Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to NASDAQ Options Market Fees and Rebates, 3434-3441 [2014-01031]

Download as PDF 3434 Federal Register / Vol. 79, No. 13 / Tuesday, January 21, 2014 / Notices 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEMKT–2014–05. 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– NYSEMKT–2014–05 and should be submitted on or before February 11, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–00983 Filed 1–17–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION tkelley on DSK3SPTVN1PROD with NOTICES [Release No. 34–71299; File No. SR– NASDAQ–2014–002] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to NASDAQ Options Market Fees and Rebates January 14, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 10 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 16:42 Jan 17, 2014 Jkt 232001 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 2, 2014, 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 the Substance of the Proposed Rule Change NASDAQ proposes to modify Chapter XV, entitled ‘‘Options Pricing,’’ at Section 2 governing pricing for NASDAQ members using the NASDAQ Options Market (‘‘NOM’’), NASDAQ’s facility for executing and routing standardized equity and index options. Specifically, NOM proposes to: (i) Amend the Customer and Professional Rebates to Add Liquidity in Penny Pilot Options; 3 (ii) increase certain nonCustomer Fees for Removing Liquidity in Penny Pilot Options; (iii) increase the Customer and NOM Market Maker 4 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Penny Pilot was established in March 2008 and in October 2009 was expanded and extended through June 30, 2014. 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); 69787 (June 18, 2013), 78 FR 37858 (June 24, 2013) (SR–NASDAQ–2013–082) and 71105 (December 17, 2013), 78 FR 77530 (December 23, 2013) (SR–NASDAQ–2013–154). See also NOM Rules, Chapter VI, Section 5. 4 The term ‘‘NOM Market Maker’’ means 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. 2 17 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 Fees for Removing Liquidity and Customer Rebate to Add Liquidity in Non-Penny Pilot Options and surcharge for options overlying the Nasdaq 100 Index traded under the symbol NDX (‘‘NDX’’); 5 and (iv) increase Fees for Adding and Removing Liquidity for options overlying the PHLX Semiconductor SectorSM (SOXSM), PHLX Housing SectorTM (HGXSM) and PHLX Oil Service SectorSM (OSXSM). 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 amend certain fees in Chapter XV, Section 2. The Exchange proposes to amend the Customer and Professional Penny Pilot Options Rebates to Add Liquidity to continue to incentivize Participants to direct additional Customer and/or Professional liquidity to NOM. The Exchange proposes to increase nonCustomer Fees for Removing Liquidity in Penny Pilot Options to be able to offer greater Customer and Professional Penny Pilot Options Rebates to Add Liquidity. The Exchange proposes to increase the Customer and NOM Market Make Fees for Removing Liquidity and Customer Rebate to Add Liquidity in Non-Penny Pilot Options and NDX surcharge. The Exchange proposes to increase the Fees for Adding and Removing Liquidity in SOX, HGX and OSX. 5 This would include options on Nasdaq-100 Index (‘‘NDX’’). Today, for transactions in NDX, the Exchange assesses a surcharge of $0.10 per contract will be added to the Fee for Adding Liquidity and the Fee for Removing Liquidity in Non-Penny Pilot Options, except for a Customer who will not be assessed a surcharge. E:\FR\FM\21JAN1.SGM 21JAN1 Federal Register / Vol. 79, No. 13 / Tuesday, January 21, 2014 / Notices Customer and Professional Penny Pilot Option Rebates to Add Liquidity 3435 Add Liquidity based on an eight tier rebate structure as follows: The Exchange currently pays Customer and Professional Rebates to Rebate to add liquidity Monthly Volume Tier 1 ............ Participant adds Customer and/or Professional liquidity of up to 0.20% of total industry customer equity and ETF option average daily volume (‘‘ADV’’) contracts per day in a month. Participant adds Customer and/or Professional liquidity of 0.21% to 0.30% of total industry customer equity and ETF option ADV contracts per day in a month. Participant adds Customer and/or Professional liquidity of 0.31% to 0.49% of total industry customer equity and ETF option ADV contracts per day in a month. Participant adds Customer and/or Professional liquidity of 0.5% or more of total industry customer equity and ETF option ADV contracts per day in a month. Participant adds (1) Customer and/or Professional liquidity of 25,000 or more contracts per day in a month, (2) the Participant has certified for the Investor Support Program set forth in Rule 7014, and (3) the Participant executed at least one order on NASDAQ’s equity market. Participant has Total Volume of 115,000 or more contracts per day in a month, of which 25,000 or more contracts per day in a month must be Customer and/or Professional liquidity. Participant has Total Volume of 150,000 or more contracts per day in a month, of which 50,000 or more contracts per day in a month must be Customer and/or Professional liquidity. Participant (1) has Total Volume of 200,000 or more contracts per day in a month, of which 70,000 or more contracts per day in a month must be Customer and/or Professional liquidity or (2) adds Customer and/or Professional liquidity of 1.00% or more of national customer volume in multiply-listed equity and ETF options classes in a month. Tier 2 ............ Tier 3 ............ Tier 4 ............ Tier 5 ............ Tier 6 ............ Tier 7 ............ tkelley on DSK3SPTVN1PROD with NOTICES Tier 8 ............ For purposes of qualifying for a Customer and Professional Rebate to Add Liquidity tier, the Exchange determines the applicable percentage of total industry customer equity and ETF option average daily volume by including the Participant’s Penny Pilot and Non-Penny Pilot Customer and/or Professional volume that adds liquidity. The Exchange is proposing to make certain amendments to the tiers as noted below. The Exchange proposes to clarify the Tier 1 Customer and Professional Penny Pilot Options Rebates to Add Liquidity by adding rule text stating that NonPenny Pilot Options as well as Penny Pilot Options which add liquidity would qualify a Participant for a Tier 1 rebate. This is not an amendment to the tier, but rather a clarification of the rule text. The Exchange would continue to pay a rebate of $0.25 per contract to Participants that add Customer and/or Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of up to 0.20% of total industry customer equity and ETF option average daily volume (‘‘ADV’’) contracts per day in a month. The Exchange proposes to amend the Tier 2 Customer and Professional Penny Pilot Options Rebates to Add Liquidity to increase the current $0.40 per contract rebate to $0.42 per contract. The Exchange proposes to clarify the Tier 2 Customer and Professional Penny Pilot Options Rebate to Add Liquidity by adding rule text stating that NonPenny Pilot Options as well as Penny Pilot Options which add liquidity VerDate Mar<15>2010 16:42 Jan 17, 2014 Jkt 232001 would qualify a Participant for a Tier 2 rebate. This is not an amendment to the tier, but rather a clarification of the rule text. Finally, the Exchange proposes to amend the Tier 2 volume threshold by clarifying that the current threshold of 0.21% to 0.30% of total customer equity and ETF options ADV contracts per day in a month would be better worded as above 0.20% to 0.30%. The Exchange believes that the use of the word ‘‘above’’ brings greater clarity to the rule text. With this amendment, the Exchange would pay a $0.42 per contract rebate to Participants that add Customer and/or Professional liquidity in Penny Pilot Options and/or NonPenny Pilot Options above 0.20% to 0.30% of total industry customer equity and ETF option ADV contracts per day in a month. The Exchange proposes to clarify the Tier 3 Customer and Professional Penny Pilot Options Rebates to Add Liquidity by adding rule text stating that NonPenny Pilot Options as well as Penny Pilot Options which add liquidity would qualify a Participant for a Tier 3 rebate. This is not an amendment to the tier, but rather a clarification of the rule text. Additionally, the Exchange proposes to amend the Tier 3 volume threshold by lowering the 0.31% to 0.49% of total industry customer equity to above 0.30% to 0.40% of total customer equity and ETF options ADV contracts per day in a month. The Exchange believes that the use of the word ‘‘above’’ brings greater clarity to the rule text. With this amendment, the Exchange would continue to pay a $0.43 PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 $0.25 0.40 0.43 0.45 0.42 0.45 0.47 [sic] per contract rebate to Participants that add Customer and/or Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.30% to 0.40% of total industry customer equity and ETF option ADV contracts per day in a month. The Exchange proposes to clarify the Tier 4 Customer and Professional Penny Pilot Options Rebates to Add Liquidity by adding rule text stating that NonPenny Pilot Options as well as Penny Pilot Options which add liquidity would qualify a Participant for a Tier 4 rebate. This is not an amendment to the tier, but rather a clarification of the rule text. Additionally, the Exchange proposes to amend the Tier 4 volume threshold by lowering the current requirement of 0.5% or more of total industry customer equity and ETF options ADV contracts per day in a month to above 0.40%. The Exchange believes that the use of the word ‘‘above’’ brings greater clarity to the rule text. With this amendment, the Exchange would continue to pay a $0.45 per contract rebate to Participants that add Customer and/or Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.40% or more of total industry customer equity and ETF option ADV contracts per day in a month. The Exchange proposes to amend the Tier 5 Customer and Professional Penny Pilot Options Rebates to Add Liquidity to include Non-Penny Pilot Options as of January 2, 2014 as Customer and/or Professional liquidity that will count toward achieving the 25,000 or more E:\FR\FM\21JAN1.SGM 21JAN1 tkelley on DSK3SPTVN1PROD with NOTICES 3436 Federal Register / Vol. 79, No. 13 / Tuesday, January 21, 2014 / Notices contracts per day in a month criteria in Tier 5. Today, the Exchange pays a $0.42 per contract rebate to Participants that add (1) Customer and/or Professional liquidity of 25,000 or more contracts per day in a month, (2) the Participant has certified for the Investor Support Program set forth in Rule 7014, and (3) the Participant executed at least one order on NASDAQ’s equity market. The Exchange would permit Non-Penny Pilot Options in addition to Penny Pilot Options to count toward arriving at the 25,000 or more contracts per day in a month threshold for the first criteria of the three requisite criteria to qualify for the Tier 5 rebate. The Exchange proposes to add the words ‘‘in Penny Pilot Options’’ to the rule text simply to clarify that those types of contracts count toward the volume threshold today. This would not be a substantive change to the rule text. The Exchange also proposes to increase the rebate from $0.42 to $0.45 per contract to further incentivize Participants to add liquidity, certify for the Investor Support Program and execute orders on NASDAQ’s equity market to qualify for this rebate. The Exchange proposes to clarify that with respect to the Tier 6 Customer and Professional Penny Pilot Options Rebates to Add Liquidity that Penny Pilot Options qualify a participant with respect to this rebate tier. This is not an amendment to the Tier 6 rebate but rather the addition of rule text to clarify that, as is the case today, only Penny Pilot Options apply to this tier. Today, the Exchange pays a $0.45 per contract rebate to Participants that have a Total Volume 6 of 115,000 or more contracts per day in a month, of which 25,000 or more contracts per day in a month must be Customer and/or Professional liquidity in Penny Pilot Options. The Exchange proposes to lower the Total Volume Threshold from 115,000 to 100,000 or more contracts per day in a month, of which 25,000 or more contracts per day in a month must be Customer and/or Professional liquidity. The Exchange believes that lowering the Total Volume threshold will incentivize Participants to direct liquidity to the Exchange. The Exchange proposes to clarify that with respect to the Tier 7 Customer and Professional Penny Pilot Options Rebates to Add Liquidity that Penny Pilot Options qualify a participant with respect to this rebate tier. This is not an amendment to the Tier 7 rebate but 6 ‘‘Total Volume’’ is defined as Customer, Professional, Firm, Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in Penny Pilot Options and/or Non-Penny Pilot Options which either adds or removes liquidity on NOM. VerDate Mar<15>2010 16:42 Jan 17, 2014 Jkt 232001 rather the addition of rule text to clarify that, as is the case today, only Penny Pilot Options apply to this tier. With this amendment, the Exchange would continue to pay a $0.47 per contract rebate to Participants that have a Total Volume of 150,000 or more contracts per day in a month, of which 50,000 or more contracts per day in a month must be Customer and/or Professional liquidity in Penny Pilot Options. The Exchange proposes to amend the Tier 8 Customer and Professional Penny Pilot Options Rebates to Add Liquidity to eliminate one of the two criteria which today qualifies a Participant to receive the Tier 8 rebate. Today, a Participant that has Total Volume of 200,000 or more contracts per day in a month, of which 70,000 or more contracts per day in a month must be Customer and/or Professional liquidity or (2) [sic] adds Customer and/or Professional liquidity of 1.00% or more of national customer volume in multiply-listed equity and ETF options classes in a month qualifies for the $0.48 per contract rebate. The Exchange will eliminate the Total Volume criteria as a means to qualify for the Tier 8 rebate so that a Participant will no longer qualify for the Tier 8 rebate by transacting Total Volume of 200,000 or more contracts per day in a month, of which 70,000 or more contracts per day in a month must be Customer and/or Professional liquidity. In addition, the Exchange is amending the second criteria, which will be the only criteria with this proposal to qualify for a Tier 8 rebate, by lowering the Customer and/ or Professional liquidity volume criteria from 1.00% to 0.75% or more of national customer volume in multiplylisted equity and ETF options classes in a month. With this proposal, a Participant may qualify for the $0.48 per contract Tier 8 rebate by adding Customer and/or Professional liquidity of 0.75% or more of national customer volume in multiply-listed equity and ETF options classes in a month. The Exchange believes that despite the fact that the first criteria is being eliminated and Participants will no longer be able to add a certain amount of Total Volume to qualify for the Tier 8 rebate, Participants will continue to be incentivized to add Customer and/or Professional liquidity because the Exchange is lowering the amount of Customer and/or Professional volume necessary to qualify for the Tier 8 rebate. Additionally, the Exchange seeks to clarify the types of transactions which qualify a Participant for this rebate tier. This is not an amendment to the Tier 8 rebate but rather the addition PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 of rule text to clarify what types of transactions are applicable to qualify for the rebate. As noted in the rule text at Chapter XV, Section 2, with respect to the Customer and Professional Rebate to Add Liquidity in Penny Pilot Options, the applicable percentage of total industry customer equity and ETF option average daily volume includes the Participant’s Penny Pilot and NonPenny Pilot Customer and/or Professional volume that adds liquidity. The Exchange proposes to add rule text to clarify that with respect to this second prong, which will be the only prong, the Exchange proposes to state within the rule text that, as is the case today, the Exchange will pay a $0.48 per contract rebate to Participants that adds Customer and/or Professional liquidity in Penny Pilot Options and/or NonPenny Pilot Options of 0.75% or more of national customer volume in multiply-listed equity and ETF options classes in a month. The addition of this rule text to Tier 8 is not an amendment but rather a clarification of the rule text. Penny Pilot Options Fees for Removing Liquidity The Exchange proposes to increase the Professional, Firm, Non-NOM Market Maker and Broker-Dealer Fees for Removing Liquidity in Penny Pilot Options from $0.48 to $0.49 per contract. A Customer would continue to be assessed $0.45 per contract. The Exchange believes that despite these increases the Exchange remains competitive with respect to these fees. Additionally, the Exchange proposes to offer Participants that qualify for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month the opportunity to lower the Penny Pilot Option Fee for Removing Liquidity from the proposed $0.49 to $0.48 per contract. The Exchange proposes to add the following language to the fee schedule, ‘‘Participants that qualify for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month will be assessed a Professional, Firm, Non-NOM Market Maker or BrokerDealer Fee for Removing Liquidity in Penny Pilot Options of $0.48 per contract.’’ The Exchange believes that this added incentive will attract liquidity to NOM. Customer and NOM Market Maker Fees for Removing Liquidity in Non-Penny Pilot Options (including NDX) and NDX Surcharge The Exchange proposes to increase the Customer Fee for Removing Liquidity in Non-Penny Pilot Options (including NDX) from $0.82 to $0.85 per contract. The Exchange also proposes to E:\FR\FM\21JAN1.SGM 21JAN1 Federal Register / Vol. 79, No. 13 / Tuesday, January 21, 2014 / Notices increase the NOM Market Maker Fee for Removing Liquidity from $0.86 to $0.89 per contract in Non-Penny Pilot Options. Today Professionals, Firms, Non-NOM Market Markets and BrokerDealers pay an $0.89 per contract Fee for Removing Liquidity in Non-Penny Pilot Options. Despite the increase to the Customer and NOM Market Maker Fees for Removing Liquidity in NonPenny Pilot Options the Exchange believes that the fees remain competitive. The Exchange currently assesses fees and pay rebates on NDX as a Non-Penny Pilot Option. The Exchange currently assesses a surcharge to all market participants, except Customers, for transactions in NDX of $0.10 per contract. The surcharge is in addition to the Fees for Adding and Removing Liquidity in Non-Penny Pilot Options. The Exchange proposes to increase the NDX surcharge from $0.10 to $15 [sic] per contract. tkelley on DSK3SPTVN1PROD with NOTICES Customer Rebate To Add Liquidity in Non-Penny Pilot Options The Exchange currently pays a Customer an $0.81 per contract NonPenny Pilot Options Rebate to Add Liquidity. Further the Exchange currently offers Participants that qualify for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month an additional $0.01 per contract Non-Penny Pilot Options Customer Rebate to Add Liquidity for each transaction which adds liquidity in Non-Penny Pilot Options in that month (‘‘$0.01 Incentive’’). The Exchange is proposing to increase the current Customer Rebate to Add Liquidity in Non-Penny Pilot Options from $0.81 to $0.84 per contract and eliminate the offer of the $0.01 Incentive. The Exchange believes that the increased Customer rebate will attract greater Customer liquidity to the Exchange to the benefit of all market participants. SOX, HGX and OSX The Exchange currently assesses Customers a Fee for Adding Liquidity and a Fee for Removing Liquidity in SOX, HGX and OSX of $0.35 per contract. The Exchange proposes to increase the Customer Fees for Adding and Removing Liquidity in SOX, HGX and OSX to $0.40 per contract. The Exchange assesses NOM Market Makers a Fee for Adding Liquidity and a Fee for Removing Liquidity in SOX, HGX and OSX of $0.40 per contract. These fees will remain unchanged. The Exchange assesses Professionals, Firms, Non-NOM Market Makers and Broker-Dealers a Fee for Adding and a Fee for Removing Liquidity in SOX, HGX and OSX of VerDate Mar<15>2010 16:42 Jan 17, 2014 Jkt 232001 $0.60 per contract. The Exchange is proposing to increase the Professional, Firm, Non-NOM Market Maker and Broker-Dealer Fees for Adding and Removing Liquidity in SOX, HGX and OSX to $0.89 per contract. The Exchange believes that the proposed increased fees remain competitive with other options fees at other exchanges. 2. Statutory Basis NASDAQ believes that its proposal to amend its Pricing Schedule is consistent with Section 6(b) of the Act 7 in general, and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act 8 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. Customer and Professional Penny Pilot Option Rebates To Add Liquidity The Exchange’s proposal to clarify the rule text of the Customer and Professional Rebates to Add Liquidity tiers by adding the phrase ‘‘in Penny Pilot Options and/or Non-Penny Pilot Options’’ is reasonable because the Exchange currently determines the applicable percentage of total industry customer equity and ETF option average daily volume by including the Participant’s Penny Pilot and NonPenny Pilot Customer and/or Professional volume that adds liquidity. The Exchange believes that adding this language in Tiers 1, 2, 3, 4 and 8 of the Customer and Professional Penny Pilot Options Rebate to Add Liquidity tiers will clarify the rule text. Similarly, the Exchange’s proposal to add the phrase ‘‘in Penny Pilot Options’’ in Tiers 5, 6 and 7 is reasonable because this language will also clarify the rule text and make clear which types of transactions qualify a Participant for a rebate. These amendments to the rule text are not substantive but rather serve to add specific terms which apply today. The Exchange’s proposal to clarify the rule text of the Customer and Professional Rebates to Add Liquidity tiers by adding the phrase ‘‘in Penny Pilot Options and/or Non-Penny Pilot Options’’ in Tiers 1, 2, 3, 4 and 8 is equitable and not unfairly discriminatory because the Exchange will pay rebates to all Participants that transact the qualifying volume in a uniform manner. Similarly, the 7 15 8 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(4), (5). Frm 00094 Fmt 4703 Sfmt 4703 3437 Exchange’s proposal to add the phrase ‘‘in Penny Pilot Options’’ in Tiers 5, 6 and 7 is equitable and not unfairly discriminatory because the Exchange will pay rebates to all Participants that transact the qualifying volume in a uniform manner. The Exchange’s proposal to increase the Tier 2 Customer and Professional Penny Pilot Options Rebate to Add Liquidity from $0.40 to $0.42 per contract is reasonable because the increased rebate will incentivize market participants to transact an even greater number of qualifying Customer and/or Professional volume. The Exchange’s proposal to increase the Tier 2 Customer and Professional Penny Pilot Options Rebate to Add Liquidity from $0.40 to $0.42 per contract is equitable and not unfairly discriminatory because all eligible Participants that qualify for the Tier 2 Customer and Professional Penny Pilot Options Rebate to Add Liquidity will be uniformly paid the rebate. The Exchange’s proposal to clarify the verbiage of the Tier 2 volume threshold by amending 0.21% to 0.30% of total customer equity and ETF options ADV contracts per day in a month to above 0.20% to 0.30% is reasonable because the new verbiage clarifies the volume to qualify for the Tier 2 rebate. The Exchange’s proposal to amend the Tier 2 volume threshold by amending 0.21% to 0.30% of total customer equity and ETF options ADV contracts per day in a month to above 0.20% to 0.30% is equitable and not unfairly discriminatory because all eligible Participants that qualify for the Tier 2 Customer and Professional Penny Pilot Options Rebate to Add Liquidity will continue to be uniformly paid the rebate as they are today. The Exchange’s proposal to amend the Tier 3 volume threshold by lowering the 0.31% to 0.49% of total industry customer equity to above 0.30% to 0.40% of total customer equity and ETF options ADV contracts per day in a month is reasonable because the Exchange is lowering the tier which should permit those Participants that qualify for this rebate today to continue to qualify for this rebate and allow additional Participants to qualify for the Tier 4 rebate. The Exchange’s proposal to amend the Tier 3 volume threshold by lowering the 0.31% to 0.49% of total industry customer equity to above 0.30% to 0.40% of total customer equity and ETF options ADV contracts per day in a month is equitable and not unfairly discriminatory because all eligible Participants that qualify for the Tier 3 Customer and Professional Penny Pilot E:\FR\FM\21JAN1.SGM 21JAN1 3438 Federal Register / Vol. 79, No. 13 / Tuesday, January 21, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Options Rebate to Add Liquidity will be uniformly paid the rebate. The Exchange’s proposal to amend the Tier 4 volume threshold by lowering the current requirement of 0.5% or more of total industry customer equity and ETF options ADV contracts per day in a month to above 0.40% is reasonable because the Exchange is lowering the tier which may permit additional Participants to qualify for the Tier 4 rebate. Participants that currently qualify for the rebate should continue to qualify. The Exchange’s proposal to amend the Tier 4 volume threshold by lowering the current requirement of 0.5% or more of total industry customer equity and ETF options ADV contracts per day in a month to above 0.40% is equitable and not unfairly discriminatory because all eligible Participants that qualify for the Tier 4 Customer and Professional Penny Pilot Options Rebate to Add Liquidity will be uniformly paid the rebate. The Exchange believes that the use of the word ‘‘above’’ in the amended rebate tiers is reasonable, equitable and not unfairly discriminatory because it adds greater clarity to the rule text. The Exchange’s proposal to amend Tier 5 to include Non-Penny Pilot Options as of January 2, 2014 as Customer and/or Professional liquidity that will count toward achieving the 25,000 or more contracts per day in a month criteria in Tier 5 is reasonable because the Exchange believes that by adding Non-Penny Pilot Options volume additional Participants may qualify for a Tier 5 rebate. Today, only Penny Pilot Options count toward arriving at the 25,000 or more contracts per day in month threshold for the first of three criteria 9 toward qualifying for the Tier 5 rebate.10 The Exchange’s proposal to increase the rebate from $0.42 to $0.45 per contract is reasonable because offering a greater rebate will further incentivize Participants to add liquidity, certify for the Investor Support Program 11 and execute orders on NASDAQ’s equity market to qualify for this rebate. The Exchange’s proposal to amend the Tier 5 to include Non9 As noted above, the Exchange is adding the words ‘‘in Penny Pilot Options’’ to clarify that today Penny Pilot Options to reflect that today only those types of transactions count toward arriving at the 25,000 or more threshold. 10 With respect to Tier 5, the Exchange pays a $0.42 per contract rebate to Participants that add (1) Customer and/or Professional liquidity of 25,000 or more contracts per day in a month, (2) the Participant has certified for the Investor Support Program set forth in Rule 7014, and (3) the Participant executed at least one order on NASDAQ’s equity market. 11 The Investor Support Program is set forth in NASDAQ Rule 7014. VerDate Mar<15>2010 16:42 Jan 17, 2014 Jkt 232001 Penny Pilot Options toward achieving the 25,000 or more contracts per day in a month criteria in Tier 5 is equitable and not unfairly discriminatory because all Participants that add either Penny Pilot or Non-Penny Pilot volume will be able to qualify for the rebate. Additionally, the Exchange’s proposal to increase the rebate from $0.42 to $0.45 per contract is equitable and not unfairly discriminatory because all eligible Participants that qualify for the Tier 5 Customer and Professional Penny Pilot Options Rebate to Add Liquidity will be uniformly paid the increased rebate. The Exchange’s proposal to lower the Total Volume Threshold in Tier 6 from 115,000 to 100,000 or more contracts per day in a month, of which 25,000 or more contracts per day in a month must be Customer and/or Professional liquidity is reasonable because the Exchange believes that by lowering the volume threshold, additional Participants may qualify for a Tier 6 rebate.12 The Exchange’s proposal to lower the Total Volume Threshold in Tier 6 from 115,000 to 100,000 or more contracts per day in a month, of which 25,000 or more contracts per day in a month must be Customer and/or Professional liquidity is equitable and not unfairly discriminatory because all Participants that transact 100,000 or more contracts per day in a month, of which 25,000 or more contracts per day in a month must be Customer and/or Professional liquidity will be eligible for the Tier 6 rebate. The Exchange will apply the rebate in a uniform manner. The Exchange’s proposal to amend the Tier 8 Customer and Professional Penny Pilot Options Rebate to Add Liquidity to eliminate one of the two criteria 13 which today qualifies a Participant to receive the Tier 8 rebate is reasonable because the Exchange believes that the remaining criteria will encourage Participants to add more Customer and Professional liquidity versus Total Volume 14 and Participants 12 Today, the Exchange pays a $0.45 per contract rebate to Participants that have a Total Volume of 115,000 or more contracts per day in a month, of which 25,000 or more contracts per day in a month must be Customer and/or Professional liquidity in Penny Pilot Options. Total Volume is defined as Customer, Professional, Firm, Broker-Dealer, NonNOM Market Maker and NOM Market Maker volume in Penny Pilot Options and/or Non-Penny Pilot Options which either adds or removes liquidity on NOM. 13 A Participant will no longer qualify for the Tier 8 rebate by transacting Total Volume of 200,000 or more contracts per day in a month, of which 70,000 or more contracts per day in a month must be Customer and/or Professional liquidity. 14 Total Volume is defined as Customer, Professional, Firm, Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 benefit from Customer and Professional liquidity.15 Customer volume is important because it continues to attract liquidity to the Exchange, which benefits all market participants. Further, with respect to Professional liquidity, the Exchange initially established Professional pricing in order to ‘‘. . . bring additional revenue to the Exchange.’’ 16 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.’’ 17 Further, the Exchange 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.18 In addition, the Exchange’s proposal amends the second criteria, which would be the only criteria with this proposal to qualify for a Tier 8 rebate, by lowering the Customer and/or Professional liquidity volume criteria from 1.00% to 0.75% or more of national customer volume in multiplylisted equity and ETF options classes in a month.19 The Exchange believes that lowering this volume threshold from 1.00% to 0.75% or more of national customer volume in multiply-listed equity and ETF options classes in a month is reasonable because it will permit additional Participants to qualify for the Tier 8 rebate. The Exchange’s Penny Pilot Options and/or Non-Penny Pilot Options which either adds or removes liquidity on NOM. 15 Today, a Participant that has Total Volume of 200,000 or more contracts per day in a month, of which 70,000 or more contracts per day in a month must be Customer and/or Professional liquidity or (2) [sic] adds Customer and/or Professional liquidity of 1.00% or more of national customer volume in multiply-listed equity and ETF options classes in a month qualifies for the $0.48 per contract rebate. 16 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. 17 See Securities Exchange Act Release No. 64494 (May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– NASDAQ–2011–066). 18 See Securities Exchange Act Release No. 64494 (May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– NASDAQ–2011–066) The Exchange also in the Professional 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. 19 With this proposal, a Participant may qualify for the $0.48 per contract Tier 8 rebate by adding Customer and/or Professional liquidity of 0.75% or more of national customer volume in multiplylisted equity and ETF options classes in a month. E:\FR\FM\21JAN1.SGM 21JAN1 Federal Register / Vol. 79, No. 13 / Tuesday, January 21, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES proposal to amend the Tier 8 Customer and Professional Penny Pilot Options Rebate to Add Liquidity to eliminate one of the two criteria 20 which today qualifies a Participant to receive the Tier 8 rebate is equitable and not unfairly discriminatory because the Exchange will apply the criteria in a uniform manner. The Exchange believes that lowering this volume threshold from 1.00% to 0.75% or more of national customer volume in multiply-listed equity and ETF options classes in a month is equitable and not unfairly discriminatory because the amended remaining criteria will be applied to all Participants in a uniform manner. Penny Pilot Options Fees for Removing Liquidity The Exchange’s proposal to increase the Professional, Firm, Non-NOM Market Maker and Broker-Dealer Fees for Removing Liquidity in Penny Pilot Options from $0.48 to $0.49 per contract is reasonable because the Exchange is seeking to increase certain Penny Pilot Options Rebates to Add Liquidity to attract additional order flow to NOM. The Exchange’s ability to offer increased Customer and Professional Penny Pilot Options rebates is possible with a corresponding increase to the Professional, Firm, Non-NOM Market Maker and Broker-Dealer Fees for Removing Liquidity in Penny Pilot Options. The Exchange believes that this fees remain within the range of fees assessed by other options exchanges.21 The Exchange’s proposal to increase the Professional, Firm, Non-NOM Market Maker and Broker-Dealer Fees for Removing Liquidity in Penny Pilot Options from $0.48 to $0.49 per contract is equitable and not unfairly discriminatory because the Exchange is uniformly increased non-Customer Fees for Removing Liquidity in Penny Pilot Options. Customers will continue to be assessed the lowest Fees for Removing Liquidity in Penny Pilot Options. In this case, a Customer would continue to be assessed $0.45 per contract. Customer liquidity is unique because the liquidity it attracts benefits all market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attract Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an 20 A Participant will no longer qualify for the Tier 8 rebate by transacting Total Volume of 200,000 or more contracts per day in a month, of which 70,000 or more contracts per day in a month must be Customer and/or Professional liquidity. 21 BATS Exchange, Inc., Topaz Exchange, LLC or ‘‘Gemini’’ and NYSE Arca, Inc. has comparable fees. VerDate Mar<15>2010 16:42 Jan 17, 2014 Jkt 232001 additional corresponding increase in order flow from other market participants. The Exchange’s proposal to offer nonCustomer Participants the ability to lower the Fees for Removing Liquidity in Penny Pilot Options from $0.49 to $0.48 per contract by qualifying for Customer or Professional Rebate To Add Liquidity Tiers 7 or 8 in a given month 22 is reasonable because the Exchange is seeking to offer these nonCustomer Participants to lower the increased Fees for Removing Liquidity in Penny Pilot Options by adding liquidity to the Exchange.23 The Exchange’s proposal to offer nonCustomer Participants the ability to lower the Fees for Removing Liquidity in Penny Pilot Options from $0.49 to $0.48 per contract by qualifying for Customer or Professional Rebate To Add Liquidity Tiers 7 or 8 in a given month 24 is equitable and not unfairly discriminatory because all nonCustomer Participants would be provided the opportunity to lower Fees for Removing Liquidity in Penny Pilot Options. Customers are assessed a lower Fee for Removing Liquidity in Penny Pilot Options, $0.45 per contract, and therefore the Exchange believes that offering all Participants that incur a higher Fee for Removing Liquidity in Penny Pilot Options, $0.89 per contract, is equitable and not unfairly discriminatory. Customer and NOM Market Maker Fees for Removing Liquidity in Non-Penny Pilot Options (including NDX) and NDX Surcharge The Exchange’s proposal to increase the Customer Fee for Removing Liquidity from $0.82 to $0.85 per contract in Non-Penny Pilot Options is reasonable because the Exchange is seeking to increase certain Penny Pilot Options Rebates to Add Liquidity to attract additional order flow to NOM. 22 The Exchange proposes to add the following language to the fee schedule, ‘‘Participants that qualify for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month will be assessed a Professional, Firm, Non-NOM Market Maker or Broker-Dealer Fee for Removing Liquidity in Penny Pilot Options of $0.48 per contract.’’ 23 For purposes of Tier 7, Participants may add Customer, Professional, Firm, Broker-Dealer, NonNOM Market Maker and NOM Market Maker volume in Penny Pilot Options and/or Non-Penny Pilot Options and for purposes of Tier 8, Participants may add Customer or Professional liquidity in Penny Pilot or Non-Penny Pilot Options. 24 The Exchange proposes to add the following language to the fee schedule, ‘‘Participants that qualify for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month will be assessed a Professional, Firm, Non-NOM Market Maker or Broker-Dealer Fee for Removing Liquidity in Penny Pilot Options of $0.48 per contract.’’ PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 3439 The Exchange is permitting both Penny Pilot and Non-Penny Pilot Options to count toward qualifying for various Customer and Professional Penny Pilot Options Rebates to Add Liquidity. Today, Customers are assessed the lowest Fee for Removing Liquidity in Non-Penny Pilot Options of $0.82 per contract. Other market participants, Professionals, Firms, Non-NOM Market Makers, NOM Market Makers (as proposed herein) and Broker-Dealers, are assessed $0.89 per contract. Customers would continue to be assessed the lowest fees. The Exchange’s proposal to increase the Customer Fee for Removing Liquidity from $0.82 to $0.85 per contract in Non-Penny Pilot Options is equitable and not unfairly discriminatory because the Exchange would continue to assess Customers the lowest Fee for Removing Liquidity in Non-Penny Pilot Options because Customer liquidity brings unique benefits to the market. Customer liquidity benefits all market participants by providing more trading opportunities, which attract Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange’s proposal to increase the NOM Market Maker Fee for Removing Liquidity from $0.86 to $0.89 per contract in Non-Penny Pilot Options is reasonable because the Exchange is seeking to increase certain Penny Pilot Options Rebates to Add Liquidity to attract additional order flow to NOM. The Exchange is permitting both Penny Pilot and Non-Penny Pilot Options to count toward qualifying for various Customer and Professional Penny Pilot Options Rebates to Add Liquidity. The Exchange’s proposal to increase the NOM Market Maker Fee for Removing Liquidity from $0.86 to $0.89 per contract in Non-Penny Pilot Options is equitable and not unfairly discriminatory because the Exchange would uniformly assess all nonCustomers a Non-Penny Pilot Options Fee for Removing Liquidity of $0.89 per contract. Customers would be assessed the lowest Non-Penny Pilot Options Fee for Removing Liquidity of $0.85 per contract with this proposal. Customer order flow is unique because it attracts liquidity which in turn benefits all market participants. The Exchange’s proposal to increase the NDX surcharge applicable to all market participants, except Customers, is reasonable because the Exchange E:\FR\FM\21JAN1.SGM 21JAN1 3440 Federal Register / Vol. 79, No. 13 / Tuesday, January 21, 2014 / Notices currently pays a license fee 25 to list NDX on NOM and is seeking to recoup a larger portion of that fee.26 The Exchange’s proposal to increase the NDX surcharge applicable to all market participants, except Customers, is equitable and not unfairly discriminatory because all market participants, except Customers, will uniformly be assessed the NDX surcharge in addition to the Non-Penny Pilot Options Fees for Adding and Removing Liquidity. Customers are typically not assessed surcharge fees related to licenses. The Exchange has not assessed such fees to Customers because Customer liquidity brings unique benefits to the market in terms of liquidity which in turn benefits other market participants. tkelley on DSK3SPTVN1PROD with NOTICES Customer Rebate To Add Liquidity in Non-Penny Pilot Options The Exchange’s proposal to increase the Customer Non-Penny Pilot Options Rebate to Add Liquidity from $0.81 to $0.84 per contract and eliminate the offer of the $0.01 Incentive 27 is reasonable because the Exchange believes that offering Customers the opportunity to earn the higher rebate will attract more liquidity to the Exchange. Further, even assuming Customers received the $0.01 Incentive, the increased rebate would be higher going forward and thereby providing a greater incentive to these Participants. The Exchange’s proposal to increase the Customer Non-Penny Pilot Options Rebate to Add Liquidity from $0.81 to $0.84 per contract and eliminate the offer of the $0.01 Incentive 28 is equitable and not unfairly discriminatory because the Exchange will offer all Customers the opportunity to receive the higher rebate. Customers are the only market participants eligible to receive a Rebate to Add Liquidity in Non-Penny Pilot Options. The Exchange believes that offering this rebate only to Customers is equitable and not unfairly discriminatory because unlike other market participants, Customer liquidity 25 NOM is assessed a license fee of $0.22 per contract to list NDX. 26 Non-Penny Pilot Options, other than NDX, are not subject to a license fee. 27 The Exchange currently offers Participants that qualify for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month an additional $0.01 per contract Non-Penny Pilot Options Customer Rebate to Add Liquidity for each transaction which adds liquidity in Non-Penny Pilot Options in that month. 28 The Exchange currently offers Participants that qualify for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month an additional $0.01 per contract Non-Penny Pilot Options Customer Rebate to Add Liquidity for each transaction which adds liquidity in Non-Penny Pilot Options in that month. VerDate Mar<15>2010 16:42 Jan 17, 2014 Jkt 232001 brings unique benefits to the market in terms of liquidity which in turn benefits other market participants. SOX, HGX and OSX The Exchange’s proposal to increase the Customer Fees for Adding and Removing Liquidity in SOX, HGX and OSX from $0.35 to $0.40 per contract is reasonable because although the fee is being increased, Customers will continue to be assessed lower fees as compared to other market participants, except NOM Market Makers, which should continue to incentivize Customers to transact options in SOX, HGX and OSX. The Exchange’s proposal to increase Professional, Firm, NonNOM Market Maker and Broker-Dealer Fees for Adding and Removing Liquidity in SOX, HGX and OSX from $0.60 to $0.89 per contract is reasonable because the Exchange will assess these market participants, other than Customers and NOM Market Makers, fees similar to those assessed for NonPenny Pilot Fees for Removing Liquidity. The Exchange believes that the proposed increased fees remain competitive with other options fees at other exchanges. The Exchange’s proposal to increase the Customer Fees for Adding and Removing Liquidity in SOX, HGX and OSX from $0.35 to $0.40 per contract is equitable and not unfairly discriminatory because Customers and NOM Market Makers each bring benefits to the market. The Exchange believes that Customer order flow brings unique benefits to the market which benefits all market participants through increased liquidity. NOM Market Makers have obligations to the market and regulatory requirements,29 which normally do not apply to other market participants. A NOM Market Maker has the obligation to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The proposed differentiation as between Customers and NOM Market Makers 29 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. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 and other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by Customers and NOM Market Makers, as well as the differing mix of orders entered. The Exchange’s proposal to increase Professional, Firm, Non-NOM Market Maker and Broker-Dealer Fees for Adding and Removing Liquidity in SOX, HGX and OSX from $0.60 to $0.89 per contract is equitable and not unfairly discriminatory because the Exchange is proposing to uniformly assess all market participants, other than Customers and NOM Market Makers, uniform Fees for Adding and Removing Liquidity in SOX, HGX and OSX. B. Self-Regulatory Organization’s Statement on Burden on Competition NASDAQ does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that increasing the Tier 2 Customer and Professional Rebates to Add Liquidity in Penny Pilot Options will incentivize market participants to send additional Customer and/or Professional order flow to the Exchange. The Exchange also believes that lowering certain volume thresholds in Tiers 3, 4, 6 and 8 will also incentivize market participants to send additional Customer and/or Professional order flow to the Exchange. The Exchange’s increase of the Tiers 2 and 5 rebates should also attract additional order flow to the Exchange and in turn promote competition. Finally, the Exchange’s elimination of certain criteria to the Tier 8 rebate should encourage additional Customer and/or Professional order flow to the Exchange. Customer liquidity offers unique benefits to the market which benefits all market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attract Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange believes that encouraging Participants to add Professional liquidity creates competition among options exchanges because the Exchange believes that the rebates may cause market participants to select NOM as a venue to send Professional order flow. The Exchange is offering to pay increased rebates in exchange for additional Professional order flow being executed at the E:\FR\FM\21JAN1.SGM 21JAN1 Federal Register / Vol. 79, No. 13 / Tuesday, January 21, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES Exchange, which additional order flow should benefit other market participants. The Exchange believes that the increases to the non-Customer Penny Pilot Options Fees for Removing Liquidity do not create an undue burden on competition as the Exchange will uniformly assess non-Customers the same Fees for Removing Liquidity in Penny Pilot Options and offer these Participants the opportunity to reduce these fees by adding liquidity to the Exchange and qualifying for certain Customer and/or Professional rebates. The increases to the Customer and NOM Market Maker Non-Penny Pilot Fees for Removing Liquidity should not create an undue burden on competition. Non-Customer Participants will be assessed a uniform fee and Customers will continue to earn a lower fee because Customer liquidity offers unique benefits to the market which benefits all market participants. Also, the increased NDX surcharge applicable to all non-Customer market participants will be applied in a uniform manner. Customers will continue to not pay the surcharge. The increase to the Customer Rebate to Add Liquidity in Non-Penny Pilot Options and elimination of the $0.01 Incentive does not create an undue burden on competition because market participants will be offered a higher Customer rebate with the increase as compared to the $0.81 per contract rebate plus the $0.01 Incentive. Finally, the Exchange’s proposal to increase the Fees for Adding and Removing Liquidity in SOX, HGX and OSX for all market participants, except NOM Market Makers, does not create an undue burden on competition. The Exchange is assessing the lowest fees to Customers and NOM Market Makers because Customer order flow brings unique benefits to the market which benefits all market participants through increased liquidity and NOM Market Makers have obligations to the market and regulatory requirements,30 which normally do not apply to other market participants. The proposed amendments do not misalign the current rebate 30 Pursuant to Chapter VII (Market Participants), Section 5 (Obligations of Market Makers), in registering as a market maker, an Options Participant commits himself to various obligations. Transactions of a Market Maker in its market making capacity must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market Makers should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. Further, all Market Makers are designated as specialists on NOM for all purposes under the Act or rules thereunder. See Chapter VII, Section 5. VerDate Mar<15>2010 16:42 Jan 17, 2014 Jkt 232001 structure because Customers and NOM Market Makers will continue to be assessed lower fees as compared to Professionals, Firms, Non-NOM Market Makers and Broker-Dealers who will be assessed a uniform fee. 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.31 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 rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2014–002 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. All submissions should refer to File Number SR–NASDAQ–2014–002. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of NASDAQ. 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–2014–002 and should be submitted on or before February 11, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–01031 Filed 1–17–14; 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 31 15 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00098 Fmt 4703 Sfmt 9990 3441 32 17 E:\FR\FM\21JAN1.SGM CFR 200.30–3(a)(12). 21JAN1

Agencies

[Federal Register Volume 79, Number 13 (Tuesday, January 21, 2014)]
[Notices]
[Pages 3434-3441]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01031]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71299; File No. SR-NASDAQ-2014-002]


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

January 14, 2014.
    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 January 2, 2014, 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.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2 governing pricing for NASDAQ members using the NASDAQ 
Options Market (``NOM''), NASDAQ's facility for executing and routing 
standardized equity and index options. Specifically, NOM proposes to: 
(i) Amend the Customer and Professional Rebates to Add Liquidity in 
Penny Pilot Options; \3\ (ii) increase certain non-Customer Fees for 
Removing Liquidity in Penny Pilot Options; (iii) increase the Customer 
and NOM Market Maker \4\ Fees for Removing Liquidity and Customer 
Rebate to Add Liquidity in Non-Penny Pilot Options and surcharge for 
options overlying the Nasdaq 100 Index traded under the symbol NDX 
(``NDX''); \5\ and (iv) increase Fees for Adding and Removing Liquidity 
for options overlying the PHLX Semiconductor Sector\SM\ (SOX\SM\), PHLX 
Housing Sector\TM\ (HGX\SM\) and PHLX Oil Service Sector\SM\ (OSX\SM\).
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    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through June 30, 2014. 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); 
69787 (June 18, 2013), 78 FR 37858 (June 24, 2013) (SR-NASDAQ-2013-
082) and 71105 (December 17, 2013), 78 FR 77530 (December 23, 2013) 
(SR-NASDAQ-2013-154). See also NOM Rules, Chapter VI, Section 5.
    \4\ The term ``NOM Market Maker'' means 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.
    \5\ This would include options on Nasdaq-100 Index (``NDX''). 
Today, for transactions in NDX, the Exchange assesses a surcharge of 
$0.10 per contract will be added to the Fee for Adding Liquidity and 
the Fee for Removing Liquidity in Non-Penny Pilot Options, except 
for a Customer who will not be assessed a surcharge.
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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 amend certain fees in Chapter XV, Section 2. The 
Exchange proposes to amend the Customer and Professional Penny Pilot 
Options Rebates to Add Liquidity to continue to incentivize 
Participants to direct additional Customer and/or Professional 
liquidity to NOM. The Exchange proposes to increase non-Customer Fees 
for Removing Liquidity in Penny Pilot Options to be able to offer 
greater Customer and Professional Penny Pilot Options Rebates to Add 
Liquidity. The Exchange proposes to increase the Customer and NOM 
Market Make Fees for Removing Liquidity and Customer Rebate to Add 
Liquidity in Non-Penny Pilot Options and NDX surcharge. The Exchange 
proposes to increase the Fees for Adding and Removing Liquidity in SOX, 
HGX and OSX.

[[Page 3435]]

Customer and Professional Penny Pilot Option Rebates to Add Liquidity
    The Exchange currently pays Customer and Professional Rebates to 
Add Liquidity based on an eight tier rebate structure as follows:

------------------------------------------------------------------------
                                                              Rebate to
     Monthly                        Volume                       add
                                                              liquidity
------------------------------------------------------------------------
Tier 1...........  Participant adds Customer and/or                $0.25
                    Professional liquidity of up to 0.20%
                    of total industry customer equity and
                    ETF option average daily volume
                    (``ADV'') contracts per day in a month.
Tier 2...........  Participant adds Customer and/or                 0.40
                    Professional liquidity of 0.21% to
                    0.30% of total industry customer equity
                    and ETF option ADV contracts per day in
                    a month.
Tier 3...........  Participant adds Customer and/or                 0.43
                    Professional liquidity of 0.31% to
                    0.49% of total industry customer equity
                    and ETF option ADV contracts per day in
                    a month.
Tier 4...........  Participant adds Customer and/or                 0.45
                    Professional liquidity of 0.5% or more
                    of total industry customer equity and
                    ETF option ADV contracts per day in a
                    month.
Tier 5...........  Participant adds (1) Customer and/or             0.42
                    Professional liquidity of 25,000 or
                    more contracts per day in a month, (2)
                    the Participant has certified for the
                    Investor Support Program set forth in
                    Rule 7014, and (3) the Participant
                    executed at least one order on NASDAQ's
                    equity market.
Tier 6...........  Participant has Total Volume of 115,000          0.45
                    or more contracts per day in a month,
                    of which 25,000 or more contracts per
                    day in a month must be Customer and/or
                    Professional liquidity.
Tier 7...........  Participant has Total Volume of 150,000          0.47
                    or more contracts per day in a month,
                    of which 50,000 or more contracts per
                    day in a month must be Customer and/or
                    Professional liquidity.
Tier 8...........  Participant (1) has Total Volume of             [sic]
                    200,000 or more contracts per day in a
                    month, of which 70,000 or more
                    contracts per day in a month must be
                    Customer and/or Professional liquidity
                    or (2) adds Customer and/or
                    Professional liquidity of 1.00% or more
                    of national customer volume in multiply-
                    listed equity and ETF options classes
                    in a month.
------------------------------------------------------------------------

    For purposes of qualifying for a Customer and Professional Rebate 
to Add Liquidity tier, the Exchange determines the applicable 
percentage of total industry customer equity and ETF option average 
daily volume by including the Participant's Penny Pilot and Non-Penny 
Pilot Customer and/or Professional volume that adds liquidity. The 
Exchange is proposing to make certain amendments to the tiers as noted 
below.
    The Exchange proposes to clarify the Tier 1 Customer and 
Professional Penny Pilot Options Rebates to Add Liquidity by adding 
rule text stating that Non-Penny Pilot Options as well as Penny Pilot 
Options which add liquidity would qualify a Participant for a Tier 1 
rebate. This is not an amendment to the tier, but rather a 
clarification of the rule text. The Exchange would continue to pay a 
rebate of $0.25 per contract to Participants that add Customer and/or 
Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of up to 0.20% of total industry customer equity and ETF option 
average daily volume (``ADV'') contracts per day in a month.
    The Exchange proposes to amend the Tier 2 Customer and Professional 
Penny Pilot Options Rebates to Add Liquidity to increase the current 
$0.40 per contract rebate to $0.42 per contract. The Exchange proposes 
to clarify the Tier 2 Customer and Professional Penny Pilot Options 
Rebate to Add Liquidity by adding rule text stating that Non-Penny 
Pilot Options as well as Penny Pilot Options which add liquidity would 
qualify a Participant for a Tier 2 rebate. This is not an amendment to 
the tier, but rather a clarification of the rule text. Finally, the 
Exchange proposes to amend the Tier 2 volume threshold by clarifying 
that the current threshold of 0.21% to 0.30% of total customer equity 
and ETF options ADV contracts per day in a month would be better worded 
as above 0.20% to 0.30%. The Exchange believes that the use of the word 
``above'' brings greater clarity to the rule text. With this amendment, 
the Exchange would pay a $0.42 per contract rebate to Participants that 
add Customer and/or Professional liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options above 0.20% to 0.30% of total industry 
customer equity and ETF option ADV contracts per day in a month.
    The Exchange proposes to clarify the Tier 3 Customer and 
Professional Penny Pilot Options Rebates to Add Liquidity by adding 
rule text stating that Non-Penny Pilot Options as well as Penny Pilot 
Options which add liquidity would qualify a Participant for a Tier 3 
rebate. This is not an amendment to the tier, but rather a 
clarification of the rule text. Additionally, the Exchange proposes to 
amend the Tier 3 volume threshold by lowering the 0.31% to 0.49% of 
total industry customer equity to above 0.30% to 0.40% of total 
customer equity and ETF options ADV contracts per day in a month. The 
Exchange believes that the use of the word ``above'' brings greater 
clarity to the rule text. With this amendment, the Exchange would 
continue to pay a $0.43 per contract rebate to Participants that add 
Customer and/or Professional liquidity in Penny Pilot Options and/or 
Non-Penny Pilot Options above 0.30% to 0.40% of total industry customer 
equity and ETF option ADV contracts per day in a month.
    The Exchange proposes to clarify the Tier 4 Customer and 
Professional Penny Pilot Options Rebates to Add Liquidity by adding 
rule text stating that Non-Penny Pilot Options as well as Penny Pilot 
Options which add liquidity would qualify a Participant for a Tier 4 
rebate. This is not an amendment to the tier, but rather a 
clarification of the rule text. Additionally, the Exchange proposes to 
amend the Tier 4 volume threshold by lowering the current requirement 
of 0.5% or more of total industry customer equity and ETF options ADV 
contracts per day in a month to above 0.40%. The Exchange believes that 
the use of the word ``above'' brings greater clarity to the rule text. 
With this amendment, the Exchange would continue to pay a $0.45 per 
contract rebate to Participants that add Customer and/or Professional 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 
0.40% or more of total industry customer equity and ETF option ADV 
contracts per day in a month.
    The Exchange proposes to amend the Tier 5 Customer and Professional 
Penny Pilot Options Rebates to Add Liquidity to include Non-Penny Pilot 
Options as of January 2, 2014 as Customer and/or Professional liquidity 
that will count toward achieving the 25,000 or more

[[Page 3436]]

contracts per day in a month criteria in Tier 5. Today, the Exchange 
pays a $0.42 per contract rebate to Participants that add (1) Customer 
and/or Professional liquidity of 25,000 or more contracts per day in a 
month, (2) the Participant has certified for the Investor Support 
Program set forth in Rule 7014, and (3) the Participant executed at 
least one order on NASDAQ's equity market. The Exchange would permit 
Non-Penny Pilot Options in addition to Penny Pilot Options to count 
toward arriving at the 25,000 or more contracts per day in a month 
threshold for the first criteria of the three requisite criteria to 
qualify for the Tier 5 rebate. The Exchange proposes to add the words 
``in Penny Pilot Options'' to the rule text simply to clarify that 
those types of contracts count toward the volume threshold today. This 
would not be a substantive change to the rule text. The Exchange also 
proposes to increase the rebate from $0.42 to $0.45 per contract to 
further incentivize Participants to add liquidity, certify for the 
Investor Support Program and execute orders on NASDAQ's equity market 
to qualify for this rebate.
    The Exchange proposes to clarify that with respect to the Tier 6 
Customer and Professional Penny Pilot Options Rebates to Add Liquidity 
that Penny Pilot Options qualify a participant with respect to this 
rebate tier. This is not an amendment to the Tier 6 rebate but rather 
the addition of rule text to clarify that, as is the case today, only 
Penny Pilot Options apply to this tier. Today, the Exchange pays a 
$0.45 per contract rebate to Participants that have a Total Volume \6\ 
of 115,000 or more contracts per day in a month, of which 25,000 or 
more contracts per day in a month must be Customer and/or Professional 
liquidity in Penny Pilot Options. The Exchange proposes to lower the 
Total Volume Threshold from 115,000 to 100,000 or more contracts per 
day in a month, of which 25,000 or more contracts per day in a month 
must be Customer and/or Professional liquidity. The Exchange believes 
that lowering the Total Volume threshold will incentivize Participants 
to direct liquidity to the Exchange.
---------------------------------------------------------------------------

    \6\ ``Total Volume'' is defined as Customer, Professional, Firm, 
Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in 
Penny Pilot Options and/or Non-Penny Pilot Options which either adds 
or removes liquidity on NOM.
---------------------------------------------------------------------------

    The Exchange proposes to clarify that with respect to the Tier 7 
Customer and Professional Penny Pilot Options Rebates to Add Liquidity 
that Penny Pilot Options qualify a participant with respect to this 
rebate tier. This is not an amendment to the Tier 7 rebate but rather 
the addition of rule text to clarify that, as is the case today, only 
Penny Pilot Options apply to this tier. With this amendment, the 
Exchange would continue to pay a $0.47 per contract rebate to 
Participants that have a Total Volume of 150,000 or more contracts per 
day in a month, of which 50,000 or more contracts per day in a month 
must be Customer and/or Professional liquidity in Penny Pilot Options.
    The Exchange proposes to amend the Tier 8 Customer and Professional 
Penny Pilot Options Rebates to Add Liquidity to eliminate one of the 
two criteria which today qualifies a Participant to receive the Tier 8 
rebate. Today, a Participant that has Total Volume of 200,000 or more 
contracts per day in a month, of which 70,000 or more contracts per day 
in a month must be Customer and/or Professional liquidity or (2) [sic] 
adds Customer and/or Professional liquidity of 1.00% or more of 
national customer volume in multiply-listed equity and ETF options 
classes in a month qualifies for the $0.48 per contract rebate. The 
Exchange will eliminate the Total Volume criteria as a means to qualify 
for the Tier 8 rebate so that a Participant will no longer qualify for 
the Tier 8 rebate by transacting Total Volume of 200,000 or more 
contracts per day in a month, of which 70,000 or more contracts per day 
in a month must be Customer and/or Professional liquidity. In addition, 
the Exchange is amending the second criteria, which will be the only 
criteria with this proposal to qualify for a Tier 8 rebate, by lowering 
the Customer and/or Professional liquidity volume criteria from 1.00% 
to 0.75% or more of national customer volume in multiply-listed equity 
and ETF options classes in a month. With this proposal, a Participant 
may qualify for the $0.48 per contract Tier 8 rebate by adding Customer 
and/or Professional liquidity of 0.75% or more of national customer 
volume in multiply-listed equity and ETF options classes in a month. 
The Exchange believes that despite the fact that the first criteria is 
being eliminated and Participants will no longer be able to add a 
certain amount of Total Volume to qualify for the Tier 8 rebate, 
Participants will continue to be incentivized to add Customer and/or 
Professional liquidity because the Exchange is lowering the amount of 
Customer and/or Professional volume necessary to qualify for the Tier 8 
rebate. Additionally, the Exchange seeks to clarify the types of 
transactions which qualify a Participant for this rebate tier. This is 
not an amendment to the Tier 8 rebate but rather the addition of rule 
text to clarify what types of transactions are applicable to qualify 
for the rebate. As noted in the rule text at Chapter XV, Section 2, 
with respect to the Customer and Professional Rebate to Add Liquidity 
in Penny Pilot Options, the applicable percentage of total industry 
customer equity and ETF option average daily volume includes the 
Participant's Penny Pilot and Non-Penny Pilot Customer and/or 
Professional volume that adds liquidity. The Exchange proposes to add 
rule text to clarify that with respect to this second prong, which will 
be the only prong, the Exchange proposes to state within the rule text 
that, as is the case today, the Exchange will pay a $0.48 per contract 
rebate to Participants that adds Customer and/or Professional liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options of 0.75% or more 
of national customer volume in multiply-listed equity and ETF options 
classes in a month. The addition of this rule text to Tier 8 is not an 
amendment but rather a clarification of the rule text.
Penny Pilot Options Fees for Removing Liquidity
    The Exchange proposes to increase the Professional, Firm, Non-NOM 
Market Maker and Broker-Dealer Fees for Removing Liquidity in Penny 
Pilot Options from $0.48 to $0.49 per contract. A Customer would 
continue to be assessed $0.45 per contract. The Exchange believes that 
despite these increases the Exchange remains competitive with respect 
to these fees. Additionally, the Exchange proposes to offer 
Participants that qualify for Customer or Professional Rebate to Add 
Liquidity Tiers 7 or 8 in a given month the opportunity to lower the 
Penny Pilot Option Fee for Removing Liquidity from the proposed $0.49 
to $0.48 per contract. The Exchange proposes to add the following 
language to the fee schedule, ``Participants that qualify for Customer 
or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month 
will be assessed a Professional, Firm, Non-NOM Market Maker or Broker-
Dealer Fee for Removing Liquidity in Penny Pilot Options of $0.48 per 
contract.'' The Exchange believes that this added incentive will 
attract liquidity to NOM.
Customer and NOM Market Maker Fees for Removing Liquidity in Non-Penny 
Pilot Options (including NDX) and NDX Surcharge
    The Exchange proposes to increase the Customer Fee for Removing 
Liquidity in Non-Penny Pilot Options (including NDX) from $0.82 to 
$0.85 per contract. The Exchange also proposes to

[[Page 3437]]

increase the NOM Market Maker Fee for Removing Liquidity from $0.86 to 
$0.89 per contract in Non-Penny Pilot Options. Today Professionals, 
Firms, Non-NOM Market Markets and Broker-Dealers pay an $0.89 per 
contract Fee for Removing Liquidity in Non-Penny Pilot Options. Despite 
the increase to the Customer and NOM Market Maker Fees for Removing 
Liquidity in Non-Penny Pilot Options the Exchange believes that the 
fees remain competitive.
    The Exchange currently assesses fees and pay rebates on NDX as a 
Non-Penny Pilot Option. The Exchange currently assesses a surcharge to 
all market participants, except Customers, for transactions in NDX of 
$0.10 per contract. The surcharge is in addition to the Fees for Adding 
and Removing Liquidity in Non-Penny Pilot Options. The Exchange 
proposes to increase the NDX surcharge from $0.10 to $15 [sic] per 
contract.
Customer Rebate To Add Liquidity in Non-Penny Pilot Options
    The Exchange currently pays a Customer an $0.81 per contract Non-
Penny Pilot Options Rebate to Add Liquidity. Further the Exchange 
currently offers Participants that qualify for Customer or Professional 
Rebate to Add Liquidity Tiers 7 or 8 in a given month an additional 
$0.01 per contract Non-Penny Pilot Options Customer Rebate to Add 
Liquidity for each transaction which adds liquidity in Non-Penny Pilot 
Options in that month (``$0.01 Incentive''). The Exchange is proposing 
to increase the current Customer Rebate to Add Liquidity in Non-Penny 
Pilot Options from $0.81 to $0.84 per contract and eliminate the offer 
of the $0.01 Incentive. The Exchange believes that the increased 
Customer rebate will attract greater Customer liquidity to the Exchange 
to the benefit of all market participants.
SOX, HGX and OSX
    The Exchange currently assesses Customers a Fee for Adding 
Liquidity and a Fee for Removing Liquidity in SOX, HGX and OSX of $0.35 
per contract. The Exchange proposes to increase the Customer Fees for 
Adding and Removing Liquidity in SOX, HGX and OSX to $0.40 per 
contract. The Exchange assesses NOM Market Makers a Fee for Adding 
Liquidity and a Fee for Removing Liquidity in SOX, HGX and OSX of $0.40 
per contract. These fees will remain unchanged. The Exchange assesses 
Professionals, Firms, Non-NOM Market Makers and Broker-Dealers a Fee 
for Adding and a Fee for Removing Liquidity in SOX, HGX and OSX of 
$0.60 per contract. The Exchange is proposing to increase the 
Professional, Firm, Non-NOM Market Maker and Broker-Dealer Fees for 
Adding and Removing Liquidity in SOX, HGX and OSX to $0.89 per 
contract. The Exchange believes that the proposed increased fees remain 
competitive with other options fees at other exchanges.
2. Statutory Basis
    NASDAQ believes that its proposal to amend its Pricing Schedule is 
consistent with Section 6(b) of the Act \7\ in general, and furthers 
the objectives of Section 6(b)(4) and (b)(5) of the Act \8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

Customer and Professional Penny Pilot Option Rebates To Add Liquidity
    The Exchange's proposal to clarify the rule text of the Customer 
and Professional Rebates to Add Liquidity tiers by adding the phrase 
``in Penny Pilot Options and/or Non-Penny Pilot Options'' is reasonable 
because the Exchange currently determines the applicable percentage of 
total industry customer equity and ETF option average daily volume by 
including the Participant's Penny Pilot and Non-Penny Pilot Customer 
and/or Professional volume that adds liquidity. The Exchange believes 
that adding this language in Tiers 1, 2, 3, 4 and 8 of the Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity tiers will 
clarify the rule text. Similarly, the Exchange's proposal to add the 
phrase ``in Penny Pilot Options'' in Tiers 5, 6 and 7 is reasonable 
because this language will also clarify the rule text and make clear 
which types of transactions qualify a Participant for a rebate. These 
amendments to the rule text are not substantive but rather serve to add 
specific terms which apply today.
    The Exchange's proposal to clarify the rule text of the Customer 
and Professional Rebates to Add Liquidity tiers by adding the phrase 
``in Penny Pilot Options and/or Non-Penny Pilot Options'' in Tiers 1, 
2, 3, 4 and 8 is equitable and not unfairly discriminatory because the 
Exchange will pay rebates to all Participants that transact the 
qualifying volume in a uniform manner. Similarly, the Exchange's 
proposal to add the phrase ``in Penny Pilot Options'' in Tiers 5, 6 and 
7 is equitable and not unfairly discriminatory because the Exchange 
will pay rebates to all Participants that transact the qualifying 
volume in a uniform manner.
    The Exchange's proposal to increase the Tier 2 Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity from $0.40 to 
$0.42 per contract is reasonable because the increased rebate will 
incentivize market participants to transact an even greater number of 
qualifying Customer and/or Professional volume.
    The Exchange's proposal to increase the Tier 2 Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity from $0.40 to 
$0.42 per contract is equitable and not unfairly discriminatory because 
all eligible Participants that qualify for the Tier 2 Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity will be 
uniformly paid the rebate.
    The Exchange's proposal to clarify the verbiage of the Tier 2 
volume threshold by amending 0.21% to 0.30% of total customer equity 
and ETF options ADV contracts per day in a month to above 0.20% to 
0.30% is reasonable because the new verbiage clarifies the volume to 
qualify for the Tier 2 rebate. The Exchange's proposal to amend the 
Tier 2 volume threshold by amending 0.21% to 0.30% of total customer 
equity and ETF options ADV contracts per day in a month to above 0.20% 
to 0.30% is equitable and not unfairly discriminatory because all 
eligible Participants that qualify for the Tier 2 Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity will continue 
to be uniformly paid the rebate as they are today.
    The Exchange's proposal to amend the Tier 3 volume threshold by 
lowering the 0.31% to 0.49% of total industry customer equity to above 
0.30% to 0.40% of total customer equity and ETF options ADV contracts 
per day in a month is reasonable because the Exchange is lowering the 
tier which should permit those Participants that qualify for this 
rebate today to continue to qualify for this rebate and allow 
additional Participants to qualify for the Tier 4 rebate. The 
Exchange's proposal to amend the Tier 3 volume threshold by lowering 
the 0.31% to 0.49% of total industry customer equity to above 0.30% to 
0.40% of total customer equity and ETF options ADV contracts per day in 
a month is equitable and not unfairly discriminatory because all 
eligible Participants that qualify for the Tier 3 Customer and 
Professional Penny Pilot

[[Page 3438]]

Options Rebate to Add Liquidity will be uniformly paid the rebate.
    The Exchange's proposal to amend the Tier 4 volume threshold by 
lowering the current requirement of 0.5% or more of total industry 
customer equity and ETF options ADV contracts per day in a month to 
above 0.40% is reasonable because the Exchange is lowering the tier 
which may permit additional Participants to qualify for the Tier 4 
rebate. Participants that currently qualify for the rebate should 
continue to qualify. The Exchange's proposal to amend the Tier 4 volume 
threshold by lowering the current requirement of 0.5% or more of total 
industry customer equity and ETF options ADV contracts per day in a 
month to above 0.40% is equitable and not unfairly discriminatory 
because all eligible Participants that qualify for the Tier 4 Customer 
and Professional Penny Pilot Options Rebate to Add Liquidity will be 
uniformly paid the rebate.
    The Exchange believes that the use of the word ``above'' in the 
amended rebate tiers is reasonable, equitable and not unfairly 
discriminatory because it adds greater clarity to the rule text.
    The Exchange's proposal to amend Tier 5 to include Non-Penny Pilot 
Options as of January 2, 2014 as Customer and/or Professional liquidity 
that will count toward achieving the 25,000 or more contracts per day 
in a month criteria in Tier 5 is reasonable because the Exchange 
believes that by adding Non-Penny Pilot Options volume additional 
Participants may qualify for a Tier 5 rebate. Today, only Penny Pilot 
Options count toward arriving at the 25,000 or more contracts per day 
in month threshold for the first of three criteria \9\ toward 
qualifying for the Tier 5 rebate.\10\ The Exchange's proposal to 
increase the rebate from $0.42 to $0.45 per contract is reasonable 
because offering a greater rebate will further incentivize Participants 
to add liquidity, certify for the Investor Support Program \11\ and 
execute orders on NASDAQ's equity market to qualify for this rebate. 
The Exchange's proposal to amend the Tier 5 to include Non-Penny Pilot 
Options toward achieving the 25,000 or more contracts per day in a 
month criteria in Tier 5 is equitable and not unfairly discriminatory 
because all Participants that add either Penny Pilot or Non-Penny Pilot 
volume will be able to qualify for the rebate. Additionally, the 
Exchange's proposal to increase the rebate from $0.42 to $0.45 per 
contract is equitable and not unfairly discriminatory because all 
eligible Participants that qualify for the Tier 5 Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity will be 
uniformly paid the increased rebate.
---------------------------------------------------------------------------

    \9\ As noted above, the Exchange is adding the words ``in Penny 
Pilot Options'' to clarify that today Penny Pilot Options to reflect 
that today only those types of transactions count toward arriving at 
the 25,000 or more threshold.
    \10\ With respect to Tier 5, the Exchange pays a $0.42 per 
contract rebate to Participants that add (1) Customer and/or 
Professional liquidity of 25,000 or more contracts per day in a 
month, (2) the Participant has certified for the Investor Support 
Program set forth in Rule 7014, and (3) the Participant executed at 
least one order on NASDAQ's equity market.
    \11\ The Investor Support Program is set forth in NASDAQ Rule 
7014.
---------------------------------------------------------------------------

    The Exchange's proposal to lower the Total Volume Threshold in Tier 
6 from 115,000 to 100,000 or more contracts per day in a month, of 
which 25,000 or more contracts per day in a month must be Customer and/
or Professional liquidity is reasonable because the Exchange believes 
that by lowering the volume threshold, additional Participants may 
qualify for a Tier 6 rebate.\12\ The Exchange's proposal to lower the 
Total Volume Threshold in Tier 6 from 115,000 to 100,000 or more 
contracts per day in a month, of which 25,000 or more contracts per day 
in a month must be Customer and/or Professional liquidity is equitable 
and not unfairly discriminatory because all Participants that transact 
100,000 or more contracts per day in a month, of which 25,000 or more 
contracts per day in a month must be Customer and/or Professional 
liquidity will be eligible for the Tier 6 rebate. The Exchange will 
apply the rebate in a uniform manner.
---------------------------------------------------------------------------

    \12\ Today, the Exchange pays a $0.45 per contract rebate to 
Participants that have a Total Volume of 115,000 or more contracts 
per day in a month, of which 25,000 or more contracts per day in a 
month must be Customer and/or Professional liquidity in Penny Pilot 
Options. Total Volume is defined as Customer, Professional, Firm, 
Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in 
Penny Pilot Options and/or Non-Penny Pilot Options which either adds 
or removes liquidity on NOM.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the Tier 8 Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity to eliminate 
one of the two criteria \13\ which today qualifies a Participant to 
receive the Tier 8 rebate is reasonable because the Exchange believes 
that the remaining criteria will encourage Participants to add more 
Customer and Professional liquidity versus Total Volume \14\ and 
Participants benefit from Customer and Professional liquidity.\15\ 
Customer volume is important because it continues to attract liquidity 
to the Exchange, which benefits all market participants. Further, with 
respect to Professional liquidity, the Exchange initially established 
Professional pricing in order to ``. . . bring additional revenue to 
the Exchange.'' \16\ 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.'' \17\ Further, the Exchange 
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.\18\ In addition, the 
Exchange's proposal amends the second criteria, which would be the only 
criteria with this proposal to qualify for a Tier 8 rebate, by lowering 
the Customer and/or Professional liquidity volume criteria from 1.00% 
to 0.75% or more of national customer volume in multiply-listed equity 
and ETF options classes in a month.\19\ The Exchange believes that 
lowering this volume threshold from 1.00% to 0.75% or more of national 
customer volume in multiply-listed equity and ETF options classes in a 
month is reasonable because it will permit additional Participants to 
qualify for the Tier 8 rebate. The Exchange's

[[Page 3439]]

proposal to amend the Tier 8 Customer and Professional Penny Pilot 
Options Rebate to Add Liquidity to eliminate one of the two criteria 
\20\ which today qualifies a Participant to receive the Tier 8 rebate 
is equitable and not unfairly discriminatory because the Exchange will 
apply the criteria in a uniform manner. The Exchange believes that 
lowering this volume threshold from 1.00% to 0.75% or more of national 
customer volume in multiply-listed equity and ETF options classes in a 
month is equitable and not unfairly discriminatory because the amended 
remaining criteria will be applied to all Participants in a uniform 
manner.
---------------------------------------------------------------------------

    \13\ A Participant will no longer qualify for the Tier 8 rebate 
by transacting Total Volume of 200,000 or more contracts per day in 
a month, of which 70,000 or more contracts per day in a month must 
be Customer and/or Professional liquidity.
    \14\ Total Volume is defined as Customer, Professional, Firm, 
Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in 
Penny Pilot Options and/or Non-Penny Pilot Options which either adds 
or removes liquidity on NOM.
    \15\ Today, a Participant that has Total Volume of 200,000 or 
more contracts per day in a month, of which 70,000 or more contracts 
per day in a month must be Customer and/or Professional liquidity or 
(2) [sic] adds Customer and/or Professional liquidity of 1.00% or 
more of national customer volume in multiply-listed equity and ETF 
options classes in a month qualifies for the $0.48 per contract 
rebate.
    \16\ 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.
    \17\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
    \18\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066) The Exchange 
also in the Professional 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.
    \19\ With this proposal, a Participant may qualify for the $0.48 
per contract Tier 8 rebate by adding Customer and/or Professional 
liquidity of 0.75% or more of national customer volume in multiply-
listed equity and ETF options classes in a month.
    \20\ A Participant will no longer qualify for the Tier 8 rebate 
by transacting Total Volume of 200,000 or more contracts per day in 
a month, of which 70,000 or more contracts per day in a month must 
be Customer and/or Professional liquidity.
---------------------------------------------------------------------------

Penny Pilot Options Fees for Removing Liquidity
    The Exchange's proposal to increase the Professional, Firm, Non-NOM 
Market Maker and Broker-Dealer Fees for Removing Liquidity in Penny 
Pilot Options from $0.48 to $0.49 per contract is reasonable because 
the Exchange is seeking to increase certain Penny Pilot Options Rebates 
to Add Liquidity to attract additional order flow to NOM. The 
Exchange's ability to offer increased Customer and Professional Penny 
Pilot Options rebates is possible with a corresponding increase to the 
Professional, Firm, Non-NOM Market Maker and Broker-Dealer Fees for 
Removing Liquidity in Penny Pilot Options. The Exchange believes that 
this fees remain within the range of fees assessed by other options 
exchanges.\21\
---------------------------------------------------------------------------

    \21\ BATS Exchange, Inc., Topaz Exchange, LLC or ``Gemini'' and 
NYSE Arca, Inc. has comparable fees.
---------------------------------------------------------------------------

    The Exchange's proposal to increase the Professional, Firm, Non-NOM 
Market Maker and Broker-Dealer Fees for Removing Liquidity in Penny 
Pilot Options from $0.48 to $0.49 per contract is equitable and not 
unfairly discriminatory because the Exchange is uniformly increased 
non-Customer Fees for Removing Liquidity in Penny Pilot Options. 
Customers will continue to be assessed the lowest Fees for Removing 
Liquidity in Penny Pilot Options. In this case, a Customer would 
continue to be assessed $0.45 per contract. Customer liquidity is 
unique because the liquidity it attracts benefits all market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attract Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
    The Exchange's proposal to offer non-Customer Participants the 
ability to lower the Fees for Removing Liquidity in Penny Pilot Options 
from $0.49 to $0.48 per contract by qualifying for Customer or 
Professional Rebate To Add Liquidity Tiers 7 or 8 in a given month \22\ 
is reasonable because the Exchange is seeking to offer these non-
Customer Participants to lower the increased Fees for Removing 
Liquidity in Penny Pilot Options by adding liquidity to the 
Exchange.\23\
---------------------------------------------------------------------------

    \22\ The Exchange proposes to add the following language to the 
fee schedule, ``Participants that qualify for Customer or 
Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month 
will be assessed a Professional, Firm, Non-NOM Market Maker or 
Broker-Dealer Fee for Removing Liquidity in Penny Pilot Options of 
$0.48 per contract.''
    \23\ For purposes of Tier 7, Participants may add Customer, 
Professional, Firm, Broker-Dealer, Non-NOM Market Maker and NOM 
Market Maker volume in Penny Pilot Options and/or Non-Penny Pilot 
Options and for purposes of Tier 8, Participants may add Customer or 
Professional liquidity in Penny Pilot or Non-Penny Pilot Options.
---------------------------------------------------------------------------

    The Exchange's proposal to offer non-Customer Participants the 
ability to lower the Fees for Removing Liquidity in Penny Pilot Options 
from $0.49 to $0.48 per contract by qualifying for Customer or 
Professional Rebate To Add Liquidity Tiers 7 or 8 in a given month \24\ 
is equitable and not unfairly discriminatory because all non-Customer 
Participants would be provided the opportunity to lower Fees for 
Removing Liquidity in Penny Pilot Options. Customers are assessed a 
lower Fee for Removing Liquidity in Penny Pilot Options, $0.45 per 
contract, and therefore the Exchange believes that offering all 
Participants that incur a higher Fee for Removing Liquidity in Penny 
Pilot Options, $0.89 per contract, is equitable and not unfairly 
discriminatory.
---------------------------------------------------------------------------

    \24\ The Exchange proposes to add the following language to the 
fee schedule, ``Participants that qualify for Customer or 
Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month 
will be assessed a Professional, Firm, Non-NOM Market Maker or 
Broker-Dealer Fee for Removing Liquidity in Penny Pilot Options of 
$0.48 per contract.''
---------------------------------------------------------------------------

Customer and NOM Market Maker Fees for Removing Liquidity in Non-Penny 
Pilot Options (including NDX) and NDX Surcharge
    The Exchange's proposal to increase the Customer Fee for Removing 
Liquidity from $0.82 to $0.85 per contract in Non-Penny Pilot Options 
is reasonable because the Exchange is seeking to increase certain Penny 
Pilot Options Rebates to Add Liquidity to attract additional order flow 
to NOM. The Exchange is permitting both Penny Pilot and Non-Penny Pilot 
Options to count toward qualifying for various Customer and 
Professional Penny Pilot Options Rebates to Add Liquidity. Today, 
Customers are assessed the lowest Fee for Removing Liquidity in Non-
Penny Pilot Options of $0.82 per contract. Other market participants, 
Professionals, Firms, Non-NOM Market Makers, NOM Market Makers (as 
proposed herein) and Broker-Dealers, are assessed $0.89 per contract. 
Customers would continue to be assessed the lowest fees.
    The Exchange's proposal to increase the Customer Fee for Removing 
Liquidity from $0.82 to $0.85 per contract in Non-Penny Pilot Options 
is equitable and not unfairly discriminatory because the Exchange would 
continue to assess Customers the lowest Fee for Removing Liquidity in 
Non-Penny Pilot Options because Customer liquidity brings unique 
benefits to the market. Customer liquidity benefits all market 
participants by providing more trading opportunities, which attract 
Specialists and Market Makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants.
    The Exchange's proposal to increase the NOM Market Maker Fee for 
Removing Liquidity from $0.86 to $0.89 per contract in Non-Penny Pilot 
Options is reasonable because the Exchange is seeking to increase 
certain Penny Pilot Options Rebates to Add Liquidity to attract 
additional order flow to NOM. The Exchange is permitting both Penny 
Pilot and Non-Penny Pilot Options to count toward qualifying for 
various Customer and Professional Penny Pilot Options Rebates to Add 
Liquidity.
    The Exchange's proposal to increase the NOM Market Maker Fee for 
Removing Liquidity from $0.86 to $0.89 per contract in Non-Penny Pilot 
Options is equitable and not unfairly discriminatory because the 
Exchange would uniformly assess all non-Customers a Non-Penny Pilot 
Options Fee for Removing Liquidity of $0.89 per contract. Customers 
would be assessed the lowest Non-Penny Pilot Options Fee for Removing 
Liquidity of $0.85 per contract with this proposal. Customer order flow 
is unique because it attracts liquidity which in turn benefits all 
market participants.
    The Exchange's proposal to increase the NDX surcharge applicable to 
all market participants, except Customers, is reasonable because the 
Exchange

[[Page 3440]]

currently pays a license fee \25\ to list NDX on NOM and is seeking to 
recoup a larger portion of that fee.\26\
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    \25\ NOM is assessed a license fee of $0.22 per contract to list 
NDX.
    \26\ Non-Penny Pilot Options, other than NDX, are not subject to 
a license fee.
---------------------------------------------------------------------------

    The Exchange's proposal to increase the NDX surcharge applicable to 
all market participants, except Customers, is equitable and not 
unfairly discriminatory because all market participants, except 
Customers, will uniformly be assessed the NDX surcharge in addition to 
the Non-Penny Pilot Options Fees for Adding and Removing Liquidity. 
Customers are typically not assessed surcharge fees related to 
licenses. The Exchange has not assessed such fees to Customers because 
Customer liquidity brings unique benefits to the market in terms of 
liquidity which in turn benefits other market participants.
Customer Rebate To Add Liquidity in Non-Penny Pilot Options
    The Exchange's proposal to increase the Customer Non-Penny Pilot 
Options Rebate to Add Liquidity from $0.81 to $0.84 per contract and 
eliminate the offer of the $0.01 Incentive \27\ is reasonable because 
the Exchange believes that offering Customers the opportunity to earn 
the higher rebate will attract more liquidity to the Exchange. Further, 
even assuming Customers received the $0.01 Incentive, the increased 
rebate would be higher going forward and thereby providing a greater 
incentive to these Participants.
---------------------------------------------------------------------------

    \27\ The Exchange currently offers Participants that qualify for 
Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a 
given month an additional $0.01 per contract Non-Penny Pilot Options 
Customer Rebate to Add Liquidity for each transaction which adds 
liquidity in Non-Penny Pilot Options in that month.
---------------------------------------------------------------------------

    The Exchange's proposal to increase the Customer Non-Penny Pilot 
Options Rebate to Add Liquidity from $0.81 to $0.84 per contract and 
eliminate the offer of the $0.01 Incentive \28\ is equitable and not 
unfairly discriminatory because the Exchange will offer all Customers 
the opportunity to receive the higher rebate. Customers are the only 
market participants eligible to receive a Rebate to Add Liquidity in 
Non-Penny Pilot Options. The Exchange believes that offering this 
rebate only to Customers is equitable and not unfairly discriminatory 
because unlike other market participants, Customer liquidity brings 
unique benefits to the market in terms of liquidity which in turn 
benefits other market participants.
---------------------------------------------------------------------------

    \28\ The Exchange currently offers Participants that qualify for 
Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a 
given month an additional $0.01 per contract Non-Penny Pilot Options 
Customer Rebate to Add Liquidity for each transaction which adds 
liquidity in Non-Penny Pilot Options in that month.
---------------------------------------------------------------------------

SOX, HGX and OSX
    The Exchange's proposal to increase the Customer Fees for Adding 
and Removing Liquidity in SOX, HGX and OSX from $0.35 to $0.40 per 
contract is reasonable because although the fee is being increased, 
Customers will continue to be assessed lower fees as compared to other 
market participants, except NOM Market Makers, which should continue to 
incentivize Customers to transact options in SOX, HGX and OSX. The 
Exchange's proposal to increase Professional, Firm, Non-NOM Market 
Maker and Broker-Dealer Fees for Adding and Removing Liquidity in SOX, 
HGX and OSX from $0.60 to $0.89 per contract is reasonable because the 
Exchange will assess these market participants, other than Customers 
and NOM Market Makers, fees similar to those assessed for Non-Penny 
Pilot Fees for Removing Liquidity. The Exchange believes that the 
proposed increased fees remain competitive with other options fees at 
other exchanges.
    The Exchange's proposal to increase the Customer Fees for Adding 
and Removing Liquidity in SOX, HGX and OSX from $0.35 to $0.40 per 
contract is equitable and not unfairly discriminatory because Customers 
and NOM Market Makers each bring benefits to the market. The Exchange 
believes that Customer order flow brings unique benefits to the market 
which benefits all market participants through increased liquidity. NOM 
Market Makers have obligations to the market and regulatory 
requirements,\29\ which normally do not apply to other market 
participants. A NOM Market Maker has the obligation to make continuous 
markets, engage in a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and not 
make bids or offers or enter into transactions that are inconsistent 
with a course of dealings. The proposed differentiation as between 
Customers and NOM Market Makers and other market participants 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by Customers and NOM Market Makers, 
as well as the differing mix of orders entered.
---------------------------------------------------------------------------

    \29\ 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.
---------------------------------------------------------------------------

    The Exchange's proposal to increase Professional, Firm, Non-NOM 
Market Maker and Broker-Dealer Fees for Adding and Removing Liquidity 
in SOX, HGX and OSX from $0.60 to $0.89 per contract is equitable and 
not unfairly discriminatory because the Exchange is proposing to 
uniformly assess all market participants, other than Customers and NOM 
Market Makers, uniform Fees for Adding and Removing Liquidity in SOX, 
HGX and OSX.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act. The Exchange believes that increasing the 
Tier 2 Customer and Professional Rebates to Add Liquidity in Penny 
Pilot Options will incentivize market participants to send additional 
Customer and/or Professional order flow to the Exchange. The Exchange 
also believes that lowering certain volume thresholds in Tiers 3, 4, 6 
and 8 will also incentivize market participants to send additional 
Customer and/or Professional order flow to the Exchange. The Exchange's 
increase of the Tiers 2 and 5 rebates should also attract additional 
order flow to the Exchange and in turn promote competition. Finally, 
the Exchange's elimination of certain criteria to the Tier 8 rebate 
should encourage additional Customer and/or Professional order flow to 
the Exchange. Customer liquidity offers unique benefits to the market 
which benefits all market participants. Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attract Specialists and Market Makers. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants. The Exchange believes that encouraging 
Participants to add Professional liquidity creates competition among 
options exchanges because the Exchange believes that the rebates may 
cause market participants to select NOM as a venue to send Professional 
order flow. The Exchange is offering to pay increased rebates in 
exchange for additional Professional order flow being executed at the

[[Page 3441]]

Exchange, which additional order flow should benefit other market 
participants.
    The Exchange believes that the increases to the non-Customer Penny 
Pilot Options Fees for Removing Liquidity do not create an undue burden 
on competition as the Exchange will uniformly assess non-Customers the 
same Fees for Removing Liquidity in Penny Pilot Options and offer these 
Participants the opportunity to reduce these fees by adding liquidity 
to the Exchange and qualifying for certain Customer and/or Professional 
rebates.
    The increases to the Customer and NOM Market Maker Non-Penny Pilot 
Fees for Removing Liquidity should not create an undue burden on 
competition. Non-Customer Participants will be assessed a uniform fee 
and Customers will continue to earn a lower fee because Customer 
liquidity offers unique benefits to the market which benefits all 
market participants. Also, the increased NDX surcharge applicable to 
all non-Customer market participants will be applied in a uniform 
manner. Customers will continue to not pay the surcharge.
    The increase to the Customer Rebate to Add Liquidity in Non-Penny 
Pilot Options and elimination of the $0.01 Incentive does not create an 
undue burden on competition because market participants will be offered 
a higher Customer rebate with the increase as compared to the $0.81 per 
contract rebate plus the $0.01 Incentive.
    Finally, the Exchange's proposal to increase the Fees for Adding 
and Removing Liquidity in SOX, HGX and OSX for all market participants, 
except NOM Market Makers, does not create an undue burden on 
competition. The Exchange is assessing the lowest fees to Customers and 
NOM Market Makers because Customer order flow brings unique benefits to 
the market which benefits all market participants through increased 
liquidity and NOM Market Makers have obligations to the market and 
regulatory requirements,\30\ which normally do not apply to other 
market participants. The proposed amendments do not misalign the 
current rebate structure because Customers and NOM Market Makers will 
continue to be assessed lower fees as compared to Professionals, Firms, 
Non-NOM Market Makers and Broker-Dealers who will be assessed a uniform 
fee.
---------------------------------------------------------------------------

    \30\ 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.
---------------------------------------------------------------------------

    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.\31\ 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.
---------------------------------------------------------------------------

    \31\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2014-002 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.

All submissions should refer to File Number SR-NASDAQ-2014-002. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of NASDAQ. 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-2014-002 and should 
be submitted on or before February 11, 2014.
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    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01031 Filed 1-17-14; 8:45 am]
BILLING CODE 8011-01-P
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