Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to a Non-Penny Pilot Option Rebate To Add Liquidity, 50465-50469 [2013-20099]
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Federal Register / Vol. 78, No. 160 / Monday, August 19, 2013 / Notices
widely adopted in the equities markets,
and are equitable and not unfairly
discriminatory because they are open to
all members on an equal basis and
provide rebates that are reasonably
related to the value to an exchange’s
market quality associated with higher
levels of market activity, such as higher
levels of liquidity provision and
introduction of higher volumes of orders
into the price and volume discovery
process. Accordingly, the Exchange
believes that the proposal is equitably
allocated and not unfairly
discriminatory because it is consistent
with the overall goals of enhancing
market quality. The Exchange believes
that any additional revenue that it may
receive based on the amendment to the
fee schedule as set forth above will
allow the Exchange to devote additional
capital to its operations and to continue
to offer competitive pricing, which, in
turn, will benefit Members of the
Exchange.
TKELLEY on DSK3SPTVN1PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
Because the market for order execution
is extremely competitive, Members may
choose to preference other market
centers ahead of the Exchange if they
believe that they can receive better fees
or rebates elsewhere. Further, because
certain of the proposed changes are
intended to provide incentives to
Members that will result in increased
activity on the Exchange, such changes
are necessarily competitive. The
Exchange also believes that its pricing
for displayed orders is appropriately
`
competitive vis-a-vis the Exchange’s
competitors. Further, the Exchange
believes that continuing to incentivize
the entry of aggressively priced,
displayed liquidity fosters intra-market
competition to the benefit of all market
participants that enter orders to the
Exchange. The Exchange does not
believe that any of the changes represent
a significant departure from previous
pricing offered by the Exchange or
pricing offered by the Exchange’s
competitors.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 8 and paragraph (f) of Rule
19b–4 thereunder.9 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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BYX–2013–025 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–BYX–2013–025. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml ). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BYX–
2013–025 and should be submitted on
or before September 9, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–20065 Filed 8–16–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70175; File No. SR–
NASDAQ–2013–104]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to a
Non-Penny Pilot Option Rebate To Add
Liquidity
August 13, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 5,
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.
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 offer an
additional rebate for transacting certain
Non-Penny Pilot Options.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nasdaq.cchwallstreet.
10 17
8 15
U.S.C. 78s(b)(3)(A)(ii).
9 17 CFR 240.19b–4(f).
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50465
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 78, No. 160 / Monday, August 19, 2013 / Notices
of the most significant aspects of such
statements.
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,
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
offer an additional $0.01 per contract
Non-Penny Pilot Customer Rebate to
Add Liquidity to Participants that
qualify for certain rebate tiers of the
Customer or Professional Penny Pilot 3
Options Rebates to Add Liquidity.
Today, the Exchange offers tiered
Penny Pilot Options Rebates to Add
Liquidity to Customers,4 Professionals 5
and NOM Market Makers 6 and a $0.10
per contract Penny Pilot Options Rebate
to Add Liquidity to Firms,7 Non-NOM
Market Makers 8 and Broker-Dealers.9
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:
Rebate to Add
Liquidity
Monthly Volume
Tier 1 ............
Tier 2 ............
Tier 3 ............
Tier 4 ............
Tier 5 ............
Tier 6 ............
Tier 7 ............
Tier 8 ............
Participant adds Customer and/or 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/or 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/or 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/or 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/or 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 and/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 and/or Professional liquidity.
Participant (1) has Total Volume of 325,000 or more contracts per day in a month, or (2) Participant has Total
Volume of 200,000 or more contracts per day in a month, of which 70,000 or more contracts per day in a
month must be Customer and/or Professional liquidity or (3) adds Customer and/or Professional liquidity of
1.00% or more of national customer volume in multiply-listed equity and ETF options classes in a month..
$0.25
0.40
0.43
0.45
0.42
0.45
0.47
0.48
TKELLEY on DSK3SPTVN1PROD with NOTICES
The Exchange proposes to offer
Participants that qualify for Tiers 7 or 8
of the Customer and Professional Penny
Pilot Options Rebate to Add Liquidity
an additional $0.01 per contract NonPenny Pilot Options Customer Rebate to
Add Liquidity on each transaction
which adds Customer liquidity in Non-
Penny Pilot Options. For example, a
Participant that qualifies for Tier 8 of
the Customer or Professional Penny
Pilot Options Rebate to Add Liquidity
and transacted 20,000 Non-Penny Pilot
Options contracts in that month that
added liquidity would receive a rebate
of $0.82 per contract on the 20,000
contracts or $16,400. The Exchange
believes that the additional rebate will
encourage Participants to add additional
liquidity in both Penny and Non-Penny
Pilot Options on NOM.
3 The Penny Pilot was established in March 2008
and in October 2009 was expanded and extended
through December 31, 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 seventyfive 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); 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); and 69787 (June 18, 2013), 78 FR 37858 (June
24, 2013) (SR–NASDAQ–2013–082). See also NOM
Rules, Chapter VI, Section 5.
4 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).
5 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.
6 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. NOM Market Maker Rebates range from
$0.25 to $0.38 per contract depending on various
criteria.
7 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at OCC.
8 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.
9 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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TKELLEY on DSK3SPTVN1PROD with NOTICES
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.
The Exchange believes that the
opportunity to earn an additional NonPenny Pilot Options Customer Rebate to
Add Liquidity is reasonable because the
incentive encourages Participants to
qualify for higher Customer or
Professional Penny Pilot Options rebate
tiers in order to also qualify for an
additional Non-Penny Pilot Options
Customer rebate. Participants would be
encouraged to add liquidity in both
Penny Pilot and Non-Penny Options
liquidity because Tiers 7 and 8 allow
Total Volume to be counted in
qualifying for those tiers. Total Volume
is defined at Chapter XV, Section 2(1) at
note b as Customer, Professional, Firm,
Broker-Dealer, Non-NOM Market Maker
and NOM Market Maker volume in
Penny Pilot Options and/or Non-Penny
Pilot Options which either adds or
removes liquidity on NOM. The
Exchange believes that offering
Customers and Professionals the
continued opportunity to earn higher
rebates is reasonable because by
incentivizing Participants to select the
Exchange as a venue to post Customer
and Professional liquidity will attract
additional order flow to the benefit of
all market participants. Today the
Exchange also incentivizes NOM Market
Makers to post liquidity, by offering
NOM Market Makers rebates, which also
benefit market participants through
increased order interaction. Firms, NonNOM Market Makers and Broker-Dealers
are also offered rebates under the
current pricing structure.
The Exchange believes that the
opportunity to earn an additional NonPenny Pilot Options Customer Rebate to
Add Liquidity is equitable and not
unfairly discriminatory because the
rebate would continue to encourage
Participants to transact a greater number
of Customer and Professional orders 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
10 15
11 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
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unfairly discriminatory 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.12 A
Professional could only otherwise
presume the Tier 1 rebate would be
achieved in a month when determining
price.13 Further, the Exchange initially
established Professional pricing in order
to ‘‘. . . bring additional revenue to the
Exchange.’’ 14 The Exchange noted in
the Professional Filing that it believes
‘‘. . . that the increased revenue from
the proposal would assist the Exchange
12 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.
13 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.
14 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.
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50467
to recoup fixed costs.’’ 15 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.16 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.17 For these reasons,
the Exchange believes that continuing to
offer Professionals the same rebates as
Customers is equitable and not unfairly
discriminatory. The Exchange believes
that continuing to offer NOM Market
Makers the opportunity to earn higher
rebates as compared to Non-NOM
Market Makers, Firms and Broker
Dealers is equitable and not unfairly
discriminatory because NOM Market
Makers add value through continuous
quoting 18 and a commitment of capital.
Firms, Non-NOM Market Makers and
Broker-Dealers would continue to be
offered a $0.10 per contract Rebate to
Add Liquidity in Penny Pilot Options,
as is the case today.19
15 See Securities Exchange Act Release No. 64494
(May 13, 2011), 76 FR 29014 (May 19, 2011) (SR–
NASDAQ–2011–066).
16 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.
17 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.
18 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.
19 Similar to other market participants, Firms,
Non-NOM Market Makers and Broker-Dealers have
the opportunity to earn a higher Penny Pilot
Options Rebate to Add Liquidity if they transact
15,000 contracts per day or more of Penny Pilot
Options or Non-Penny Pilot Options liquidity in a
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The Exchange believes that offering
Participants that qualify for Tiers 7 or 8
of the Customer and Professional Penny
Pilot Options Rebate to Add Liquidity
an opportunity to earn an additional
$0.01 per contract Non-Penny Pilot
Customer Rebate to Add Liquidity is
equitable and not unfairly
discriminatory because all Customers
and Professionals have an opportunity
to qualify for a Tier 7 or 8 Penny Pilot
Option Rebate to Add Liquidity and, in
turn, qualify to obtain the Customer
Non-Penny Pilot Options rebate. Today,
no other market participant is entitled to
a Non-Penny Pilot Options Rebate to
Add Liquidity other than a Customer.
The Exchange believes that it is
reasonable, equitable and not unfairly
discriminatory to only pay Customers a
rebate in Non-Penny Pilot Options
because Customer order flow is unique
and benefits all market participants
through the increased liquidity that
such order flow brings to the market.
The opportunity to increase the NonPenny Pilot Options rebate will further
encourage the addition of Penny Pilot
and Non-Penny Pilot Options liquidity
as well as Customer and Professional
liquidity. Today, Total Volume 20
includes both Penny and Non-Penny
Options volume so Tiers 7 or 8
encourage Participants to add and
remove liquidity in Penny and NonPenny Pilot Options.21
TKELLEY on DSK3SPTVN1PROD with NOTICES
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 continuing to provide
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. The 15,000 contract threshold for
Firms, Non-NOM Market Makers and BrokerDealers to earn the Penny Pilot Options Rebate to
Add Liquidity equates to approximately 0.12% of
the industry customer equity and ETF volume.
20 For purposes of Tiers 6, 7 and 8, ‘‘Total
Volume’’ is defined as Customer, Professional,
Firm, Broker-Dealer, Non-NOM Market Maker and
NOM Market Maker volume in Penny Pilot Options
and/or Non-Penny Pilot Options which either adds
or removes liquidity on NOM.
21 Tier 7 requires a certain amount of the Total
Volume to be comprised of Customer and/or
Professional liquidity. Tier 8 provides three options
to qualify for the rebate including Total Volume,
some of which must be comprised of Customer and/
or Professional liquidity.
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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 NonNOM 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 that offering Participants
that qualify for Tier 7 or 8 of the
Customer and Professional Penny Pilot
Options Rebate to Add Liquidity an
additional Non-Penny Pilot Options
Customer rebate would result in any
burden on competition as between
market participants because the
remaining market participants, NOM
Market Makers, Firms, Non-NOM
Market Makers and Broker-Dealers
would continue to have an opportunity
to earn Penny Pilot Options rebates.
Today, the Exchange only pays
Customers Non-Penny Pilot Options
Rebates to Add Liquidity.22 Customer
order flow brings unique benefits to the
market through increased liquidity
which benefits all market participants.
The Exchange’s proposal to pay an
additional Non-Penny Pilot Options
Customer Rebate to Add Liquidity,
presuming the Participant qualifies for
Tier 7 or 8 of the Customer and
Professional Penny Pilot Options Rebate
to Add Liquidity, will incentivize
Participants to direct Penny and NonPenny Pilot Options order flow, as well
as Customer and Professional order
flow, to NOM to the benefit of all other
market participants. The Exchange
believes the proposed pricing incentives
contribute to the overall health of the
market and benefit all Participants
willing to 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 hyper
competitive market comprised of twelve
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
22 NASDAQ OMX BX, Inc. Options pays a Rebate
to Remove Liquidity in All Other Penny Pilot
Options of $0.32 per contract to Customers only.
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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.23 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 rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2013–104 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–2013–104. 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
23 15
E:\FR\FM\19AUN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
19AUN1
Federal Register / Vol. 78, No. 160 / Monday, August 19, 2013 / Notices
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–2013–104, and should be
submitted on or before September 9,
2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–20099 Filed 8–16–13; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–70168; File No. SR–
NYSEArca–2013–79]
TKELLEY on DSK3SPTVN1PROD with NOTICES
August 13, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on August
7, 2013, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate Mar<15>2010
17:51 Aug 16, 2013
Jkt 229001
The Exchange proposes to amend
Commentary .07 to Rule 6.4 to modify
the short-term option series (‘‘ShortTerm Option Series’’ or ‘‘STOS’’)
Program to increase the number of
classes that are eligible to participate in
the Program from five to 30. 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. Purpose
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Commentary
.07 to Rule 6.4 To Modify the ShortTerm Option Series Program To
Increase the Number of Classes That
Are Eligible To Participate in the
Program From Five to 30
1 15
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
24 17
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
The Exchange first proposes to amend
Commentary .07(b) to Rule 6.4 related to
the STOS Program to increase the
number of classes that are eligible to
participate in the STOS Program from
five to 30.3 Currently, for each option
class that has been approved for listing
and trading on the Exchange, the
Exchange may select up to five listed
options classes for the STOS Program.
The Exchange may also include in the
STOS Program any option classes that
are selected by other exchanges that
3 A Short-Term Option Series is a series of an
option class that is approved for listing and trading
on the Exchange in which the series is opened for
trading on any Thursday or Friday that is a business
day and that expires at the close of business on the
next Friday that is a business day. If a Thursday or
Friday is not a business day, the series may be
opened on the first business day immediately prior
to that Thursday or Friday. If a Friday is not a
business day, the series shall expire on the first
business day immediately prior to that Friday. See
NYSE Arca Rule 5.10(b)(24); Commentary .07(a) to
NYSE Arca Rule 6.4.
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
50469
employ a similar program under their
respective rules.
The Exchange is proposing to amend
Commentary .07(b) to compete equally
and fairly with other options exchanges
in satisfying high market demand for
weekly options. The Exchange believes
that limiting the number of options
classes eligible to participate in its
STOS Program to five places the
Exchange at a competitive disadvantage
relative to substantially similar STOS
Programs offered by other exchanges.
Options exchanges operated by BATS
Exchange, Inc. (‘‘BATS’’), Chicago Board
Options Exchange (‘‘CBOE’’), NASDAQ
Stock Market LLC (‘‘NOM’’),
International Securities Exchange
(‘‘ISE’’), and NASDAQ OMX PHLX LLC
(‘‘PHLX’’) now have rules that allow up
to 30 classes to participate in their
respective STOS Programs.4 The
Exchange’s proposed increase in the
number of classes eligible to participate
in the STOS Program would not only
improve its competitive position
relative to other exchanges, but would
also promote consistency and
uniformity among the competing
options exchanges that have adopted
similar STOS Programs.
The Exchange notes that its STOS
Program has been well-received by
market participants, particularly retail
investors. The Exchange believes that
the current proposed revision to the
STOS Program will permit the Exchange
to meet increased customer demand and
provide market participants with the
ability to hedge securities positions with
a greater number of option classes and
series.
With regard to the impact of this
proposal on system capacity, the
Exchange has analyzed its capacity and
represents that it and the Options Price
Reporting Authority have the necessary
systems capacity to handle the potential
additional traffic associated with the
proposed expansion of the STOS
Program. While the expansion of the
STOS Program is expected to generate
additional quote traffic, the Exchange
believes that this increased traffic will
be manageable. The Exchange also notes
that any series added under this
expansion would be subject to quote
4 See BATS Rule 19.6, Interpretations and
Policies .05(a); BATS Rule 29.11(h); CBOE Rules 5.5
and 24.9; NOM Rules Chapter IV, Section 6;
Chapter XIV, Section 11; ISE Rules 504 and 2009;
and PHLX Rules 1012 and 1101A. NOM and BATS,
like NYSE Arca, each began its STOS Program in
2010, with 5-class limits similar to that provided for
in Commentary .07 to NYSE Arca Rule 6.4. See
Securities Exchange Act Release Nos. 62297 (June
15, 2010), 75 FR 35111 (June 21, 2010) (SR–
NASDAQ–2010–073); 62597 (July 29, 2010), 75 FR
47335 (August 5, 2010) (SR–BATS–2010–020).
E:\FR\FM\19AUN1.SGM
19AUN1
]]>Agencies
[Federal Register Volume 78, Number 160 (Monday, August 19, 2013)]
[Notices]
[Pages 50465-50469]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20099]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70175; File No. SR-NASDAQ-2013-104]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to a Non-Penny Pilot Option Rebate To Add Liquidity
August 13, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 5, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by NASDAQ.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,''
at Section 2 governing pricing for NASDAQ members using the NASDAQ
Options Market (``NOM''), NASDAQ's facility for executing and routing
standardized equity and index options. Specifically, NOM proposes to
offer an additional rebate for transacting certain Non-Penny Pilot
Options.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaq.cchwallstreet.
[[Page 50466]]
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 offer an additional
$0.01 per contract Non-Penny Pilot Customer Rebate to Add Liquidity to
Participants that qualify for certain rebate tiers of the Customer or
Professional Penny Pilot \3\ Options Rebates to Add Liquidity.
---------------------------------------------------------------------------
\3\ The Penny Pilot was established in March 2008 and in October
2009 was expanded and extended through December 31, 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); 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); and 69787 (June 18, 2013), 78 FR 37858 (June
24, 2013) (SR-NASDAQ-2013-082). See also NOM Rules, Chapter VI,
Section 5.
---------------------------------------------------------------------------
Today, the Exchange offers tiered Penny Pilot Options Rebates to
Add Liquidity to Customers,\4\ Professionals \5\ and NOM Market Makers
\6\ and a $0.10 per contract Penny Pilot Options Rebate to Add
Liquidity to Firms,\7\ Non-NOM Market Makers \8\ and Broker-Dealers.\9\
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:
---------------------------------------------------------------------------
\4\ 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).
\5\ 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.
\6\ 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. NOM Market Maker Rebates range from $0.25
to $0.38 per contract depending on various criteria.
\7\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\8\ 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.
\9\ The term ``Broker-Dealer'' or (``B'') applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category.
------------------------------------------------------------------------
Rebate to Add
Monthly Volume Liquidity
------------------------------------------------------------------------
Tier 1.............. Participant adds Customer and/or $0.25
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 and/or 0.40
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 and/or 0.43
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 and/or 0.45
Professional liquidity of 0.5% or
more of total industry customer
equity and ETF option ADV
contracts per day in a month.
Tier 5.............. Participant adds (1) Customer and/ 0.42
or Professional liquidity of
25,000 or more contracts per day
in a month, (2) the Participant
has certified for the Investor
Support Program set forth in Rule
7014, and (3) the Participant
executed at least one order on
NASDAQ's equity market.
Tier 6.............. Participant has Total Volume of 0.45
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 and/or
Professional liquidity.
Tier 7.............. Participant has Total Volume of 0.47
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 and/or
Professional liquidity.
Tier 8.............. Participant (1) has Total Volume 0.48
of 325,000 or more contracts per
day in a month, or (2)
Participant has Total Volume of
200,000 or more contracts per day
in a month, of which 70,000 or
more contracts per day in a month
must be Customer and/or
Professional liquidity or (3)
adds Customer and/or Professional
liquidity of 1.00% or more of
national customer volume in
multiply-listed equity and ETF
options classes in a month..
------------------------------------------------------------------------
The Exchange proposes to offer Participants that qualify for Tiers
7 or 8 of the Customer and Professional Penny Pilot Options Rebate to
Add Liquidity an additional $0.01 per contract Non-Penny Pilot Options
Customer Rebate to Add Liquidity on each transaction which adds
Customer liquidity in Non-Penny Pilot Options. For example, a
Participant that qualifies for Tier 8 of the Customer or Professional
Penny Pilot Options Rebate to Add Liquidity and transacted 20,000 Non-
Penny Pilot Options contracts in that month that added liquidity would
receive a rebate of $0.82 per contract on the 20,000 contracts or
$16,400. The Exchange believes that the additional rebate will
encourage Participants to add additional liquidity in both Penny and
Non-Penny Pilot Options on NOM.
[[Page 50467]]
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 opportunity to earn an additional
Non-Penny Pilot Options Customer Rebate to Add Liquidity is reasonable
because the incentive encourages Participants to qualify for higher
Customer or Professional Penny Pilot Options rebate tiers in order to
also qualify for an additional Non-Penny Pilot Options Customer rebate.
Participants would be encouraged to add liquidity in both Penny Pilot
and Non-Penny Options liquidity because Tiers 7 and 8 allow Total
Volume to be counted in qualifying for those tiers. Total Volume is
defined at Chapter XV, Section 2(1) at note b as Customer,
Professional, Firm, Broker-Dealer, Non-NOM Market Maker and NOM Market
Maker volume in Penny Pilot Options and/or Non-Penny Pilot Options
which either adds or removes liquidity on NOM. The Exchange believes
that offering Customers and Professionals the continued opportunity to
earn higher rebates is reasonable because by incentivizing Participants
to select the Exchange as a venue to post Customer and Professional
liquidity will attract additional order flow to the benefit of all
market participants. Today the Exchange also incentivizes NOM Market
Makers to post liquidity, by offering NOM Market Makers rebates, which
also benefit market participants through increased order interaction.
Firms, Non-NOM Market Makers and Broker-Dealers are also offered
rebates under the current pricing structure.
The Exchange believes that the opportunity to earn an additional
Non-Penny Pilot Options Customer Rebate to Add Liquidity is equitable
and not unfairly discriminatory because the rebate would continue to
encourage Participants to transact a greater number of Customer and
Professional orders 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
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.\12\ A Professional could only otherwise
presume the Tier 1 rebate would be achieved in a month when determining
price.\13\ Further, the Exchange initially established Professional
pricing in order to ``. . . bring additional revenue to the Exchange.''
\14\ The Exchange noted in the Professional Filing that it believes ``.
. . that the increased revenue from the proposal would assist the
Exchange to recoup fixed costs.'' \15\ 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.\16\ 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.\17\ For these reasons, the Exchange believes that continuing to
offer Professionals the same rebates as Customers is equitable and not
unfairly discriminatory. The Exchange believes that continuing to offer
NOM Market Makers the opportunity to earn higher rebates as compared to
Non-NOM Market Makers, Firms and Broker Dealers is equitable and not
unfairly discriminatory because NOM Market Makers add value through
continuous quoting \18\ and a commitment of capital. Firms, Non-NOM
Market Makers and Broker-Dealers would continue to be offered a $0.10
per contract Rebate to Add Liquidity in Penny Pilot Options, as is the
case today.\19\
---------------------------------------------------------------------------
\12\ 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.
\13\ 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.
\14\ 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.
\15\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
\16\ 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.
\17\ 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.
\18\ 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.
\19\ Similar to other market participants, Firms, Non-NOM Market
Makers and Broker-Dealers have the opportunity to earn a higher
Penny Pilot Options Rebate to Add Liquidity if they transact 15,000
contracts 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. 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.
---------------------------------------------------------------------------
[[Page 50468]]
The Exchange believes that offering Participants that qualify for
Tiers 7 or 8 of the Customer and Professional Penny Pilot Options
Rebate to Add Liquidity an opportunity to earn an additional $0.01 per
contract Non-Penny Pilot Customer Rebate to Add Liquidity is equitable
and not unfairly discriminatory because all Customers and Professionals
have an opportunity to qualify for a Tier 7 or 8 Penny Pilot Option
Rebate to Add Liquidity and, in turn, qualify to obtain the Customer
Non-Penny Pilot Options rebate. Today, no other market participant is
entitled to a Non-Penny Pilot Options Rebate to Add Liquidity other
than a Customer. The Exchange believes that it is reasonable, equitable
and not unfairly discriminatory to only pay Customers a rebate in Non-
Penny Pilot Options because Customer order flow is unique and benefits
all market participants through the increased liquidity that such order
flow brings to the market. The opportunity to increase the Non-Penny
Pilot Options rebate will further encourage the addition of Penny Pilot
and Non-Penny Pilot Options liquidity as well as Customer and
Professional liquidity. Today, Total Volume \20\ includes both Penny
and Non-Penny Options volume so Tiers 7 or 8 encourage Participants to
add and remove liquidity in Penny and Non-Penny Pilot Options.\21\
---------------------------------------------------------------------------
\20\ For purposes of Tiers 6, 7 and 8, ``Total Volume'' is
defined as Customer, Professional, Firm, Broker-Dealer, Non-NOM
Market Maker and NOM Market Maker volume in Penny Pilot Options and/
or Non-Penny Pilot Options which either adds or removes liquidity on
NOM.
\21\ Tier 7 requires a certain amount of the Total Volume to be
comprised of Customer and/or Professional liquidity. Tier 8 provides
three options to qualify for the rebate including Total Volume, some
of which must be comprised of Customer and/or Professional
liquidity.
---------------------------------------------------------------------------
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 continuing to
provide 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 that offering Participants that qualify for Tier 7 or 8 of the
Customer and Professional Penny Pilot Options Rebate to Add Liquidity
an additional Non-Penny Pilot Options Customer rebate would result in
any burden on competition as between market participants because the
remaining market participants, NOM Market Makers, Firms, Non-NOM Market
Makers and Broker-Dealers would continue to have an opportunity to earn
Penny Pilot Options rebates. Today, the Exchange only pays Customers
Non-Penny Pilot Options Rebates to Add Liquidity.\22\ Customer order
flow brings unique benefits to the market through increased liquidity
which benefits all market participants.
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\22\ NASDAQ OMX BX, Inc. Options pays a Rebate to Remove
Liquidity in All Other Penny Pilot Options of $0.32 per contract to
Customers only.
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The Exchange's proposal to pay an additional Non-Penny Pilot
Options Customer Rebate to Add Liquidity, presuming the Participant
qualifies for Tier 7 or 8 of the Customer and Professional Penny Pilot
Options Rebate to Add Liquidity, will incentivize Participants to
direct Penny and Non-Penny Pilot Options order flow, as well as
Customer and Professional order flow, to NOM to the benefit of all
other market participants. The Exchange believes the proposed pricing
incentives contribute to the overall health of the market and benefit
all Participants willing to 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 hyper competitive market comprised of
twelve 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.\23\ 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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\23\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2013-104 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-2013-104. 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
[[Page 50469]]
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-2013-104, and should be submitted on or before
September 9, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20099 Filed 8-16-13; 8:45 am]
BILLING CODE 8011-01-P
