Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Penny Pilot Options and Non-Penny Pilot Options, 28912-28917 [2013-11636]

Download as PDF tkelley on DSK3SPTVN1PROD with NOTICES 28912 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Notices Exchange proposes to amend that provision by removing the reference to the primary market and instead provide that the Exchange may consider whether trading in the underlying security has been halted or suspended in ‘‘one or more of the markets trading such security.’’ For example, if the primary market is unable to open due to a natural disaster, or other circumstance, but other national securities exchanges are trading the underlying security and halt or suspend trading in that security, then the proposed change would allow CBOE to halt trading in the overlying options. The Exchange also proposes to make similar changes to Exchange Rule 6.3(a)(iii), which lists factors that CBOE should consider when determining whether to halt securities other than options. Similarly, Exchange Rule 6.3.01 currently allows the Post Director or Order Book Official to suspend trading in an option if the underlying security is halted or suspended in the primary market. The Exchange proposes to expand the authority of the Post Director or Order Book Official to halt or suspend trading in an option if the underlying security has been halted or suspended in ‘‘one or more of the markets trading the underlying security.’’ In effect, the proposal would allow the Post Director or Order Book Official to halt or suspend trading in an option in response to a halt or suspension in a market other than the primary market for the underlying security, particularly when the primary market is not open for business but the security is being traded elsewhere. Finally, the Exchange proposes to amend language in Exchange Rule 6.3.05, which currently allows the Exchange to turn off the Retail Automatic Execution System (‘‘RAES’’) with respect to a stock-option order if credible information has been communicated that trading in the underlying stock has been halted or suspended in the primary market for that stock-option order. The Exchange proposes to replace the term ‘‘primary market’’ with ‘‘one or more of the markets trading the underlying security.’’ The proposal would allow the Exchange to turn off RAES with respect to a stock-option order if credible information has been communicated that one or more of the markets trading the underlying security has halted trading in the underlying security. III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the VerDate Mar<15>2010 18:13 May 15, 2013 Jkt 229001 Act and rules and regulations thereunder applicable to a national securities exchange.8 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,9 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission finds that the Exchange’s proposal to amend the aforementioned CBOE rules governing the Exchange’s ability to open for trading or continue trading an option even if the ‘‘primary market’’ for the underlying security does not open for trading or otherwise closes is consistent with Section 6(b)(5) of the Act.10 Similarly, the change to allow CBOE to consider whether trading in the underlying security has been halted or suspended in ‘‘one or more of the markets trading such security’’ instead of requiring CBOE to only consider trading in the underlying primary market is consistent with Section 6(b)(5) of the Act.11 Under its proposal, CBOE’s discretion to open or continue trading in options, or halt trading in options, would not be limited by or solely rely on the status of the primary market for an underlying security. In addition, the proposed changes to Exchange Rule 6.3 would grant the Post Director and Order Book Official of the Exchange greater discretion regarding whether to halt trading by allowing them to consider halts at markets other than the primary market. The proposed rule changes would grant discretion to the Exchange to trade options when there is sufficient liquidity outside of the primary market and to halt the trading of options if exchanges other than the primary market are trading the underlying security and halt trading rather than limit the Exchange’s authority by specific reference to the status of the primary market for the underlying securities. The Commission believes 8 In approving the proposed rule change, the Commission has considered the impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). 10 Id. 11 Id. PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 that allowing CBOE to have such discretion has the potential to lessen market disruptions in the event that a primary market for an underlying security is unable to open or remain open for trading, particularly for an extended period. Thus, the proposal is designed to facilitate the trading of options when other cash equity markets are open and able to trade or continue trading in the underlying securities. Accordingly, the Commission finds that the Exchange’s proposal is consistent with the Act, including Section 6(b)(5) thereof, in that it is designed to remove impediments to and perfect the mechanism of a free and open market, and in general, protect investors and the public interest. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act 12 that the proposed rule change (SR–CBOE–2013– 035) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–11625 Filed 5–15–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69559; File No. SR– NASDAQ–2013–074] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Penny Pilot Options and Non-Penny Pilot Options May 10, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 30, 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. 12 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 13 17 E:\FR\FM\16MYN1.SGM 16MYN1 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Notices 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 Non-Penny Pilot Fees for Adding Liquidity applicable to Firms,4 Non-NOM Market Makers 5 and Broker Dealers.6 While the changes proposed herein are effective upon filing, the Exchange has designated that the amendments be operative on May 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. The Exchange proposes to adopt certain tiered pricing for Firms, Non-NOM Market Makers and BrokerDealers with respect to Penny Pilot Options Rebates to Add Liquidity and Non-Penny Pilot Options Fees for Adding Liquidity. Today, the Exchange offers tiered Penny Pilot Options Rebates to Add Liquidity to Customers,7 Professionals 8 and NOM Market Makers 9 and a $0.10 per contract Penny Pilot Options Rebate to Add Liquidity to Firms, Non-NOM Market Makers and Broker-Dealers. With respect to Customers and Professionals, the Exchange pays Penny Pilot Options Rebates to Add Liquidity based on various criteria with rebates ranging from $0.25 to $0.48 per contract as follows: Monthly volume Tier 1 ........ Tier 2 ........ Tier 3 ........ Tier 4 ........ Tier 5 a ...... Tier 6 b,c ... Tier 7 b,c ... tkelley on DSK3SPTVN1PROD with NOTICES Tier 8 b,c ... VerDate Mar<15>2010 Rebate to add liquidity Participant adds Customer and Professional liquidity of up to 0.20% of total industry customer equity and ETF option average daily volume (‘‘ADV’’) contracts per day in a month. Participant adds 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. Participant adds 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. Participant adds Customer and Professional liquidity of 0.5% or more of total industry customer equity and ETF option ADV 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. 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 has 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. 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 40,000 or more contracts per day per month. 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 18:13 May 15, 2013 Jkt 229001 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 The term ‘‘Firm’’ or (‘‘F’’) applies to any transaction that is identified by a Participant for clearing in the Firm range at OCC. 5 The term ‘‘Non-NOM Market Maker’’ or (‘‘O’’) is a registered market maker on another options exchange that is not a NOM Market Maker. A NonNOM Market Maker must append the proper NonNOM Market Maker designation to orders routed to NOM. 6 The term ‘‘Broker-Dealer’’ or (‘‘B’’) applies to any transaction which is not subject to any of the other transaction fees applicable within a particular category. PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 28913 $0.25 0.40 0.43 0.45 0.42 0.45 0.47 0.48 7 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)). The Customer and Professional Rebates to Add Liquidity range from [sic]. 8 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. 9 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. E:\FR\FM\16MYN1.SGM 16MYN1 28914 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Notices With respect to NOM Market Makers, the Exchange pays Penny Pilot Options Rebates to Add Liquidity based on various criteria in four tiers with rebates which range from $0.25 to $0.38 per contract as follows: 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 of up to 39,999 contracts per day in a month. Participant adds NOM Market Maker liquidity in Penny Pilot Options of 40,000 to 89,999 contracts per day in a month. Participant and its affiliate under Common Ownership qualify for Tier 8 of the Customer and Professional Rebate to Add Liquidity in Penny Pilot Options. Participant adds NOM Market Maker liquidity in Penny Pilot Options of 110,000 or more contracts per day in a month. The Exchange proposes to amend the Firm, Non-NOM Market Maker and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity to pay a Participant that adds 15,000 contracts per day or more of Firm, Non-NOM Market Maker or Broker-Dealer liquidity in Penny Pilot Options or Non-Penny Pilot Options in a given month a Penny Pilot Options Rebate to Add Liquidity of $0.20 per contract. The Exchange believes that the proposed Penny Pilot Options Rebate to Add Liquidity will encourage Firms, Non-NOM Market Makers and Broker-Dealers to transact additional liquidity on NOM. The Exchange also proposes to amend the Non-Penny Pilot Options Fees for Adding Liquidity for a Firm, Non-NOM Market Maker and Broker-Dealer. Today, a Customer does not pay a NonPenny Pilot Options Fee for Adding Liquidity. Professionals, Firms, NonNOM Market Makers and Broker-Dealers pay a $0.45 per contract Non-Penny Pilot Options Fee for Adding Liquidity and a NOM Market Maker pays a $0.35 per contract Non-Penny Pilot Options Fee for Adding Liquidity. The Exchange proposes to decrease the Firm, NonNOM Market Maker and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity from $0.45 to $0.36 per contract provided a Participant adds 15,000 contracts per day or more of Firm, Non-NOM Market Maker or Broker-Dealer liquidity in Penny Pilot Options or Non-Penny Pilot Options in a given month. The Exchange believes that the proposed reduced Non-Penny Pilot Options Fees for Adding Liquidity will encourage Firms, Non-NOM Market Makers and Broker-Dealers to provide additional liquidity on NOM. The Exchange proposes to add a new note 2 to describe the rebate and reduced fee as described herein to Chapter XV, Section 2(1). 2. Statutory Basis NASDAQ believes that the proposed rule changes are consistent with the VerDate Mar<15>2010 Rebate to add liquidity 18:13 May 15, 2013 Jkt 229001 provisions of Section 6 of the Act,10 in general, and with Section 6(b)(4) of the Act,11 in particular, in that they provide for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system which NASDAQ operates or controls as described in detail below. The Exchange believes that the proposed Firm, Non-NOM Market Maker and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity are reasonable because a Firm, Non-NOM Market Maker and Broker-Dealer have the opportunity to obtain an increased rebate, similar to Customers, Professionals and NOM Market Makers today,12 by transacting 15,000 contracts per day or more of Penny Pilot Options or Non-Penny Pilot Options liquidity in a given month. The Exchange believes that the proposed Firm, Non-NOM Market Maker and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity are equitable and not unfairly discriminatory because the Exchange would continue to offer Customers, Professionals and NOM Market Makers an opportunity to obtain higher rebates. The Exchange believes that continuing to pay Customers and Professionals tiered Rebates to Add Liquidity in Penny Pilot Options, as compared to other market participants, is equitable and not unfairly discriminatory because 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 10 15 U.S.C. 78f. U.S.C. 78f(b)(4). 12 Customers and Professionals Penny Pilot Option Rebates to Add Liquidity are based on various criteria with rebates ranging from $0.25 to $0.48 per contract. A NOM Market Maker is paid a Penny Pilot Options Rebate to Add Liquidity based on various criteria in four tiers with rebates which range from $0.25 to $0.38 per contract. See Chapter XV, Section 2(1). 11 15 PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 $0.25 $0.30 $0.37 $0.28 or $0.38 in the following symbols BAC, GLD, IWM, QQQ and VXX or $0.40 in SPY believes that continuing to offer Professionals the same Penny Pilot Options Rebates to Add Liquidity as Customers is equitable and not unfairly discriminatory because 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. By 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.13 A Professional could only otherwise presume the Tier 1 rebate would be achieved in a month when determining price.14 Further, the Exchange initially established Professional pricing in order to ‘‘. . . bring additional revenue to the Exchange.’’ 15 The Exchange noted in 13 Customer and Professional volume is aggregated for purposes of determining which rebate tier a Participant qualifies for with respect to the Professional Rebate to Add Liquidity in Penny Pilot Options. 14 A Professional would be unable to determine the exact rebate that would be paid on a transaction by transaction basis with certainty until the end of a given month when all Customer and Professional volume is aggregated for purposes of determining which tier the Participant qualified for in a given month. 15 See Securities Exchange Act Release No. 64494 (May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– E:\FR\FM\16MYN1.SGM 16MYN1 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Notices tkelley on DSK3SPTVN1PROD with NOTICES the Professional Filing that it believes ‘‘. . . that the increased revenue from the proposal would assist the Exchange to recoup fixed costs.’’ 16 The Exchange also noted in that filing that it believes that establishing separate pricing for a Professional, which ranges between that of a customer and market maker, accomplishes this objective.17 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.18 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 quoting 19 and the commitment of capital. Firms, Non-NOM Market Makers and BrokerDealers would continue to be offered the 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. 16 See Securities Exchange Act Release No. 64494 (May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– NASDAQ–2011–066). 17 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. 18 The Fee for Removing Liquidity in Penny Pilot Options is $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. 19 Pursuant to Chapter VII (Market Participants), Section 5 (Obligations of Market Makers), in registering as a market maker, an Options Participant commits himself to various obligations. Transactions of a Market Maker in its market making capacity must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market Makers should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. Further, all Market Makers are designated as specialists on NOM for all purposes under the Act or rules thereunder. See Chapter VII, Section 5. VerDate Mar<15>2010 18:13 May 15, 2013 Jkt 229001 same Penny Pilot Options Rebate to Add Liquidity, as is the case today, except, similar to other market participants, Firms, Non-NOM Market Makers and Broker-Dealers would have the opportunity to earn a higher Penny Pilot Options Rebate to Add Liquidity if they transact 15,000 contract per day or more of Penny Pilot Options or Non-Penny Pilot Options liquidity in a given month. The volume requirement for Firms, Non-NOM Market Makers and Broker-Dealers to qualify for the higher Penny Pilot Options Rebate to Add Liquidity is less than is required to earn a Tier 1 Customer or Professional Rebate to Add Liquidity in Penny Pilot Options or a Tier 1 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Option.20 The proposed Firm, NonNOM Market Maker and Broker-Dealer Penny Pilot Options Rebate to Add Liquidity of $0.20 per contract is the same for these market participants and would be uniformly applied to all Participants that qualify for the increased rebate. The Exchange’s proposal to decrease the Firm, Non-NOM Market Maker and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity from $0.45 to $0.36 per contract if a Firm, Non-NOM Market Maker or Broker-Dealer transacts 15,000 contracts per day or more of Penny Pilot Options or Non-Penny Pilot Options liquidity in a given month is reasonable because a Firm, Non-NOM Market Maker and Broker-Dealer have the opportunity to lower their transaction fees by transacting additional liquidity on NOM. The Exchange’s proposal to decrease the Firm, Non-NOM Market Maker and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity from $0.45 to $0.36 per contract if a Firm, Non-NOM Market Maker or Broker-Dealer transacts 15,000 contracts per day or more of Penny Pilot Options or Non-Penny Pilot Options liquidity in a given month is equitable and not unfairly discriminatory because the Exchange would continue to assess Firms, NonNOM Market Makers and Broker-Dealers the same Non-Penny Pilot Options Fees for Adding Liquidity, as is the case today, except, similar to other market participants, Firms, Non-NOM Market Makers and Broker-Dealers would have the opportunity to reduce Non-Penny Pilot Options Fees for Adding Liquidity if they transact 15,000 contract per day or more of Penny Pilot Options or NonPenny Pilot Options liquidity in a given 20 The 15,000 contract threshold for Firms, NonNOM Market Makers and Broker-Dealers to earn the Penny Pilot Options Rebate to Add Liquidity equates to approximately 0.12% of the industry customer equity and ETF volume. PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 28915 month. Today, Customers are not assessed a Non-Penny Pilot Options Fee for Adding Liquidity because Customer order flow is unique and benefits all market participants. A NOM Market Maker would continue to be assessed lower fees as compared to Firms, NonNOM Market Makers and Broker-Dealers in Non-Penny Pilot Fees for Adding Liquidity ($0.35 per contract for a NOM Market Maker as compared to other market participants), even with the proposed reduced fee of $0.36 per contract, because, as mentioned herein, NOM Market Makers add value through continuous quoting 21 and the commitment of capital. The proposed reduced Firm, Non-NOM Market Maker and Broker-Dealer Non-Penny Pilot Options Fee for Adding Liquidity of $0.26 per contract is the same for Firms, Non-NOM Market Makers and BrokerDealers, and would be uniformly applied to all Participants that qualify for the reduced fee. The Exchange believes that not offering Professionals the same reduction in Non-Penny Pilot Options Fees for Adding Liquidity is reasonable because Professionals have the opportunity to earn significantly higher rebates for adding liquidity in Penny Pilot Options, as compared to Firms, Non-NOM Market Makers and BrokerDealers, which should continue to incentivize Professionals to add liquidity to the Exchange in Penny Pilot Options, which account for approximately 80% of the industry volume every month. The Exchange believes that the Penny Pilot Options Professional rebate tiers, which requires Professionals to add a certain amount of Penny Pilot Options liquidity per month and liquidity in either Penny Pilot Options or Non-Penny Pilot Options for purposes of Tiers 6, 7 or 8,22 incentivizes Professionals to add NonPenny Pilot Options liquidity on NOM. Further, Professionals average effective rate to add liquidity in Penny Pilot Options and/or Non-Penny Pilot Options has a high probability of being lower than the average effective rate for a Firm, Non-NOM Market Maker or Broker-Dealers to add liquidity in Penny Pilot Options or Non-Penny Pilot Options in any given month, despite the Exchange’s decision to not offer a Professional the opportunity to reduce 21 See note 19. 6, 7 or 8 of the Professional Penny Pilot Options Rebate to Add Liquidity permits Participants to add Total Volume which 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. 22 Tiers E:\FR\FM\16MYN1.SGM 16MYN1 28916 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Non-Penny Pilot Fees for Adding Liquidity in certain circumstances. By way of example, if a Professional and a Firm add liquidity volume, which volume is evenly split between Penny Pilot Options and Non-Penny Pilot Options and both achieve the maximum rebate opportunity available, the Professional’s effective rate to add liquidity in Penny Pilot Options and/or Non-Penny Pilot Options would be an average effective rebate of $0.015 per contract, while the Firm’s effective rate would be an average effective fee of $0.08 per contract. Otherwise, the NonPenny Pilot Options Fees for Adding Liquidity are the same for all market participants, except Customers, when a Firm, Non-NOM Market Maker or Broker-Dealer does not otherwise qualify for the reduced fee. The Exchange believes that its proposal to reduce the Firm, Non-NOM Market Maker and Broker-Dealer Fees for Adding Liquidity in Non-Penny Pilot Options, only when a Firm, Non-NOM Market Maker or Broker-Dealer adds liquidity of 15,000 contracts per day or more of Penny Pilot Options or NonPenny Pilot Options volume in a given month, is equitable and not unfairly discriminatory because of the potential a Professional has to achieve higher rebates in Penny Pilot Options, particularly when such volume is aggregated with Customer volume and, in certain cases, includes liquidity in either Penny Pilot Options or NonPenny Pilot Options. 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. The Exchange does not believe that providing Professionals with the opportunity to obtain higher rebates equivalent to that of a Customer creates an undue burden on competition where Professionals would be necessarily advantaged on NOM as compared to NOM Market Makers, Firms, Broker-Dealers or Non-NOM Market Makers because the Exchange does not believe that the amount of the rebate offered by the Exchange has a material impact on a Participant’s ability to execute orders in Penny Pilot Options. The Exchange does not believe the proposed rebate tiers would result in any burden on competition as between market participants because the remaining market participants, Firms, Non-NOM Market Makers and Broker- VerDate Mar<15>2010 18:13 May 15, 2013 Jkt 229001 Dealers would continue to earn uniform rebates today and have the opportunity to earn the same enhanced rebate. The Exchange believes that incentivizing Firms, Non-NOM Market Makers and Broker-Dealers to transact a greater number of Penny Pilot Options or NonPenny Pilot Options brings greater liquidity to the Exchange. The Exchange’s proposal to decrease the Firm, Non-NOM Market Maker and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity, provided those Participants transacted 15,000 contracts per day or more of Penny Pilot Options or Non-Penny Pilot Options liquidity in a given month, does not misalign the current fees on NOM. These market participants would continue to pay uniform transaction fees as compared to other market participants. Customers would not pay such a fee, as is the case today because of the unique benefits attributed to Customer order flow, and NOM Market Makers would continue to be assessed a more favorable fee, despite the fee reduction offered to Firms, Non-NOM Market Makers and Broker-Dealers because NOM Market Makers have obligations 23 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 as compared to other market participants, except Customers. With respect to the Non-Penny Pilot Options Fees for Adding Liquidity, the Exchange noted that Professionals have the opportunity to earn significantly higher Penny Pilot Options Rebates for Adding Liquidity as compared to Firms, Non-NOM Market Makers and BrokerDealers by qualifying for rebate tiers which aggregates Penny Pilot Options volume and Non-Penny Pilot Options volume, in certain circusmtances [sic],24 as well as volume from Customer executions. The Exchange believes that its proposal to reduce the Firm, NonNOM Market Maker and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity only when a Firm, Non-NOM Market Maker or BrokerDealer adds liquidity of 15,000 contracts per day or more of Penny Pilot Options or Non-Penny Pilot Options volume in a given month does not create an undue burden on competition given the opportunity for Professionals to qualify for higher Penny Pilot Options rebates. The Exchange believes the differing outcomes, rebates and fees created by the Exchange’s proposed pricing incentives contribute to the overall health of the market place for the benefit 23 See 24 See PO 00000 note 19. note 22. Frm 00121 of all Participants that willing choose to transact options on NOM. For the reasons specified herein, the Exchange does not believe this proposal creates an undue burden on competition. The Exchange operates in a highly competitive market comprised of eleven U.S. options exchanges in which many sophisticated and knowledgeable market participants can readily and do send order flow to competing exchanges if they deem fee levels or rebate incentives at a particular exchange to be excessive or inadequate. These market forces support the Exchange belief that the proposed rebate structure and tiers proposed herein are competitive with rebates and tiers in place on other exchanges. The Exchange believes that this competitive marketplace continues to impact 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.25 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File 25 15 Fmt 4703 Sfmt 4703 E:\FR\FM\16MYN1.SGM U.S.C. 78s(b)(3)(A)(ii). 16MYN1 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Notices Number SR–NASDAQ–2013–074 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–2013–074. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2013–074, and should be submitted on or before June 6, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–11636 Filed 5–15–13; 8:45 am] tkelley on DSK3SPTVN1PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69554; File No. SR– NYSEArca–2013–47] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Establishing Non-Display Usage Fees and Amending the Professional End-User Fees for NYSE Arca Options Market Data May 10, 2013. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on May 1, 2013, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to establish non-display usage fees and to amend the Professional End-User fees for NYSE Arca Options market data, operative on May 1, 2013. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 26 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 18:13 May 15, 2013 Jkt 229001 PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 28917 A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to establish non-display usage fees and to amend the Professional End-User fees for NYSE Arca Options market data, operative on May 1, 2013. The subsections below describe (1) the background on the current fees for these real-time products; (2) the rationale for creating the new non-display usage fee structure; (3) the proposed fee change for non-display usage by Professional End-Users; (4) the proposed fee change for display usage by Professional End-Users; and (5) an example comparing the current and proposed fees. Background On October 1, 2012, the Exchange began offering the following real-time options market data products: ArcaBook for Arca Options—Trades, ArcaBook for Arca Options—Top of Book, ArcaBook for Arca Options—Depth of Book, ArcaBook for Arca Options—Complex, ArcaBook for Arca Options—Series Status, and ArcaBook for Arca Options—Order Imbalance (collectively, ‘‘Arca Options Products’’).4 Fees cover all six products.5 The Exchange charges an access fee of $3,000 per month and a redistribution fee of $2,000 per month for the Arca Options Products. The Exchange charges Professional End-Users $50 per month for each ‘‘User per Source’’ for the receipt and use of the Arca Options Products.6 A Professional End-User is a person or entity that receives market data from the Exchange or a Redistributor and uses that market data solely for its own internal purposes; a Professional EndUser is not permitted to redistribute that market data to any person or entity outside of its organization. A ‘‘Source’’ is a Professional End-User-controlled 4 See Securities Exchange Act Release No. 67720 (Aug. 23, 2012), 77 FR 52769 (Aug. 30, 2012) (SR– NYSEArca–2012–89). 5 See SR–NYSEArca–2013–41 (establishing a fee schedule) and Securities Exchange Act Release No. 68005 (Oct. 9, 2012), 77 FR 63362 (Oct. 16, 2012) (SR–NYSEArca–2012–106) (establishing fees for Arca Options Products). Arca Options Products are not offered with separate fees for the individual underlying products. 6 The Exchange notes that the User per Source reporting policy differs from the unit-of-count policy used for other Exchange market data products, such as NYSE Arca Trades and NYSE Arca BBO. See Securities Exchange Act Release No. 62188 (May 27, 2010), 75 FR 31484 (June 3, 2010) (SR–NYSEArca–2010–23). E:\FR\FM\16MYN1.SGM 16MYN1

Agencies

[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28912-28917]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11636]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69559; File No. SR-NASDAQ-2013-074]


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

May 10, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 30, 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.

---------------------------------------------------------------------------

[[Page 28913]]

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 Non-
Penny Pilot Fees for Adding Liquidity applicable to Firms,\4\ Non-NOM 
Market Makers \5\ and Broker Dealers.\6\
---------------------------------------------------------------------------

    \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\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \5\ The term ``Non-NOM Market Maker'' or (``O'') is a registered 
market maker on another options exchange that is not a NOM Market 
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market 
Maker designation to orders routed to NOM.
    \6\ The term ``Broker-Dealer'' or (``B'') applies to any 
transaction which is not subject to any of the other transaction 
fees applicable within a particular category.
---------------------------------------------------------------------------

    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on May 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. The Exchange proposes to adopt certain tiered 
pricing for Firms, Non-NOM Market Makers and Broker-Dealers with 
respect to Penny Pilot Options Rebates to Add Liquidity and Non-Penny 
Pilot Options Fees for Adding Liquidity.
    Today, the Exchange offers tiered Penny Pilot Options Rebates to 
Add Liquidity to Customers,\7\ Professionals \8\ and NOM Market Makers 
\9\ and a $0.10 per contract Penny Pilot Options Rebate to Add 
Liquidity to Firms, Non-NOM Market Makers and Broker-Dealers. With 
respect to Customers and Professionals, the Exchange pays Penny Pilot 
Options Rebates to Add Liquidity based on various criteria with rebates 
ranging from $0.25 to $0.48 per contract as follows:
---------------------------------------------------------------------------

    \7\ 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)). The 
Customer and Professional Rebates to Add Liquidity range from [sic].
    \8\ 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.
    \9\ 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.

------------------------------------------------------------------------
                                                        Rebate to add
                              Monthly volume              liquidity
------------------------------------------------------------------------
Tier 1...............  Participant adds Customer                   $0.25
                        and Professional liquidity
                        of up to 0.20% of total
                        industry customer equity
                        and ETF option average
                        daily volume (``ADV'')
                        contracts per day in a
                        month.
Tier 2...............  Participant adds Customer                    0.40
                        and Professional liquidity
                        of 0.21% to 0.30% of total
                        industry customer equity
                        and ETF option ADV
                        contracts per day in a
                        month.
Tier 3...............   Participant adds Customer                   0.43
                        and Professional liquidity
                        of 0.31% to 0.49% of total
                        industry customer equity
                        and ETF option ADV
                        contracts per day in a
                        month.
Tier 4...............  Participant adds Customer                    0.45
                        and Professional liquidity
                        of 0.5% or more of total
                        industry customer equity
                        and ETF option ADV
                        contracts per day in a
                        month.
Tier 5 \a\...........  Participant adds (1)                         0.42
                        Customer and Professional
                        liquidity of 25,000 or
                        more contracts per day in
                        a month, (2) the
                        Participant has certified
                        for the Investor Support
                        Program set forth in Rule
                        7014, and (3) the
                        Participant executed at
                        least one order on
                        NASDAQ's equity market.
Tier 6 \b,c\.........  Participant has Total                        0.45
                        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.
Tier 7 \b,c\.........  Participant has Total                        0.47
                        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.
Tier 8 \b,c\.........  Participant (1) Has Total                    0.48
                        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
                        40,000 or more contracts
                        per day per month.
------------------------------------------------------------------------


[[Page 28914]]

    With respect to NOM Market Makers, the Exchange pays Penny Pilot 
Options Rebates to Add Liquidity based on various criteria in four 
tiers with rebates which range from $0.25 to $0.38 per contract as 
follows:

------------------------------------------------------------------------
                       Monthly volume         Rebate to add liquidity
------------------------------------------------------------------------
Tier 1..........  Participant adds NOM     $0.25
                   Market Maker liquidity
                   in 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
                   of 40,000 to 89,999
                   contracts per day in a
                   month.
Tier 3..........  Participant and its      $0.37
                   affiliate under Common
                   Ownership qualify for
                   Tier 8 of the Customer
                   and Professional
                   Rebate to Add
                   Liquidity in Penny
                   Pilot Options.
Tier 4..........  Participant adds NOM     $0.28 or $0.38 in the
                   Market Maker liquidity   following symbols BAC, GLD,
                   in Penny Pilot Options   IWM, QQQ and VXX or $0.40 in
                   of 110,000 or more       SPY
                   contracts per day in a
                   month.
------------------------------------------------------------------------

    The Exchange proposes to amend the Firm, Non-NOM Market Maker and 
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity to pay a 
Participant that adds 15,000 contracts per day or more of Firm, Non-NOM 
Market Maker or Broker-Dealer liquidity in Penny Pilot Options or Non-
Penny Pilot Options in a given month a Penny Pilot Options Rebate to 
Add Liquidity of $0.20 per contract. The Exchange believes that the 
proposed Penny Pilot Options Rebate to Add Liquidity will encourage 
Firms, Non-NOM Market Makers and Broker-Dealers to transact additional 
liquidity on NOM.
    The Exchange also proposes to amend the Non-Penny Pilot Options 
Fees for Adding Liquidity for a Firm, Non-NOM Market Maker and Broker-
Dealer. Today, a Customer does not pay a Non-Penny Pilot Options Fee 
for Adding Liquidity. Professionals, Firms, Non-NOM Market Makers and 
Broker-Dealers pay a $0.45 per contract Non-Penny Pilot Options Fee for 
Adding Liquidity and a NOM Market Maker pays a $0.35 per contract Non-
Penny Pilot Options Fee for Adding Liquidity. The Exchange proposes to 
decrease the Firm, Non-NOM Market Maker and Broker-Dealer Non-Penny 
Pilot Options Fees for Adding Liquidity from $0.45 to $0.36 per 
contract provided a Participant adds 15,000 contracts per day or more 
of Firm, Non-NOM Market Maker or Broker-Dealer liquidity in Penny Pilot 
Options or Non-Penny Pilot Options in a given month. The Exchange 
believes that the proposed reduced Non-Penny Pilot Options Fees for 
Adding Liquidity will encourage Firms, Non-NOM Market Makers and 
Broker-Dealers to provide additional liquidity on NOM.
    The Exchange proposes to add a new note 2 to describe the rebate 
and reduced fee as described herein to Chapter XV, Section 2(1).
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\10\ in general, and with 
Section 6(b)(4) of the Act,\11\ in particular, in that they provide for 
the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which NASDAQ operates or controls as described in detail below.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed Firm, Non-NOM Market Maker 
and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity are 
reasonable because a Firm, Non-NOM Market Maker and Broker-Dealer have 
the opportunity to obtain an increased rebate, similar to Customers, 
Professionals and NOM Market Makers today,\12\ by transacting 15,000 
contracts per day or more of Penny Pilot Options or Non-Penny Pilot 
Options liquidity in a given month.
---------------------------------------------------------------------------

    \12\ Customers and Professionals Penny Pilot Option Rebates to 
Add Liquidity are based on various criteria with rebates ranging 
from $0.25 to $0.48 per contract. A NOM Market Maker is paid a Penny 
Pilot Options Rebate to Add Liquidity based on various criteria in 
four tiers with rebates which range from $0.25 to $0.38 per 
contract. See Chapter XV, Section 2(1).
---------------------------------------------------------------------------

    The Exchange believes that the proposed Firm, Non-NOM Market Maker 
and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity are 
equitable and not unfairly discriminatory because the Exchange would 
continue to offer Customers, Professionals and NOM Market Makers an 
opportunity to obtain higher rebates. The Exchange believes that 
continuing to pay Customers and Professionals tiered Rebates to Add 
Liquidity in Penny Pilot Options, as compared to other market 
participants, is equitable and not unfairly discriminatory because 
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 
because 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. By 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.\13\ A Professional could only otherwise 
presume the Tier 1 rebate would be achieved in a month when determining 
price.\14\ Further, the Exchange initially established Professional 
pricing in order to ``. . . bring additional revenue to the Exchange.'' 
\15\ The Exchange noted in

[[Page 28915]]

the Professional Filing that it believes ``. . . that the increased 
revenue from the proposal would assist the Exchange to recoup fixed 
costs.'' \16\ The Exchange also noted in that filing that it believes 
that establishing separate pricing for a Professional, which ranges 
between that of a customer and market maker, accomplishes this 
objective.\17\ 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.\18\ 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 \19\ and the 
commitment of capital. Firms, Non-NOM Market Makers and Broker-Dealers 
would continue to be offered the same Penny Pilot Options Rebate to Add 
Liquidity, as is the case today, except, similar to other market 
participants, Firms, Non-NOM Market Makers and Broker-Dealers would 
have the opportunity to earn a higher Penny Pilot Options Rebate to Add 
Liquidity if they transact 15,000 contract per day or more of Penny 
Pilot Options or Non-Penny Pilot Options liquidity in a given month. 
The volume requirement for Firms, Non-NOM Market Makers and Broker-
Dealers to qualify for the higher Penny Pilot Options Rebate to Add 
Liquidity is less than is required to earn a Tier 1 Customer or 
Professional Rebate to Add Liquidity in Penny Pilot Options or a Tier 1 
NOM Market Maker Rebate to Add Liquidity in Penny Pilot Option.\20\ The 
proposed Firm, Non-NOM Market Maker and Broker-Dealer Penny Pilot 
Options Rebate to Add Liquidity of $0.20 per contract is the same for 
these market participants and would be uniformly applied to all 
Participants that qualify for the increased rebate.
---------------------------------------------------------------------------

    \13\ Customer and Professional volume is aggregated for purposes 
of determining which rebate tier a Participant qualifies for with 
respect to the Professional Rebate to Add Liquidity in Penny Pilot 
Options.
    \14\ A Professional would be unable to determine the exact 
rebate that would be paid on a transaction by transaction basis with 
certainty until the end of a given month when all Customer and 
Professional volume is aggregated for purposes of determining which 
tier the Participant qualified for in a given month.
    \15\ 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.
    \16\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
    \17\ 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.
    \18\ The Fee for Removing Liquidity in Penny Pilot Options is 
$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.
    \19\ Pursuant to Chapter VII (Market Participants), Section 5 
(Obligations of Market Makers), in registering as a market maker, an 
Options Participant commits himself to various obligations. 
Transactions of a Market Maker in its market making capacity must 
constitute a course of dealings reasonably calculated to contribute 
to the maintenance of a fair and orderly market, and Market Makers 
should not make bids or offers or enter into transactions that are 
inconsistent with such course of dealings. Further, all Market 
Makers are designated as specialists on NOM for all purposes under 
the Act or rules thereunder. See Chapter VII, Section 5.
    \20\ The 15,000 contract threshold for Firms, Non-NOM Market 
Makers and Broker-Dealers to earn the Penny Pilot Options Rebate to 
Add Liquidity equates to approximately 0.12% of the industry 
customer equity and ETF volume.
---------------------------------------------------------------------------

    The Exchange's proposal to decrease the Firm, Non-NOM Market Maker 
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity 
from $0.45 to $0.36 per contract if a Firm, Non-NOM Market Maker or 
Broker-Dealer transacts 15,000 contracts per day or more of Penny Pilot 
Options or Non-Penny Pilot Options liquidity in a given month is 
reasonable because a Firm, Non-NOM Market Maker and Broker-Dealer have 
the opportunity to lower their transaction fees by transacting 
additional liquidity on NOM.
    The Exchange's proposal to decrease the Firm, Non-NOM Market Maker 
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity 
from $0.45 to $0.36 per contract if a Firm, Non-NOM Market Maker or 
Broker-Dealer transacts 15,000 contracts per day or more of Penny Pilot 
Options or Non-Penny Pilot Options liquidity in a given month is 
equitable and not unfairly discriminatory because the Exchange would 
continue to assess Firms, Non-NOM Market Makers and Broker-Dealers the 
same Non-Penny Pilot Options Fees for Adding Liquidity, as is the case 
today, except, similar to other market participants, Firms, Non-NOM 
Market Makers and Broker-Dealers would have the opportunity to reduce 
Non-Penny Pilot Options Fees for Adding Liquidity if they transact 
15,000 contract per day or more of Penny Pilot Options or Non-Penny 
Pilot Options liquidity in a given month. Today, Customers are not 
assessed a Non-Penny Pilot Options Fee for Adding Liquidity because 
Customer order flow is unique and benefits all market participants. A 
NOM Market Maker would continue to be assessed lower fees as compared 
to Firms, Non-NOM Market Makers and Broker-Dealers in Non-Penny Pilot 
Fees for Adding Liquidity ($0.35 per contract for a NOM Market Maker as 
compared to other market participants), even with the proposed reduced 
fee of $0.36 per contract, because, as mentioned herein, NOM Market 
Makers add value through continuous quoting \21\ and the commitment of 
capital. The proposed reduced Firm, Non-NOM Market Maker and Broker-
Dealer Non-Penny Pilot Options Fee for Adding Liquidity of $0.26 per 
contract is the same for Firms, Non-NOM Market Makers and Broker-
Dealers, and would be uniformly applied to all Participants that 
qualify for the reduced fee.
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    \21\ See note 19.
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    The Exchange believes that not offering Professionals the same 
reduction in Non-Penny Pilot Options Fees for Adding Liquidity is 
reasonable because Professionals have the opportunity to earn 
significantly higher rebates for adding liquidity in Penny Pilot 
Options, as compared to Firms, Non-NOM Market Makers and Broker-
Dealers, which should continue to incentivize Professionals to add 
liquidity to the Exchange in Penny Pilot Options, which account for 
approximately 80% of the industry volume every month. The Exchange 
believes that the Penny Pilot Options Professional rebate tiers, which 
requires Professionals to add a certain amount of Penny Pilot Options 
liquidity per month and liquidity in either Penny Pilot Options or Non-
Penny Pilot Options for purposes of Tiers 6, 7 or 8,\22\ incentivizes 
Professionals to add Non-Penny Pilot Options liquidity on NOM. Further, 
Professionals average effective rate to add liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options has a high probability of being 
lower than the average effective rate for a Firm, Non-NOM Market Maker 
or Broker-Dealers to add liquidity in Penny Pilot Options or Non-Penny 
Pilot Options in any given month, despite the Exchange's decision to 
not offer a Professional the opportunity to reduce

[[Page 28916]]

Non-Penny Pilot Fees for Adding Liquidity in certain circumstances. By 
way of example, if a Professional and a Firm add liquidity volume, 
which volume is evenly split between Penny Pilot Options and Non-Penny 
Pilot Options and both achieve the maximum rebate opportunity 
available, the Professional's effective rate to add liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options would be an average 
effective rebate of $0.015 per contract, while the Firm's effective 
rate would be an average effective fee of $0.08 per contract. 
Otherwise, the Non-Penny Pilot Options Fees for Adding Liquidity are 
the same for all market participants, except Customers, when a Firm, 
Non-NOM Market Maker or Broker-Dealer does not otherwise qualify for 
the reduced fee. The Exchange believes that its proposal to reduce the 
Firm, Non-NOM Market Maker and Broker-Dealer Fees for Adding Liquidity 
in Non-Penny Pilot Options, only when a Firm, Non-NOM Market Maker or 
Broker-Dealer adds liquidity of 15,000 contracts per day or more of 
Penny Pilot Options or Non-Penny Pilot Options volume in a given month, 
is equitable and not unfairly discriminatory because of the potential a 
Professional has to achieve higher rebates in Penny Pilot Options, 
particularly when such volume is aggregated with Customer volume and, 
in certain cases, includes liquidity in either Penny Pilot Options or 
Non-Penny Pilot Options.
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    \22\ Tiers 6, 7 or 8 of the Professional Penny Pilot Options 
Rebate to Add Liquidity permits Participants to add Total Volume 
which 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.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.
    Customers have traditionally been paid the highest rebates offered 
by options exchanges. The Exchange does not believe that providing 
Professionals with the opportunity to obtain higher rebates equivalent 
to that of a Customer creates an undue burden on competition where 
Professionals would be necessarily advantaged on NOM as compared to NOM 
Market Makers, Firms, Broker-Dealers or Non-NOM Market Makers because 
the Exchange does not believe that the amount of the rebate offered by 
the Exchange has a material impact on a Participant's ability to 
execute orders in Penny Pilot Options. The Exchange does not believe 
the proposed rebate tiers would result in any burden on competition as 
between market participants because the remaining market participants, 
Firms, Non-NOM Market Makers and Broker-Dealers would continue to earn 
uniform rebates today and have the opportunity to earn the same 
enhanced rebate. The Exchange believes that incentivizing Firms, Non-
NOM Market Makers and Broker-Dealers to transact a greater number of 
Penny Pilot Options or Non-Penny Pilot Options brings greater liquidity 
to the Exchange.
    The Exchange's proposal to decrease the Firm, Non-NOM Market Maker 
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity, 
provided those Participants transacted 15,000 contracts per day or more 
of Penny Pilot Options or Non-Penny Pilot Options liquidity in a given 
month, does not misalign the current fees on NOM. These market 
participants would continue to pay uniform transaction fees as compared 
to other market participants. Customers would not pay such a fee, as is 
the case today because of the unique benefits attributed to Customer 
order flow, and NOM Market Makers would continue to be assessed a more 
favorable fee, despite the fee reduction offered to Firms, Non-NOM 
Market Makers and Broker-Dealers because NOM Market Makers have 
obligations \23\ 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 as compared to other market participants, 
except Customers.
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    \23\ See note 19.
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    With respect to the Non-Penny Pilot Options Fees for Adding 
Liquidity, the Exchange noted that Professionals have the opportunity 
to earn significantly higher Penny Pilot Options Rebates for Adding 
Liquidity as compared to Firms, Non-NOM Market Makers and Broker-
Dealers by qualifying for rebate tiers which aggregates Penny Pilot 
Options volume and Non-Penny Pilot Options volume, in certain 
circusmtances [sic],\24\ as well as volume from Customer executions. 
The Exchange believes that its proposal to reduce the Firm, Non-NOM 
Market Maker and Broker-Dealer Non-Penny Pilot Options Fees for Adding 
Liquidity only when a Firm, Non-NOM Market Maker or Broker-Dealer adds 
liquidity of 15,000 contracts per day or more of Penny Pilot Options or 
Non-Penny Pilot Options volume in a given month does not create an 
undue burden on competition given the opportunity for Professionals to 
qualify for higher Penny Pilot Options rebates.
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    \24\ See note 22.
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    The Exchange believes the differing outcomes, rebates and fees 
created by the Exchange's proposed pricing incentives contribute to the 
overall health of the market place for the benefit of all Participants 
that willing choose to transact options on NOM. For the reasons 
specified herein, the Exchange does not believe this proposal creates 
an undue burden on competition. The Exchange operates in a highly 
competitive market comprised of eleven U.S. options exchanges in which 
many sophisticated and knowledgeable market participants can readily 
and do send order flow to competing exchanges if they deem fee levels 
or rebate incentives at a particular exchange to be excessive or 
inadequate. These market forces support the Exchange belief that the 
proposed rebate structure and tiers proposed herein are competitive 
with rebates and tiers in place on other exchanges. The Exchange 
believes that this competitive marketplace continues to impact 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.\25\ 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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    \25\ 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

[[Page 28917]]

Number SR-NASDAQ-2013-074 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-2013-074. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2013-074, and should 
be submitted on or before June 6, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11636 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P