Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Rebates and Fees in Penny and Non-Penny Pilot Options, 49127-49132 [2014-19579]
Download as PDF
<![CDATA[
Federal Register / Vol. 79, No. 160 / Tuesday, August 19, 2014 / Notices
Commission believes that the stated
objective of the proposal—to obtain
sufficient trade data to effectively
monitor cross-market trading activity—
would further the purposes of the Act.
Specifically, by better enabling the
Exchange to surveil for compliance with
Regulation SHO and frontrunning rules,
the proposal is reasonably designed to
help prevent fraudulent and
manipulative acts and practices and to
protect investors and the public interest.
The Commission notes that the
proposed rule change also allows for a
TPH to arrange for its clearing firm to
report Tied to Stock Orders on its
behalf. The Commission also notes that
the Exchange has stated that regardless
of whether a Market Maker (or its
Clearing Trading Permit Holder) uses
the older format or newer format for
CBOE Rule 8.9(b) reports, those reports
will satisfy the proposed stock reporting
requirement even though they may not
include all of the data elements set forth
in Regulatory Circular RG 14–110.
According to the Exchange, to the extent
CBOE Rule 8.9(b) reports include
information for all stock transactions of
Market Makers, Market Makers will
have no additional requirements under
proposed Rule 15.2A. Under the
proposed rule change, the Commission
believes that it would be reasonable for
the Exchange to anticipate a reduction
in the number of ad hoc requests it must
make from Trading Permit Holders, as
the proposed rule change is designed to
provide the Exchange with the nonoption transaction information
necessary to make a ‘‘no further action
is warranted’’ determination with
respect to a particular surveillance alert.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,87 that the
proposed rule change (SR–CBOE–2014–
040) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.88
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–19582 Filed 8–18–14; 8:45 am]
tkelley on DSK3SPTVN1PROD with NOTICES
BILLING CODE 8011–01–P
87 15
88 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
16:30 Aug 18, 2014
Jkt 232001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72831; File No. SR–
NASDAQ–2014–077]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Rebates and Fees in Penny and NonPenny Pilot Options
August 13, 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 July 30,
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 and II below, which Items
have been prepared by NASDAQ. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ proposes to modify Chapter
XV, entitled ‘‘Options Pricing,’’ at
Section 2 governing pricing for
NASDAQ members using the NASDAQ
Options Market (‘‘NOM’’), NASDAQ’s
facility for executing and routing
standardized equity and index options.
Specifically, NOM proposes to: (i)
Amend the Customer 3 Fee for
Removing Liquidity in Penny Pilot
Options; 4 (ii) amend certain Penny Pilot
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The term ‘‘Customer’’ applies to any transaction
that is identified by a Participant for clearing in the
Customer range at The Options Clearing
Corporation (‘‘OCC’’) which is not for the account
of broker or dealer or for the account of a
‘‘Professional’’ (as that term is defined in Chapter
I, Section 1(a)(48)).
4 The Penny Pilot was established in March 2008
and in October 2009 was expanded and extended
through December 31, 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 seventyfive classes to Penny Pilot); 65969 (December 15,
2011), 76 FR 79268 (December 21, 2011) (SR–
2 17
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
49127
Options Rebates to Add Liquidity and
Non-Penny Pilot Options Fees for
Adding Liquidity applicable to Firms,5
Non-NOM Market Makers 6 and Broker
Dealers; 7 and (iii) amend NOM Market
Maker 8 Penny Pilot Options Rebates to
Add Liquidity.
While the changes proposed herein
are effective upon filing, the Exchange
has designated that the amendments be
operative on August 1, 2014.
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 and discussed
any comments it received on 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.
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); 71105 (December
17, 2013), 78 FR 77530 (December 23, 2013) (SR–
NASDAQ–2013–154) and 72244 (May 23, 2014), 79
FR 31151 (May 30, 2014) (SR–NASDAQ–2014–056).
See also NOM Rules, Chapter VI, Section 5.
5 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at OCC.
6 The term ‘‘Non-NOM Market Maker’’ or (‘‘O’’) is
a registered market maker on another options
exchange that is not a NOM Market Maker. A NonNOM Market Maker must append the proper NonNOM Market Maker designation to orders routed to
NOM.
7 The term ‘‘Broker-Dealer’’ or (‘‘B’’) applies to
any transaction which is not subject to any of the
other transaction fees applicable within a particular
category.
8 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.
E:\FR\FM\19AUN1.SGM
19AUN1
49128
Federal Register / Vol. 79, No. 160 / Tuesday, August 19, 2014 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASDAQ proposes to modify Chapter
XV, entitled ‘‘Options Pricing,’’ at
Section 2(1) governing the rebates and
fees assessed for option orders entered
into NOM. The Exchange proposes to:
(i) Amend the Customer Penny Pilot
Options Fee for Removing Liquidity; (ii)
delete certain Firm, Non-NOM Market
Maker and Broker-Dealer pricing in
Chapter XV, Section 2; and (iii) amend
the NOM Market Maker Pilot Options
Rebates to Add Liquidity.
Today the Exchange assesses the
following Penny Pilot Options Fees for
Removing Liquidity: Customer $0.47 per
contract, and Professional,9 Firm, NonNOM Market Maker, NOM Market
Maker and Broker-Dealer $0.49 per
contract. In addition a Professional,
Firm, Non-NOM Market Maker, NOM
Market Maker and Broker-Dealer that
qualifies 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, NOM Market Maker or BrokerDealer Fee for Removing Liquidity in
Penny Pilot Options of $0.47 per
contract.
The Exchange is proposing to make
two amendments related to the
Customer Penny Pilot Options Fees for
Removing Liquidity. The Exchange is
proposing to increase the Customer
Penny Pilot Options Fee for Removing
Liquidity from $0.47 to $0.48 per
contract. Despite the increase to this fee,
the Exchange believes market
participants will continue to remove
Customer orders on NOM. Additionally,
the Exchange is proposing to amend
note ‘‘d’’ in Section 2, Chapter XV to
provide, ‘‘Participants or Participants
under Common Ownership 10 that
qualify for Customer or Professional
Rebates to Add Liquidity Tiers 7 or 8 in
a given month will be assessed a
Professional, Firm, Non-NOM Market
Maker, NOM Market Maker or BrokerDealer Fee for Removing Liquidity in
Penny Pilot Options of $0.48 per
contract and a Customer Fee for
Removing Liquidity in Penny Pilot
Options of $0.47 per contract.’’ The
Exchange is therefore proposing to offer
Customers the opportunity to lower the
Customer Fee for Removing Liquidity in
Penny Pilot Options to $0.47 per
contract, provided they qualify for
Customer or Professional Rebates to
Add Liquidity Tiers 7 or 8 in a given
month. Today, the Exchange offers
tiered Penny Pilot Options Rebates to
Add Liquidity to Customers and
Professionals based on various criteria
with rebates ranging from $0.20 to $0.48
per contract. To obtain the Tier 7
Customer and Professional Rebates to
Add Liquidity in Penny Pilot Options,
a Participant must have Total Volume 11
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.12 Tier 7 pays a
$0.47 per contract rebate. To obtain the
Tier 8 Customer and Professional Rebate
to Add Liquidity in Penny Pilot
Options, a Participant must add
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. Tier 8 pays a rebate
of $0.48 per contract for Customers and
$0.47 per contract for Professionals.
The Exchange proposes to amend the
Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options
Rebates to Add Liquidity and NonPenny Pilot Fees for Adding Liquidity
by removing the opportunity to lower
fees as specified in note 2 in Section 2,
Chapter XV which states, ‘‘[a]
Participant that adds Firm, Non-NOM
Market Maker or Broker-Dealer liquidity
in Penny Pilot Options and/or NonPenny Pilot Options of 15,000 contracts
per day or more in a given month will
receive a Rebate to Add Liquidity in
Penny Pilot Options of $0.20 per
contract and will pay a Fee for Adding
Liquidity in Non-Penny Pilot Options of
$0.36 per contract.’’ Firms, Non-NOM
Market Makers and Broker-Dealers
would therefore receive a $0.10 per
contract Penny Pilot Options Rebate to
Add Liquidity and pay a $0.45 per
contract Non-Penny Pilot Options Fee
for Adding Liquidity. The Exchange
believes that this incentive is not
encouraging Firms, Non-NOM Market
Makers and Broker-Dealers to transact
additional liquidity on NOM and
therefore the Exchange desires to
remove this incentive.
Today, the Exchange pays Penny Pilot
Options NOM Market Maker Rebates to
Add Liquidity based on various criteria
in four tiers with rebates which range
from $0.20 to $0.42 per contract as
follows:
Rebate
to add
liquidity
Monthly volume
tkelley on DSK3SPTVN1PROD with NOTICES
Tier 1 Participant adds NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of up to 0.10% of total
industry customer equity and ETF option average daily volume (‘‘ADV’’) contracts per day in a month ..........................................
Tier 2 Participant adds NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.10% to
0.30% of total industry customer equity and ETF option ADV contracts per day in a month ............................................................
Tier 3 Participant adds NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.30% to
0.60% of total industry customer equity and ETF option ADV contracts per day in a month ............................................................
Tier 4 Participant adds NOM Market Maker 1 liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.60% of
total industry customer equity and ETF option ADV contracts per day in a month ............................................................................
Tier 5 Participant adds NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.30% of
total industry customer equity and ETF option ADV contracts per day in a month and qualifies for the Tier 7 or Tier 8 Customer
and/or Professional Rebate to Add Liquidity in Penny Pilot Options ..................................................................................................
9 The term ‘‘Professional’’ means any person or
entity that (i) is not a broker or dealer in securities,
and (ii) places more than 390 orders in listed
options per day on average during a calendar month
for its own beneficial account(s) pursuant to
Chapter I, Section 1(a)(48). All Professional orders
shall be appropriately marked by Participants.
10 The term ‘‘Common Ownership’’ shall mean
Participants under 75% common ownership or
control.
11 Total Volume is defined as Customer,
Professional, Firm, Broker-Dealer, Non-NOM
VerDate Mar<15>2010
16:30 Aug 18, 2014
Jkt 232001
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. See note ‘‘b’’ in Section 2, Chapter XV. The
Exchange utilizes data from OCC to determine the
total industry customer equity and ETF options
ADV figure. OCC classifies equity and ETF options
volume under the equity options category. Also,
both customer and professional orders that are
transacted on options exchanges clear in the
customer range at OCC and therefore both customer
and professional volume would be included in the
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
$0.20
0.25
0.30
( 1)
0.40
total industry figure to calculate rebate tiers. This
is the case today for the Total Volume number that
appear in Tiers 6 and 7 of the Customer and
Professional rebate today, which includes Customer
and Professional numbers in both the numerator
and denominator of that percentage.
12 Tier 8 requires the Participant have 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.
E:\FR\FM\19AUN1.SGM
19AUN1
Federal Register / Vol. 79, No. 160 / Tuesday, August 19, 2014 / Notices
Rebate
to add
liquidity
Monthly volume
Tier 6 Participant adds NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.80% of total
industry customer equity and ETF option ADV contracts per day in a month and qualifies for the Tier 7 or Tier 8 Customer and/
or Professional Rebate to Add Liquidity in Penny Pilot Options or Participant adds NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options above 0.90% of total industry customer equity and ETF option ADV contracts per day
in a month ............................................................................................................................................................................................
tkelley on DSK3SPTVN1PROD with NOTICES
1 $0.32
49129
0.42
or $0.38 in the following symbols BAC, GLD, IWM, QQQ and VXX or $0.40 in SPY.
The Exchange proposes to amend the
Tier 2 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options
which currently pays a $0.25 per
contract rebate to Participants that add
NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot
Options above 0.10% to 0.30% of total
industry customer equity and ETF
option ADV contracts per day in a
month. The Exchange intends to instead
continue to pay a $0.25 per contract
rebate to Participant that add NOM
Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot
Options above 0.10% to 0.25% of total
industry customer equity and ETF
option ADV contracts per day in a
month. By lowering this tier, the
Exchange believes a greater number of
NOM Market Makers may qualify for the
Tier 2 rebate.
The Exchange proposes to amend the
Tier 3 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options
which currently pays a $0.30 per
contract rebate to Participants that add
NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot
Options above 0.30% to 0.60% of total
industry customer equity and ETF
option ADV contracts per day in a
month. The Exchange intends to instead
continue to pay a $0.30 per contract
rebate to Participants that add NOM
Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot
Options above 0.25% to 0.60% of total
industry customer equity and ETF
option ADV contracts per day in a
month. Also, the Exchange intends to
offer a higher rebate for Tier 3 qualifiers
of $0.40 per contract in options
overlying PowerShares QQQ (‘‘QQQ’’),
SPDR S&P 500 (‘‘SPY’’), iPath S&P 500
VIX ST Futures ETN (‘‘VXX’’). By
lowering this tier, and offering a higher
rebate for certain symbols, the Exchange
believes a greater number of NOM
Market Makers may qualify for the Tier
3 rebate.
Finally, the Exchange proposes to
amend the Tier 4 NOM Market Maker
Rebate to Add Liquidity in Penny Pilot
Options which currently pays a $0.32
rebate in all options, except options
overlying Bank of America Corporation
VerDate Mar<15>2010
16:30 Aug 18, 2014
Jkt 232001
(‘‘BAC’’), SPDR Gold Shares (‘‘GLD’’),
iShares Russell 2000 Index (‘‘IWM’’),
QQQ and VXX, which pays a $0.38 per
contract rebate, and SPY which pays a
$0.40 per contract rebate. The Tier 4
rebate is paid to Participants that add
NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot
Options of above 0.60% of total industry
customer equity and ETF option ADV
contracts per day in a month. The
Exchange proposes to amend the Tier 4
rebate to pay a $0.32 rebate in all
options, except QQQ, VXX and SPY,
which will pay a $0.40 per contract
rebate. The Exchange will pay a $0.32
per contract rebate for BAC, GLD and
IWM with this proposal. Additionally,
in order to qualify for the Tier 4 rebate,
a Participant must add NOM Market
Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of
above 0.60% to 0.90% of total industry
customer equity and ETF option ADV
contracts per day in a month. The
Exchange believes that adding the
language ‘‘above 0.60% to 0.90% of total
industry customer equity’’ will clarify
Tier 4 for purposes of obtaining the
rebate. NOM Market Maker liquidity in
Penny Pilot Options and/or Non-Penny
Pilot Options of above 0.90% today
qualifies for the Tier 6 NOM Market
Maker rebate.13 The Exchange believes
the amendment to the description of the
Tier 4 rebate is non-substantive and
clarifies the qualification for the rebate.
The Exchange believes that paying a
higher rebate for QQQ and VXX
transactions will encourage a greater
number of transactions in these
symbols. Despite the decrease in rebates
paid for transaction in BAC, GLD and
IWM, the Exchange believes that market
13 The Tier 6 NOM Market Maker Rebate to Add
Liquidity pays a $0.42 per contract rebate to
Participants that add NOM Market Maker liquidity
in Penny Pilot Options and/or Non-Penny Pilot
Options above 0.80% of total industry customer
equity and ETF option ADV contracts per day in a
month and qualifies for the Tier 7 or Tier 8
Customer and/or Professional Rebate to Add
Liquidity in Penny Pilot Options or Participant
adds NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options above
0.90% of total industry customer equity and ETF
option ADV contracts per day in a month.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
participants will continue to transact
volume in these symbols.
2. Statutory Basis
NASDAQ believes that the proposed
rule changes are consistent with the
provisions of Section 6 of the Act,14 in
general, and with Section 6(b)(4) of the
Act,15 in particular, in that they provide
for the equitable allocation of reasonable
dues, fees and other charges among
members and issuers and other persons
using any facility or system which
NASDAQ operates or controls as
described in detail below.
Customer Penny Pilot Options Fee for
Removing Liquidity
The Exchange’s proposal to increase
the Customer Penny Pilot Options Fee
for Removing Liquidity from $0.47 to
$0.48 per contract is reasonable because
the Exchange is seeking to recoup costs
associated with offering Customer
rebates in Penny Options to attract
greater liquidity to the Exchange. The
Exchange believes that increasing the
Customer Fee for Removing Liquidity by
$0.01 per contract ($0.47 to $0.48 per
contract) allows the Exchange to recoup
costs and offer even greater Customer
rebates, thereby benefitting all market
participants by attracting Customer
order flow to NOM.
The Exchange’s proposal to increase
the Customer Penny Pilot Options Fee
for Removing Liquidity from $0.47 to
$0.48 per contract is equitable and not
unfairly [sic] because Customers would
continue to be assessed lower fees as
compared to non-Customer market
participants. Currently, Professionals,
Firms, Non-NOM Market Makers and
NOM Market Makers are assessed a
$0.49 per contract Fee for Removing
Liquidity in Penny Options. Customer
liquidity benefits all market participants
by providing more trading
opportunities, which attracts 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. Further, the Exchange is
14 15
15 15
E:\FR\FM\19AUN1.SGM
U.S.C. 78f.
U.S.C. 78f(b)(4).
19AUN1
49130
Federal Register / Vol. 79, No. 160 / Tuesday, August 19, 2014 / Notices
offering Customers, similar to other nonCustomer market participants 16 the
opportunity to lower the Customer
Penny Pilot Options Fee for Removing
Liquidity by qualifying for Customer or
Professional Rebate to Add Liquidity
Tiers 7 or 8 in a given month.17
The Exchange’s proposal to offer
Customers the opportunity to lower the
Customer Fee for Removing Liquidity in
Penny Pilot Options to $0.47 per
contract, provided they qualify for
Customer or Professional Rebate to Add
Liquidity Tiers 7 or 8 in a given month
is reasonable because today the
Exchange offers all other non-Customer
market participants (Professional, Firm,
Non-NOM Market Maker, NOM Market
Maker and Broker-Dealer) the
opportunity to lower the Fee for
Removing Liquidity in Penny Pilot
Options from $0.49 to $0.48 per
contract. The Exchange believes that
incentivizing Customers, as today is
done with other market participants,18
to transact a greater number of Customer
and Professional orders 19 in order to
lower fees is reasonable because the
liquidity from this order flow will
benefit other market participants that
have the opportunity to interact with
this order flow.
The Exchange’s proposal to offer
Customers the opportunity to lower the
Customer Fee for Removing Liquidity in
Penny Pilot Options to $0.47 per
contract, provided they qualify for
Customer or Professional Rebate to Add
Liquidity Tiers 7 or 8 in a given month,
is equitable and not unfairly
discriminatory because Customers will
have the opportunity to lower fees
similar to other non-Customer market
participants.
Participant that adds Firm, Non-NOM
Market Maker or Broker-Dealer liquidity
in Penny Pilot Options and/or NonPenny Pilot Options of 15,000 contracts
per day or more in a given month will
receive a Rebate to Add Liquidity in
Penny Pilot Options of $0.20 per
contract and will pay a Fee for Adding
Liquidity in Non-Penny Pilot Options of
$0.36 per contract’’ is reasonable
because the Exchange no longer desires
to incentivize these market participants
in this manner. The Exchange believes
that focusing on attracting Customer and
Professional order flow will benefit all
market participants. Additionally, the
Exchange offers these market
participants other incentives such as the
incentive to reduce the Fee for
Removing Liquidity in Penny Pilot
Options by qualifying for Tiers 7 and
8.20
The Exchange’s proposal to amend
the Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options
Rebates to Add Liquidity and Fees for
Adding Liquidity by removing the
opportunity to lower fees as specified in
note 2 in Section 2, Chapter XV which
states, ‘‘[a] Participant that adds Firm,
Non-NOM Market Maker or BrokerDealer liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of
15,000 contracts per day or more in a
given month will receive a Rebate to
Add Liquidity in Penny Pilot Options of
$0.20 per contract and will pay a Fee for
Adding Liquidity in Non-Penny Pilot
Options of $0.36 per contract’’ is
equitable and not unfairly
discriminatory because the Exchange
would not offer this opportunity to earn
higher rebates and receive lower fees to
any market participant in this manner.
Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options
Rebate To Add Liquidity
The Exchange’s proposal to amend
the Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options
Rebates to Add Liquidity and NonPenny Pilot Options Fees for Adding
Liquidity by removing the opportunity
to lower fees as specified in note 2 in
Section 2, Chapter XV which states, ‘‘[a]
NOM Market Maker Penny Pilot
Options Rebates To Add Liquidity
The Exchange’s proposal to amend
the Tier 2 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options
which currently pays a $0.25 per
contract rebate to apply to NOM Market
Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options above
0.10% to 0.25% of total industry
customer equity and ETF option ADV
contracts per day in a month is
reasonable because, specifically, the
Exchange believes a greater number of
NOM Market Makers may qualify for the
Tier 2 rebate. Generally, the proposal is
reasonable because it should incentivize
NOM Market Makers to post liquidity
on NOM. NOM Market Makers are
valuable market participants that
provide liquidity in the marketplace and
tkelley on DSK3SPTVN1PROD with NOTICES
16 See
current note ‘‘d’’ in Section 2, Chapter XV
of NOM Rules.
17 See proposed amendment to note ‘‘d’’ in
Section 2, Chapter XV of NOM Rules.
18 See current note ‘‘d’’ in Section 2, Chapter XV
of NOM Rules.
19 Tier 7 requires 50,000 or more contracts per
day in a month to be Customer and/or Professional
liquidity in Penny Pilot Options. Tier 8 requires
Participants to add 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.
VerDate Mar<15>2010
16:30 Aug 18, 2014
Jkt 232001
20 See current note ‘‘d’’ in Section 2, Chapter XV
of NOM Rules.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
incur costs unlike other market
participants. The Exchange believes that
encouraging NOM Market Makers to be
more aggressive when posting liquidity
benefits all market participants through
increased liquidity.
The Exchange’s proposal to amend
the Tier 2 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options
which currently pays a $0.25 per
contract rebate to apply to NOM Market
Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options above
0.10% to 0.25% of total industry
customer equity and ETF option ADV
contracts per day in a month is
equitable and not unfairly
discriminatory because all eligible
Participants that qualify for the Tier 2
NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity metric
will be uniformly paid the rebate.21
Further, the NOM Market Maker rebate
proposal is equitable and not unfairly
discriminatory because it does not
misalign the current rebate structure
because NOM Market Makers will
continue to earn higher rebates as
compared to Firms, Non-NOM Market
Makers and Broker-Dealers and will
earn the same or lower rebates as
compared to Customers and
Professionals.
The Exchange’s proposal to offer a
higher rebate for Tier 3 of $0.40 per
contract for options in SPY, QQQ and
VXX is reasonable because the proposal
seeks to encourage Participants to add
liquidity in SPY, QQQ and VXX in
order to obtain a higher rebate of $0.40
per contract. The Exchange believes that
offering NOM Market Makers the ability
to obtain higher rebates is reasonable
because it will encourage additional
order interaction. The Exchange’s
proposal to amend the Tier 3 NOM
Market Maker Rebate to Add Liquidity
in Penny Pilot Options which currently
pays a $0.30 per contract rebate, or with
this proposal $0.40 per contract for
SPY,QQQ and VXX, to apply to NOM
Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot
Options above 0.25% to 0.60% of total
industry customer equity and ETF
21 The NOM Market Maker obligations and
regulatory requirements remain unchanged.
Pursuant to NOM Rules at 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.
E:\FR\FM\19AUN1.SGM
19AUN1
tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 160 / Tuesday, August 19, 2014 / Notices
option ADV contracts per day in a
month is reasonable because the
Exchange believes a greater number of
NOM Market Makers may qualify for the
Tier 3 rebate.
The Exchange’s proposal to offer a
higher rebate for Tier 3 of $0.40 per
contract for options in SPY, QQQ and
VXX, or $0.30 for other symbols, if the
Participant adds NOM Market Maker
liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.25%
to 0.60% of total industry customer
equity and ETF option ADV contracts
per day in a month is equitable and not
unfairly discriminatory because all
NOM Market Makers may qualify for the
Tier 3 NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity.
The Exchange believes that it is
reasonable, equitable, and not unfairly
discriminatory to adopt specific pricing
for SPY, QQQ and VXX because pricing
by symbol is a common practice on
many U.S. options exchanges as a
means to incentivize order flow to be
sent to an exchange for execution in the
most actively traded options classes, in
this case actively traded Penny Pilot
Options.22 The Exchange notes that
SPY, QQQ and VXX are some of the
most actively traded options in the U.S.
The Exchange believes that this pricing
will incentivize members to transact
options on SPY, QQQ and on NOM in
order to obtain the higher $0.40 per
contract rebate.
The Exchange’s proposal to amend
the Tier 4 rebates to assess BAC, GLD
and IWM the lower rebate of $0.32 per
contract is reasonable because the
Exchange believes that despite the
decrease, Participants will continue to
be incentivized to earn the $0.32 per
contract rebate. The Exchange’s
proposal to increase the Tier 4 rebates
for QQQ and VXX to $0.40 per contract,
similar to SPY, is reasonable because
the proposal seeks to encourage
Participants to add more liquidity in
QQQ and VXX in order to obtain a
higher rebate of $0.40 per contract. The
Exchange believes that offering NOM
Market Makers the ability to obtain
higher rebates is reasonable because it
will encourage additional order
interaction.
The Exchange’s proposals to amend
the Tier 4 rebates to assess BAC, GLD
and IWM the lower rebate of $0.32 per
contract and the Exchange’s proposal to
increase the Tier 4 rebates for QQQ and
VXX to $0.40 per contract, similar to
SPY, are equitable and not unfairly
22 See NASDAQ OMX PHLX LLC’s Pricing
Schedule. See also the International Securities
Exchange LLC’s Fee Schedule. Both of these
markets segment pricing by symbol.
VerDate Mar<15>2010
16:30 Aug 18, 2014
Jkt 232001
discriminatory because all NOM Market
Makers may qualify for the Tier 4 NOM
Market Maker Penny Pilot Options
Rebate to Add Liquidity.
The Exchange believes that adding to
the phrase ‘‘above 0.60%’’ the words ‘‘to
0.90%’’ to Tier 4 is reasonable, equitable
and not unfairly discriminatory because
it will clarify the rule text with respect
to the qualification for the rebate and
apply uniformly to all market
participants. The Exchange pays a
Rebate to Add Liquidity in Tier 6 to
Participants that add NOM Market
Maker in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.90%
in Tier 6.23 The Exchange believes
clarifying Tier 4 will make this clear.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASDAQ does not believe that the
proposed rule changes will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
The Exchange’s proposal to increase the
Customer Penny Pilot Options Fee for
Removing Liquidity to $0.48 per
contract does not create an undue
burden on competition because
Customers will continue to be assessed
lower fees as compared to non-Customer
market participants. Customer liquidity
benefits all market participants by
providing more trading opportunities,
which attracts 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. Also, the Exchange is
offering Customers, similar to other nonCustomer market participants, the
opportunity to lower the Customer
Penny Pilot Options Fee for Removing
Liquidity by qualifying for Customer or
Professional Rebate to Add Liquidity
Tiers 7 or 8 in a given month. The
Exchange believes that offering
Customers the opportunity to lower the
Customer Fee for Removing Liquidity in
Penny Pilot Options, provided they
qualify for Customer or Professional
Rebate to Add Liquidity Tiers 7 or 8 in
a given month, does not impose an
unfair burden on competition because
incentivizing Customers to transact a
greater number of Customer and
Professional orders,24 in order to lower
fees, results in increased liquidity
which benefits other market participants
that have the opportunity to interact
with this order flow.
23 See
24 See
PO 00000
note 13.
note 18.
Frm 00084
Fmt 4703
Sfmt 4703
49131
The Exchange’s proposal to amend
the Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options
Rebates to Add Liquidity and NonPenny Pilot Fees for Adding Liquidity to
remove the incentive if a Participant
adds Firm, Non-NOM Market Maker or
Broker-Dealer liquidity in Penny Pilot
Options and/or Non-Penny Pilot
Options of 15,000 contracts per day or
more in a given month they will receive
a Rebate to Add Liquidity in Penny Pilot
Options of $0.20 per contract and will
pay a Fee for Adding Liquidity in NonPenny Pilot Options of $0.36 per
contract does not create an undue
burden on competition because the
Exchange would not offer this
opportunity to earn higher rebates and
receive lower fees to any market
participant in this manner.
The Exchange’s proposal to amend
the Tier 2 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options
which currently pays a $0.25 per
contract rebate to apply to NOM Market
Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options above
0.10% to 0.25% of total industry
customer equity and ETF option ADV
contracts per day in a month does not
create an undue burden on competition
because it should incentivize NOM
Market Makers to post liquidity on
NOM. NOM Market Makers are valuable
market participants that provide
liquidity in the marketplace and incur
costs unlike other market participants.
The Exchange believes that encouraging
NOM Market Makers to be more
aggressive when posting liquidity
benefits all market participants through
increased liquidity.
The Exchange’s proposal to offer a
higher rebate for Tier 3 of $0.40 per
contract for options in SPY, QQQ and
VXX does not create an undue burden
on competition because all NOM Market
Makers may qualify for the Tier 3 NOM
Market Maker Penny Pilot Options
Rebate to Add Liquidity. Also more
Participants may qualify for the rebate
because of the lower tier, 0.25% to
0.60% as compared to 0.30% to 0.60%.
The Exchange’s proposal to amend
the Tier 4 rebates to assess BAC, GLD
and IWM the lower rebate of $0.32 per
contract and raise the QQQ and VXX
rebate to $0.40 per contract, similar to
SPY, does not create an undue burden
on competition because all NOM Market
Makers may qualify for the Tier 4 NOM
Market Maker Penny Pilot Options
Rebate to Add Liquidity. The Exchange
believes that adding the ‘‘to 0.90%’’
language to Tier 4 does not create an
undue burden on competition because it
will clarify the rule text with respect to
the qualification for the rebate and
E:\FR\FM\19AUN1.SGM
19AUN1
49132
Federal Register / Vol. 79, No. 160 / Tuesday, August 19, 2014 / Notices
apply uniformly to all market
participants.
The Exchange believes the differing
outcomes, rebates and fees created by
the Exchange’s proposed pricing
incentives contribute to the overall
health of the market place to the benefit
of all Participants that willing choose to
transact options on NOM. For the
reasons specified herein, the Exchange
does not believe this proposal creates an
undue burden on competition. The
Exchange operates in a highly
competitive market comprised of 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.
tkelley on DSK3SPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 25 of the Act and
subparagraph (f)(2) of Rule 19b–4 26
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 27 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
25 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
27 15 U.S.C. 78s(b)(2)(B).
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:
16:30 Aug 18, 2014
[FR Doc. 2014–19579 Filed 8–18–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–2014–077 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2014–077. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2014–077, and should be
submitted on or before September 9,
2014.
26 17
VerDate Mar<15>2010
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Kevin M. O’Neill,
Deputy Secretary.
[Release No. 34–72837; File No. SR–CME–
2014–30]
Self-Regulatory Organizations;
Chicago Mercantile Exchange Inc.;
Notice of Filing of Proposed Rule
Change Related to 2014 ISDA
Definitions
August 13, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on August 11, 2014, Chicago
Mercantile Exchange Inc. (‘‘CME’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change described in Items
I, II and III below, which Items have
been prepared primarily by CME. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of the proposed changes
to CME’s clearing rules (the ‘‘CDS
Product Rules’’) is to (i) incorporate
references to revised Credit Derivatives
Definitions, as published by the
International Swaps and Derivatives
Association, Inc. (‘‘ISDA’’) on February
21, 2014 (the ‘‘2014 ISDA Definitions’’),
which are the successor definitions to
the 2003 Credit Derivatives Definitions
published by ISDA and as
supplemented in 2009 (together, the
‘‘2003 ISDA Definitions’’) and (ii)
provide greater clarity with respect to
the operation of certain provisions in
the CDS Product Rules. CME is
submitting the proposed amendments to
the CDS Product Rules to incorporate
references to the 2014 ISDA Definitions.
The effectiveness of the Proposed CME
Rules is intended to coincide with the
date on which the credit derivatives
market is expected to transition to the
2014 ISDA Definitions, which is
currently anticipated to be September
22, 2014. As such, the Proposed CME
28 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
Jkt 232001
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
E:\FR\FM\19AUN1.SGM
19AUN1
]]>Agencies
[Federal Register Volume 79, Number 160 (Tuesday, August 19, 2014)]
[Notices]
[Pages 49127-49132]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-19579]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72831; File No. SR-NASDAQ-2014-077]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Rebates and Fees in Penny and Non-Penny Pilot Options
August 13, 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 July 30, 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 and II below, which Items have been prepared by NASDAQ. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,''
at Section 2 governing pricing for NASDAQ members using the NASDAQ
Options Market (``NOM''), NASDAQ's facility for executing and routing
standardized equity and index options. Specifically, NOM proposes to:
(i) Amend the Customer \3\ Fee for Removing Liquidity in Penny Pilot
Options; \4\ (ii) amend certain Penny Pilot Options Rebates to Add
Liquidity and Non-Penny Pilot Options Fees for Adding Liquidity
applicable to Firms,\5\ Non-NOM Market Makers \6\ and Broker Dealers;
\7\ and (iii) amend NOM Market Maker \8\ Penny Pilot Options Rebates to
Add Liquidity.
---------------------------------------------------------------------------
\3\ The term ``Customer'' applies to any transaction that is
identified by a Participant for clearing in the Customer range at
The Options Clearing Corporation (``OCC'') which is not for the
account of broker or dealer or for the account of a ``Professional''
(as that term is defined in Chapter I, Section 1(a)(48)).
\4\ The Penny Pilot was established in March 2008 and in October
2009 was expanded and extended through December 31, 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); 71105 (December 17, 2013), 78 FR 77530
(December 23, 2013) (SR-NASDAQ-2013-154) and 72244 (May 23, 2014),
79 FR 31151 (May 30, 2014) (SR-NASDAQ-2014-056). See also NOM Rules,
Chapter VI, Section 5.
\5\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\6\ The term ``Non-NOM Market Maker'' or (``O'') is a registered
market maker on another options exchange that is not a NOM Market
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market
Maker designation to orders routed to NOM.
\7\ The term ``Broker-Dealer'' or (``B'') applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category.
\8\ 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.
---------------------------------------------------------------------------
While the changes proposed herein are effective upon filing, the
Exchange has designated that the amendments be operative on August 1,
2014.
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 and
discussed any comments it received on 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.
[[Page 49128]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,''
at Section 2(1) governing the rebates and fees assessed for option
orders entered into NOM. The Exchange proposes to: (i) Amend the
Customer Penny Pilot Options Fee for Removing Liquidity; (ii) delete
certain Firm, Non-NOM Market Maker and Broker-Dealer pricing in Chapter
XV, Section 2; and (iii) amend the NOM Market Maker Pilot Options
Rebates to Add Liquidity.
Today the Exchange assesses the following Penny Pilot Options Fees
for Removing Liquidity: Customer $0.47 per contract, and
Professional,\9\ Firm, Non-NOM Market Maker, NOM Market Maker and
Broker-Dealer $0.49 per contract. In addition a Professional, Firm,
Non-NOM Market Maker, NOM Market Maker and Broker-Dealer that qualifies
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, NOM Market Maker or Broker-Dealer Fee for Removing Liquidity in
Penny Pilot Options of $0.47 per contract.
---------------------------------------------------------------------------
\9\ The term ``Professional'' means any person or entity that
(i) is not a broker or dealer in securities, and (ii) places more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s) pursuant to Chapter
I, Section 1(a)(48). All Professional orders shall be appropriately
marked by Participants.
---------------------------------------------------------------------------
The Exchange is proposing to make two amendments related to the
Customer Penny Pilot Options Fees for Removing Liquidity. The Exchange
is proposing to increase the Customer Penny Pilot Options Fee for
Removing Liquidity from $0.47 to $0.48 per contract. Despite the
increase to this fee, the Exchange believes market participants will
continue to remove Customer orders on NOM. Additionally, the Exchange
is proposing to amend note ``d'' in Section 2, Chapter XV to provide,
``Participants or Participants under Common Ownership \10\ that qualify
for Customer or Professional Rebates to Add Liquidity Tiers 7 or 8 in a
given month will be assessed a Professional, Firm, Non-NOM Market
Maker, NOM Market Maker or Broker-Dealer Fee for Removing Liquidity in
Penny Pilot Options of $0.48 per contract and a Customer Fee for
Removing Liquidity in Penny Pilot Options of $0.47 per contract.'' The
Exchange is therefore proposing to offer Customers the opportunity to
lower the Customer Fee for Removing Liquidity in Penny Pilot Options to
$0.47 per contract, provided they qualify for Customer or Professional
Rebates to Add Liquidity Tiers 7 or 8 in a given month. Today, the
Exchange offers tiered Penny Pilot Options Rebates to Add Liquidity to
Customers and Professionals based on various criteria with rebates
ranging from $0.20 to $0.48 per contract. To obtain the Tier 7 Customer
and Professional Rebates to Add Liquidity in Penny Pilot Options, a
Participant must have Total Volume \11\ 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.\12\ Tier 7 pays a $0.47 per contract rebate. To obtain the
Tier 8 Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options, a Participant must add 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. Tier 8 pays a rebate of $0.48 per contract for
Customers and $0.47 per contract for Professionals.
---------------------------------------------------------------------------
\10\ The term ``Common Ownership'' shall mean Participants under
75% common ownership or control.
\11\ 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. See note ``b'' in Section 2, Chapter
XV. The Exchange utilizes data from OCC to determine the total
industry customer equity and ETF options ADV figure. OCC classifies
equity and ETF options volume under the equity options category.
Also, both customer and professional orders that are transacted on
options exchanges clear in the customer range at OCC and therefore
both customer and professional volume would be included in the total
industry figure to calculate rebate tiers. This is the case today
for the Total Volume number that appear in Tiers 6 and 7 of the
Customer and Professional rebate today, which includes Customer and
Professional numbers in both the numerator and denominator of that
percentage.
\12\ Tier 8 requires the Participant have 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 Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity and Non-
Penny Pilot Fees for Adding Liquidity by removing the opportunity to
lower fees as specified in note 2 in Section 2, Chapter XV which
states, ``[a] Participant that adds Firm, Non-NOM Market Maker or
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of 15,000 contracts per day or more in a given month will
receive a Rebate to Add Liquidity in Penny Pilot Options of $0.20 per
contract and will pay a Fee for Adding Liquidity in Non-Penny Pilot
Options of $0.36 per contract.'' Firms, Non-NOM Market Makers and
Broker-Dealers would therefore receive a $0.10 per contract Penny Pilot
Options Rebate to Add Liquidity and pay a $0.45 per contract Non-Penny
Pilot Options Fee for Adding Liquidity. The Exchange believes that this
incentive is not encouraging Firms, Non-NOM Market Makers and Broker-
Dealers to transact additional liquidity on NOM and therefore the
Exchange desires to remove this incentive.
Today, the Exchange pays Penny Pilot Options NOM Market Maker
Rebates to Add Liquidity based on various criteria in four tiers with
rebates which range from $0.20 to $0.42 per contract as follows:
------------------------------------------------------------------------
Rebate to
Monthly volume add
liquidity
------------------------------------------------------------------------
Tier 1 Participant adds NOM Market Maker liquidity in Penny $0.20
Pilot Options and/or Non-Penny Pilot Options of up to
0.10% of total industry customer equity and ETF option
average daily volume (``ADV'') contracts per day in a
month.....................................................
Tier 2 Participant adds NOM Market Maker liquidity in Penny 0.25
Pilot Options and/or Non-Penny Pilot Options above 0.10%
to 0.30% of total industry customer equity and ETF option
ADV contracts per day in a month..........................
Tier 3 Participant adds NOM Market Maker liquidity in Penny 0.30
Pilot Options and/or Non-Penny Pilot Options above 0.30%
to 0.60% of total industry customer equity and ETF option
ADV contracts per day in a month..........................
Tier 4 Participant adds NOM Market Maker \1\ liquidity in (\1\)
Penny Pilot Options and/or Non-Penny Pilot Options of
above 0.60% of total industry customer equity and ETF
option ADV contracts per day in a month...................
Tier 5 Participant adds NOM Market Maker liquidity in Penny 0.40
Pilot Options and/or Non-Penny Pilot Options of above
0.30% of total industry customer equity and ETF option ADV
contracts per day in a month and qualifies for the Tier 7
or Tier 8 Customer and/or Professional Rebate to Add
Liquidity in Penny Pilot Options..........................
[[Page 49129]]
Tier 6 Participant adds NOM Market Maker liquidity in Penny 0.42
Pilot Options and/or Non-Penny Pilot Options above 0.80%
of total industry customer equity and ETF option ADV
contracts per day in a month and qualifies for the Tier 7
or Tier 8 Customer and/or Professional Rebate to Add
Liquidity in Penny Pilot Options or Participant adds NOM
Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.90% of total industry customer
equity and ETF option ADV contracts per day in a month....
------------------------------------------------------------------------
\1\ $0.32 or $0.38 in the following symbols BAC, GLD, IWM, QQQ and VXX
or $0.40 in SPY.
The Exchange proposes to amend the Tier 2 NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options which currently pays a $0.25
per contract rebate to Participants that add NOM Market Maker liquidity
in Penny Pilot Options and/or Non-Penny Pilot Options above 0.10% to
0.30% of total industry customer equity and ETF option ADV contracts
per day in a month. The Exchange intends to instead continue to pay a
$0.25 per contract rebate to Participant that add NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above
0.10% to 0.25% of total industry customer equity and ETF option ADV
contracts per day in a month. By lowering this tier, the Exchange
believes a greater number of NOM Market Makers may qualify for the Tier
2 rebate.
The Exchange proposes to amend the Tier 3 NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options which currently pays a $0.30
per contract rebate to Participants that add NOM Market Maker liquidity
in Penny Pilot Options and/or Non-Penny Pilot Options above 0.30% to
0.60% of total industry customer equity and ETF option ADV contracts
per day in a month. The Exchange intends to instead continue to pay a
$0.30 per contract rebate to Participants that add NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above
0.25% to 0.60% of total industry customer equity and ETF option ADV
contracts per day in a month. Also, the Exchange intends to offer a
higher rebate for Tier 3 qualifiers of $0.40 per contract in options
overlying PowerShares QQQ (``QQQ''), SPDR S&P 500 (``SPY''), iPath S&P
500 VIX ST Futures ETN (``VXX''). By lowering this tier, and offering a
higher rebate for certain symbols, the Exchange believes a greater
number of NOM Market Makers may qualify for the Tier 3 rebate.
Finally, the Exchange proposes to amend the Tier 4 NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options which currently pays a
$0.32 rebate in all options, except options overlying Bank of America
Corporation (``BAC''), SPDR Gold Shares (``GLD''), iShares Russell 2000
Index (``IWM''), QQQ and VXX, which pays a $0.38 per contract rebate,
and SPY which pays a $0.40 per contract rebate. The Tier 4 rebate is
paid to Participants that add NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options of above 0.60% of total industry
customer equity and ETF option ADV contracts per day in a month. The
Exchange proposes to amend the Tier 4 rebate to pay a $0.32 rebate in
all options, except QQQ, VXX and SPY, which will pay a $0.40 per
contract rebate. The Exchange will pay a $0.32 per contract rebate for
BAC, GLD and IWM with this proposal. Additionally, in order to qualify
for the Tier 4 rebate, a Participant must add NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of
above 0.60% to 0.90% of total industry customer equity and ETF option
ADV contracts per day in a month. The Exchange believes that adding the
language ``above 0.60% to 0.90% of total industry customer equity''
will clarify Tier 4 for purposes of obtaining the rebate. NOM Market
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
of above 0.90% today qualifies for the Tier 6 NOM Market Maker
rebate.\13\ The Exchange believes the amendment to the description of
the Tier 4 rebate is non-substantive and clarifies the qualification
for the rebate. The Exchange believes that paying a higher rebate for
QQQ and VXX transactions will encourage a greater number of
transactions in these symbols. Despite the decrease in rebates paid for
transaction in BAC, GLD and IWM, the Exchange believes that market
participants will continue to transact volume in these symbols.
---------------------------------------------------------------------------
\13\ The Tier 6 NOM Market Maker Rebate to Add Liquidity pays a
$0.42 per contract rebate to Participants that add NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
above 0.80% of total industry customer equity and ETF option ADV
contracts per day in a month and qualifies for the Tier 7 or Tier 8
Customer and/or Professional Rebate to Add Liquidity in Penny Pilot
Options or Participant adds NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options above 0.90% of total
industry customer equity and ETF option ADV contracts per day in a
month.
---------------------------------------------------------------------------
2. Statutory Basis
NASDAQ believes that the proposed rule changes are consistent with
the provisions of Section 6 of the Act,\14\ in general, and with
Section 6(b)(4) of the Act,\15\ in particular, in that they provide for
the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility or
system which NASDAQ operates or controls as described in detail below.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Customer Penny Pilot Options Fee for Removing Liquidity
The Exchange's proposal to increase the Customer Penny Pilot
Options Fee for Removing Liquidity from $0.47 to $0.48 per contract is
reasonable because the Exchange is seeking to recoup costs associated
with offering Customer rebates in Penny Options to attract greater
liquidity to the Exchange. The Exchange believes that increasing the
Customer Fee for Removing Liquidity by $0.01 per contract ($0.47 to
$0.48 per contract) allows the Exchange to recoup costs and offer even
greater Customer rebates, thereby benefitting all market participants
by attracting Customer order flow to NOM.
The Exchange's proposal to increase the Customer Penny Pilot
Options Fee for Removing Liquidity from $0.47 to $0.48 per contract is
equitable and not unfairly [sic] because Customers would continue to be
assessed lower fees as compared to non-Customer market participants.
Currently, Professionals, Firms, Non-NOM Market Makers and NOM Market
Makers are assessed a $0.49 per contract Fee for Removing Liquidity in
Penny Options. Customer liquidity benefits all market participants by
providing more trading opportunities, which attracts 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.
Further, the Exchange is
[[Page 49130]]
offering Customers, similar to other non-Customer market participants
\16\ the opportunity to lower the Customer Penny Pilot Options Fee for
Removing Liquidity by qualifying for Customer or Professional Rebate to
Add Liquidity Tiers 7 or 8 in a given month.\17\
---------------------------------------------------------------------------
\16\ See current note ``d'' in Section 2, Chapter XV of NOM
Rules.
\17\ See proposed amendment to note ``d'' in Section 2, Chapter
XV of NOM Rules.
---------------------------------------------------------------------------
The Exchange's proposal to offer Customers the opportunity to lower
the Customer Fee for Removing Liquidity in Penny Pilot Options to $0.47
per contract, provided they qualify for Customer or Professional Rebate
to Add Liquidity Tiers 7 or 8 in a given month is reasonable because
today the Exchange offers all other non-Customer market participants
(Professional, Firm, Non-NOM Market Maker, NOM Market Maker and Broker-
Dealer) the opportunity to lower the Fee for Removing Liquidity in
Penny Pilot Options from $0.49 to $0.48 per contract. The Exchange
believes that incentivizing Customers, as today is done with other
market participants,\18\ to transact a greater number of Customer and
Professional orders \19\ in order to lower fees is reasonable because
the liquidity from this order flow will benefit other market
participants that have the opportunity to interact with this order
flow.
---------------------------------------------------------------------------
\18\ See current note ``d'' in Section 2, Chapter XV of NOM
Rules.
\19\ Tier 7 requires 50,000 or more contracts per day in a month
to be Customer and/or Professional liquidity in Penny Pilot Options.
Tier 8 requires Participants to add 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 Exchange's proposal to offer Customers the opportunity to lower
the Customer Fee for Removing Liquidity in Penny Pilot Options to $0.47
per contract, provided they qualify for Customer or Professional Rebate
to Add Liquidity Tiers 7 or 8 in a given month, is equitable and not
unfairly discriminatory because Customers will have the opportunity to
lower fees similar to other non-Customer market participants.
Firm, Non-NOM Market Maker and Broker-Dealer Penny Pilot Options Rebate
To Add Liquidity
The Exchange's proposal to amend the Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity and Non-
Penny Pilot Options Fees for Adding Liquidity by removing the
opportunity to lower fees as specified in note 2 in Section 2, Chapter
XV which states, ``[a] Participant that adds Firm, Non-NOM Market Maker
or Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options of 15,000 contracts per day or more in a given month will
receive a Rebate to Add Liquidity in Penny Pilot Options of $0.20 per
contract and will pay a Fee for Adding Liquidity in Non-Penny Pilot
Options of $0.36 per contract'' is reasonable because the Exchange no
longer desires to incentivize these market participants in this manner.
The Exchange believes that focusing on attracting Customer and
Professional order flow will benefit all market participants.
Additionally, the Exchange offers these market participants other
incentives such as the incentive to reduce the Fee for Removing
Liquidity in Penny Pilot Options by qualifying for Tiers 7 and 8.\20\
---------------------------------------------------------------------------
\20\ See current note ``d'' in Section 2, Chapter XV of NOM
Rules.
---------------------------------------------------------------------------
The Exchange's proposal to amend the Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity and Fees for
Adding Liquidity by removing the opportunity to lower fees as specified
in note 2 in Section 2, Chapter XV which states, ``[a] Participant that
adds Firm, Non-NOM Market Maker or Broker-Dealer liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options of 15,000 contracts per
day or more in a given month will receive a Rebate to Add Liquidity in
Penny Pilot Options of $0.20 per contract and will pay a Fee for Adding
Liquidity in Non-Penny Pilot Options of $0.36 per contract'' is
equitable and not unfairly discriminatory because the Exchange would
not offer this opportunity to earn higher rebates and receive lower
fees to any market participant in this manner.
NOM Market Maker Penny Pilot Options Rebates To Add Liquidity
The Exchange's proposal to amend the Tier 2 NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options which currently pays a $0.25
per contract rebate to apply to NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options above 0.10% to 0.25% of
total industry customer equity and ETF option ADV contracts per day in
a month is reasonable because, specifically, the Exchange believes a
greater number of NOM Market Makers may qualify for the Tier 2 rebate.
Generally, the proposal is reasonable because it should incentivize NOM
Market Makers to post liquidity on NOM. NOM Market Makers are valuable
market participants that provide liquidity in the marketplace and incur
costs unlike other market participants. The Exchange believes that
encouraging NOM Market Makers to be more aggressive when posting
liquidity benefits all market participants through increased liquidity.
The Exchange's proposal to amend the Tier 2 NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options which currently pays a $0.25
per contract rebate to apply to NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options above 0.10% to 0.25% of
total industry customer equity and ETF option ADV contracts per day in
a month is equitable and not unfairly discriminatory because all
eligible Participants that qualify for the Tier 2 NOM Market Maker
Penny Pilot Options Rebate to Add Liquidity metric will be uniformly
paid the rebate.\21\ Further, the NOM Market Maker rebate proposal is
equitable and not unfairly discriminatory because it does not misalign
the current rebate structure because NOM Market Makers will continue to
earn higher rebates as compared to Firms, Non-NOM Market Makers and
Broker-Dealers and will earn the same or lower rebates as compared to
Customers and Professionals.
---------------------------------------------------------------------------
\21\ The NOM Market Maker obligations and regulatory
requirements remain unchanged. Pursuant to NOM Rules at 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 offer a higher rebate for Tier 3 of
$0.40 per contract for options in SPY, QQQ and VXX is reasonable
because the proposal seeks to encourage Participants to add liquidity
in SPY, QQQ and VXX in order to obtain a higher rebate of $0.40 per
contract. The Exchange believes that offering NOM Market Makers the
ability to obtain higher rebates is reasonable because it will
encourage additional order interaction. The Exchange's proposal to
amend the Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny
Pilot Options which currently pays a $0.30 per contract rebate, or with
this proposal $0.40 per contract for SPY,QQQ and VXX, to apply to NOM
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options above 0.25% to 0.60% of total industry customer equity and ETF
[[Page 49131]]
option ADV contracts per day in a month is reasonable because the
Exchange believes a greater number of NOM Market Makers may qualify for
the Tier 3 rebate.
The Exchange's proposal to offer a higher rebate for Tier 3 of
$0.40 per contract for options in SPY, QQQ and VXX, or $0.30 for other
symbols, if the Participant adds NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options above 0.25% to 0.60% of
total industry customer equity and ETF option ADV contracts per day in
a month is equitable and not unfairly discriminatory because all NOM
Market Makers may qualify for the Tier 3 NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity.
The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to adopt specific pricing for SPY, QQQ and VXX
because pricing by symbol is a common practice on many U.S. options
exchanges as a means to incentivize order flow to be sent to an
exchange for execution in the most actively traded options classes, in
this case actively traded Penny Pilot Options.\22\ The Exchange notes
that SPY, QQQ and VXX are some of the most actively traded options in
the U.S. The Exchange believes that this pricing will incentivize
members to transact options on SPY, QQQ and on NOM in order to obtain
the higher $0.40 per contract rebate.
---------------------------------------------------------------------------
\22\ See NASDAQ OMX PHLX LLC's Pricing Schedule. See also the
International Securities Exchange LLC's Fee Schedule. Both of these
markets segment pricing by symbol.
---------------------------------------------------------------------------
The Exchange's proposal to amend the Tier 4 rebates to assess BAC,
GLD and IWM the lower rebate of $0.32 per contract is reasonable
because the Exchange believes that despite the decrease, Participants
will continue to be incentivized to earn the $0.32 per contract rebate.
The Exchange's proposal to increase the Tier 4 rebates for QQQ and VXX
to $0.40 per contract, similar to SPY, is reasonable because the
proposal seeks to encourage Participants to add more liquidity in QQQ
and VXX in order to obtain a higher rebate of $0.40 per contract. The
Exchange believes that offering NOM Market Makers the ability to obtain
higher rebates is reasonable because it will encourage additional order
interaction.
The Exchange's proposals to amend the Tier 4 rebates to assess BAC,
GLD and IWM the lower rebate of $0.32 per contract and the Exchange's
proposal to increase the Tier 4 rebates for QQQ and VXX to $0.40 per
contract, similar to SPY, are equitable and not unfairly discriminatory
because all NOM Market Makers may qualify for the Tier 4 NOM Market
Maker Penny Pilot Options Rebate to Add Liquidity.
The Exchange believes that adding to the phrase ``above 0.60%'' the
words ``to 0.90%'' to Tier 4 is reasonable, equitable and not unfairly
discriminatory because it will clarify the rule text with respect to
the qualification for the rebate and apply uniformly to all market
participants. The Exchange pays a Rebate to Add Liquidity in Tier 6 to
Participants that add NOM Market Maker in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.90% in Tier 6.\23\ The Exchange
believes clarifying Tier 4 will make this clear.
---------------------------------------------------------------------------
\23\ See note 13.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule changes will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. The Exchange's
proposal to increase the Customer Penny Pilot Options Fee for Removing
Liquidity to $0.48 per contract does not create an undue burden on
competition because Customers will continue to be assessed lower fees
as compared to non-Customer market participants. Customer liquidity
benefits all market participants by providing more trading
opportunities, which attracts 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.
Also, the Exchange is offering Customers, similar to other non-Customer
market participants, the opportunity to lower the Customer Penny Pilot
Options Fee for Removing Liquidity by qualifying for Customer or
Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month. The
Exchange believes that offering Customers the opportunity to lower the
Customer Fee for Removing Liquidity in Penny Pilot Options, provided
they qualify for Customer or Professional Rebate to Add Liquidity Tiers
7 or 8 in a given month, does not impose an unfair burden on
competition because incentivizing Customers to transact a greater
number of Customer and Professional orders,\24\ in order to lower fees,
results in increased liquidity which benefits other market participants
that have the opportunity to interact with this order flow.
---------------------------------------------------------------------------
\24\ See note 18.
---------------------------------------------------------------------------
The Exchange's proposal to amend the Firm, Non-NOM Market Maker and
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity and Non-
Penny Pilot Fees for Adding Liquidity to remove the incentive if a
Participant adds Firm, Non-NOM Market Maker or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-Penny Pilot Options of 15,000
contracts per day or more in a given month they will receive a Rebate
to Add Liquidity in Penny Pilot Options of $0.20 per contract and will
pay a Fee for Adding Liquidity in Non-Penny Pilot Options of $0.36 per
contract does not create an undue burden on competition because the
Exchange would not offer this opportunity to earn higher rebates and
receive lower fees to any market participant in this manner.
The Exchange's proposal to amend the Tier 2 NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options which currently pays a $0.25
per contract rebate to apply to NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options above 0.10% to 0.25% of
total industry customer equity and ETF option ADV contracts per day in
a month does not create an undue burden on competition because it
should incentivize NOM Market Makers to post liquidity on NOM. NOM
Market Makers are valuable market participants that provide liquidity
in the marketplace and incur costs unlike other market participants.
The Exchange believes that encouraging NOM Market Makers to be more
aggressive when posting liquidity benefits all market participants
through increased liquidity.
The Exchange's proposal to offer a higher rebate for Tier 3 of
$0.40 per contract for options in SPY, QQQ and VXX does not create an
undue burden on competition because all NOM Market Makers may qualify
for the Tier 3 NOM Market Maker Penny Pilot Options Rebate to Add
Liquidity. Also more Participants may qualify for the rebate because of
the lower tier, 0.25% to 0.60% as compared to 0.30% to 0.60%.
The Exchange's proposal to amend the Tier 4 rebates to assess BAC,
GLD and IWM the lower rebate of $0.32 per contract and raise the QQQ
and VXX rebate to $0.40 per contract, similar to SPY, does not create
an undue burden on competition because all NOM Market Makers may
qualify for the Tier 4 NOM Market Maker Penny Pilot Options Rebate to
Add Liquidity. The Exchange believes that adding the ``to 0.90%''
language to Tier 4 does not create an undue burden on competition
because it will clarify the rule text with respect to the qualification
for the rebate and
[[Page 49132]]
apply uniformly to all market participants.
The Exchange believes the differing outcomes, rebates and fees
created by the Exchange's proposed pricing incentives contribute to the
overall health of the market place to the benefit of all Participants
that willing choose to transact options on NOM. For the reasons
specified herein, the Exchange does not believe this proposal creates
an undue burden on competition. The Exchange operates in a highly
competitive market comprised of 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 is effective upon filing pursuant to
Section 19(b)(3)(A) \25\ of the Act and subparagraph (f)(2) of Rule
19b-4 \26\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \27\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-2014-077 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2014-077. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2014-077, and should
be submitted on or before September 9, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
---------------------------------------------------------------------------
\28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19579 Filed 8-18-14; 8:45 am]
BILLING CODE 8011-01-P
