more
contracts per day per month.\14\ The Exchange proposes to adopt a new
Tier 7 Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options which would pay $0.47 per contract to Participants that have
Total Volume of 175,000 or more contracts per day in a month, of which
50,000 or more contracts per day in a month must be Customer or
Professional liquidity. The Exchange also proposes to amend
corresponding notes b and c to reflect the addition of new Tier 7 and
renamed Tier 8 and refer to both tiers in the notes which describe the
application of the Total Volume definition and Common Ownership
aggregation.
---------------------------------------------------------------------------
\11\ Other options exchanges similarly utilize a number
representative of the industry. See the Chicago Board Options
Exchange, Incorporated's (``CBOE'') Fees Schedule. 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 also
NASDAQ OMX PHLX LLC (``Phlx'') which calculates Customer Rebates
based on a certain number contracts transacted in a month with a
tier structure based on relative contracts per month as a percentage
of total national customer volume in multiply-listed options
transacted on Phlx would serve to control and account for industry-
wide movements. See Phlx's Pricing Schedule.
\12\ The Tier 5 rebate pays a $0.42 per contract rebate to
Participants that add (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.
\13\ ``Total Volume'' is defined 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.
\14\ The Exchange proposes to add the word ``contracts'' to the
text of renamed Tier 8 for clarity.
---------------------------------------------------------------------------
The Exchange also proposes to amend the NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options to incentivize NOM Market Makers
to post liquidity on the Exchange. Currently, the Exchange has a four
tier NOM Market Maker Rebate to Add Liquidity structure in Penny Pilot
Options as follows:
[[Page 21694]]
------------------------------------------------------------------------
Rebate to Add
Monthly Volume Liquidity
------------------------------------------------------------------------
Tier 1........................ Participant adds NOM $0.25
Market Maker
liquidity in Penny
Pilot Options and Non-
Penny Pilot Options
of up to 39,999
contracts per day in
a month.
Tier 2........................ Participant adds NOM $0.30
Market Maker
liquidity in Penny
Pilot Options and Non-
Penny Pilot Options
of 40,000 to 89,999
contracts per day in
a month.
Tier 3........................ Participant and its $0.32
affiliate under
Common Ownership
qualifies for Tier 7
of the Customer and
Professional Rebate
to Add Liquidity in
Penny Pilot Options.
Tier 4........................ Participant adds NOM $0.32 or $0.38
Market Maker in the
liquidity of 90,000 following
or more contracts per symbols EEM,
day in a month. GLD, IWM, QQQ,
SPY, VXX and
XLF
------------------------------------------------------------------------
Currently, the Tier 1 NOM Market Maker Penny Pilot rebate pays
$0.25 per contract to 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 amend the Tier 1 rebate to
state that Participants that add NOM Market Maker liquidity in Penny
Pilot Options of up to 39,999 contracts per day in a month qualify for
the $0.25 per contract rebate. The Exchange would not include Non-Penny
Pilot Options volume when calculating the rebate. Currently, the Tier 2
NOM Market Maker Penny Pilot rebate pays $0.30 per contract for
Participants that add NOM Market Maker liquidity in Penny Pilot Options
and Non-Penny Pilot Options of 40,000 to 89,999 contracts per day in a
month. The Exchange proposes to amend the Tier 2 NOM Market Maker
rebate to state that Participants that add NOM Market Maker liquidity
in Penny Pilot Options of 40,000 to 109,999 contracts per day in a
month qualify for the $0.30 per contract rebate. The Exchange would not
include Non-Penny Pilot Options volume when calculating the rebate. The
Exchange is proposing to amend the number of qualifying contracts in
Tier 2 of the NOM Market Maker rebate from 40,000 to 89,999 contracts
to 40,000 to 109,999 contracts. Today Participants that transact 90,000
or more Penny Pilot Options contracts qualify for the $0.32 per
contract Tier 4 rebate, or in the case of certain symbols (BAC, GLD,
IWM, QQQ, VXX and SPY) \15\ a $0.38 per contract rebate. The proposed
Tier 2 amendment would offer Participants that transact between 90,000
to 109,999 Penny Pilot Options contracts the Tier 2 rebate of $0.30 per
contract. If a Participant transacts 110,000 or more Penny Pilot
Options contracts the Participant would qualify for the proposed Tier 4
rebate as described more fully below. Currently, the Tier 3 NOM Market
Maker Penny Pilot rebate pays $0.32 per contract to Participants and
its affiliates under Common Ownership \16\ that qualify for the Tier 7
Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options. The Exchange proposes to amend Tier 3 to increase the rebate
from $0.32 to $0.37 per contract and pay such a rebate to Participants
and its affiliates under Common Ownership that qualify for the Tier 8
Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options. The Exchange proposes to replace the reference to Tier 7 with
renamed Tier 8. Finally, the Tier 4 NOM Market Maker rebate currently
pays $0.32 \17\ 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 proposes to amend Tier 4 to pay a rebate of $0.28 \18\ or
$0.38 in the following symbols, Bank of America Corporation
(``BAC''),\19\ SPDR Gold Shares (``GLD''), iShares Russell 2000 Index
(``IWM''), PowerShares QQQ (``QQQ''), iPath S&P 500 VIX ST Futures ETN
(``VXX''),\20\ or $0.40 per contract in SPDR S&P 500 (``SPY'') \21\ if
Participants add NOM Market Maker liquidity in Penny Pilot Options of
110,000 or more contracts per day in a month. Today all NOM Market
Maker liquidity counts toward qualifying for the Tier 4 NOM Market
Maker rebate and the Exchange proposes to include only Penny Pilot
Options as qualifying volume. Also, the number of contracts is
increasing from 90,000 to 110,000 or more contracts per day in a month.
As described above, Participants transacting between 90,000 to 109,999
Penny Pilot Options contracts would now qualify for the proposed NOM
Market Maker Tier 2 rebate and would receive a $0.30 per contract
rebate. The Exchange believes that offering NOM Market Makers the
ability to obtain higher rebates in highly liquid symbols will
encourage NOM Market Makers to post greater liquidity on NOM. In the
instance that a Participant qualifies for both a Tier 3 and a Tier 4
NOM Market Maker Penny Pilot Option rebate, the Exchange would pay the
Participant the Tier 3 rebate ($0.37 per contract) unless the
Participant is eligible for an increased rebate in one of the following
symbols: BAC, GLD, IWM, QQQ, VXX and SPY, then the Tier 4 rebate would
be applied (either $0.38 or $0.40 per contract). The Exchange would not
pay both rebates.
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\15\ The Tier 4 symbols eligible for an increased NOM Market
Maker rebate are described more fully below.
\16\ The term ``Common Ownership'' shall mean Participants under
75% common ownership or control.
\17\ Today, the Exchange pays a $0.32 per contract rebate for
all other qualifying Penny Pilot Options excluding EEM, GLD, IWM,
QQQ, SPY, VXX and XLF.
\18\ The $0.28 per contract Tier 4 NOM Market Maker rebate would
be paid on all qualifying Penny Pilot Options, excluding BAC, GLD,
IWM, QQQ, VXX and SPY. This is a reduction from the current $0.32
per contract rebate paid on qualifying contracts. The Exchange
proposes to amend the text of Tier 3 to change the word
``qualifies'' to ``qualify.''
\19\ Participants transacting a qualifying number of BAC
contracts today receive a $0.32 per contract Tier 4 NOM Market Maker
rebate. Pursuant to this proposal, Participants transacting a
qualifying number of BAC contracts would receive a $0.38 per
contract Tier 4 NOM Market Maker rebate.
\20\ The Exchange is eliminating EEM and XLF from the symbols
eligible for the higher $0.38 per contract rebate for Participants
that qualify for the Tier 4 NOM Market Maker Rebate to Add
Liquidity. Participants that transact a qualifying number of EEM and
XLF contracts would be entitled to the proposed $0.28 per contract
Tier 4 NOM Market Maker rebate.
\21\ The Exchange increased the rebate applicable for SPY for
Participants qualifying for the Tier 4 NOM Market Maker Rebate to
Add Liquidity from $0.38 to $0.40 per contract.
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Penny Pilot Fees for Removing Liquidity
The Exchange proposes to amend the Fees for Removing Liquidity in
Penny Pilot Options. Today, Professionals, Firms, Non-NOM Market
Makers, NOM Market Makers and Broker-Dealers are currently assessed a
$0.47 per contract Fee for Removing Liquidity in a Penny
[[Page 21695]]
Pilot Option.\22\ Today, this Penny Pilot Option Fee for Removing
Liquidity is reduced by $0.01 per contract for Professionals, Firms,
Non-NOM Market Makers, NOM Market Makers and Broker-Dealers for
transactions in which the same NOM Participant or a NOM Participant
under common ownership is the buyer and the seller. First, the Exchange
proposes to increase the Penny Pilot Fee for Removing Liquidity for
Professionals, Firms, Non-NOM Market Makers and Broker-Dealers from
$0.47 to $0.48 per contract.\23\ Second, the Exchange proposes to
eliminate the $0.01 per contract reduction for Professionals, Firms,
Non-NOM Market Makers, NOM Market Makers and Broker-Dealers for
transactions in which the same NOM Participant or a NOM Participant
under common ownership is the buyer and the seller.\24\ The Exchange is
increasing the Fees for Removing Liquidity in Penny Pilot Options so
that it will be able to continue to offer additional rebates to
Customers, Professionals and NOM Market Makers to attract liquidity and
encourage order interaction on NOM.
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\22\ The Customer Penny Pilot Fee for Removing Liquidity is
$0.45 per contract. This fee is not being amended.
\23\ The NOM Market Maker Penny Pilot Fee for Removing Liquidity
will remain at $0.47 per contract although, similar to other market
participants, NOM Market Makers will no longer receive a $0.01 per
contract fee reduction for transactions in which the same NOM
Participant or a NOM Participant under common ownership is the buyer
and the seller. The elimination of the $0.01 per contract fee is
discussed below.
\24\ Today, Customers are not offered the $0.01 reduction to the
Penny Pilot Option Fee for Removing Liquidity.
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Non-Penny Pilot Rebate to Add Liquidity
The Exchange proposes to amend the Customer Rebate to Add Liquidity
in Non-Penny Pilot Options. Today, the Customer Rebate to Add Liquidity
in Non-Penny Pilot Options, including NDX, is $0.80 per contract,
unless a market participant adds Customer Liquidity in either or both
Penny Pilot or Non-Penny Pilot Options (including NDX) of 115,000
contracts per day in a month, then the Customer Rebate to Add Liquidity
in Non-Penny Pilot Options is $0.81 per contract.\25\ The Exchange
proposes to eliminate the current Customer rebates that are specified
for the Customer Rebate to Add Liquidity in Non-Penny Pilot Options in
note 3 and instead pay a flat Customer Rebate to Add Liquidity in Non-
Penny Pilot Options of $0.81 per contract. Today, no other market
participant receives a Rebate to Add Liquidity in Non-Penny Pilot
Options.
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\25\ NOM Participants under common ownership may aggregate their
Customer volume to qualify for the increased Customer rebate.
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The Exchange also proposes to renumber note 2 as note 1 because
current note 1 is being deleted from Chapter XV, Section 2 along with
note 3, as described herein. The Exchange also made other technical
amendments for grammatical purposes to the Chapter XV, Section 2
pricing.
2. Statutory Basis
NASDAQ believes that the proposed rule changes are consistent with
the provisions of Section 6 of the Act,\26\ in general, and with
Section 6(b)(4) of the Act,\27\ 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 as described in detail below.
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\26\ 15 U.S.C. 78f.
\27\ 15 U.S.C. 78f(b)(4).
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Penny Pilot Rebates to Add Liquidity
The Exchange's proposal to amend the Penny Pilot Rebates to Add
Liquidity is reasonable because the Exchange will continue to offer
competitive Customer and Professional rebates in order to attract
liquidity to the market to the benefit of all market participants. The
Exchange also 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 post liquidity will also benefit participants
through increased order interaction.
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
continuing to pay Customers and Professionals tiered Rebates 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
Rebates to Add Liquidity in Penny Pilot Options of $0.25 per contract
to Customers, Professionals and NOM Market Makers for transacting one
qualifying contract as compared to other market participants.\28\ 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 Professionals the same Penny
Pilot Options Rebates to Add Liquidity as Customers is equitable and
not unfairly discriminatory for the reasons which follow. 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. 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.'' \29\ 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.'' \30\ 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,
[[Page 21696]]
accomplishes this objective.\31\ 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 and NOM Market Makers, as discussed
herein.\32\ 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\33\ and the
commitment of capital.
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\28\ Firms, Non-NOM Market Makers and Broker-Dealers receive a
$0.10 per contract Penny Pilot Option Rebate to Add Liquidity.
\29\ 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.
\30\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
\31\ 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.
\32\ The Fee for Removing Liquidity in Penny Pilot Options would
be $0.48 per contract for all market participants, except Customers
and NOM Market Makers. Customers are assessed $0.45 per contract and
NOM Market Makers would continue to be assessed $0.47 per contract.
\33\ Pursuant to Chapter VII (Market Participants), Section 5
(Obligations of Market Makers), in registering as a market maker, an
Options Participant commits himself to various obligations.
Transactions of a Market Maker in its market making capacity must
constitute a course of dealings reasonably calculated to contribute
to the maintenance of a fair and orderly market, and Market Makers
should not make bids or offers or enter into transactions that are
inconsistent with such course of dealings. Further, all Market
Makers are designated as specialists on NOM for all purposes under
the Act or rules thereunder. See Chapter VII, Section 5.
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The Exchange's proposal to amend the Customer and Professional
Rebates to Add Liquidity in Penny Pilot Options is reasonable 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. The Exchange's proposal to convert the
qualification for Customer and Professional rebate Tiers 1 through 4
from a metric which calculates the fixed average daily volume to a
percentage of total industry customer equity and ETF options ADV \34\
is reasonable because it allows the Exchange to control and account for
changes in the national industry-wide customer volume. Market
participants will continue to receive rebates on Customer and
Professional volume as is the case today and in most cases similar to
the rebates that they receive today. The proposed tier percentages
approximate the contract volume numbers that are captured in the
Customer and Professional rebate tiers today. For example, Tier 2 of
the Customer and Professional rebate requires Participants to transact
between 25,000 and 34,999 contacts per day in a month. The proposed
percentages of total industry customer equity and ETF volume for Tier
2, which are 0.21% to 0.30%, are approximately the volume numbers that
are required today to qualify for a Tier 2 Customer and Professional
Rebate to Add Liquidity in Penny Pilot Options.\35\ The same is true
for Tiers 1 and 3 in terms of volume requirements. The Exchange
proposes to reduce the qualifying number of contracts per day in a
month with respect to the Tier 4 Customer and Professional rebates.
Currently, a Participant must transact 75,000 or more contracts per day
in a month to qualify for a Tier 4 Customer and Professional rebate.
The Exchange is proposing to amend the Tier 4 Customer and Professional
Rebate to Add Liquidity today in Penny Pilot Options to require
Participants to transact 0.5% or more of total industry customer equity
and ETF option ADV to qualify for the rebate. This percentage is a
lower approximation of the volume required today to qualify for the
Tier 4 rebate. With this proposal, Participants should be able to
qualify for Tier 4 with less volume than is the case today. The
Exchange's proposal to amend current Tier 7 to rename it Tier 8 and
amend the third prong of the qualifications for newly named Tier 8 to
increase the amount of NOM Market Maker liquidity from 30,000 to 40,000
or more contracts per day in a month should incentivize NOM Market
Makers to post additional liquidity. Current Tier 7 allows Participants
to achieve the rebate in a number of ways,\36\ and this amendment only
impacts one of the ways in which a Participant may obtain the rebate.
With respect to the current Customer and Professional rebate tiers, the
Exchange is lowering the Tier 1 rebate from $0.26 to $0.25 per
contract. This would equate the Tier 1 rebate for Customers and
Professionals with the Tier 1 rebate paid to NOM Market Makers. While
the Exchange is reducing this rebate, it believes that Participants
will continue to be incentivized to transact Customer and Professional
Penny Pilot Orders on NOM to receive the rebate. 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 first qualifying order is entitled to the rebate. The
Exchange is increasing the rebate for the Tier 4 Customer and
Professional rebate from $0.44 to $0.45 per contract. In combination
with requiring less qualifying contracts, given today's current
industry volume, and offering a higher rebate, the Exchange believes
that Participants may be incentivized to transact the requisite number
of orders to qualify for the Tier 4 Customer and Professional rebate in
Penny Pilot Options. The Exchange also proposes to decrease the rebate
offered on the Tier 6 Customer and Professional rebate \37\ from $0.46
to $0.45 per contract. The Exchange believes that Participants will
continue to be incentivized to transact Total Volume \38\ of 130,000 or
more contracts per day in a month of which 25,000 or more contracts
must be Customer or Professional liquidity. In addition, the Exchange
is offering Participants the opportunity to earn a higher rebate of
$0.47 per contract with new Tier 7.\39\ The Exchange believes that its
proposal to adopt a new Tier 7 Customer and
[[Page 21697]]
Professional rebate which requires Participants to transact a Total
Volume of 175,000 or more contracts per day in a month, of which 50,000
or more contracts per day in a month must be Customer or Professional
liquidity is reasonable because it offers Participants an additional
opportunity to earn a higher rebate.
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\34\ It is important to note that the Exchange utilizes data
from OCC to determine the total industry customer equity and ETF
options ADV figure. OCC classifies equity and ETF options volume
under the equity options category. Also, both customer and
professional orders that are transacted on options exchanges clear
in the customer range at OCC and therefore both customer and
professional volume would be included in the total industry figure
to calculate rebate tiers. This is the case today for the Total
Volume number that appears in Tiers 6 and 7 of the Customer and
Professional rebate today, which includes Customer and Professional
numbers in both the numerator and denominator of that percentage.
\35\ The month to date volume number for March 2013, utilizing
OCC total industry customer equity and ETF option ADV, is
11,248,136. Therefore, in this example, 0.31% would be ~34,869
contracts and 0.49% would be ~55,115 contracts per day.
\36\ Today, a Participant may qualify for the Tier 7 rebate if
the Participant (1) has Total Volume of 325,000 or more contracts
per day in a month, or (2) adds Customer or Professional liquidity
of 1.00% or more of national customer volume in multiply-listed
equity and ETF options classes in a month or (3) adds Customer or
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.
\37\ In order to qualify for a Tier 6 Customer and Professional
Rebate to Add Liquidity in Penny Pilot Options, a Participant must
have Total Volume of 130,000 or more contracts per day in a month,
of which 25,000 or more contracts per day in a month must be
Customer or Professional liquidity.
\38\ Total Volume is defined 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.
\39\ Current Tier 7 of the Customer and Professional Penny Pilot
Rebate to Add Liquidity is being renamed Tier 8.
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The Exchange believes that the addition of new Tier 7 and the
aforementioned amendments to the Customer and Professional Rebates to
Add Liquidity in Penny Pilot Options are reasonable because these
amendments should incentivize market participants to increase the
amount of Customer and Professional orders that are transacted on NOM
in order to obtain rebates. In addition, other exchanges employ similar
incentive programs.\40\ The Exchange believes that the addition of new
Tier 7 and the aforementioned amendments to the Customer and
Professional Rebates to Add Liquidity in Penny Pilot Options are
equitable and not unfairly discriminatory because these amendments will
be applied to all market participants in a uniform matter. Any market
participant is eligible to receive the rebate provided they transact a
qualifying amount of Customer and Professional volume in Penny Pilot
Options.
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\40\ See CBOE Fees Schedule. 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 also Phlx's Pricing
Schedule at Section B which contains the Customer Rebate Program.
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The Exchange's proposal to amend corresponding notes b and c is
reasonable, equitable and not unfairly discriminatory because the
amendments conform the notes to the amendments in the Customer and
Professional rebate tiers and provide clarity to the rebates.
The Exchange's proposal to amend the NOM Market Maker Rebates to
Add Liquidity in Penny Pilot Options is reasonable because it should
incentivize NOM Market Makers to post liquidity 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 earn the same
or lower rebates as compared to Customers and Professionals.\41\ The
Exchange's proposal to amend Tiers 1 and 2 of the NOM Market Maker
Penny Pilot Rebates to Add Liquidity to exclude Non-Penny Pilot Options
is reasonable because the Exchange believes that permitting only Penny
Pilot Options to count toward the rebate would continue to incentivize
NOM Market Makers to post liquidity. The Exchange's proposal to amend
the number of qualifying contracts in Tier 2 of the NOM Market Maker
rebate from 40,000 to 89,999 contracts to 40,000 to 109,999 contracts
is reasonable because Participants that transact between 90,000 to
109,999 contracts of Penny Pilot Options would be entitled to receive a
$0.30 per contract rebate as compared to the proposed $0.28 per
contract Tier 4 rebate, provided the liquidity is in a symbol other
than BAC, GLD, IWM, QQQ, VXX and SPY, in which case the Participant
would receive a decreased rebate compared to the $0.38 per contract
rebate. The Exchange's proposal seeks to encourage Participants to add
liquidity in BAC, GLD, IWM, QQQ, VXX and SPY in order to obtain a
higher rebate of $0.38 or $0.40 (SPY) per contract and otherwise offers
Participants a higher rebate between 90,000 to 109,999 contracts in
other symbols. The Exchange's proposal to increase the Tier 3 NOM
Market Maker Rebate to Add Liquidity in Penny Pilot Options\42\ from
$0.32 to $0.37 per contract is reasonable because the increased rebate
will continue to incentivize NOM Market Makers to post liquidity in
order to obtain the higher rebate. The Exchange's proposal to amend the
text of Tier 3 of the NOM Market Maker Rebate to Add Liquidity in Penny
Pilot Options to refer to renamed ``Tier 8'' is reasonable because
pursuant to this proposal, the Exchange renamed current Tier 7 of the
Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options as Tier 8. The Exchange is simply amending the text of Tier 3
to continue to reference the same Customer and Professional rebate tier
as today. Finally, the Exchange believes that its proposal to amend
Tier 4 of the NOM Market Maker rebate in Penny Pilot Options is
reasonable because the proposed amendments should continue to
incentivize NOM Market Makers to post liquidity. The Exchange is
amending the text of Tier 4 of the NOM Market Maker rebate to specify
that the liquidity must be Penny Pilot Option liquidity (similar to
proposed amendments to Tiers 1 and 2 of the NOM Market Maker rebate)
and is increasing the number of qualifying contracts from 90,000 to
110,000 or more contracts per day in a month. The Exchange believes
that the amendment is reasonable because while the Exchange is limiting
the types of contracts that will qualify for the rebate and increasing
the number of contracts, the Exchange is continuing to incentivize NOM
Market Makers to post liquidity. The Exchange's proposal to amend the
number of qualifying contracts in Tier 2 of the NOM Market Maker rebate
from 40,000 to 89,999 contracts to 40,000 to 109,999 contracts is
equitable and not unfairly discriminatory because the amendments
applies uniformly to all Participants. The Exchange's amendment to the
Tier 4 rebate is also reasonable because the Exchange is offering
different rebate incentives to remain competitive while continuing to
encourage NOM Market Makers to aggressively post liquidity on NOM. The
$0.32 per contract rebate, applicable to all symbols other than BAC,
GLD, IWM, QQQ, VXX and SPY, is being lowered to $0.28 per contract
while the $0.38 per contract rebate will remain the same for GLD, IWM,
QQQ and VXX. Participants transacting a qualifying number of Tier 4 EEM
and XLF contracts would be entitled to receive the lower NOM Market
Maker $0.28 per contract rebate instead of the $0.38 per contract
rebate. Participants transacting a qualifying number of Tier 4 BAC
contracts would be entitled to receive a higher NOM Market Maker $0.38
rebate instead of the current $0.32 per contract rebate they are
entitled to receive today. Participants transacting the requisite
number of SPY options to qualify for the Tier 4 NOM Market Maker rebate
would receive an increased rebate of $0.40 per contract as compared to
the $0.38 per contract rebate that they receive today. The Exchange
believes the proposed symbols selected for higher rebates will assist
the Exchange in remaining competitive. Although the rebate for all
other symbols is being lowered to $0.28
[[Page 21698]]
per contract, for Participants qualifying for the Tier 4 rebate, the
Exchange believes that this rebate remains competitive. Further, the
Exchange believes that it is reasonable, equitable, and not unfairly
discriminatory to adopt specific pricing for BAC, GLD, IWM, QQQ, VXX
and SPY 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.\43\ The Exchange notes
that BAC, GLD, IWM, QQQ, VXX and SPY 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 BAC, GLD, IWM, QQQ, VXX and
SPY on NOM in order to obtain the higher $0.38, or in the case of SPY
$0.40 per contract rebate if they transact the proposed qualifying
number of Tier 4 contracts required for the NOM Market Maker rebate.
The Exchange believes that it is reasonable to only pay a Participant
that qualifies for both a Tier 3 and a Tier 4 NOM Market Maker Penny
Pilot Option rebate, the Tier 3 rebate ($0.37 per contract) unless the
Participant is eligible for an increased rebate in one of the following
symbols: BAC, GLD, IWM, QQQ, VXX and SPY, then the Tier 4 rebate would
be paid because the Exchange is offering to pay the Participant the
higher rebate as between Tiers 4 and 5.
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\41\ The Tier 1 NOM Market Maker Rebate to Add Liquidity in
Penny Pilot Options is the same rebate as the proposed Tier 1
Customer and Professional rebate in Penny Pilot Options.
\42\ Today, in order to qualify for the Tier 3 NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options, a Participant and
its affiliate under Common Ownership (75% common ownership or
control) must qualify for Tier 7 of the Customer and Professional
Rebate to Add Liquidity in Penny Pilot Options.
\43\ See Phlx's Pricing Schedule. See also the International
Securities Exchange LLC's Fee Schedule. Both of these markets
segment pricing by symbol.
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The Exchange believes offering NOM Market Makers the opportunity to
receive higher rebates as compared to Firms, Non-NOM Market Makers and
Broker-Dealers is equitable and not unfairly discriminatory because all
NOM Market Makers may qualify for the NOM Market Maker rebate 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 the same rebate in Tier 1 as compared
Customers and Professionals and a higher rebate in all other tiers as
compared to a Firm, Non-NOM Market Maker or Broker-Dealer because of
the obligations\44\ borne by NOM Market Makers as compared to other
market participants. Encouraging NOM Market Makers to add greater
liquidity benefits all Participants in the quality of order
interaction. The Exchange believes that it is equitable and not
unfairly discriminatory to only pay a Participant that qualifies for
both a Tier 3 and a Tier 4 NOM Market Maker Penny Pilot Option rebate,
the Tier 3 rebate ($0.37 per contract) unless the Participant is
eligible for an increased rebate in one of the following symbols: BAC,
GLD, IWM, QQQ, VXX and SPY, then the Tier 4 rebate would be paid
because the Exchange would uniformly pay only one NOM Market Maker
rebate per month to each Participant.
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\44\ See note 33.
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Penny Pilot Fees for Removing Liquidity
The Exchange's proposal to increase the Professional, Firm, Non-NOM
Market Maker and Broker-Dealer Fees for Removing Liquidity in Penny
Pilot Options from $0.47 to $0.48 per contract is reasonable because
the increase will afford the Exchange the opportunity to offer
additional and increased rebates to Customers, Professionals and NOM
Market Makers which should benefit all market participants through
increased liquidity and order interaction. The Exchange believes that
it is equitable and not unfairly discriminatory to increase Fees for
Removing Liquidity in Penny Pilot Options for Professionals, Firms,
Non-NOM Market Makers and Broker-Dealers because all market
participants, other than Customers and NOM Market Makers will be
assessed a uniform fee. As explained herein, Customers order flow
brings unique benefits to the market through increased liquidity which
benefits all market participants and NOM Market Makers add value
through continuous quoting\45\ and the commitment of capital.
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\45\ See note 33.
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The Exchange's proposal to eliminate the $0.01 per contract
reduction for Professionals, Firms, Non-NOM Market Makers, NOM Market
Makers and Broker-Dealers for transactions in which the same NOM
Participant or a NOM Participant under Common Ownership is the buyer
and the seller is reasonable because the Exchange does not believe it
is necessary to continue to offer this incentive in order to remain
competitive. Also, the Exchange prefers to reward market participants
by offering additional rebates to incentivize Participants to send
additional order flow to the Exchange and encourage NOM Market Makers
to aggressively post liquidity on NOM. The Exchange believes that its
proposal to eliminate the $0.01 per contract reduction for
Professionals, Firms, Non-NOM Market Makers, NOM Market Makers and
Broker-Dealers is equitable and not unfairly discriminatory because the
Exchange would not offer such a reduction to any market
participant.\46\
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\46\ Today, Customers are not offered the $0.01 reduction to the
Penny Pilot Option Fee for Removing Liquidity.
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Non-Penny Pilot Rebate to Add Liquidity
The Exchange's proposal to amend the Customer Rebate to Add
Liquidity in Non-Penny Pilot Options is reasonable because the Exchange
proposes to eliminate the current Customer Rebate to Add Liquidity in
Non-Penny Pilot Options, including NDX, of $0.80 or $0.81 per contract,
depending on whether the Participant added Customer Liquidity in either
or both Penny Pilot or Non-Penny Pilot Options (including NDX) of
115,000 contracts per day in a month, would be replaced with a flat
rebate of $0.81 per contract regardless of volume. The Exchange
believes that offering Customers the opportunity to receive a $0.81 per
contract Rebate to Add Liquidity on each transaction in a Non-Penny
Pilot Option where liquidity was added will incentivize Participants to
post Customer liquidity in Non-Penny Pilot Options. The Exchange
believes its proposal to amend the Customer Rebate to Add Liquidity in
Non-Penny Pilot Options is equitable and not unfairly discriminatory
because it will apply uniformly to all Customers. Today, no other
market participant receives a Rebate to Add Liquidity in Non-Penny
Pilot Options. The Exchange believes that it is equitable and not
unfairly discriminatory to only pay Customers a rebate in Non-Penny
Pilot Options because Customer order flow is unique and benefits all
market participants through the increased liquidity that such order
flow brings to the market.
The Exchange's proposal to renumber note 2 as note 1 because
current note 1 is being deleted from Chapter XV, Section 2 along with
note 3 is reasonable, equitable and not unfairly discriminatory because
these amendments will add clarity to the pricing.
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 the same or a higher rebate as compared to a NOM
[[Page 21699]]
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 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's proposal to pay the higher Customer Rebate to Add
Liquidity in Non-Penny Pilot Options on each transaction continues to
incentivize Participants to direct Customer Non-Penny Pilot Option
order flow to NOM to the benefit of all other market participants. The
Exchange believes that Customer order flow is unique and therefore only
paying a Customer a Rebate to Add Liquidity in Non-Penny Pilot Options
is consistent with rebates at other options exchanges.\47\ The
Exchange's proposal to increase the Professional, Firm, Non-NOM Market
Maker and Broker-Dealer Fees for Removing Liquidity in Penny Pilot
Options does not misalign the current fees on NOM. The Exchange
believes that other market participants benefit from incentivizing
Customer order flow as explained herein. Customers continue to pay a
lower Fee for Removing Liquidity in 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. Also, NOM Market
Makers have obligations\48\ to the market which are not borne by other
market participants and therefore the Exchange believes that NOM Market
Makers are entitled to a lower fee.
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\47\ See Phlx's Pricing Schedule with respect to Complex Orders
in Section I and NASDAQ OMX BX, Inc.'s pricing for Non-Penny Pilot
Options at Chapter XV, Section 2.
\48\ See note 32.
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For the reasons specified herein, the Exchange does not believe
this proposal will result in any burden on competition. 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 or rebate incentives at a particular exchange to be
excessive or inadequate. 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.\49\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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\49\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2013-062 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-2013-062. 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-2013-062, and should
be submitted on or before May 2, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08468 Filed 4-10-13; 8:45 am]
BILLING CODE 8011-01-P
