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]
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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
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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.
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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
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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 ...
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Tier 8 b,c ...
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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
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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.
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$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.
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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 ........
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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
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Rebate to add liquidity
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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
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$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–
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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.
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18:13 May 15, 2013
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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.
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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
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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).
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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
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]]>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.
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\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).
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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.
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\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.
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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.
---------------------------------------------------------------------------
\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
