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]

Download as PDF 71690 Federal Register / Vol. 78, No. 230 / Friday, November 29, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES 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. VerDate Mar<15>2010 17:56 Nov 27, 2013 Jkt 232001 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 (http://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 (http://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. BILLING CODE 8011–01–P PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 [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 E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 78, No. 230 / Friday, November 29, 2013 / Notices 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 http:// 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 sroberts on DSK5SPTVN1PROD with NOTICES 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. VerDate Mar<15>2010 17:56 Nov 27, 2013 Jkt 232001 PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 E:\FR\FM\29NON1.SGM 29NON1 71692 Federal Register / Vol. 78, No. 230 / Friday, November 29, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES 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). VerDate Mar<15>2010 17:56 Nov 27, 2013 Jkt 232001 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. PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 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). E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 78, No. 230 / Friday, November 29, 2013 / Notices 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. sroberts on DSK5SPTVN1PROD 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. 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. VerDate Mar<15>2010 17:56 Nov 27, 2013 Jkt 232001 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 (http://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 (http://www.sec.gov/ rules/sro.shtml); or 17 15 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00133 Fmt 4703 Sfmt 9990 71693 18 17 E:\FR\FM\29NON1.SGM CFR 200.30–3(a)(12). 29NON1

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.
---------------------------------------------------------------------------

    \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

[[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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \16\ See note 7.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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 (http://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 (http://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\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28571 Filed 11-27-13; 8:45 am]
BILLING CODE 8011-01-P