Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Options Pricing at Chapter XV, Section 2, 41359-41364 [2016-14929]
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Federal Register / Vol. 81, No. 122 / Friday, June 24, 2016 / Notices
third line, ‘‘SIPC–2016–01’’ should read
‘‘SIPC–2016–02’’.
3. On page 39989, in the third
column, in the seventh paragraph, on
the second line, ‘‘SIPC–2016–01’’
should read ‘‘SIPC–2016–02’’.
4. On page 39989, in the third
column, in the ninth paragraph, on the
second line, ‘‘SIPC–2016–01’’ should
read ‘‘SIPC–2016–02’’.
[FR Doc. C1–2016–14499 Filed 6–23–16; 8:45 am]
BILLING CODE 1505–01–D
SECURITIES AND EXCHANGE
COMMISSION
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–78103; File No. SR–
NASDAQ–2016–089]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Options
Pricing at Chapter XV, Section 2
June 20, 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 June 14,
2016, 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.
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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.3
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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 References in this proposal to Chapter and
Series are to NOM rules, unless otherwise
indicated.
2 17
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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.
1. Purpose
The Exchange proposes certain
amendments to the NOM transaction
fees set forth at Chapter XV, Section 2(1)
for executing and routing standardized
equity and index options under the
Penny Pilot Option 4 program.
Specifically, the Exchange proposes in
Section 2(1) two new incentives
regarding Non-NOM Market Makers and
NOM Market Makers Penny Pilot
Options Fees for Removing Liquidity;
and proposes to delete note 4 regarding
Non-Penny Pilot Options Fee for
Removing Liquidity. The proposed
changes will allow the Exchange to
continue to offer and expand incentives
to NOM Participants to add more
liquidity to NOM.
Change 1: Penny Pilot Options—
Incentives To Earn Additional
Discounts on Fee for Removing
Liquidity
Note 2 to Section 2(1) applies to NonNOM Market Makers 5 and NOM Market
Makers 6 Penny Pilot Options Fees for
Removing Liquidity. Currently, note 2
4 The Penny Pilot was established in March 2008
and was last extended in 2015. 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); and 75283 (June 24,
2015), 80 FR 37347 (June 30, 2015) (SR–NASDAQ–
2015–063) (notice of filing and immediate
effectiveness extending the Penny Pilot through
June 30, 2016). All Penny Pilot Options listed on
the Exchange can be found at https://
www.nasdaqtrader.com/Micro.aspx?id=phlx.
5 The term ‘‘Non-NOM Market Maker’’ 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.
6 The term ‘‘NOM Market Maker’’ is a Participant
that has registered as a Market Maker on NOM
pursuant to Chapter VII, Section 2, and must also
remain in good standing pursuant to Chapter VII,
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41359
offers a $0.02 discount (reduction to
$0.48 per contract fee) on the Penny
Pilot Options Fee for Removing
Liquidity.7 Currently, note 2 offers that
Participants 8 that add 1.30% of
Customer,9 Professional,10 Firm,11
Broker-Dealer,12 or Non-NOM Market
Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of total
industry customer equity and ETF
option average daily volume or ADV
contracts per day are assessed a $0.48
per contract Penny Pilot Options Fee for
Removing Liquidity provided the
Participant is (i) both the buyer and the
seller or (ii) the Participant removes
liquidity from another Participant under
Common Ownership.13 The Exchange
proposes two additional ways to earn an
enhanced discount on the NOM Market
Maker and Non-NOM Market Maker
Penny Pilot Options Fee for Removing
Liquidity.
First, the Exchange proposes to
amend note 2 to Section 2(1) to add a
new incentive that would assess NOM
Market Maker and Non-NOM Market
Maker a $0.32 per contract fee
applicable to executions less than
10,000 contracts provided the
Participant adds 1.50% of Customer,
Professional, Firm, Broker-Dealer or
Non-NOM Market Maker liquidity in
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.
7 The NOM Market Maker and Non-NOM Market
Maker Penny Pilot Options Fees for Removing
Liquidity are $0.50 per contract.
8 The term ‘‘Participant’’ or ‘‘Options Participant’’
means a firm, or organization that is registered with
the Exchange pursuant to Chapter II of these Rules
for purposes of participating in options trading on
NOM as a ‘‘Nasdaq Options Order Entry Firm’’ or
‘‘Nasdaq Options Market Maker’’. Participants on
NOM are also known as ‘‘NOM Participants.’’
9 The term ‘‘Customer’’ or (‘‘C’’) applies to any
transaction that is identified by a Participant for
clearing in the Customer range at The Options
Clearing Corporation 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)).
10 The term ‘‘Professional’’ or (‘‘P’’) 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.
11 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at The Options Clearing
Corporation.
12 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.
13 The term ‘‘Common Ownership’’ shall mean
Participants under 75% common ownership or
control. Common Ownership shall apply to all
pricing in Chapter XV, Section 2 for which a
volume threshold or volume percentage is required
to obtain the pricing.
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Penny Pilot Options and/or Non-Penny
Pilot Options of total industry customer
equity and ETF option ADV contracts
per day in a month and the Participant
meets or exceeds the cap for the Nasdaq
Stock Market Opening Cross 14, and the
Participant is (i) both the buyer and
seller or (ii) the Participant removes
liquidity from another Participant under
Common Ownership. The Exchange
believes that this proposed change,
which includes a new methodology to
earn an incentive via meeting or
exceeding the cap for the Nasdaq Stock
Market Opening Cross, will incentivize
bringing additional flow to the
Exchange. This proposal offers an $0.18
per contract discount from the current
Penny Pilot Options Fees for Removing
Liquidity for NOM Market Maker and
Non-NOM Market Makers.15
Second, the Exchange proposes to
amend note 2 to Section 2(1) to add a
new incentive that would assess NOM
Market Maker and Non-NOM Market
Maker a $0.32 per contract fee
applicable to executions less than
10,000 contracts provided the
Participant adds 1.75% of Customer,
Professional, Firm, Broker-Dealer, or
Non-NOM Market Maker liquidity in
Penny Pilot Options and/or Non-Penny
Pilot Options of total industry customer
equity and ETF option ADV contracts
per day in a month and the Participant
is (i) both the buyer and seller or (ii) the
Participant removes liquidity from
another Participant under Common
Ownership. This proposal offers an
$0.18 per contract discount from the
current Penny Pilot Options Fees for
Removing Liquidity for NOM Market
Maker and Non-NOM Market Makers.16
The amendments proposed herein to
note 2 to Section 2(1) would, for
executions less than 10,000 contracts,
offer Participants two ways to earn an
$0.18 per contract discount from the
current Penny Pilot Options NOM
Market Maker or Non-NOM Market
Maker Fee for Removing Liquidity by
delivering a greater amount of
Customer, Professional, Firm, BrokerDealer or Non-NOM Market Maker
liquidity on NOM.17
14 The term ‘‘Nasdaq Opening Cross’’ means the
process for determining the price at which orders
shall be executed at the open and for executing
those orders. See Nasdaq Rule 4752(a)(2)(E)(5).
Nasdaq firms that execute orders in the Nasdaq
Opening Cross will be subject to fees for such
executions up to a monthly maximum of $30,000,
provided, however, that such firms add at least one
million shares of liquidity, on average, per month.
See Nasdaq Rule 7018(e)(2).
15 The Penny Pilot Options Fee for Removing
Liquidity for NOM Market Maker and Non-NOM
Market Makers is $0.50 per contract.
16 Id.
17 For all executions 10,000 contracts or greater,
a $0.48 per contract fee will be applicable provided
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Change 2: Non-Penny Pilot Options—
Delete Note 4
Note 4 currently states that a
Participant that qualifies for Customer
or Professional Penny Pilot Options
Rebate to Add Liquidity Tiers 2, 3, 4, 5,
6, 7, or 8 in a month will be assessed
a Non-Penny Pilot Options Fee for
Removing Liquidity of $1.08 per
contract in that month. The Exchange
proposes to remove note 4 from the
Non-Penny Pilot Options Fee for
Removing Liquidity and at the same
time proposes additional ways to earn
an enhanced discount on the NOM
Market Maker and Non-NOM Market
Maker Penny Pilot Options Fee for
Removing Liquidity. The Exchange is
incentivizing Participants to bring
Penny Pilot Options liquidity to the
Exchange since Penny Pilot Options
represent the most highly-traded
options in the market.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6 of the Act,18 in general, and
with Section 6(b)(4) and 6(b)(5) of the
Act,19 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. Attracting
order flow to the Exchange benefits all
Participants who have the opportunity
to interact with this order flow.
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, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
the Participant adds 1.30% of Customer,
Professional, Firm, Broker-Dealer, or Non-NOM
Market Maker liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options of total industry
customer equity and ETF option ADV contracts per
day in a month and the Participant is (i) both the
buyer and seller or (ii) the Participant removes
liquidity from another Participant under Common
Ownership. This $0.48 fee represents a $0.02 per
contract discount from the current Penny Pilot
Options Fees for Removing Liquidity of $0.50 for
NOM Market Maker and Non-NOM Market Makers
and represents no change from the current Pricing
Schedule.
18 15 U.S.C. 78f.
19 15 U.S.C. 78f(b)(4) and (5).
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promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 20
Likewise, in NetCoalition v. Securities
and Exchange Commission 21
(‘‘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.22 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.’’ 23
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’. . . .’’ 24 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.
Change 1: Penny Pilot Options—
Incentives To Earn Additional
Discounts on Fee for Removing
Liquidity
The Exchange’s proposal to amend
note 2 to Section 2(1) to create two new
incentives that would assess NOM
Market Maker and Non-NOM Market
Maker a $0.32 per contract fee
applicable to executions less than
10,000 contracts. The first new
incentive is if the Participant adds
1.50% of Customer, Professional, Firm,
Broker-Dealer or Non-NOM Market
Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of total
industry customer equity and ETF
option ADV contracts per day in a
month and the Participant meets or
exceeds the cap for the Nasdaq Stock
Market Opening Cross and the
Participant is (i) both the buyer and
20 Securities Exchange Act Release No. 51808
(June 29, 2005), 70 FR 37496 at 37499 (File No. S7–
10–04) (‘‘Regulation NMS Adopting Release’’) [sic].
21 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
22 See id. at 534–535.
23 See id. at 537.
24 See id. at 539 (quoting Securities Exchange Act
Commission at [sic] Release No. 59039 (December
2, 2008), 73 FR 74770 at 74782–74783 (December
9, 2008) (SR–NYSEArca–2006–21)).
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seller or (ii) the Participant removes
liquidity from another Participant under
Common Ownership. The second new
incentive is if the Participant adds
1.75% of Customer, Professional, Firm,
Broker-Dealer or Non-NOM Market
Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of total
industry customer equity and ETF
option ADV contracts per day in a
month and the Participant is (i) both the
buyer and seller or (ii) the Participant
removes liquidity from another
Participant under Common Ownership.
The new incentives are reasonable,
equitable, and not unfairly
discriminatory for the reasons that
follow.
The Exchange believes that the new
incentives will attract a greater amount
of order flow on NOM by offering a
discounted rate. Participants are
provided additional opportunities to
lower NOM Market Maker and NonNOM Market Maker fees when removing
Penny Pilot Options liquidity, thereby
attracting order flow to the Exchange to
the benefit of all other market
participants. Participants may send
either Penny or Non-Penny Pilot
Options to qualify for the discount. All
Participant order flow that adds
liquidity to the order book, other than
NOM Market Maker volume, will apply
to the 1.50% or 1.75% threshold to
qualify for the discount. The Exchange
believes that it is not necessary to count
NOM Market Maker volume toward the
volume to qualify for the fee discount
because that volume is counted toward
the qualifiers for the NOM Market
Maker rebates. The Exchange also
believes, as discussed below, that the
proposal is reasonable in light of what
is offered on other exchanges and the
Exchange’s effort to bring Penny Pilot
Options liquidity to the Exchange.
Providing the discount to NOM
Market Makers is equitable and not
unfairly discriminatory because NOM
Market Makers obligations to the market
and regulatory requirements, which
normally do not apply to other market
participants.25 A NOM Market Maker
has the obligation, for example, to make
continuous markets, engage in a course
25 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 [sic].
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of dealings reasonably calculated to
contribute to the maintenance of a fair
and orderly market, and not make bids
or offers or enter into transactions that
are inconsistent with a course of
dealings. The proposed differentiation
as between NOM Market Makers and
other market participants recognizes the
differing contributions made to the
trading environment on the Exchange by
NOM Market Makers. For the above
reasons, the Exchange believes that
NOM Market Makers are entitled to
discounted fees, provided they qualify
for the discount. The Exchange believes
it is equitable and not unfairly
discriminatory to offer the fee discount
to Non-NOM Market Makers because the
Exchange is offering Participants
flexibility in the manner in which they
are submitting their orders. Non-NOM
Market Makers have obligations on
other exchanges to qualify as a market
maker. Also, the Exchange believes that
market makers not registered on NOM
will be encouraged to send orders to
NOM as an away market maker (NonNOM Market Maker) with this
incentive. Because the incentive is being
offered to both market makers registered
on NOM and those not registered on
NOM, the Exchange believes that the
proposal is equitable and not unfairly
discriminatory because it encourages
market makers to direct liquidity to
NOM to the benefit of all Participants.
This proposal recognizes the overall
contributions made by market makers to
a listed options market.
The Exchange’s proposal to count all
order flow (Penny and Non-Penny Pilot
Options) toward the 1.50% and 1.75%
requisites for volume, except for NOM
Market Maker order flow, is reasonable,
equitable, and not unfairly
discriminatory because NOM Market
Makers continue to be entitled to rebates
today similar to Customers and
Professionals. 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.’’ 26 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.’’ 27 Further, the
Exchange noted in that filing that it
believes that establishing separate
pricing for a Professional, which ranges
between that of a Customer and market
maker, accomplishes this objective.28
The Exchange offers NOM Market
Makers rebates in acknowledgment of
the obligations these Participants bear in
the market.29
The Exchange believes that it is
reasonable, equitable and not unfairly
discriminatory to continue to permit
NOM Participants under Common
Ownership to aggregate their volume for
purposes of obtaining the fee discount
because certain NOM Participants chose
to segregate their businesses into
different legal entities for purposes of
conducting business. The Exchange
believes that, in terms of Common
Ownership, these NOM Participants
should continue to be treated as one
entity for purposes of qualifying for the
discounted Fee for Removing Liquidity
in Penny Pilot Options, as long as there
is at least 75% Common Ownership or
control among the NOM Participants.
The Exchange also believes that it is
reasonable, equitable and not unfairly
discriminatory to offer an $0.18 per
contract discount of the Penny Pilot
Option Fee for Removing Liquidity to
Non-NOM Market Makers and NOM
Market Makers for transactions in which
the same NOM Participant or a NOM
Participant under Common Ownership
is the buyer and the seller. NOM
Participants that chose to segregate their
businesses into different legal entities
should still be afforded the opportunity
to receive the discount as if they were
the same NOM Participant on both sides
of the transaction.
It is important to note that NOM
Participants are unaware at the time the
order is entered of the identity of the
contra-party. Because contra-parties are
anonymous, the Exchange believes that
NOM Participants would continue to
aggressively pursue order flow in order
to receive the benefit of the fee discount.
NOM Participants would continue to
only receive the incentive if they
interact with their own order flow,
recognizing Common Ownership where
applicable. Offering the additional fee
discount is reasonable, equitable and
27 See
26 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.
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76 FR 29014, 29015 (Professional Filing).
76 FR 29014 [sic] (Professional Filing). The
Exchange also noted 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.
29 See e.g., Chapter VII (Market Participants),
Section 5 (Obligations of Market Makers).
28 See
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not unfairly discriminatory because
Participants would be entitled to receive
the fee discount only when the
Participant is both the buyer and seller.
By way of example, if a NOM
Participant that is assigned the firm
code 30 ‘‘ABC’’ by the Exchange posted
an order utilizing its Customer order
router, and the order was removed by an
ABC NOM Market Maker order, the
NOM Participant would receive the
proposed $0.18 per contract fee
discount for that trade,31 which would
be $0.16 more than the current $0.02 per
contract discount. The Exchange
proposes to utilize the Exchange
assigned firm code to determine which
NOM Participant executed an order and
to apply the fee discount to the NonNOM Market Maker or NOM Market
Maker Penny Pilot Option Fee for
Removing Liquidity if the same NOM
Participant was the buyer and the seller
to a transaction.32 This concept is not
novel. Today NASDAQ PHLX LLC
(‘‘Phlx’’) assesses a Firm Floor Options
Transaction Charge based on which side
of the transaction the member
represents as well whether the same
member or its affiliates under Common
Ownership was represented.33 Also
30 Each NOM Participant is assigned a firm code
by the Exchange.
31 The discount would be applicable to
executions less than 10,000 contracts if: (a) the
Participant adds 1.50% of Customer, Professional,
Firm, Broker-Dealer or Non-NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options of total industry customer equity and
ETF option ADV contracts per day in a month and
the Participant meets or exceeds the cap for the
Nasdaq Stock Market Opening Cross and the
Participant is (i) both the buyer and seller or (ii) the
Participant removes liquidity from another
Participant under Common Ownership; or (b) the
Participant adds 1.75% of Customer, Professional,
Firm, Broker-Dealer or Non-NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options of total industry customer equity and
ETF option ADV contracts per day in a month and
the Participant is (i) both the buyer and seller or (ii)
the Participant removes liquidity from another
Participant under Common Ownership.
32 In this example, the same Participant that
added and removed the order would be entitled to
the fee discount because the NOM Participant was
the buyer and seller (or removes liquidity from
another Participant under Common Ownership) on
the transaction.
33 The Firm Floor Options Transaction Charges
will be waived for members executing facilitation
orders pursuant to Phlx Rule 1064 when such
members are trading in their own proprietary
account (including Cabinet Options Transaction
Charges). The Firm Floor Options Transaction
Charges will be waived for the buy side of a
transaction if the same member or its affiliates
under Common Ownership represents both sides of
a Firm transaction when such members are trading
in their own proprietary account. In addition, the
Broker-Dealer Floor Options Transaction Charge
(including Cabinet Options Transaction Charges)
will be waived for members executing facilitation
orders pursuant to Exchange Rule 1064 when such
members would otherwise incur this charge for
trading in their own proprietary account contra to
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today, NASDAQ BX Options (‘‘BX
Options’’) provides discounted Fees for
Removing Liquidity for registered BX
Options Market Makers, based on Tier
positions for the BX Participant.34 The
Exchange believes that the note 2
proposal is reasonable in comparison to
other exchanges and also because of its
decision to deploy Penny Pilot Options
incentives in a concentrated manner.
Today the Exchange offers a $0.02
discount ($0.48 vs. $0.50 per contract)
in current note 2 of Chapter XV, Section
2(1) to Participants that add 1.30% of
Customer, Professional, Firm, BrokerDealer, or Non-NOM Market Maker
liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options of total
industry customer equity and ETF
option ADV contracts per day in a
month when the Participant is (i) both
the buyer and the seller or (ii) the
Participant removes liquidity from
another Participant under Common
Ownership. The Exchange is proposing
to offer a deeper $0.18 discount ($0.32
vs. $0.50 per contract), for executions
less than 10,000 contracts,35 provided;
(a.) the Participant adds 1.50% of
Customer, Professional, Firm, BrokerDealer or Non-NOM Market Maker
liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options of total
industry customer equity and ETF
option ADV contracts per day in a
month and the Participant meets or
exceeds the cap for the Nasdaq Stock
Market Opening Cross and the
Participant is (i) both the buyer and
seller or (ii) the Participant removes
liquidity from another Participant under
Common Ownership; or (b.) the
Participant adds 1.75% of Customer,
Professional, Firm, Broker-Dealer or
a Customer (‘‘BD-Customer Facilitation’’), if the
member’s BD-Customer Facilitation average daily
volume (including both FLEX and non-FLEX
transactions) exceeds 10,000 contracts per day in a
given month. See Phlx’s Pricing Schedule.
34 The BX Options Select Symbols Fee to Remove
Liquidity when BX Options Market Maker trading
with a Customer (‘‘BX Options Fee’’) is generally
inversely proportional to the BX Select Symbols
Options Tier Schedule, which requires additional
liquidity with increased Tiers. The BX Options Fee
is, for example, $0.42 in Tier 1 and Tier 2, $0.39
in Tier 3, and $0.25 in Tier 4. The following are
BX Options Select Symbols: ASHR, DIA, DXJ, EEM,
EFA, EWJ, EWT, EWW, EWY, EWZ, FAS, FAZ,
FXE, FXI, FXP, GDX, GLD, HYG, IWM, IYR, KRE,
OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SPY,
SRS, SSO, TBT, TLT, TNA, TZA, UNG, URE, USO,
UUP, UVXY, UYG, VXX, XHB, XLB, XLE, XLF, XLI,
XLK, XLP, XLU, XLV, XLY, XME, XOP, XRT. See
BX Options Pricing Schedule.
35 The intention of the new pricing discount is,
as discussed, to attract customer orders to the
Exchange. We reviewed the minimum and
maximum execution size for year to date activity on
the Exchange order book and determined the 10,000
contract threshold was equitable and reasonable as
trades above this threshold are not typical of
customer orders.
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
Non-NOM Market Maker liquidity in
Penny Pilot Options and/or Non-Penny
Pilot Options of total industry customer
equity and ETF option ADV contracts
per day in a month and the Participant
is (i) both the buyer and seller or (ii) the
Participant removes liquidity from
another Participant under Common
Ownership. The Exchange believes that
it is reasonable to offer this deeper
discount when the Participant is both
the buyer and the seller (or removes
liquidity from another Participant under
Common Ownership) because
qualifying for the discount requires a
NOM Participant to commit a
substantially larger volume of liquidity
on NOM. This significantly more
substantial investment of order flow and
liquidity into the market is beneficial to
all market participants, who are free to
interact with such order flow.
The Exchange believes the proposed
discount where Participant adds 1.50%
of Customer, Professional, Firm, BrokerDealer or Non-NOM Market Maker
liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options is reasonable,
equitable, and not unfairly
discriminatory. The Exchange believes
that the proposed change is reasonable
because the methodology used to
qualify for the proposed discount
includes the Participant meeting or
exceeding the cap for the Nasdaq Stock
Market Opening Cross. This concept is
not novel as NOM currently uses the
NASDAQ Stock Market Closing Cross
‘‘MOC’’ and ‘‘LOC’’ % of total volume
to determine the NOM Participants
Customer and Professional tier
position.36 The Exchange believes that
incentivizing Participants to bring
added liquidity by meeting or exceeding
the cap for the NASDAQ Stock Market
Opening Cross will benefit all
Participants by providing greater
opportunity for price discovery and
liquidity during the Opening Cross
process.
Moreover, the condition to meet or
exceed the cap for the Nasdaq Stock
Market Opening Cross is reasonable,
equitable and not unfairly
discriminatory because it provides
Participants that are not able to meet the
Opening Cross requirement and
therefore are not able to achieve the
1.75% tier [sic] an additional way in
which to qualify for the NOM Market
Maker and Non-NOM Market Maker
$0.32 per contract fee. That is, a
Participant unable to achieve the 1.75%
tier [sic] can still achieve the 1.50% tier
36 See, e.g., Securities Exchange Act Release No.
77661 (April 20, 2016), 81 FR 24668 (April 26,
2016) (SR–NASDAQ–2016–055) (notice of filing
and immediate effectiveness to amend options
pricing at NOM Chapter VX, Section 2).
E:\FR\FM\24JNN1.SGM
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Federal Register / Vol. 81, No. 122 / Friday, June 24, 2016 / Notices
sradovich on DSK3GDR082PROD with NOTICES
[sic] provided also that the Participant
adds 1.50% [sic] of Customer,
Professional, Firm, Broker-Dealer or
Non-NOM Market Maker liquidity in
Penny Pilot Options and/or Non-Penny
Pilot Options of total industry customer
equity and ETF option ADV contracts
per day in a month and the Participant
is (i) both the buyer and seller or (ii) the
Participant removes liquidity from
another Participant under Common
Ownership.
Like all of the changes proposed
herein, this proposed change is
equitable and not unfairly
discriminatory because it will apply
uniformly to all Participants.
Change 2: Non-Penny Pilot Options—
Delete Note 4
In Change 2 the Exchange proposes to
delete Note 4 which currently indicates
the assessment for Non-Penny Pilot
Options Fee for Removing Liquidity.
The proposal is reasonable, equitable,
and not unfairly discriminatory for the
reasons that follow.
The removal of note 4 is reasonable
because it is proposed commensurate
with proposing two additional ways to
earn an enhanced discount on the NOM
Market Maker and Non-NOM Market
Maker Penny Pilot Options Fee for
Removing Liquidity in note 2. This is
reasonable because in its Fee Schedule
the Exchanges is encouraging bringing
Penny Pilot Options liquidity to the
Exchange. Since Penny Pilot Options
represent the most highly-traded and
liquid options on the Exchange it is
reasonable for the exchange to make a
concerted effort to bring Penny Pilot
Options liquidity to the Exchange.
Participants are provided additional
opportunities to lower NOM Market
Maker and Non-NOM Market Maker fees
when removing Penny Pilot Options
liquidity, thereby attracting order flow
to the Exchange to the benefit of all
other market participants. Participants
may send either Penny or Non-Penny
Pilot Options to qualify for the discount.
All Participant order flow that adds
liquidity to the order book, other than
NOM Market Maker volume, will apply
to the 1.50% or 1.75% threshold to
qualify for the discount. Additional
order flow on the Exchange promotes
interaction with the added liquidity.
The Exchange believes that it is
reasonable, equitable, and not unfairly
discriminatory to offer the discounted
remove fee in note 2 applicable to
Penny Pilot Options without having an
alternate fee in note 4 applicable in
Non-Penny Pilot Options because, as
discussed, Penny Pilot Options are
clearly the highest volume, most liquid
options traded on the Exchange and the
VerDate Sep<11>2014
17:43 Jun 23, 2016
Jkt 238001
Exchange is promoting such liquidity.
Moreover, in light of the Exchange’s
effort to focus on Penny Pilot Options
liquidity on the Exchange, the proposal
to discontinue note 4 regarding NonPenny Pilot Options is equitable and not
unfairly discriminatory because it will
apply uniformly to all Participants.
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 NOM Market Maker and
Non-NOM Market Maker Penny Pilot
Options Fees for Removing Liquidity
seek to continue to incentivize
Participants to send order flow to NOM.
The Exchange does not believe this
proposal to add two incentives imposes
an undue burden on inter-market
competition because the Exchange’s
execution services are completely
voluntary and subject to extensive
competition.
The Exchange’s proposal to
incentivize Participants by continuing
to offer the opportunity to reduce the
NOM Market Maker and Non-NOM
Market Maker Penny Pilot Options Fees
for Removing Liquidity and also offering
additional incentives to lower these fees
from $0.50 to $0.32 per contract, does
not create an undue burden on intramarket competition for various reasons.
NOM Market Makers have obligations to
the market and regulatory
requirements,37 which, as discussed,
normally do not apply to other market
participants. Offering the fee discount to
37 See
PO 00000
Non-NOM Market Makers provides
Participants with flexibility in the
manner in which they are submitting
their orders. Non-NOM Market Makers
have obligations on other exchanges to
qualify as a market maker. Also, the
Exchange believes that market makers
not registered on NOM will be
encouraged to send orders to NOM as an
away market maker (Non-NOM Market
Maker) with this incentive. Because the
incentive is being offered to both market
makers registered on NOM and those
not registered on NOM, the Exchange
believes that the proposal does not
impose an undue burden on intramarket competition because it
encourages market makers to direct
liquidity to NOM to the benefit of all
Participants.
Participants would be entitled to
receive the fee discount when the
Participant is both the buyer and seller
(or removes liquidity from another
Participant under Common Ownership)
and therefore this qualifier does not
create an undue burden on intra-market
competition. NOM Participants are
unaware at the time the order is entered
of the identity of the contra-party,
therefore, since contra-parties are
anonymous, the Exchange believes that
NOM Participants would aggressively
pursue order flow in order to receive the
benefit of the fee discount, to the benefit
of all Participants.
The Exchange’s proposal to continue
to count all order flow toward the
1.50% or 1.75% requisite volume
discussed herein, except for NOM
Market Maker order flow, does not
impose an undue burden on intramarket competition. It is not necessary
to count NOM Market Maker volume in
qualifying for the fee discount as that
volume is counted toward qualifying for
NOM Market Maker rebates.
The Exchange believes that permitting
NOM Participants with 75% Common
Ownership to aggregate their volume for
purposes of obtaining the fee discount
does not create an undue burden on
intra-market competition because
certain NOM Participants chose to
segregate their businesses into different
legal entities for purposes of conducting
business. NOM Participants that chose
to segregate their businesses into
different legal entities should still be
afforded the opportunity to receive the
discount as if they were the same NOM
Participant on both sides of the
transaction.
supra note 25.
Frm 00077
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41363
E:\FR\FM\24JNN1.SGM
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41364
Federal Register / Vol. 81, No. 122 / Friday, June 24, 2016 / Notices
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.38
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:
sradovich on DSK3GDR082PROD with NOTICES
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–2016–089 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–2016–089. 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
38 15
U.S.C. 78s(b)(3)(A)(ii).
VerDate Sep<11>2014
17:43 Jun 23, 2016
Jkt 238001
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–2016–089 and should be
submitted on or before July 15, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–14929 Filed 6–23–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78106; File No. SR–
NYSEMKT–2016–59]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Adopting New NYSE MKT
Rules 2090—Equities (Know Your
Customer) and 2111—Equities
(Suitability) That Are Substantially
Similar to FINRA Rules 2090 (Know
Your Customer) and 2111 (Suitability),
Deleting Current NYSE MKT Rule 405—
Equities (Diligence as to Accounts),
and Making Other Conforming
Changes
June 20, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 2 and Rule 19b–4
thereunder,3 notice is hereby given that
on June 9, 2016, NYSE MKT LLC
(‘‘Exchange’’ or ‘‘NYSE MKT’’) filed
with the Securities and Exchange
Commission (‘‘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
39 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes adopting new
rule text that is substantially similar to
Rules 2090 (Know Your Customer) and
2111 (Suitability) of the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), (2) deleting current Rule
405—Equities (Diligence as to Accounts)
(‘‘Rule 405’’), and (3) making other
conforming changes. The proposed rule
change is available on the Exchange’s
Web site at www.nyse.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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
rules to harmonize with certain FINRA
rules. Specifically, the Exchange
proposes (1) adopting new rule text that
is substantially similar to FINRA Rules
2090 and 2111; (2) deleting Rule 405; 4
and (3) making other conforming
changes.
Background
In 2007, FINRA and the Exchange’s
affiliate the New York Stock Exchange
LLC (‘‘NYSE’’) 5 entered into an
4 References to rules are to NYSE MKT rules
unless otherwise indicated.
5 NYSE Regulation, Inc., a former not-for-profit
subsidiary of the NYSE, was also a party to the
Agreement by virtue of the fact that it performed
regulatory functions for the NYSE pursuant to a
delegation agreement. See Securities Exchange Act
Release No. 53382 (February 27, 2006), 71 FR
11251, 11264–65 (March 6, 2006) (SR–NYSE–2005–
77) (approving delegation agreement). NYSE
Regulation also performed regulatory services for
the Exchange pursuant to an intercompany
Regulatory Services Agreement (‘‘RSA’’) that gave
the Exchange the contractual right to review NYSE
E:\FR\FM\24JNN1.SGM
24JNN1
]]>Agencies
[Federal Register Volume 81, Number 122 (Friday, June 24, 2016)]
[Notices]
[Pages 41359-41364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14929]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78103; File No. SR-NASDAQ-2016-089]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Options Pricing at Chapter XV, Section 2
June 20, 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 June 14, 2016, 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.
---------------------------------------------------------------------------
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.\3\
---------------------------------------------------------------------------
\3\ References in this proposal to Chapter and Series are to NOM
rules, unless otherwise indicated.
---------------------------------------------------------------------------
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(1) for executing and routing
standardized equity and index options under the Penny Pilot Option \4\
program. Specifically, the Exchange proposes in Section 2(1) two new
incentives regarding Non-NOM Market Makers and NOM Market Makers Penny
Pilot Options Fees for Removing Liquidity; and proposes to delete note
4 regarding Non-Penny Pilot Options Fee for Removing Liquidity. The
proposed changes will allow the Exchange to continue to offer and
expand incentives to NOM Participants to add more liquidity to NOM.
---------------------------------------------------------------------------
\4\ The Penny Pilot was established in March 2008 and was last
extended in 2015. 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); and 75283 (June 24, 2015), 80 FR 37347 (June 30, 2015) (SR-
NASDAQ-2015-063) (notice of filing and immediate effectiveness
extending the Penny Pilot through June 30, 2016). All Penny Pilot
Options listed on the Exchange can be found at https://www.nasdaqtrader.com/Micro.aspx?id=phlx.
---------------------------------------------------------------------------
Change 1: Penny Pilot Options--Incentives To Earn Additional Discounts
on Fee for Removing Liquidity
Note 2 to Section 2(1) applies to Non-NOM Market Makers \5\ and NOM
Market
---------------------------------------------------------------------------
\5\ The term ``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.
---------------------------------------------------------------------------
Makers \6\ Penny Pilot Options Fees for Removing Liquidity.
Currently, note 2 offers a $0.02 discount (reduction to $0.48 per
contract fee) on the Penny Pilot Options Fee for Removing Liquidity.\7\
Currently, note 2 offers that Participants \8\ that add 1.30% of
Customer,\9\ Professional,\10\ Firm,\11\ Broker-Dealer,\12\ or Non-NOM
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of total industry customer equity and ETF option average daily
volume or ADV contracts per day are assessed a $0.48 per contract Penny
Pilot Options Fee for Removing Liquidity provided the Participant is
(i) both the buyer and the seller or (ii) the Participant removes
liquidity from another Participant under Common Ownership.\13\ The
Exchange proposes two additional ways to earn an enhanced discount on
the NOM Market Maker and Non-NOM Market Maker Penny Pilot Options Fee
for Removing Liquidity.
---------------------------------------------------------------------------
\6\ The term ``NOM Market Maker'' is a Participant that has
registered as a Market Maker on NOM pursuant to Chapter VII, Section
2, and must also remain in good standing pursuant to Chapter VII,
Section 4. In order to receive NOM Market Maker pricing in all
securities, the Participant must be registered as a NOM Market Maker
in at least one security.
\7\ The NOM Market Maker and Non-NOM Market Maker Penny Pilot
Options Fees for Removing Liquidity are $0.50 per contract.
\8\ The term ``Participant'' or ``Options Participant'' means a
firm, or organization that is registered with the Exchange pursuant
to Chapter II of these Rules for purposes of participating in
options trading on NOM as a ``Nasdaq Options Order Entry Firm'' or
``Nasdaq Options Market Maker''. Participants on NOM are also known
as ``NOM Participants.''
\9\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation 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)).
\10\ The term ``Professional'' or (``P'') 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.
\11\ The term ``Firm'' or (``F'') applies to any transaction
that is identified by a Participant for clearing in the Firm range
at The Options Clearing Corporation.
\12\ 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.
\13\ The term ``Common Ownership'' shall mean Participants under
75% common ownership or control. Common Ownership shall apply to all
pricing in Chapter XV, Section 2 for which a volume threshold or
volume percentage is required to obtain the pricing.
---------------------------------------------------------------------------
First, the Exchange proposes to amend note 2 to Section 2(1) to add
a new incentive that would assess NOM Market Maker and Non-NOM Market
Maker a $0.32 per contract fee applicable to executions less than
10,000 contracts provided the Participant adds 1.50% of Customer,
Professional, Firm, Broker-Dealer or Non-NOM Market Maker liquidity in
[[Page 41360]]
Penny Pilot Options and/or Non-Penny Pilot Options of total industry
customer equity and ETF option ADV contracts per day in a month and the
Participant meets or exceeds the cap for the Nasdaq Stock Market
Opening Cross \14\, and the Participant is (i) both the buyer and
seller or (ii) the Participant removes liquidity from another
Participant under Common Ownership. The Exchange believes that this
proposed change, which includes a new methodology to earn an incentive
via meeting or exceeding the cap for the Nasdaq Stock Market Opening
Cross, will incentivize bringing additional flow to the Exchange. This
proposal offers an $0.18 per contract discount from the current Penny
Pilot Options Fees for Removing Liquidity for NOM Market Maker and Non-
NOM Market Makers.\15\
---------------------------------------------------------------------------
\14\ The term ``Nasdaq Opening Cross'' means the process for
determining the price at which orders shall be executed at the open
and for executing those orders. See Nasdaq Rule 4752(a)(2)(E)(5).
Nasdaq firms that execute orders in the Nasdaq Opening Cross will be
subject to fees for such executions up to a monthly maximum of
$30,000, provided, however, that such firms add at least one million
shares of liquidity, on average, per month. See Nasdaq Rule
7018(e)(2).
\15\ The Penny Pilot Options Fee for Removing Liquidity for NOM
Market Maker and Non-NOM Market Makers is $0.50 per contract.
---------------------------------------------------------------------------
Second, the Exchange proposes to amend note 2 to Section 2(1) to
add a new incentive that would assess NOM Market Maker and Non-NOM
Market Maker a $0.32 per contract fee applicable to executions less
than 10,000 contracts provided the Participant adds 1.75% of Customer,
Professional, Firm, Broker-Dealer, or Non-NOM Market Maker liquidity in
Penny Pilot Options and/or Non-Penny Pilot Options of total industry
customer equity and ETF option ADV contracts per day in a month and the
Participant is (i) both the buyer and seller or (ii) the Participant
removes liquidity from another Participant under Common Ownership. This
proposal offers an $0.18 per contract discount from the current Penny
Pilot Options Fees for Removing Liquidity for NOM Market Maker and Non-
NOM Market Makers.\16\
---------------------------------------------------------------------------
\16\ Id.
---------------------------------------------------------------------------
The amendments proposed herein to note 2 to Section 2(1) would, for
executions less than 10,000 contracts, offer Participants two ways to
earn an $0.18 per contract discount from the current Penny Pilot
Options NOM Market Maker or Non-NOM Market Maker Fee for Removing
Liquidity by delivering a greater amount of Customer, Professional,
Firm, Broker-Dealer or Non-NOM Market Maker liquidity on NOM.\17\
---------------------------------------------------------------------------
\17\ For all executions 10,000 contracts or greater, a $0.48 per
contract fee will be applicable provided the Participant adds 1.30%
of Customer, Professional, Firm, Broker-Dealer, or Non-NOM Market
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of total industry customer equity and ETF option ADV
contracts per day in a month and the Participant is (i) both the
buyer and seller or (ii) the Participant removes liquidity from
another Participant under Common Ownership. This $0.48 fee
represents a $0.02 per contract discount from the current Penny
Pilot Options Fees for Removing Liquidity of $0.50 for NOM Market
Maker and Non-NOM Market Makers and represents no change from the
current Pricing Schedule.
---------------------------------------------------------------------------
Change 2: Non-Penny Pilot Options--Delete Note 4
Note 4 currently states that a Participant that qualifies for
Customer or Professional Penny Pilot Options Rebate to Add Liquidity
Tiers 2, 3, 4, 5, 6, 7, or 8 in a month will be assessed a Non-Penny
Pilot Options Fee for Removing Liquidity of $1.08 per contract in that
month. The Exchange proposes to remove note 4 from the Non-Penny Pilot
Options Fee for Removing Liquidity and at the same time proposes
additional ways to earn an enhanced discount on the NOM Market Maker
and Non-NOM Market Maker Penny Pilot Options Fee for Removing
Liquidity. The Exchange is incentivizing Participants to bring Penny
Pilot Options liquidity to the Exchange since Penny Pilot Options
represent the most highly-traded options in the market.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\18\ in general, and with Section 6(b)(4) and
6(b)(5) of the Act,\19\ 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.
Attracting order flow to the Exchange benefits all Participants who
have the opportunity to interact with this order flow.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \20\
---------------------------------------------------------------------------
\20\ Securities Exchange Act Release No. 51808 (June 29, 2005),
70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting
Release'') [sic].
---------------------------------------------------------------------------
Likewise, in NetCoalition v. Securities and Exchange Commission
\21\ (``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.\22\ 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.'' \23\
---------------------------------------------------------------------------
\21\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\22\ See id. at 534-535.
\23\ See 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'. . . .'' \24\ 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.
---------------------------------------------------------------------------
\24\ See id. at 539 (quoting Securities Exchange Act Commission
at [sic] Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-
74783 (December 9, 2008) (SR-NYSEArca-2006-21)).
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Change 1: Penny Pilot Options--Incentives To Earn Additional Discounts
on Fee for Removing Liquidity
The Exchange's proposal to amend note 2 to Section 2(1) to create
two new incentives that would assess NOM Market Maker and Non-NOM
Market Maker a $0.32 per contract fee applicable to executions less
than 10,000 contracts. The first new incentive is if the Participant
adds 1.50% of Customer, Professional, Firm, Broker-Dealer or Non-NOM
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of total industry customer equity and ETF option ADV contracts
per day in a month and the Participant meets or exceeds the cap for the
Nasdaq Stock Market Opening Cross and the Participant is (i) both the
buyer and
[[Page 41361]]
seller or (ii) the Participant removes liquidity from another
Participant under Common Ownership. The second new incentive is if the
Participant adds 1.75% of Customer, Professional, Firm, Broker-Dealer
or Non-NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of total industry customer equity and ETF option
ADV contracts per day in a month and the Participant is (i) both the
buyer and seller or (ii) the Participant removes liquidity from another
Participant under Common Ownership. The new incentives are reasonable,
equitable, and not unfairly discriminatory for the reasons that follow.
The Exchange believes that the new incentives will attract a
greater amount of order flow on NOM by offering a discounted rate.
Participants are provided additional opportunities to lower NOM Market
Maker and Non-NOM Market Maker fees when removing Penny Pilot Options
liquidity, thereby attracting order flow to the Exchange to the benefit
of all other market participants. Participants may send either Penny or
Non-Penny Pilot Options to qualify for the discount. All Participant
order flow that adds liquidity to the order book, other than NOM Market
Maker volume, will apply to the 1.50% or 1.75% threshold to qualify for
the discount. The Exchange believes that it is not necessary to count
NOM Market Maker volume toward the volume to qualify for the fee
discount because that volume is counted toward the qualifiers for the
NOM Market Maker rebates. The Exchange also believes, as discussed
below, that the proposal is reasonable in light of what is offered on
other exchanges and the Exchange's effort to bring Penny Pilot Options
liquidity to the Exchange.
Providing the discount to NOM Market Makers is equitable and not
unfairly discriminatory because NOM Market Makers obligations to the
market and regulatory requirements, which normally do not apply to
other market participants.\25\ A NOM Market Maker has the obligation,
for example, to make continuous markets, engage in a course of dealings
reasonably calculated to contribute to the maintenance of a fair and
orderly market, and not make bids or offers or enter into transactions
that are inconsistent with a course of dealings. The proposed
differentiation as between NOM Market Makers and other market
participants recognizes the differing contributions made to the trading
environment on the Exchange by NOM Market Makers. For the above
reasons, the Exchange believes that NOM Market Makers are entitled to
discounted fees, provided they qualify for the discount. The Exchange
believes it is equitable and not unfairly discriminatory to offer the
fee discount to Non-NOM Market Makers because the Exchange is offering
Participants flexibility in the manner in which they are submitting
their orders. Non-NOM Market Makers have obligations on other exchanges
to qualify as a market maker. Also, the Exchange believes that market
makers not registered on NOM will be encouraged to send orders to NOM
as an away market maker (Non-NOM Market Maker) with this incentive.
Because the incentive is being offered to both market makers registered
on NOM and those not registered on NOM, the Exchange believes that the
proposal is equitable and not unfairly discriminatory because it
encourages market makers to direct liquidity to NOM to the benefit of
all Participants. This proposal recognizes the overall contributions
made by market makers to a listed options market.
---------------------------------------------------------------------------
\25\ 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 [sic].
---------------------------------------------------------------------------
The Exchange's proposal to count all order flow (Penny and Non-
Penny Pilot Options) toward the 1.50% and 1.75% requisites for volume,
except for NOM Market Maker order flow, is reasonable, equitable, and
not unfairly discriminatory because NOM Market Makers continue to be
entitled to rebates today similar to Customers and Professionals.
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.'' \26\ 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.'' \27\ Further, the Exchange
noted in that filing that it believes that establishing separate
pricing for a Professional, which ranges between that of a Customer and
market maker, accomplishes this objective.\28\ The Exchange offers NOM
Market Makers rebates in acknowledgment of the obligations these
Participants bear in the market.\29\
---------------------------------------------------------------------------
\26\ 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.
\27\ See 76 FR 29014, 29015 (Professional Filing).
\28\ See 76 FR 29014 [sic] (Professional Filing). The Exchange
also noted 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.
\29\ See e.g., Chapter VII (Market Participants), Section 5
(Obligations of Market Makers).
---------------------------------------------------------------------------
The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to continue to permit NOM Participants under
Common Ownership to aggregate their volume for purposes of obtaining
the fee discount because certain NOM Participants chose to segregate
their businesses into different legal entities for purposes of
conducting business. The Exchange believes that, in terms of Common
Ownership, these NOM Participants should continue to be treated as one
entity for purposes of qualifying for the discounted Fee for Removing
Liquidity in Penny Pilot Options, as long as there is at least 75%
Common Ownership or control among the NOM Participants. The Exchange
also believes that it is reasonable, equitable and not unfairly
discriminatory to offer an $0.18 per contract discount of the Penny
Pilot Option Fee for Removing Liquidity to Non-NOM Market Makers and
NOM Market Makers for transactions in which the same NOM Participant or
a NOM Participant under Common Ownership is the buyer and the seller.
NOM Participants that chose to segregate their businesses into
different legal entities should still be afforded the opportunity to
receive the discount as if they were the same NOM Participant on both
sides of the transaction.
It is important to note that NOM Participants are unaware at the
time the order is entered of the identity of the contra-party. Because
contra-parties are anonymous, the Exchange believes that NOM
Participants would continue to aggressively pursue order flow in order
to receive the benefit of the fee discount. NOM Participants would
continue to only receive the incentive if they interact with their own
order flow, recognizing Common Ownership where applicable. Offering the
additional fee discount is reasonable, equitable and
[[Page 41362]]
not unfairly discriminatory because Participants would be entitled to
receive the fee discount only when the Participant is both the buyer
and seller. By way of example, if a NOM Participant that is assigned
the firm code \30\ ``ABC'' by the Exchange posted an order utilizing
its Customer order router, and the order was removed by an ABC NOM
Market Maker order, the NOM Participant would receive the proposed
$0.18 per contract fee discount for that trade,\31\ which would be
$0.16 more than the current $0.02 per contract discount. The Exchange
proposes to utilize the Exchange assigned firm code to determine which
NOM Participant executed an order and to apply the fee discount to the
Non-NOM Market Maker or NOM Market Maker Penny Pilot Option Fee for
Removing Liquidity if the same NOM Participant was the buyer and the
seller to a transaction.\32\ This concept is not novel. Today NASDAQ
PHLX LLC (``Phlx'') assesses a Firm Floor Options Transaction Charge
based on which side of the transaction the member represents as well
whether the same member or its affiliates under Common Ownership was
represented.\33\ Also today, NASDAQ BX Options (``BX Options'')
provides discounted Fees for Removing Liquidity for registered BX
Options Market Makers, based on Tier positions for the BX
Participant.\34\ The Exchange believes that the note 2 proposal is
reasonable in comparison to other exchanges and also because of its
decision to deploy Penny Pilot Options incentives in a concentrated
manner.
---------------------------------------------------------------------------
\30\ Each NOM Participant is assigned a firm code by the
Exchange.
\31\ The discount would be applicable to executions less than
10,000 contracts if: (a) the Participant adds 1.50% of Customer,
Professional, Firm, Broker-Dealer or Non-NOM Market Maker liquidity
in Penny Pilot Options and/or Non-Penny Pilot Options of total
industry customer equity and ETF option ADV contracts per day in a
month and the Participant meets or exceeds the cap for the Nasdaq
Stock Market Opening Cross and the Participant is (i) both the buyer
and seller or (ii) the Participant removes liquidity from another
Participant under Common Ownership; or (b) the Participant adds
1.75% of Customer, Professional, Firm, Broker-Dealer or Non-NOM
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of total industry customer equity and ETF option ADV
contracts per day in a month and the Participant is (i) both the
buyer and seller or (ii) the Participant removes liquidity from
another Participant under Common Ownership.
\32\ In this example, the same Participant that added and
removed the order would be entitled to the fee discount because the
NOM Participant was the buyer and seller (or removes liquidity from
another Participant under Common Ownership) on the transaction.
\33\ The Firm Floor Options Transaction Charges will be waived
for members executing facilitation orders pursuant to Phlx Rule 1064
when such members are trading in their own proprietary account
(including Cabinet Options Transaction Charges). The Firm Floor
Options Transaction Charges will be waived for the buy side of a
transaction if the same member or its affiliates under Common
Ownership represents both sides of a Firm transaction when such
members are trading in their own proprietary account. In addition,
the Broker-Dealer Floor Options Transaction Charge (including
Cabinet Options Transaction Charges) will be waived for members
executing facilitation orders pursuant to Exchange Rule 1064 when
such members would otherwise incur this charge for trading in their
own proprietary account contra to a Customer (``BD-Customer
Facilitation''), if the member's BD-Customer Facilitation average
daily volume (including both FLEX and non-FLEX transactions) exceeds
10,000 contracts per day in a given month. See Phlx's Pricing
Schedule.
\34\ The BX Options Select Symbols Fee to Remove Liquidity when
BX Options Market Maker trading with a Customer (``BX Options Fee'')
is generally inversely proportional to the BX Select Symbols Options
Tier Schedule, which requires additional liquidity with increased
Tiers. The BX Options Fee is, for example, $0.42 in Tier 1 and Tier
2, $0.39 in Tier 3, and $0.25 in Tier 4. The following are BX
Options Select Symbols: ASHR, DIA, DXJ, EEM, EFA, EWJ, EWT, EWW,
EWY, EWZ, FAS, FAZ, FXE, FXI, FXP, GDX, GLD, HYG, IWM, IYR, KRE,
OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SPY, SRS, SSO, TBT, TLT,
TNA, TZA, UNG, URE, USO, UUP, UVXY, UYG, VXX, XHB, XLB, XLE, XLF,
XLI, XLK, XLP, XLU, XLV, XLY, XME, XOP, XRT. See BX Options Pricing
Schedule.
---------------------------------------------------------------------------
Today the Exchange offers a $0.02 discount ($0.48 vs. $0.50 per
contract) in current note 2 of Chapter XV, Section 2(1) to Participants
that add 1.30% of Customer, Professional, Firm, Broker-Dealer, or Non-
NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options of total industry customer equity and ETF option ADV
contracts per day in a month when the Participant is (i) both the buyer
and the seller or (ii) the Participant removes liquidity from another
Participant under Common Ownership. The Exchange is proposing to offer
a deeper $0.18 discount ($0.32 vs. $0.50 per contract), for executions
less than 10,000 contracts,\35\ provided; (a.) the Participant adds
1.50% of Customer, Professional, Firm, Broker-Dealer or Non-NOM Market
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
of total industry customer equity and ETF option ADV contracts per day
in a month and the Participant meets or exceeds the cap for the Nasdaq
Stock Market Opening Cross and the Participant is (i) both the buyer
and seller or (ii) the Participant removes liquidity from another
Participant under Common Ownership; or (b.) the Participant adds 1.75%
of Customer, Professional, Firm, Broker-Dealer or Non-NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of
total industry customer equity and ETF option ADV contracts per day in
a month and the Participant is (i) both the buyer and seller or (ii)
the Participant removes liquidity from another Participant under Common
Ownership. The Exchange believes that it is reasonable to offer this
deeper discount when the Participant is both the buyer and the seller
(or removes liquidity from another Participant under Common Ownership)
because qualifying for the discount requires a NOM Participant to
commit a substantially larger volume of liquidity on NOM. This
significantly more substantial investment of order flow and liquidity
into the market is beneficial to all market participants, who are free
to interact with such order flow.
---------------------------------------------------------------------------
\35\ The intention of the new pricing discount is, as discussed,
to attract customer orders to the Exchange. We reviewed the minimum
and maximum execution size for year to date activity on the Exchange
order book and determined the 10,000 contract threshold was
equitable and reasonable as trades above this threshold are not
typical of customer orders.
---------------------------------------------------------------------------
The Exchange believes the proposed discount where Participant adds
1.50% of Customer, Professional, Firm, Broker-Dealer or Non-NOM Market
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
is reasonable, equitable, and not unfairly discriminatory. The Exchange
believes that the proposed change is reasonable because the methodology
used to qualify for the proposed discount includes the Participant
meeting or exceeding the cap for the Nasdaq Stock Market Opening Cross.
This concept is not novel as NOM currently uses the NASDAQ Stock Market
Closing Cross ``MOC'' and ``LOC'' % of total volume to determine the
NOM Participants Customer and Professional tier position.\36\ The
Exchange believes that incentivizing Participants to bring added
liquidity by meeting or exceeding the cap for the NASDAQ Stock Market
Opening Cross will benefit all Participants by providing greater
opportunity for price discovery and liquidity during the Opening Cross
process.
---------------------------------------------------------------------------
\36\ See, e.g., Securities Exchange Act Release No. 77661 (April
20, 2016), 81 FR 24668 (April 26, 2016) (SR-NASDAQ-2016-055) (notice
of filing and immediate effectiveness to amend options pricing at
NOM Chapter VX, Section 2).
---------------------------------------------------------------------------
Moreover, the condition to meet or exceed the cap for the Nasdaq
Stock Market Opening Cross is reasonable, equitable and not unfairly
discriminatory because it provides Participants that are not able to
meet the Opening Cross requirement and therefore are not able to
achieve the 1.75% tier [sic] an additional way in which to qualify for
the NOM Market Maker and Non-NOM Market Maker $0.32 per contract fee.
That is, a Participant unable to achieve the 1.75% tier [sic] can still
achieve the 1.50% tier
[[Page 41363]]
[sic] provided also that the Participant adds 1.50% [sic] of Customer,
Professional, Firm, Broker-Dealer or Non-NOM Market Maker liquidity in
Penny Pilot Options and/or Non-Penny Pilot Options of total industry
customer equity and ETF option ADV contracts per day in a month and the
Participant is (i) both the buyer and seller or (ii) the Participant
removes liquidity from another Participant under Common Ownership.
Like all of the changes proposed herein, this proposed change is
equitable and not unfairly discriminatory because it will apply
uniformly to all Participants.
Change 2: Non-Penny Pilot Options--Delete Note 4
In Change 2 the Exchange proposes to delete Note 4 which currently
indicates the assessment for Non-Penny Pilot Options Fee for Removing
Liquidity. The proposal is reasonable, equitable, and not unfairly
discriminatory for the reasons that follow.
The removal of note 4 is reasonable because it is proposed
commensurate with proposing two additional ways to earn an enhanced
discount on the NOM Market Maker and Non-NOM Market Maker Penny Pilot
Options Fee for Removing Liquidity in note 2. This is reasonable
because in its Fee Schedule the Exchanges is encouraging bringing Penny
Pilot Options liquidity to the Exchange. Since Penny Pilot Options
represent the most highly-traded and liquid options on the Exchange it
is reasonable for the exchange to make a concerted effort to bring
Penny Pilot Options liquidity to the Exchange. Participants are
provided additional opportunities to lower NOM Market Maker and Non-NOM
Market Maker fees when removing Penny Pilot Options liquidity, thereby
attracting order flow to the Exchange to the benefit of all other
market participants. Participants may send either Penny or Non-Penny
Pilot Options to qualify for the discount. All Participant order flow
that adds liquidity to the order book, other than NOM Market Maker
volume, will apply to the 1.50% or 1.75% threshold to qualify for the
discount. Additional order flow on the Exchange promotes interaction
with the added liquidity.
The Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory to offer the discounted remove fee in note 2
applicable to Penny Pilot Options without having an alternate fee in
note 4 applicable in Non-Penny Pilot Options because, as discussed,
Penny Pilot Options are clearly the highest volume, most liquid options
traded on the Exchange and the Exchange is promoting such liquidity.
Moreover, in light of the Exchange's effort to focus on Penny Pilot
Options liquidity on the Exchange, the proposal to discontinue note 4
regarding Non-Penny Pilot Options is equitable and not unfairly
discriminatory because it will apply uniformly to all Participants.
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 NOM Market Maker and
Non-NOM Market Maker Penny Pilot Options Fees for Removing Liquidity
seek to continue to incentivize Participants to send order flow to NOM.
The Exchange does not believe this proposal to add two incentives
imposes an undue burden on inter-market competition because the
Exchange's execution services are completely voluntary and subject to
extensive competition.
The Exchange's proposal to incentivize Participants by continuing
to offer the opportunity to reduce the NOM Market Maker and Non-NOM
Market Maker Penny Pilot Options Fees for Removing Liquidity and also
offering additional incentives to lower these fees from $0.50 to $0.32
per contract, does not create an undue burden on intra-market
competition for various reasons. NOM Market Makers have obligations to
the market and regulatory requirements,\37\ which, as discussed,
normally do not apply to other market participants. Offering the fee
discount to Non-NOM Market Makers provides Participants with
flexibility in the manner in which they are submitting their orders.
Non-NOM Market Makers have obligations on other exchanges to qualify as
a market maker. Also, the Exchange believes that market makers not
registered on NOM will be encouraged to send orders to NOM as an away
market maker (Non-NOM Market Maker) with this incentive. Because the
incentive is being offered to both market makers registered on NOM and
those not registered on NOM, the Exchange believes that the proposal
does not impose an undue burden on intra-market competition because it
encourages market makers to direct liquidity to NOM to the benefit of
all Participants.
---------------------------------------------------------------------------
\37\ See supra note 25.
---------------------------------------------------------------------------
Participants would be entitled to receive the fee discount when the
Participant is both the buyer and seller (or removes liquidity from
another Participant under Common Ownership) and therefore this
qualifier does not create an undue burden on intra-market competition.
NOM Participants are unaware at the time the order is entered of the
identity of the contra-party, therefore, since contra-parties are
anonymous, the Exchange believes that NOM Participants would
aggressively pursue order flow in order to receive the benefit of the
fee discount, to the benefit of all Participants.
The Exchange's proposal to continue to count all order flow toward
the 1.50% or 1.75% requisite volume discussed herein, except for NOM
Market Maker order flow, does not impose an undue burden on intra-
market competition. It is not necessary to count NOM Market Maker
volume in qualifying for the fee discount as that volume is counted
toward qualifying for NOM Market Maker rebates.
The Exchange believes that permitting NOM Participants with 75%
Common Ownership to aggregate their volume for purposes of obtaining
the fee discount does not create an undue burden on intra-market
competition because certain NOM Participants chose to segregate their
businesses into different legal entities for purposes of conducting
business. NOM Participants that chose to segregate their businesses
into different legal entities should still be afforded the opportunity
to receive the discount as if they were the same NOM Participant on
both sides of the transaction.
[[Page 41364]]
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.\38\
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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-2016-089 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-2016-089. 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-2016-089 and should
be submitted on or before July 15, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
---------------------------------------------------------------------------
\39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-14929 Filed 6-23-16; 8:45 am]
BILLING CODE 8011-01-P
