Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to NOM Market Maker Penny Pilot Options Rebate To Add Liquidity, 71690-71693 [2013-28571]
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incorporated by reference from the
International Securities Exchange’s rule
book.6 According to the Exchange’s
MRVP, under Rule 1614, the Exchange
may impose a fine (not to exceed
$2,500) on any Member, or person
associated with or employed by a
Member, for any rule listed in Rule
1614(d).7 The Exchange shall serve the
person against whom a fine is imposed
with a written statement setting forth
the rule or rules violated, the act or
omission constituting each such
violation, the fine imposed, and the date
by which such determination becomes
final or by which such determination
must be contested. If the person against
whom the fine is imposed pays the fine,
such payment shall be deemed to be a
waiver of such person’s right to a
disciplinary proceeding and any review
of the matter under the Exchange rules.
Any person against whom a fine is
imposed may contest the Exchange’s
determination by filing with the
Exchange a written answer, at which
point the matter shall become a
disciplinary proceeding.
The Exchange proposes that, as set
forth in Exchange Rule 1614(d),
violations of the following rules would
be appropriate for disposition under the
MRVP: Rule 412 (Position Limits); Rule
415 (Reports Related to Position Limits);
Rule 1403 (Focus Reports); Rule 1404
(Requests for Trade Data); Conduct and
Decorum Policies; Rule 717 (Order
Entry); Rule 803 (Quotation Parameters);
Rule 805 (Execution of Orders in
Appointed Options); Rule 419
(Mandatory Systems Testing); and Rule
1100 (Exercise of Options Contracts).
Upon the Commission’s declaration of
effectiveness of the MRVP, the Exchange
will provide to the Commission a
quarterly report for any actions taken on
minor rule violations under the MRVP.
The quarterly report will include: the
Exchange’s internal file number for the
case, the name of the individual and/or
organization, the nature of the violation,
the specific rule provision violated, the
sanction imposed, the number of times
the rule violation occurred, and the date
of the disposition.
The Exchange also proposes that,
going forward, to the extent that there
are any changes to the rules applicable
to the Exchange’s MRVP, the Exchange
requests that the Commission deem
6 As noted above, the Exchange received its grant
of registration on July 26, 2013, which included
approving the rules that govern the Exchange.
7 While Rule 1614 allows the Exchange to
administer fines up to $5,000, the Exchange is only
seeking relief from the reporting requirements of
paragraph (c)(1) of Rule 19d–1 for fines
administered under Rule 1614(d) that do not exceed
$2,500.
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such changes to be modifications to the
Exchange’s MRVP.
I. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the Exchange’s
proposed MRVP, including whether the
proposed MRVP 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 No. 4–669
on the subject line.
Paper Comments
II. Date of Effectiveness of the Proposed
Minor Rule Violation Plan and Timing
for Commission Action
Pursuant to Section 19(d)(1) of the Act
and Rule 19d–1(c)(2) thereunder,8 after
December 20, 2013, the Commission
may, by order, declare the Exchange’s
proposed MRVP effective if the plan is
consistent with the public interest, the
protection of investors, or otherwise in
furtherance of the purposes of the Act.
The Commission in its order may
restrict the categories of violations to be
designated as minor rule violations and
may impose any other terms or
conditions to the proposed MRVP, File
No. 4–669, and to the period of its
effectiveness, which the Commission
deems necessary or appropriate in the
public interest, for the protection of
investors or otherwise in furtherance of
the purposes of the Act.
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin M. O’Neill,
Deputy Secretary.
All submissions should refer to File No.
4–669. 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 MRVP that
are filed with the Commission, and all
written communications relating to the
proposed MRVP 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
proposed MRVP 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 No. 4–
669 and should be submitted on or
before December 20, 2013.
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[FR Doc. 2013–28570 Filed 11–27–13; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70926; File No. SR–
NASDAQ–2013–141]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
NOM Market Maker Penny Pilot
Options Rebate To Add Liquidity
November 22, 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 November
13, 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
8 15
U.S.C. 78s(d)(1); 17 CFR 240.19d–1(c)(2).
CFR 200.30–3(a)(44).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
9 17
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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 NOM Market Maker 3 Rebates to
Add Liquidity in Penny Pilot Options.4
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
A. 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.
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
amend the NOM Market Maker Penny
Pilot Options Rebates to Add Liquidity.
The Exchange believes the amendments
will attract greater liquidity to the
Exchange.
Today, the Exchange offers a fourtiered Rebate to Add Liquidity in Penny
Pilot Options to NOM Market Makers as
follows:
Monthly volume
Tier 1 ...............................................
Tier 2 ...............................................
Tier 3 ...............................................
Tier 4 ...............................................
71691
Rebate to add liquidity
Participant adds NOM Market Maker liquidity in Penny
of up to 39,999 contracts per day in a month.
Participant adds NOM Market Maker liquidity in Penny
of 40,000 to 69,999 contracts per day in a month.
Participant adds NOM Market Maker liquidity in Penny
of 70,000 to 99,999 contracts per day in a month.
Participant adds NOM Market Maker liquidity in Penny
of 100,000 or more contracts per day in a month.
Pilot Options
$0.25
Pilot Options
$0.30
Pilot Options
$0.32
Pilot Options
$0.32 or $0.38 in the following
symbols BAC, GLD, IWM, QQQ
and VXX or $0.40 in SPY
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The Exchange proposes to lower the
volume requirements on all NOM
Market Maker Rebate to Add Liquidity
Penny Pilot Option tiers. Tier 1
currently pays a $0.25 per contract
rebate to Participants that add NOM
Market Maker liquidity in Penny Pilot
Options of up to 39,999 contracts per
day in a month. With respect to Tier 1,
the Exchange will continue to pay a
$0.25 per contract rebate to a Participant
provided the Participant adds NOM
Market Maker liquidity in Penny Pilot
Options of up to 29,999 contracts per
day in a month. Tier 2 currently pays a
$0.30 per contract rebate to Participants
that add NOM Market Maker liquidity
in Penny Pilot Options of 40,000 to
69,999 contracts per day in a month.
With respect to Tier 2, the Exchange
will continue to pay a $0.30 per contract
rebate to a Participant provided the
Participant adds NOM Market Maker
liquidity in Penny Pilot Options of
30,000 to 59,999 contracts per day in a
month. Tier 3 currently pays a $0.32 per
contract rebate to Participants that add
NOM Market Maker liquidity in Penny
Pilot Options of 70,000 to 99,999
contracts per day in a month. With
respect to Tier 3, the Exchange will
continue to pay a $0.32 per contract
rebate to a Participant provided the
Participant adds NOM Market Maker
liquidity in Penny Pilot Options of
60,000 to 79,999 contracts per day in a
month. Tier 4 currently pays a $0.32 or
$0.38 per contract rebate in BAC, GLD,
IWN, QQQ and VXX and a $0.40 per
contract in SPY to Participants that add
NOM Market Maker liquidity in Penny
Pilot Options of 100,000 or more
contracts per day in a month. With
respect to Tier 4, the Exchange will
continue to pay a a $0.32 or $0.38 per
contract rebate in BAC, GLD, IWN, QQQ
and VXX and a $0.40 per contract in
SPY to a Participant provided the
Participant adds NOM Market Maker
liquidity in Penny Pilot Options of
80,000 or more contracts per day in a
month.
The Exchange believes that these
amendments to the NOM Market Maker
Rebate to Add Liquidity tiers will
continue to incentivize NOM Market
Makers to post liquidity on the
Exchange.
3 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.
4 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.
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2. Statutory Basis
NASDAQ believes that its proposal to
amend its Pricing Schedule is consistent
with Section 6(b) of the Act 5 in general,
and furthers the objectives of Section
6(b)(4) and (b)(5) of the Act 6 in
particular, in that it provides 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, and is not designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange’s proposal to lower the
volume requirements on the NOM
Market Maker Penny Pilot Options
Rebates to Add Liquidity tiers is
reasonable because it should incentivize
NOM Market Makers to post liquidity
on NOM. Also, the lower volume tiers
should allow a greater number of
Participants to qualify for NOM Market
Maker rebates. The Exchange is
lowering the volume on each of the
rebate tiers so that Participants who
currently qualify for certain NOM
Market Maker rebate tiers may be able
to qualify for higher rebates. In addition,
Participants who did not qualify for a
NOM Market Maker rebate may now be
able to qualify for the Tier 1 rebate. The
Exchange believes that offering NOM
Market Makers the opportunity to earn
higher rebates, by qualifying for higher
rebate tiers, is reasonable because by
incentivizing NOM Market Makers to
post liquidity on NOM will also benefit
participants through increased order
interaction.
The Exchange’s proposal to lower the
volume requirements on the NOM
Market Maker Penny Pilot Options
Rebates to Add Liquidity tiers is
equitable and not unfairly
discriminatory because this amendment
will be applied to all Participants in a
uniform matter. In addition, Participants
should continue to qualify for the
rebates that they currently receive and
may earn increased rebates by
qualifying for a higher volume tier. For
example, a Participant that currently
qualifies for a Tier 2 rebate by
transacting 60,000 contracts per day in
a month may now qualify for a Tier 3
rebate and earn the $0.32 per contract
rebate provided the Participant
continues to transact that volume. NOM
Market Makers are valuable market
participants that provide liquidity in the
marketplace and incur costs unlike
other market participants. The Exchange
believes that NOM Market Makers
should be offered the opportunity to
5 15
6 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
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earn higher rebates as compared to NonNOM Market Makers, Firms and Broker
Dealers because NOM Market Makers
add value through continuous quoting 7
and the commitment of capital. The
Exchange believes that encouraging
NOM Market Makers to be more
aggressive when posting liquidity
benefits all market participants through
increased liquidity. The Exchange also
believes that lowering the volume on
the various NOM Market Maker rebate
tiers is equitable and not unfairly
discriminatory because it does not
misalign the current rebate structure
because NOM Market Makers will
continue to earn higher rebates as
compared to Firms, Non-NOM Market
Makers and Broker-Dealers and will
earn the same or lower rebates as
compared to Customers and
Professionals.8
The Exchange believes that
continuing to offer NOM Market Makers
the opportunity to receive higher rebates
as compared to Firms, Non-NOM
Market Makers and Broker-Dealers is
equitable and not unfairly
discriminatory because all NOM Market
Makers may qualify for the NOM Market
Maker rebate tiers and every NOM
Market Maker is entitled to a rebate
solely by adding one contract of NOM
Market Maker liquidity on NOM. Also,
as mentioned, the NOM Market Maker
would receive the same rebate in Tier 1
as compared Customers and
Professionals and a higher rebate in all
other tiers as compared to a Firm, NonNOM Market Maker or Broker-Dealer
because of the obligations 9 borne by
NOM Market Makers as compared to
7 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.
8 The Tier 1 NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options is the same rebate
as the Tier 1 Customer and Professional rebate in
Penny Pilot Options. The Exchange pays the highest
Tier 1 Rebates to Add Liquidity in Penny Pilot
Options of $0.25 per contract to Customers,
Professionals and NOM Market Makers for
transacting one qualifying contract as compared to
other market participants. Firms, Non-NOM Market
Makers and Broker-Dealers receive a $0.10 per
contract Penny Pilot Option Rebate to Add
Liquidity. In addition, Participant that adds Firm,
Non-NOM Market Maker or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-Penny Pilot
Options of 15,000 contracts per day or more in a
given month will receive a Rebate to Add Liquidity
in Penny Pilot Options of $0.20 per contract.
9 See note 7.
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other market participants. Encouraging
NOM Market Makers to add greater
liquidity benefits all Participants in the
quality of order interaction. The
Exchange believes that Customers are
entitled to higher rebates because
Customer order flow brings unique
benefits to the market through increased
liquidity which benefits all market
participants. The Exchange believes that
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. 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.10 A
Professional could only otherwise
presume the Tier 1 rebate would be
achieved in a month when determining
price.11 Further, the Exchange initially
established Professional pricing in order
to ‘‘. . . bring additional revenue to the
Exchange.’’ 12 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.’’ 13 The Exchange
10 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.
11 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.
12 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.
13 See Securities Exchange Act Release No. 64494
(May 13, 2011), 76 FR 29014 (May 19, 2011) (SR–
NASDAQ–2011–066).
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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.14 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.15 For these reasons, the
Exchange believes that continuing to
offer Professionals the same rebates as
Customers is equitable and not unfairly
discriminatory.
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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.
The Exchange believes that
incentivizing NOM Market Makers to
post liquidity on NOM benefits market
participants through increased order
interaction. Also, NOM Market Makers
have obligations 16 to the market which
are not borne by other market
participants and therefore the Exchange
believes that NOM Market Makers are
entitled to such higher rebates.
Lowering the volume requirements on
the various NOM Market Maker rebate
tiers in Penny Pilot Options should
further encourage NOM Market Makers
to post liquidity on NOM.
The proposed amendments does [sic]
not misalign the current rebate structure
because NOM Market Makers will
continue to earn higher rebates as
compared to Firms, Non-NOM Market
Makers and Broker-Dealers and will
earn the same or lower rebates as
compared to Customers and
Professionals. The Exchange believes
the differing outcomes, rebates and fees
created by the Exchange’s proposed
pricing incentives contributes to the
14 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.
15 The Fee for Removing Liquidity in Penny Pilot
Options is $0.48 per contract for all market
participants, except Customers who are assessed
$0.45 per contract.
16 See note 7.
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overall health of the market place for the
benefit of all Participants that willing
[sic] 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 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.17 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:
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2013–141 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–2013–141. 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–2013–141 and
should be submitted on or before
December 20, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–28571 Filed 11–27–13; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
17 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00133
Fmt 4703
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E:\FR\FM\29NON1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 230 (Friday, November 29, 2013)]
[Notices]
[Pages 71690-71693]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28571]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70926; File No. SR-NASDAQ-2013-141]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to NOM Market Maker Penny Pilot Options Rebate To Add
Liquidity
November 22, 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 November 13, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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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
[[Page 71691]]
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 NOM Market Maker \3\ Rebates to Add Liquidity in Penny
Pilot Options.\4\
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\3\ 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.
\4\ 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.
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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
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 amend the NOM Market
Maker Penny Pilot Options Rebates to Add Liquidity. The Exchange
believes the amendments will attract greater liquidity to the Exchange.
Today, the Exchange offers a four-tiered Rebate to Add Liquidity in
Penny Pilot Options to NOM Market Makers as follows:
------------------------------------------------------------------------
Rebate to add
Monthly volume 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 69,999
contracts per day in
a month.
Tier 3........................ Participant adds NOM $0.32
Market Maker
liquidity in Penny
Pilot Options of
70,000 to 99,999
contracts per day in
a month.
Tier 4........................ Participant adds NOM $0.32 or $0.38 in
Market Maker the following
liquidity in Penny symbols BAC,
Pilot Options of GLD, IWM, QQQ
100,000 or more and VXX or $0.40
contracts per day in in SPY
a month.
------------------------------------------------------------------------
The Exchange proposes to lower the volume requirements on all NOM
Market Maker Rebate to Add Liquidity Penny Pilot Option tiers. Tier 1
currently pays a $0.25 per contract rebate to Participants that add NOM
Market Maker liquidity in Penny Pilot Options of up to 39,999 contracts
per day in a month. With respect to Tier 1, the Exchange will continue
to pay a $0.25 per contract rebate to a Participant provided the
Participant adds NOM Market Maker liquidity in Penny Pilot Options of
up to 29,999 contracts per day in a month. Tier 2 currently pays a
$0.30 per contract rebate to Participants that add NOM Market Maker
liquidity in Penny Pilot Options of 40,000 to 69,999 contracts per day
in a month. With respect to Tier 2, the Exchange will continue to pay a
$0.30 per contract rebate to a Participant provided the Participant
adds NOM Market Maker liquidity in Penny Pilot Options of 30,000 to
59,999 contracts per day in a month. Tier 3 currently pays a $0.32 per
contract rebate to Participants that add NOM Market Maker liquidity in
Penny Pilot Options of 70,000 to 99,999 contracts per day in a month.
With respect to Tier 3, the Exchange will continue to pay a $0.32 per
contract rebate to a Participant provided the Participant adds NOM
Market Maker liquidity in Penny Pilot Options of 60,000 to 79,999
contracts per day in a month. Tier 4 currently pays a $0.32 or $0.38
per contract rebate in BAC, GLD, IWN, QQQ and VXX and a $0.40 per
contract in SPY to Participants that add NOM Market Maker liquidity in
Penny Pilot Options of 100,000 or more contracts per day in a month.
With respect to Tier 4, the Exchange will continue to pay a a $0.32 or
$0.38 per contract rebate in BAC, GLD, IWN, QQQ and VXX and a $0.40 per
contract in SPY to a Participant provided the Participant adds NOM
Market Maker liquidity in Penny Pilot Options of 80,000 or more
contracts per day in a month.
The Exchange believes that these amendments to the NOM Market Maker
Rebate to Add Liquidity tiers will continue to incentivize NOM Market
Makers to post liquidity on the Exchange.
[[Page 71692]]
2. Statutory Basis
NASDAQ believes that its proposal to amend its Pricing Schedule is
consistent with Section 6(b) of the Act \5\ in general, and furthers
the objectives of Section 6(b)(4) and (b)(5) of the Act \6\ in
particular, in that it provides 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, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange's proposal to lower the volume requirements on the NOM
Market Maker Penny Pilot Options Rebates to Add Liquidity tiers is
reasonable because it should incentivize NOM Market Makers to post
liquidity on NOM. Also, the lower volume tiers should allow a greater
number of Participants to qualify for NOM Market Maker rebates. The
Exchange is lowering the volume on each of the rebate tiers so that
Participants who currently qualify for certain NOM Market Maker rebate
tiers may be able to qualify for higher rebates. In addition,
Participants who did not qualify for a NOM Market Maker rebate may now
be able to qualify for the Tier 1 rebate. The Exchange believes that
offering NOM Market Makers the opportunity to earn higher rebates, by
qualifying for higher rebate tiers, is reasonable because by
incentivizing NOM Market Makers to post liquidity on NOM will also
benefit participants through increased order interaction.
The Exchange's proposal to lower the volume requirements on the NOM
Market Maker Penny Pilot Options Rebates to Add Liquidity tiers is
equitable and not unfairly discriminatory because this amendment will
be applied to all Participants in a uniform matter. In addition,
Participants should continue to qualify for the rebates that they
currently receive and may earn increased rebates by qualifying for a
higher volume tier. For example, a Participant that currently qualifies
for a Tier 2 rebate by transacting 60,000 contracts per day in a month
may now qualify for a Tier 3 rebate and earn the $0.32 per contract
rebate provided the Participant continues to transact that volume. NOM
Market Makers are valuable market participants that provide liquidity
in the marketplace and incur costs unlike other market participants.
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 \7\ and the commitment of capital. The
Exchange believes that encouraging NOM Market Makers to be more
aggressive when posting liquidity benefits all market participants
through increased liquidity. The Exchange also believes that lowering
the volume on the various NOM Market Maker rebate tiers is equitable
and not unfairly discriminatory because it does not misalign the
current rebate structure because NOM Market Makers will continue to
earn higher rebates as compared to Firms, Non-NOM Market Makers and
Broker-Dealers and will earn the same or lower rebates as compared to
Customers and Professionals.\8\
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\7\ 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.
\8\ The Tier 1 NOM Market Maker Rebate to Add Liquidity in Penny
Pilot Options is the same rebate as the Tier 1 Customer and
Professional rebate in Penny Pilot Options. The Exchange pays the
highest Tier 1 Rebates to Add Liquidity in Penny Pilot Options of
$0.25 per contract to Customers, Professionals and NOM Market Makers
for transacting one qualifying contract as compared to other market
participants. Firms, Non-NOM Market Makers and Broker-Dealers
receive a $0.10 per contract Penny Pilot Option Rebate to Add
Liquidity. In addition, Participant that adds Firm, Non-NOM Market
Maker or Broker-Dealer liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 15,000 contracts per day or more in a given
month will receive a Rebate to Add Liquidity in Penny Pilot Options
of $0.20 per contract.
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The Exchange believes that continuing to offer NOM Market Makers
the opportunity to receive higher rebates as compared to Firms, Non-NOM
Market Makers and Broker-Dealers is equitable and not unfairly
discriminatory because all NOM Market Makers may qualify for the NOM
Market Maker rebate tiers and every NOM Market Maker is entitled to a
rebate solely by adding one contract of NOM Market Maker liquidity on
NOM. Also, as mentioned, the NOM Market Maker would receive the same
rebate in Tier 1 as compared Customers and Professionals and a higher
rebate in all other tiers as compared to a Firm, Non-NOM Market Maker
or Broker-Dealer because of the obligations \9\ borne by NOM Market
Makers as compared to other market participants. Encouraging NOM Market
Makers to add greater liquidity benefits all Participants in the
quality of order interaction. The Exchange believes that 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 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. 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.\10\ A
Professional could only otherwise presume the Tier 1 rebate would be
achieved in a month when determining price.\11\ Further, the Exchange
initially established Professional pricing in order to ``. . . bring
additional revenue to the Exchange.'' \12\ 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.''
\13\ The Exchange
[[Page 71693]]
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.\14\ 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.\15\ For these reasons, the
Exchange believes that continuing to offer Professionals the same
rebates as Customers is equitable and not unfairly discriminatory.
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\9\ See note 7.
\10\ 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.
\11\ 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.
\12\ 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.
\13\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
\14\ 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.
\15\ The Fee for Removing Liquidity in Penny Pilot Options is
$0.48 per contract for all market participants, except Customers who
are assessed $0.45 per contract.
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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. The Exchange
believes that incentivizing NOM Market Makers to post liquidity on NOM
benefits market participants through increased order interaction. Also,
NOM Market Makers have obligations \16\ to the market which are not
borne by other market participants and therefore the Exchange believes
that NOM Market Makers are entitled to such higher rebates. Lowering
the volume requirements on the various NOM Market Maker rebate tiers in
Penny Pilot Options should further encourage NOM Market Makers to post
liquidity on NOM.
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\16\ See note 7.
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The proposed amendments does [sic] not misalign the current rebate
structure because NOM Market Makers will continue to earn higher
rebates as compared to Firms, Non-NOM Market Makers and Broker-Dealers
and will earn the same or lower rebates as compared to Customers and
Professionals. The Exchange believes the differing outcomes, rebates
and fees created by the Exchange's proposed pricing incentives
contributes to the overall health of the market place for the benefit
of all Participants that willing [sic] 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
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.\17\ 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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\17\ 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-2013-141 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-2013-141. 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-2013-141 and
should be submitted on or before December 20, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28571 Filed 11-27-13; 8:45 am]
BILLING CODE 8011-01-P
