Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Chapter XV, Entitled “Options Pricing”, 3220-3224 [2016-00897]
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designated as the Settling Bank to settle
with DTC on the Participant’s behalf;
(iv) clarify that certain online reports
DTC provides Participants and Settling
Banks through the processing day reflect
‘‘intraday’’ gross debits and credits, and
net debit and credit balances;
(v) clarify that a Settling Bank’s endof-day net-net settlement balance
includes the Settling Bank’s own
settlement obligations as a Participant if
it settles for itself;
(vi) add text for the purpose of
context, consistent with the Rules, that
each Participant is obligated to settle
timely with DTC and if its Settling Bank
refuses to settle for it then it must make
alternative arrangements to make
payment to DTC via Fedwire;
(vii) add text for the purpose of
context, consistent with the Rules, that
a Participant that acts as its own Settling
Bank may not refuse to settle for itself
and that it will be in default if it does
not fund its settlement obligation;
(viii) for clarity, change the heading to
an existing example of how a Settling
Bank’s settlement balance is calculated
from ‘‘Settlement Example’’ to
‘‘Example of the Calculation of a DTC
Settling Bank’s Net-Net Settlement
Balance’’;
(ix) remove the provision from the
Guide indicating that that a Settling
Bank that settles only for itself will need
to affirmatively opt out in order to not
be required to affirmatively
acknowledge its settlement balance, and
add text simply stating that a Settling
Bank that settles only for itself will not
be required to acknowledge its
settlement balance;
(x) clarify the interest charged to
Participants for a failure to settle;
(xi) delete references to a Settling
Bank’s failure to timely settle its
settlement balance from being referred
to as a ‘‘failure to settle’’ and remove
references to related procedures as being
‘‘failure-to-settle’’ procedures, as the
terminology could be confused with an
individual Participant’s failure to meet
its settlement obligation;
(xii) rewrite text in the Guide in light
of the proposed changes, as applicable,
including Addendum A of the Guide, to
incorporate proposed changes,
consolidate text, clarify text for
readability and eliminate duplication;
(xiii) clarify certain Settling Bank and
settlement processing timeframes;
(xiv) apply initial capitalization as
appropriate for the terms ‘‘Participant’’
and ‘‘Settling Bank’’ where they are
used as defined terms;
(xv) remove references to Participant
Terminal System (PTS) functions,
which are no longer used for DTC
settlement processing; and
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(xvi) insert the title of the Guide on
the Guide’s front page.
Implementation. The effective date of
the proposed rule change will be
announced via a DTC Important Notice.
II. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 16
directs the Commission to approve a
proposed rule change of a selfregulatory organization if it finds that
such proposed rule change is consistent
with the requirements of the Act and
rules and regulations thereunder
applicable to such organization. The
Commission believes the proposal is
consistent with Section 17A(b)(3)(F) of
the Act 17 and Rule 17Ad–22(d)(5),18 as
described in detail below.
Consistency with Section 17A(b)(3)(F)
of the Act. Section 17A(b)(3)(F) of the
Act requires, among other things, that
the rules of a clearing agency be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions.19 As described
above, the change will reduce delays in
the settlement process by allowing DTC
to collect net debits and release net
credits within scheduled timeframes
despite the failure of a Settling Bank to
affirmatively acknowledge its end-ofday net-net settlement balance or notify
DTC of its refusal to settle for a
Participant for which it is the
designated Settling Bank on a timely
basis. This requirement will reduce
uncertainty and associated risks that
may currently arise from Failure to
Acknowledge, thus facilitating the
prompt and accurate clearance and
settlement of securities transactions.
Consistency with Rule 17Ad–22(d)(5).
Rule 17Ad–22(d)(5) under the Act
requires a clearing agency, such as DTC,
to establish, implement, maintain and
enforce written policies and procedures
reasonably designed to employ money
settlement arrangements that eliminate
or strictly limit the clearing agency’s
settlement bank risks and require funds
transfers to the clearing agency to be
final when effected.20 As described
above, the change should reduce DTC’s
credit and liquidity risk by mitigating
the risk that end-of-day net-net debit
settlement balances would not be paid
due to the failure of a Settling Bank to
respond to DTC after posting of final
settlement figures. The change also
should create an arrangement that
reduces delays in the settlement process
16 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
18 17 CFR 240.17Ad–22(d)(5).
19 15 U.S.C. 78q–1(b)(3)(F).
20 17 CFR 240.17Ad–22(d)(5).
17 15
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by allowing DTC to collect net debits
and release net credits within scheduled
timeframes, which will limit the
settlement risk to DTC. As such, the
Commission believes that the proposal
is consistent with Rule 17Ad–22(d)(5).21
III. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the
Act 22 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that
proposed rule change SR–DTC–2015–
011 be, and hereby is, approved.23
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–00898 Filed 1–19–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76886; File No. SR–
NASDAQ–2015–166]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Chapter XV,
Entitled ‘‘Options Pricing’’
January 13, 2016.
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 December
30, 2015, 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 the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
21 Id.
22 15
U.S.C. 78q–1.
approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
24 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
23 In
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Chapter XV, entitled ‘‘Options Pricing,’’
at Section 2, which governs pricing for
Exchange members using the NASDAQ
Options Market (‘‘NOM’’), the
Exchange’s facility for executing and
routing standardized equity and index
options.
The Exchange purposes [sic] to amend
it [sic] Customer,3 Professional 4 and
NOM Market Maker 5 Penny Pilot
Options 6 Rebate to Add Liquidity tiers.
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 that 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 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). See NOM Rules
at Chapter I, Section 1(a)(48). All Professional
orders shall be appropriately marked by
Participants.
5 A ‘‘Non-NOM Market Maker’’ 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.
6 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 [sic]
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) (notice of filing
and immediate effectiveness and extension and
replacement of Penny Pilot through December 31,
2013); 71105 (December 17, 2013), 78 FR 77530
(December 23, 2013) (SR–NASDAQ–2013–154)
(notice of filing and immediate effectiveness and
extension and replacement of Penny Pilot through
June 30, 2014); 79 FR 31151 [sic] (May 23, 2014),
79 FR 31151 (May 30, 2014) (SR–NASDAQ–2014–
056) (notice of filing and immediate effectiveness
and extension and replacement of Penny Pilot
through December 31, 2014); 73686 (December 2,
2014) [sic], 79 FR 71477 (November 25, 2014) [sic]
(SR–NASDAQ–2014–115) (notice of filing and
immediate effectiveness and extension and
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While the changes proposed herein are
effective upon filing, the Exchange has
designated the amendments [sic]
become operative on January 4, 2016.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes certain
amendments to the NOM transaction
fees set forth at Chapter XV, Section 2
for executing and routing standardized
equity and index options under the
Penny Pilot Options program. The
proposed changes are as follows:
Note ‘‘c’’ of Chapter XV, Section 2(1)
• Proposal to amend note ‘‘c’’ criteria,
at part (2), to decrease the percentage of
total industry customer equity and ETF
option ADV contract per day in a month
from 1.40% to 1.30%.
• The Exchange is bolding the
numbers and letters in this paragraph
for ease of reference.
NOM Market Maker Penny Pilot
Options Rebate To Add Liquidity Tiers
• Proposal to amend Tier 6 of the
NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity to
remove an existing qualification from
Tier 6.
These rule changes are described in
greater detail below.
replacement of Penny Pilot through June 30, 2015)
and 75283 (June 24, 2015), 80 FR 37347 (June 30,
2015) (SR–NASDAQ–2015–063) (notice of filing
and immediate effectiveness and extension and
replacement of Penny Pilot) See also NOM Rules,
Chapter VI, Section 5.
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3221
Note ‘‘c’’ of Chapter XV, Section 2(1)
The Exchange currently pays
Customer and Professional Rebates to
Add Liquidity based on an eight tier
rebate structure. 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 NonPenny Pilot volume that adds liquidity.7
The Exchange proposes, beginning
January 4, 2016, to amend note ‘‘c,’’
which permits Participants that qualify
for the Tier 8 Customer and Professional
Penny Pilot Options Rebate to Add
Liquidity 8 to achieve a higher rebate.
Currently, note ‘‘c’’ states:
‘‘[P]articipants that (1) add Customer,
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity in
Penny Pilot Options and/or Non-Penny
Pilot Options of 1.15% or more of total
industry customer equity and ETF
option ADV contracts per day in a
month will receive an additional $0.02
per contract Penny Pilot Options
Customer Rebate to Add Liquidity for
each transaction which adds liquidity in
Penny Pilot Options in that month; or
(2) add Customer, Professional, Firm,
Non-NOM Market Maker and/or BrokerDealer liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of
1.40% or more of total industry
customer equity and ETF option ADV
contracts per day in a month will
receive an additional $0.05 per contract
Penny Pilot Options Customer Rebate to
Add Liquidity for each transaction
7 Tiers 6 and 7 are exceptions because these tiers
are calculated based on Total Volume. 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(1) of Chapter XV. The Exchange utilizes data from
The Options Clearing Corporation (‘‘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.
8 Tier 8 of the Customer and Professional Rebate
to Add Liquidity Tiers currently pays a $0.48 per
contract rebate to Participants that add Customer,
Professional, Firm, Non-NOM Market Maker and/or
Broker-Dealer liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options above 0.75% or more
of total industry customer equity and ETF option
ADV contracts per day in a month or Participant
adds (1) Customer and/or Professional liquidity in
Penny Pilot Options and/or Non-Penny Pilot
Options of 30,000 or more contracts per day in a
month and (2) the Participant has certified for the
Investor Support Program set forth in Rule 7014.
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which adds liquidity in Penny Pilot
Options in that month; or (3)(a) add
Customer, Professional, Firm, Non-NOM
Market Maker and/or Broker-Dealer
liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.75%
of total industry customer equity and
ETF option ADV contracts per day in a
month and (b) has added liquidity in all
securities through one or more of its
Nasdaq Market Center MPIDs that
represent 1.10% or more of
Consolidated Volume in a month will
receive an additional $0.03 per contract
Penny Pilot Options Customer Rebate to
Add Liquidity for each transaction
which adds liquidity in Penny Pilot
Options in a month.’’ 9
The Exchange proposes to amend the
criteria in note ‘‘c’’ at part (2) to
decrease the percentage of total industry
customer equity and ETF option ADV
contract per day in a month from 1.40%
to 1.30%. The Exchange believes that
this decrease will offer Participants an
opportunity to qualify for the part (2)
incentive and receive a $0.05 per
contract 10 additional rebate, in addition
to the Tier 8 rebate, by amending the
qualification to require less volume.11
The Exchange believes that this
incentive will continue to encourage
Participants to add even more liquidity
on NOM to earn a higher Tier 8 rebate.
The Exchange is not amending the other
criteria, (1) and (3), in note ‘‘c’’ to
qualify for an additional rebate.
The Exchange also proposes to bold
the numbers and letters that define the
various parts of note ‘c’’ for ease of
reference.
9 Consolidated Volume means the total
consolidated volume reported to all consolidated
transaction reporting plans by all exchanges and
trade reporting facilities during a month in equity
securities, excluding executed orders with a size of
less than one round lot. For purposes of calculating
Consolidated Volume and the extent of an equity
member’s trading activity, expressed as a
percentage of or ratio to Consolidated Volume, the
date of the annual reconstitution of the Russell
Investments Indexes shall be excluded from both
total Consolidated Volume and the member’s
trading activity.
10 Note ‘‘c’’ offers three distinct incentives for
Participants that qualify for the Tier 8 Customer and
Professional Penny Pilot Options Rebate to Add
Liquidity. The part (2) rebate, as amended, would
be paid to Participants that added Customer,
Professional, Firm, NOM Market Maker [sic], NonNOM Market Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-Penny Pilot
Options of 1.30% or more of total industry
customer equity and ETF option ADV contracts per
day in a month.
11 Only Participants that qualify for the Tier 8
Customer and Professional Penny Pilot Options
Rebate to Add Liquidity are eligible for the note ‘‘c’’
incentives. The incentives are in addition to the
Tier 8 rebate.
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NOM Market Maker Penny Pilot
Options Rebate To Add Liquidity Tiers
The Exchange proposes, beginning
January 4, 2016, to amend Tier 6 of the
NOM Market Maker Penny Pilot Option
Rebate to Add Liquidity to eliminate
one of the criteria for qualifying for the
$0.42 per contract Tier 6 rebate.
Currently, 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 qualify
for the Tier 7 or Tier 8 Customer and/
or Professional Rebate to Add Liquidity
in Penny Pilot Options or Participants
that add NOM Market Maker liquidity
in Penny Pilot Options and/or NonPenny Pilot Options above 0.90% of
total industry customer equity and ETF
option ADV contracts per day in a
month or Participants that add
Customer, Professional, Firm, Non-NOM
Market Maker, and/or Broker-Dealer
liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options of 1.40% or
more of total industry customer equity
and ETF option ADV contracts per day
in a month receive a $0.42 per contract
NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity.
The Exchange proposes to remove the
option to qualify for the Tier 6 NOM
Market Maker Penny Pilot Options
rebate by adding Customer,
Professional, Firm, Non-NOM Market
Maker, and/or Broker-Dealer liquidity in
Penny Pilot Options and/or Non-Penny
Pilot Options of 1.40% or more of total
industry customer equity and ETF
option ADV contracts per day in a
month. With this proposal, Participants
will be able to qualify for the Tier 6
NOM Market Maker Rebate by either (1)
adding 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 [sic] for the Tier 7
or Tier 8 Customer and/or Professional
Rebate to Add Liquidity in Penny Pilot
Options or (2) adding 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. While the Exchange is
eliminating one of the methods to
qualify for the Tier 6 NOM Market
Maker Penny Pilot Options rebate, the
Exchange believes that the rebate tier
will continue to incentivize NOM
Participants to continue to add liquidity
to NOM.
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6 of the Act,12 in general, and
with Section 6(b)(4) and 6(b)(5) of the
Act,13 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 the
Exchange operates or controls, and is
not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers. 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.’’ 14 The
Exchange noted in the Professional
Filing that it believes ‘‘. . . that the
increased revenue from the proposal
would assist the Exchange to recoup
fixed costs.’’ 15 The Exchange noted in
that filing that it believes that
establishing separate pricing for a
Professional, which ranges between that
of a Customer and market maker,
accomplishes this objective.16 NOM
Market Makers have obligations to the
market and regulatory requirements,17
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
12 15
U.S.C. 78f.
U.S.C. 78f(b)(4) and (5).
14 See Securities Exchange Act Release No. 64494
(May 13, 2011), 76 FR 29014 (May 19, 2011) (SR–
NASDAQ–2011–066) (‘‘Professional Filing’’). In this
filing, the Exchange addressed the perceived
favorable pricing of Professionals who were
assessed fees and paid rebates like a Customer prior
to the filing. The Exchange noted in that filing that
a Professional, unlike a retail Customer, has access
to sophisticated trading systems that contain
functionality not available to retail Customers.1
15 See Professional Filing.
16 See Professional Filing. The Exchange also [sic]
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.
17 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.
13 15
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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 [sic] course of
dealings.18
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, for
example, the Commission indicated that
market forces should generally
determine the price of non-core market
data because national market system
regulation ‘‘has been remarkably
successful in promoting market
competition in its broader forms that are
most important to investors and listed
companies.’’ 19 Likewise, in
NetCoalition v. NYSE Arca, Inc. 20
(‘‘NetCoalition’’) the D.C. Circuit upheld
the Commission’s use of a market-based
approach in evaluating the fairness of
market data fees against a challenge
claiming that Congress mandated a costbased approach.21 As the court
emphasized, the Commission ‘‘intended
in Regulation NMS that ‘market forces,
rather than regulatory requirements’
play a role in determining the market
data . . . to be made available to
investors and at what cost.’’ 22
Further, ‘‘[n]o one disputes that
competition for order flow is ‘fierce.’
. . . As the SEC explained, ‘[i]n the U.S.
national market system, buyers and
sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’ . . . .’’ 23 Although the court
and the SEC were discussing the cash
equities markets, the Exchange believes
that these views apply with equal force
to the options markets.
Note ‘‘c’’ of Chapter XV, Section 2(1)
The Exchange’s proposal to amend
note ‘‘c,’’ at part (2) to decrease the
percentage of total industry customer
equity and ETF option ADV contract per
day in a month from 1.40% to 1.30% in
part (2) to qualify for the additional Tier
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18 Id.
19 Securities Exchange Act Release No. 51808 at
37499 (June 9, 2005) (‘‘Regulation NMS Adopting
Release’’).
20 NetCoalition v. NYSE Arca, Inc., 615 F.3d 525
(D.C. Cir. 2010).
21 See NetCoalition, at 534.
22 Id. at 537.
23 Id. at 539 (quoting ArcaBook Order, 73 FR at
74782–74783).
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8 NOM Market Maker [sic] Penny Pilot
Option rebate is reasonable because
additional Participants may qualify for
this incentive because of the lower
volume requirement. The Exchange
believes that this incentive will
continue to encourage Participants to
add even more liquidity on NOM to
earn a higher rebate. Participants that
qualify for this incentive would be paid
the Tier 8 Customer and Professional
Penny Pilot Options Rebate to Add
Liquidity of $0.48 per contract plus the
additional part (2) note ‘‘c’’ rebate of
$0.05 per contract for a total rebate of
$0.53 per contract.
The Exchange’s proposal to amend
note ‘‘c,’’ at part (2) to decrease the
percentage of total industry customer
equity and ETF option ADV contract per
day in a month from 1.40% to 1.30% in
part (2) to qualify for the additional Tier
8 NOM Market Maker [sic] Penny Pilot
Option rebate is equitable and not
unfairly discriminatory because, today,
all Participants may qualify for the Tier
8 Customer and Professional Rebate to
Add Liquidity in Penny Pilot Options
and therefore are qualified to earn the
additional note ‘‘c’’ rebates.24 The
Exchange will uniformly pay the Tier 8
and additional note ‘‘c’’ rebates to all
Participants that transact the qualifying
volume, respectively.
The Exchange’s proposal to bold the
numbers and letters in note ‘‘c’’ is
reasonable, equitable and not unfairly
discriminatory because it will provide
an easier point of reference for each
criteria and rebate. Also, this proposed
amendment is non-substantive.
NOM Market Maker Penny Pilot
Options Rebate To Add Liquidity Tiers
The Exchange’s proposal to amend
Tier 6 of the NOM Market Maker Penny
Pilot Options Rebate to Add Liquidity to
eliminate one of the criteria to qualify
for the $0.42 per contract Tier 6 rebate
is reasonable because, despite the
elimination of one of the methods to
qualify for the Tier 6 NOM Market
Maker Penny Pilot Options rebate, the
Exchange believes that the Tier 6 rebate
will continue to incentivize Participants
to add liquidity to NOM in order to
receive the rebate.
The Exchange’s proposal to amend
Tier 6 of the NOM Market Maker Penny
Pilot Options Rebate to Add Liquidity to
eliminate one of the criteria to qualify
for the $0.42 per contract Tier 6 rebate
is equitable and not unfairly
discriminatory because the elimination
24 Note ‘‘c’’ offers three distinct incentives for
Participants that qualify for the Tier 8 Customer and
Professional Penny Pilot Options Rebate to Add
Liquidity.
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
3223
of the qualifying language in Tier 6 of
the NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity will
uniformly apply to all Participants. No
Participant will be entitled to the Tier
6 NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity by
adding Customer, Professional, Firm,
Non-NOM Market Maker, and/or
Broker-Dealer liquidity in Penny Pilot
Options and/or Non-Penny Pilot
Options of 1.40% or more of total
industry customer equity and ETF
option ADV contracts per day in a
month. Also, it is important to note that
NOM Market Makers have obligations to
the market and regulatory
requirements,25 which normally do not
apply to other market participants. The
Exchange believes that offering rebates
to these market participants is equitable
and not unfairly discriminatory in light
of their obligations.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange 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. In terms of
inter-market competition, the Exchange
notes that it operates in a highly
competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive, or
rebate opportunities available at other
venues to be more favorable. In such an
environment, the Exchange must
continually adjust its fees to remain
competitive with other exchanges and
with alternative trading systems that
have been exempted from compliance
with the statutory standards applicable
to exchanges. Because competitors are
free to modify their own fees in
response and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited.
In this instance, the proposed
amendments to the Customer,
Professional and NOM Market Maker
Penny Pilot Options Rebate to Add
Liquidity tiers do not impose an undue
burden on inter-market competition
because the Exchange’s execution
services are completely voluntary and
subject to extensive competition.
Note ‘‘c’’ of Chapter XV, Section 2(1)
The Exchange’s proposal to amend
note ‘‘c,’’ at part (2) to decrease the
25 See
E:\FR\FM\20JAN1.SGM
note 17 above.
20JAN1
3224
Federal Register / Vol. 81, No. 12 / Wednesday, January 20, 2016 / Notices
tkelley on DSK4VPTVN1PROD with NOTICES
percentage of total industry customer
equity and ETF option ADV contract per
day in a month from 1.40% to 1.30% to
qualify for the additional Tier 8 rebate
does not impose an undue burden on
intra-market competition because,
today, all Participants may qualify for
the Tier 8 Customer and Professional
Penny Pilot Options Rebates to Add
Liquidity and qualify to earn the note
‘‘c’’ additional rebates. The Exchange
will uniformly pay the Tier 8 and
additional note ‘‘c’’ rebates to all
Participants that transact the qualifying
volume, respectively.
Customer liquidity is critically
important to the market and benefits all
market participants. Greater customer
liquidity benefits all market participants
by providing more trading opportunities
and attracting greater participation by
specialists and market makers. An
increase in the activity of these market
participants in turn facilitates tighter
spreads. All Participants are eligible for
these rebates if they transact the
requisite volume. All Participants are
eligible for the note ‘‘c’’ incentives if
they transact the requisite volume. Also,
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’s proposal to bold the
numbers and letters in note ‘‘c’’ do not
impose an undue burden on intramarket competition because the
amendment is non-substantive.
NOM Market Maker Penny Pilot
Options Rebate To Add Liquidity Tiers
The Exchange’s proposal to amend
Tier 6 of the NOM Market Maker Penny
Pilot Options Rebate to Add Liquidity to
eliminate one of the criteria to qualify
for the $0.42 per contract Tier 6 rebate
does not impose an undue burden on
intra-market competition because the
elimination of the qualifying language
in Tier 6 of the NOM Market Maker
Penny Pilot Options Rebate to Add
Liquidity will uniformly apply to all
Participants. No Participant will be
entitled to the Tier 6 NOM Market
Maker Penny Pilot Options Rebate to
Add Liquidity by adding Customer,
Professional, Firm, Non-NOM Market
Maker, and/or Broker-Dealer liquidity in
Penny Pilot Options and/or Non-Penny
Pilot Options of 1.40% or more of total
industry customer equity and ETF
option ADV contracts per day in a
month. The Exchange believes that
offering rebates to these market
participants is equitable and not
VerDate Sep<11>2014
18:12 Jan 19, 2016
Jkt 238001
unfairly discriminatory in light of their
obligations.26
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.27
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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:
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–2015–166, and should be
submitted on or before February 10,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–00897 Filed 1–19–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
Sunshine Act Meeting
• 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–2015–166 on the subject line.
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission Investor Advisory
Committee will hold a meeting on
Thursday, January 21, 2016, in MultiPurpose Room LL–006 at the
Commission’s headquarters, 100 F
Street NE., Washington, DC. The
meeting will begin at 10:00 a.m. (ET)
and will be open to the public. Seating
will be on a first-come, first-served
basis. Doors will open at 9:00 a.m.
Visitors will be subject to security
checks. The meeting will be webcast on
the Commission’s Web site at
www.sec.gov.
On December 23, 2015, the
Commission issued notice of the
Committee meeting (Release No. 33–
10000), indicating that the meeting is
open to the public (except during that
portion of the meeting reserved for an
administrative work session during
lunch), and inviting the public to
submit written comments to the
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–2015–166. 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
26 See
27 15
PO 00000
note 17 above.
U.S.C. 78s(b)(3)(A)(ii).
Frm 00131
Fmt 4703
Sfmt 4703
28 17
E:\FR\FM\20JAN1.SGM
CFR 200.30–3(a)(12).
20JAN1
]]>Agencies
[Federal Register Volume 81, Number 12 (Wednesday, January 20, 2016)]
[Notices]
[Pages 3220-3224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00897]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76886; File No. SR-NASDAQ-2015-166]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Chapter XV, Entitled ``Options Pricing''
January 13, 2016.
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 December 30, 2015, 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 the
Exchange. 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.
---------------------------------------------------------------------------
[[Page 3221]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Chapter XV, entitled ``Options
Pricing,'' at Section 2, which governs pricing for Exchange members
using the NASDAQ Options Market (``NOM''), the Exchange's facility for
executing and routing standardized equity and index options.
The Exchange purposes [sic] to amend it [sic] Customer,\3\
Professional \4\ and NOM Market Maker \5\ Penny Pilot Options \6\
Rebate to Add Liquidity tiers. While the changes proposed herein are
effective upon filing, the Exchange has designated the amendments [sic]
become operative on January 4, 2016.
---------------------------------------------------------------------------
\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 that 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 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). See NOM Rules at
Chapter I, Section 1(a)(48). All Professional orders shall be
appropriately marked by Participants.
\5\ A ``Non-NOM Market Maker'' 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.
\6\ 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 [sic]
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) (notice of filing and immediate
effectiveness and extension and replacement of Penny Pilot through
December 31, 2013); 71105 (December 17, 2013), 78 FR 77530 (December
23, 2013) (SR-NASDAQ-2013-154) (notice of filing and immediate
effectiveness and extension and replacement of Penny Pilot through
June 30, 2014); 79 FR 31151 [sic] (May 23, 2014), 79 FR 31151 (May
30, 2014) (SR-NASDAQ-2014-056) (notice of filing and immediate
effectiveness and extension and replacement of Penny Pilot through
December 31, 2014); 73686 (December 2, 2014) [sic], 79 FR 71477
(November 25, 2014) [sic] (SR-NASDAQ-2014-115) (notice of filing and
immediate effectiveness and extension and replacement of Penny Pilot
through June 30, 2015) and 75283 (June 24, 2015), 80 FR 37347 (June
30, 2015) (SR-NASDAQ-2015-063) (notice of filing and immediate
effectiveness and extension and replacement of Penny Pilot) See also
NOM Rules, Chapter VI, Section 5.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes certain amendments to the NOM transaction
fees set forth at Chapter XV, Section 2 for executing and routing
standardized equity and index options under the Penny Pilot Options
program. The proposed changes are as follows:
Note ``c'' of Chapter XV, Section 2(1)
Proposal to amend note ``c'' criteria, at part (2), to
decrease the percentage of total industry customer equity and ETF
option ADV contract per day in a month from 1.40% to 1.30%.
The Exchange is bolding the numbers and letters in this
paragraph for ease of reference.
NOM Market Maker Penny Pilot Options Rebate To Add Liquidity Tiers
Proposal to amend Tier 6 of the NOM Market Maker Penny
Pilot Options Rebate to Add Liquidity to remove an existing
qualification from Tier 6.
These rule changes are described in greater detail below.
Note ``c'' of Chapter XV, Section 2(1)
The Exchange currently pays Customer and Professional Rebates to
Add Liquidity based on an eight tier rebate structure. 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 volume that
adds liquidity.\7\
---------------------------------------------------------------------------
\7\ Tiers 6 and 7 are exceptions because these tiers are
calculated based on Total Volume. 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(1) of Chapter XV. The Exchange utilizes data
from The Options Clearing Corporation (``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.
---------------------------------------------------------------------------
The Exchange proposes, beginning January 4, 2016, to amend note
``c,'' which permits Participants that qualify for the Tier 8 Customer
and Professional Penny Pilot Options Rebate to Add Liquidity \8\ to
achieve a higher rebate. Currently, note ``c'' states: ``[P]articipants
that (1) add Customer, Professional, Firm, Non-NOM Market Maker and/or
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of 1.15% or more of total industry customer equity and ETF
option ADV contracts per day in a month will receive an additional
$0.02 per contract Penny Pilot Options Customer Rebate to Add Liquidity
for each transaction which adds liquidity in Penny Pilot Options in
that month; or (2) add Customer, Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 1.40% or more of total industry customer equity
and ETF option ADV contracts per day in a month will receive an
additional $0.05 per contract Penny Pilot Options Customer Rebate to
Add Liquidity for each transaction
[[Page 3222]]
which adds liquidity in Penny Pilot Options in that month; or (3)(a)
add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
above 0.75% of total industry customer equity and ETF option ADV
contracts per day in a month and (b) has added liquidity in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent 1.10% or more of Consolidated Volume in a month will receive
an additional $0.03 per contract Penny Pilot Options Customer Rebate to
Add Liquidity for each transaction which adds liquidity in Penny Pilot
Options in a month.'' \9\
---------------------------------------------------------------------------
\8\ Tier 8 of the Customer and Professional Rebate to Add
Liquidity Tiers currently pays a $0.48 per contract rebate to
Participants that add Customer, Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.75% or more of total industry
customer equity and ETF option ADV contracts per day in a month or
Participant adds (1) Customer and/or Professional liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options of 30,000 or more
contracts per day in a month and (2) the Participant has certified
for the Investor Support Program set forth in Rule 7014.
\9\ Consolidated Volume means the total consolidated volume
reported to all consolidated transaction reporting plans by all
exchanges and trade reporting facilities during a month in equity
securities, excluding executed orders with a size of less than one
round lot. For purposes of calculating Consolidated Volume and the
extent of an equity member's trading activity, expressed as a
percentage of or ratio to Consolidated Volume, the date of the
annual reconstitution of the Russell Investments Indexes shall be
excluded from both total Consolidated Volume and the member's
trading activity.
---------------------------------------------------------------------------
The Exchange proposes to amend the criteria in note ``c'' at part
(2) to decrease the percentage of total industry customer equity and
ETF option ADV contract per day in a month from 1.40% to 1.30%. The
Exchange believes that this decrease will offer Participants an
opportunity to qualify for the part (2) incentive and receive a $0.05
per contract \10\ additional rebate, in addition to the Tier 8 rebate,
by amending the qualification to require less volume.\11\ The Exchange
believes that this incentive will continue to encourage Participants to
add even more liquidity on NOM to earn a higher Tier 8 rebate. The
Exchange is not amending the other criteria, (1) and (3), in note ``c''
to qualify for an additional rebate.
---------------------------------------------------------------------------
\10\ Note ``c'' offers three distinct incentives for
Participants that qualify for the Tier 8 Customer and Professional
Penny Pilot Options Rebate to Add Liquidity. The part (2) rebate, as
amended, would be paid to Participants that added Customer,
Professional, Firm, NOM Market Maker [sic], Non-NOM Market Maker
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 1.30% or more of total industry customer
equity and ETF option ADV contracts per day in a month.
\11\ Only Participants that qualify for the Tier 8 Customer and
Professional Penny Pilot Options Rebate to Add Liquidity are
eligible for the note ``c'' incentives. The incentives are in
addition to the Tier 8 rebate.
---------------------------------------------------------------------------
The Exchange also proposes to bold the numbers and letters that
define the various parts of note `c'' for ease of reference.
NOM Market Maker Penny Pilot Options Rebate To Add Liquidity Tiers
The Exchange proposes, beginning January 4, 2016, to amend Tier 6
of the NOM Market Maker Penny Pilot Option Rebate to Add Liquidity to
eliminate one of the criteria for qualifying for the $0.42 per contract
Tier 6 rebate. Currently, 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 qualify for the Tier 7 or Tier 8 Customer and/or
Professional Rebate to Add Liquidity in Penny Pilot Options or
Participants that add 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 or Participants
that add Customer, Professional, Firm, Non-NOM Market Maker, and/or
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of 1.40% or more of total industry customer equity and ETF
option ADV contracts per day in a month receive a $0.42 per contract
NOM Market Maker Penny Pilot Options Rebate to Add Liquidity.
The Exchange proposes to remove the option to qualify for the Tier
6 NOM Market Maker Penny Pilot Options rebate by adding Customer,
Professional, Firm, Non-NOM Market Maker, and/or Broker-Dealer
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of
1.40% or more of total industry customer equity and ETF option ADV
contracts per day in a month. With this proposal, Participants will be
able to qualify for the Tier 6 NOM Market Maker Rebate by either (1)
adding 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 [sic] for the
Tier 7 or Tier 8 Customer and/or Professional Rebate to Add Liquidity
in Penny Pilot Options or (2) adding 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. While the Exchange is eliminating one of the methods to qualify
for the Tier 6 NOM Market Maker Penny Pilot Options rebate, the
Exchange believes that the rebate tier will continue to incentivize NOM
Participants to continue to add liquidity to NOM.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\12\ in general, and with Section 6(b)(4) and
6(b)(5) of the Act,\13\ 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 the Exchange operates or controls, and is not designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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.'' \14\ The Exchange noted in the Professional Filing that
it believes ``. . . that the increased revenue from the proposal would
assist the Exchange to recoup fixed costs.'' \15\ The Exchange noted in
that filing that it believes that establishing separate pricing for a
Professional, which ranges between that of a Customer and market maker,
accomplishes this objective.\16\ NOM Market Makers have obligations to
the market and regulatory requirements,\17\ 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
[[Page 3223]]
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 [sic] course of dealings.\18\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4) and (5).
\14\ See Securities Exchange Act Release No. 64494 (May 13,
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066)
(``Professional Filing''). In this filing, the Exchange addressed
the perceived favorable pricing of Professionals who were assessed
fees and paid rebates like a Customer prior to the filing. The
Exchange noted in that filing that a Professional, unlike a retail
Customer, has access to sophisticated trading systems that contain
functionality not available to retail Customers.1
\15\ See Professional Filing.
\16\ See Professional Filing. The Exchange also [sic] 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.
\17\ 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.
\18\ Id.
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, for example, the Commission indicated that market forces should
generally determine the price of non-core market data because national
market system regulation ``has been remarkably successful in promoting
market competition in its broader forms that are most important to
investors and listed companies.'' \19\ Likewise, in NetCoalition v.
NYSE Arca, Inc. \20\ (``NetCoalition'') the D.C. Circuit upheld the
Commission's use of a market-based approach in evaluating the fairness
of market data fees against a challenge claiming that Congress mandated
a cost-based approach.\21\ As the court emphasized, the Commission
``intended in Regulation NMS that `market forces, rather than
regulatory requirements' play a role in determining the market data . .
. to be made available to investors and at what cost.'' \22\
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\19\ Securities Exchange Act Release No. 51808 at 37499 (June 9,
2005) (``Regulation NMS Adopting Release'').
\20\ NetCoalition v. NYSE Arca, Inc., 615 F.3d 525 (D.C. Cir.
2010).
\21\ See NetCoalition, at 534.
\22\ Id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers' . . . .'' \23\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes that these views apply with equal force to the options
markets.
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\23\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783).
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Note ``c'' of Chapter XV, Section 2(1)
The Exchange's proposal to amend note ``c,'' at part (2) to
decrease the percentage of total industry customer equity and ETF
option ADV contract per day in a month from 1.40% to 1.30% in part (2)
to qualify for the additional Tier 8 NOM Market Maker [sic] Penny Pilot
Option rebate is reasonable because additional Participants may qualify
for this incentive because of the lower volume requirement. The
Exchange believes that this incentive will continue to encourage
Participants to add even more liquidity on NOM to earn a higher rebate.
Participants that qualify for this incentive would be paid the Tier 8
Customer and Professional Penny Pilot Options Rebate to Add Liquidity
of $0.48 per contract plus the additional part (2) note ``c'' rebate of
$0.05 per contract for a total rebate of $0.53 per contract.
The Exchange's proposal to amend note ``c,'' at part (2) to
decrease the percentage of total industry customer equity and ETF
option ADV contract per day in a month from 1.40% to 1.30% in part (2)
to qualify for the additional Tier 8 NOM Market Maker [sic] Penny Pilot
Option rebate is equitable and not unfairly discriminatory because,
today, all Participants may qualify for the Tier 8 Customer and
Professional Rebate to Add Liquidity in Penny Pilot Options and
therefore are qualified to earn the additional note ``c'' rebates.\24\
The Exchange will uniformly pay the Tier 8 and additional note ``c''
rebates to all Participants that transact the qualifying volume,
respectively.
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\24\ Note ``c'' offers three distinct incentives for
Participants that qualify for the Tier 8 Customer and Professional
Penny Pilot Options Rebate to Add Liquidity.
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The Exchange's proposal to bold the numbers and letters in note
``c'' is reasonable, equitable and not unfairly discriminatory because
it will provide an easier point of reference for each criteria and
rebate. Also, this proposed amendment is non-substantive.
NOM Market Maker Penny Pilot Options Rebate To Add Liquidity Tiers
The Exchange's proposal to amend Tier 6 of the NOM Market Maker
Penny Pilot Options Rebate to Add Liquidity to eliminate one of the
criteria to qualify for the $0.42 per contract Tier 6 rebate is
reasonable because, despite the elimination of one of the methods to
qualify for the Tier 6 NOM Market Maker Penny Pilot Options rebate, the
Exchange believes that the Tier 6 rebate will continue to incentivize
Participants to add liquidity to NOM in order to receive the rebate.
The Exchange's proposal to amend Tier 6 of the NOM Market Maker
Penny Pilot Options Rebate to Add Liquidity to eliminate one of the
criteria to qualify for the $0.42 per contract Tier 6 rebate is
equitable and not unfairly discriminatory because the elimination of
the qualifying language in Tier 6 of the NOM Market Maker Penny Pilot
Options Rebate to Add Liquidity will uniformly apply to all
Participants. No Participant will be entitled to the Tier 6 NOM Market
Maker Penny Pilot Options Rebate to Add Liquidity by adding Customer,
Professional, Firm, Non-NOM Market Maker, and/or Broker-Dealer
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of
1.40% or more of total industry customer equity and ETF option ADV
contracts per day in a month. Also, it is important to note that NOM
Market Makers have obligations to the market and regulatory
requirements,\25\ which normally do not apply to other market
participants. The Exchange believes that offering rebates to these
market participants is equitable and not unfairly discriminatory in
light of their obligations.
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\25\ See note 17 above.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
In this instance, the proposed amendments to the Customer,
Professional and NOM Market Maker Penny Pilot Options Rebate to Add
Liquidity tiers do not impose an undue burden on inter-market
competition because the Exchange's execution services are completely
voluntary and subject to extensive competition.
Note ``c'' of Chapter XV, Section 2(1)
The Exchange's proposal to amend note ``c,'' at part (2) to
decrease the
[[Page 3224]]
percentage of total industry customer equity and ETF option ADV
contract per day in a month from 1.40% to 1.30% to qualify for the
additional Tier 8 rebate does not impose an undue burden on intra-
market competition because, today, all Participants may qualify for the
Tier 8 Customer and Professional Penny Pilot Options Rebates to Add
Liquidity and qualify to earn the note ``c'' additional rebates. The
Exchange will uniformly pay the Tier 8 and additional note ``c''
rebates to all Participants that transact the qualifying volume,
respectively.
Customer liquidity is critically important to the market and
benefits all market participants. Greater customer liquidity benefits
all market participants by providing more trading opportunities and
attracting greater participation by specialists and market makers. An
increase in the activity of these market participants in turn
facilitates tighter spreads. All Participants are eligible for these
rebates if they transact the requisite volume. All Participants are
eligible for the note ``c'' incentives if they transact the requisite
volume. Also, 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's proposal to bold the numbers and letters in note
``c'' do not impose an undue burden on intra-market competition because
the amendment is non-substantive.
NOM Market Maker Penny Pilot Options Rebate To Add Liquidity Tiers
The Exchange's proposal to amend Tier 6 of the NOM Market Maker
Penny Pilot Options Rebate to Add Liquidity to eliminate one of the
criteria to qualify for the $0.42 per contract Tier 6 rebate does not
impose an undue burden on intra-market competition because the
elimination of the qualifying language in Tier 6 of the NOM Market
Maker Penny Pilot Options Rebate to Add Liquidity will uniformly apply
to all Participants. No Participant will be entitled to the Tier 6 NOM
Market Maker Penny Pilot Options Rebate to Add Liquidity by adding
Customer, Professional, Firm, Non-NOM Market Maker, and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
of 1.40% or more of total industry customer equity and ETF option ADV
contracts per day in a month. The Exchange believes that offering
rebates to these market participants is equitable and not unfairly
discriminatory in light of their obligations.\26\
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\26\ See note 17 above.
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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.\27\
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\27\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2015-166 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-2015-166. 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-2015-166, and should
be submitted on or before February 10, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00897 Filed 1-19-16; 8:45 am]
BILLING CODE 8011-01-P
