Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Affiliated Entities, 49288-49293 [2016-17666]
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
these proposed rule changes would
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes are not designed to
address any competitive issue but rather
to harmonize Exchange time-filing
requirements to a standard prevalent
among other exchanges and FINRA,
thereby reducing any potential
confusion and making the Exchange’s
rules easier to understand and navigate.
The Exchange believes that the
proposed rule changes would serve to
promote regulatory clarity and
consistency, thereby reducing burdens
on the marketplace and facilitating
investor protection.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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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–
NYSEArca–2016–103 on the subject
line.
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2016–103. 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–
NYSEArca–2016–103 and should be
submitted on or before August 17, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–17667 Filed 7–26–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78380; File No. SR–
NASDAQ–2016–090]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Related to
Affiliated Entities
July 21, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
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9 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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notice is hereby given that on July 11,
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NASDAQ Options Market LLC’s
(‘‘NOM’’) pricing at Chapter XV to
permit certain affiliated market
participants to aggregate eligible volume
for pricing in Chapter XV, Sections 2(1)
and 2(6), for which a volume threshold
or volume percentage is required to
obtain the pricing.
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 purpose of the proposed rule
change is to permit certain affiliated
market participants to aggregate volume
in Chapter XV, Sections 2(1) and 2(6),
for which a volume threshold or volume
percentage is required to qualify for
various pricing incentives. The
Exchange’s proposal is intended to
incentivize Participants to submit for
execution a greater amount of order flow
on NOM to obtain more advantageous
pricing.
Affiliated Entity
The Exchange proposes to add three
definitions to Chapter XV of NOM
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
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Rules. The Exchange proposes to define
the terms ‘‘Appointed MM,’’
‘‘Appointed OFP,’’ and ‘‘Affiliated
Entity.’’
The Exchange proposes to define the
term ‘‘Appointed MM’’ as a NOM
Market Maker 3 who has been appointed
by an Order Flow Provider (‘‘OFP’’) for
purposes of qualifying as an Affiliated
Entity. An OFP is a Participant, other
than a NOM Market Maker, that submits
orders, as agent or principal, to the
Exchange.4
The Exchange proposes to define the
term ‘‘Appointed OFP’’ as an OFP who
has been appointed by a NOM Market
Maker for purposes of qualifying as an
Affiliated Entity.
The Exchange proposes to define the
term ‘‘Affiliated Entity’’ as a
relationship between an Appointed MM
and an Appointed OFP for purposes of
aggregating eligible volume for pricing
in Chapter XV, Sections 2(1) and 2(6),
for which a volume threshold or volume
percentage is required to qualify for
higher rebates or lower fees.
In order to become an Affiliated
Entity, NOM Market Makers and OFPs
will be required to send an email to the
Exchange to appoint their counterpart,
at least 3 business days prior to the last
day of the month to qualify for the next
month.5 For example, with this
proposal, market participants may
submit emails to the Exchange to
become Affiliated Entities eligible to
qualify for discounted pricing starting
August 1, 2016, provided the emails are
sent at least 3 business days prior to the
first business day of August 2016. The
Exchange will acknowledge receipt of
the emails and specify the date the
Affiliated Entity is eligible for
applicable pricing in Chapter XV,
Section 2(1) and (6).
Each Affiliated Entity relationship
will commence on the 1st of a month
and may not be terminated prior to the
end of any month. An Affiliated Entity
relationship will terminate after a one
(1) year period, unless either party
3 The term ‘‘NOM Market Maker’’ or (‘‘M’’) is a
Participant that has registered as a Market Maker on
NOM pursuant to Chapter VII, Section 2, and must
also remain in good standing pursuant to Chapter
VII, Section 4. In order to receive NOM Market
Maker pricing in all securities, the Participant must
be registered as a NOM Market Maker in at least one
security.
4 Market Makers submitting quotes through SQF
or orders through OTTO to the Exchange shall not
be considered Appointed OFPs for the purpose of
becoming an Affiliated Entity.
5 The Exchange shall issue an Options Trader
Alert specifying the email address and details
required to apply to become an Affiliated Entity.
Once the Exchange receives both emails, from the
Affiliated [sic] MM and the Affiliated [sic] OFP, the
Exchange will send a confirming email with the
date of approval of the one (1) year term.
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terminates earlier in writing by sending
an email to the Exchange at least 3
business days prior to the last day of the
month to terminate for the next month.
Affiliated Entity relationships must be
renewed annually. For example, if the
start date of the Affiliated Entity
relationship is August 1, 2016, the
counterparties may determine to
commence a new relationship as of
August 1, 2017 by sending two new
emails by July 27, 2017 (3 business days
prior to the end of the month).
Participants under Common
Ownership 6 may not qualify as a
counterparty comprising an Affiliated
Entity. Each Participant may qualify for
only one (1) Affiliated Entity
relationship at any given time.
As proposed, an Affiliated Entity shall
be eligible to aggregate their volume for
purposes of qualifying for certain
pricing in Chapter XV, Sections 2(1) and
2(6) for which a volume threshold or
volume percentage is required to obtain
a higher rebate or lower fee. With this
proposal, Affiliated Entities will be
eligible to aggregate pricing in Chapter
XV, Section 2(1) in both Penny and
Non-Penny Pilot Options 7 and also
aggregate MARS Payments in Chapter
XV, Section 2(6).
Chapter XV, Section 2(1)—Penny Pilot
and Non-Penny Pilot Options Pricing
Currently, the Exchange offers
Customers,8 Professionals 9 and NOM
Market Makers the ability to obtain
higher Penny Pilot Options Rebates to
Add Liquidity with tiered pricing
models.10 The Exchange offers
additional volume incentives to
6 The term ‘‘Common Ownership’’ means
Participants under 75% common ownership or
control. See Chapter XV. Participants that are under
75% common ownership or control shall be
considered under Common Ownership for purposes
of pricing.
7 See NOM Rules at Section 2(1) of Chapter XV.
8 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)).
9 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.
10 For Customers and Professionals, there are
currently 8 Penny Pilot Options Rebate to Add
Liquidity Tiers for Customers and Professionals
with rebates that range from $0.20 to $0.48 per
contract. Additionally, notes c and d in Chapter XV,
Section 2(1) permit additional incentives based on
volume in the Customer and Professional Penny
Pilot Options Rebate to Add Liquidity tiers. For
NOM Market Makers, there are currently 6 Penny
Pilot Options Rebate to Add Liquidity Tiers with
rebates ranging from $0.20 to $0.42 per contract.
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Customers and Professionals in note 1 of
Chapter XV, Section 2(1) to increase the
Non-Penny Pilot Options Rebate to Add
Liquidity, provided certain
qualifications are met.11 The Exchange
also offers NOM Market Makers the
ability to obtain higher Penny Pilot
Options Rebates to Add Liquidity.12
Additionally, the Exchange also offers
additional volume incentives to NOM
Market Makers in note 2 of Chapter XV,
Section 2(1) to lower the Penny Pilot
Options Fee for Removing Liquidity.13
Note ‘‘c’’ of Chapter XV, Section 2(1) 14
11 Note 1 of Chapter XV, Section 2(1) states that
a Participant that qualifies for Customer or
Professional Penny Pilot Options Rebate to Add
Liquidity Tiers 2, 3, 4, 5 or 6 in a month will receive
an additional $0.10 per contract Non-Penny Pilot
Options Rebate to Add Liquidity for each
transaction which adds liquidity in Non-Penny
Pilot Options in that month. A Participant that
qualifies for Customer or Professional Penny Pilot
Options Rebate to Add Liquidity Tiers 7 or 8 in a
month will receive an additional $0.20 per contract
Non-Penny Pilot Options Rebate to Add Liquidity
for each transaction which adds liquidity in NonPenny Pilot Options in that month.
12 There are currently 6 Penny Pilot Options
Rebate to Add Liquidity Tiers for NOM Market
Makers with rebates that range from $0.20 to $0.42
per contract.
13 Note 2 of Chapter XV, Section 2(1) states that
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 will be subject to the following
pricing applicable to executions: A $0.48 per
contract Penny Pilot Options Fee for Removing
Liquidity when the Participant is (i) both the buyer
and the seller or (ii) the Participant removes
liquidity from another Participant under Common
Ownership. Participants that add 1.50% of
Customer, Professional, Firm, Broker-Dealer or NonNOM 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 meet or exceed
the cap for the NASDAQ Stock Market Opening
Cross during the month will be subject to the
following pricing applicable to executions less than
10,000 contracts: a $0.32 per contract Penny Pilot
Options Fee for Removing Liquidity when the
Participant is (i) both the buyer and seller or (ii) the
Participant removes liquidity from another
Participant under Common Ownership. Participants
that add 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 will be
subject to the following pricing applicable to
executions less than 10,000 contracts: a $0.32 per
contract Penny Pilot Options Fee for Removing
Liquidity when the Participant is (i) both the buyer
and seller or (ii) the Participant removes liquidity
from another Participant under Common
Ownership
14 Note ‘‘c’’ of Chapter XV, Section 2(1) provides,
‘‘Participants that: (1) Add Customer, Professional,
Firm, Non-NOM Market Maker and/or BrokerDealer liquidity in Penny Pilot Options and/or NonPenny 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 and/or Professional Rebate to Add
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
offers Participants an opportunity to
increase the Tier 8 Customer and
Professional Penny Pilot Options rebate,
provided certain qualifications are met.
This pricing is reflected at Chapter XV,
Section 2(1) and would be subject to
aggregation by Affiliated Entities.
The Exchange’s proposal would
incentivize certain Participants, who are
not by definition under Common
Ownership, to enter into an Affiliated
Entity relationship for the purpose of
aggregating volume to qualify for higher
rebates and lower fees. With this
proposal the Exchange is offering
Affiliated [sic] OFPs the ability to obtain
higher rebates and is also offering
Appointed MMs the ability to obtain
lower fees by aggregating volume at
Chapter XV, Section 2(1).
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Chapter XV, Section 2(6)—MARS
Pricing
The Exchange currently offers a
Market Access and Routing Subsidy or
‘‘MARS’’ to qualifying NOM
Participants in Chapter XV, Section
2(6).15 NOM Participants that have
System Eligibility and have executed
the requisite number of Eligible
Contracts in a month are paid rebates
based on average daily volume in a
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 1.30%
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 and/or Professional Rebate to
Add Liquidity for each transaction 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 0.80% of total industry customer
equity and ETF option ADV contracts per day in a
month, (b) add Customer, Professional, Firm, NonNOM Market Maker and/or Broker-Dealer liquidity
in Non-Penny Pilot Options above 0.15% of total
industry customer equity and ETF option ADV
contracts per day in a month, and (c) execute
greater than 0.04% of Consolidated Volume (‘‘CV’’)
via Market-on-Close/Limit-on-Close (‘‘MOC/LOC’’)
volume within the NASDAQ Stock Market Closing
Cross within a month will receive an additional
$0.05 per contract Penny Pilot Options Customer
and/or Professional Rebate to Add Liquidity for
each transaction which adds liquidity in Penny
Pilot Options in a month. Consolidated Volume
shall mean 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.’’
15 The Participant remains solely responsible for
implementing and operating its System, as that term
is defined in note 17 below.
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month. There is a 3 tiered rebate
schedule today for such MARS
rebates.16 MARS Payments are made to
NOM Participants that have System
Eligibility and have routed the requisite
number of Eligible Contracts daily in a
month, which were executed on NOM,
for the purpose of qualifying for the
MARS Payment.17
In note ‘‘d’’ of Chapter XV, Section
2(1), the Exchange also offers NOM
Participants that qualify for MARS
Payment Tiers 1, 2 or 3 an additional
$0.03 per contract Penny Pilot Options
Customer and/or Professional Rebate to
Add Liquidity for each transaction
which adds liquidity in Penny Pilot
Options in that month, in addition to
qualifying Penny Pilot Options
Customer and/or Professional Rebate to
Add Liquidity Tiers 1 through 8. NOM
Participants that qualify for a note ‘‘c’’
incentive receive the greater of the note
‘‘c’’ or note ‘‘d’’ incentive.18
The Exchange’s proposal would
incentivize certain Participants, who are
not by definition under Common
Ownership, to enter into an Affiliated
Entity relationship for the purpose of
aggregating volume to qualify for higher
MARS rebates. With this proposal the
Exchange is offering Affiliated [sic]
OFPs the ability to obtain higher MARS
rebates by aggregating volume with an
Affiliated [sic] MM with whom they are
qualified as an Affiliated Entity and also
be able to aggregate volume for purposes
16 NOM Participants that qualify for Customer
and Professional Penny Pilot Options Rebate to Add
Liquidity Tier 8 are eligible to receive $0.09 per
contract in addition to any MARS Payment tier on
MARS Eligible Contracts the NOM Participant
qualifies for in a given month. Also, note 4 of
Chapter XV, Section 2(1) permits NOM Participants
that qualify for MARS Payment Tiers 1, 2 or 3 to
receive a Customer and Professional Penny Pilot
Options Fee for Removing Liquidity of $0.48 per
contract when removing Customer and Professional
liquidity in Penny Pilot Options, excluding SPY.
17 To qualify for MARS, the NOM Participant’s
routing system (‘‘System’’) would be required to
meet the following criteria: (1) Enable the electronic
routing of orders to all of the U.S. options
exchanges, including NOM; (2) provide current
consolidated market data from the U.S. options
exchanges; and (3) be capable of interfacing with
NOM’s API to access current NOM match engine
functionality. Also, the Participant’s System would
also need to cause NOM to be the one of the top
three default destination exchanges for individually
executed marketable orders if NOM is at the
national best bid or offer (‘‘NBBO’’), regardless of
size or time, but allow any user to manually
override NOM as a default destination on an orderby-order basis (‘‘System Eligibility’’). Any NOM
Participant would be permitted to avail itself of this
arrangement, provided that its order routing
functionality meets the requirements described
herein and satisfies NOM that it appears to be
robust and reliable. Eligible Contracts do not
include Mini Option orders. A NOM Participant is
not be entitled to receive any other revenue for the
use of its System specifically with respect to orders
routed to NOM.
18 See note 14 above.
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of qualifying for the Chapter XV,
Section 2(1) note ‘‘d’’ rebate.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Pricing Schedule
is consistent with Section 6(b) of the
Act,19 in general, and furthers the
objectives of Section 6(b)(4) and (b)(5) of
the Act,20 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.
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.’’ 21
Likewise, in NetCoalition v. Securities
and Exchange Commission 22
(‘‘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.23 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.’’ 24
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
19 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
21 Securities Exchange Act Release No. 51808
(June 29, 2005), 70 FR 37496 at 37499 (File No. S7–
10–04) (‘‘Regulation NMS Adopting Release’’).
22 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
23 See id. at 534–535.
24 See id. at 537.
20 15
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
the execution of order flow from broker
dealers’ . . . .’’ 25 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.
The Exchange’s proposal to amend
Chapter XV to add the definitions of
‘‘Appointed MM,’’ ‘‘Appointed OFP’’
and ‘‘Affiliated Entity’’ is reasonable
because the Exchange is proposing to
identify the applicable market
participants that may qualify to
aggregate volume as an Affiliated Entity.
Further the Exchange seeks to make
clear the manner in which Participants
may participate on the Exchange as
Affiliated Entities by setting timeframes
for communicating agreements among
market participants and terms of early
termination. The Exchange also clearly
states that no Participant under
Common Ownership may become a
counterparty to an Affiliated Entity. Any
Participant who meets the definition of
Common Ownership shall not be
eligible to become an Affiliated Entity.
The Exchange believes that these terms
are reasonable because they would
allow Participants to elect to become a
counterparty to an Affiliated Entity,
provided they are not under Common
Ownership.
The Exchange’s proposal to amend
Chapter XV to add the definitions of
‘‘Appointed MM,’’ ‘‘Appointed OFP’’
and ‘‘Affiliated Entity’’ is equitable and
not unreasonably discriminatory
because all Participants that are not
under Common Ownership by
definition may choose to enter into an
Affiliated Entity relationship.
sradovich on DSK3GMQ082PROD with NOTICES
Chapter XV, Section 2(1)—Penny Pilot
and Non-Penny Pilot Options Pricing
The Exchange’s proposal to permit
Affiliated Entities to aggregate volume
for purposes of qualifying Appointed
OFPs for higher Penny Pilot and NonPenny Pilot Options rebates and
qualifying Appointed MMs for lower
fees in Chapter XV, Section 2(1) and the
note ‘‘c’’ incentive is reasonable because
it will attract additional Customer and
non-Customer order flow to the
Exchange. Customer liquidity benefits
all market participants by providing
more trading opportunities, which
attracts NOM Market Makers. An
increase in the activity of these market
participants in turn facilitates tighter
spreads, which may cause an additional
corresponding increase in order flow
from other market participants. Also,
25 See id. at 539 (quoting Securities Exchange Act
Commission at Release No. 59039 (December 2,
2008), 73 FR 74770 at 74782–74783 (December 9,
2008) (SR–NYSEArca–2006–21)).
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the Exchange is incentivizing
Participants to send non-Customer order
flow to NOM, which order flow will
benefit all Participants because they
may interact with the liquidity. Market
participants directing order flow as
OFPs may be eligible to qualify for
higher rebates with this proposal as a
result of aggregating volume with an
Appointed MM and thereby qualifying
for higher rebates. Permitting
Participants to affiliate for purposes of
qualifying Appointed OFPs for higher
rebates and qualifying Appointed MMs
for lower fees may also encourage
Affiliated Entities to incentivize each
other to attract and seek to execute more
volume on NOM. In turn, market
participants would benefit from the
increased liquidity with which to
interact, potentially tighter spreads on
orders. Overall, incentivizing market
participants with increased
opportunities to earn higher or lower
fees may increase the quality of the
liquidity available on NOM.
The Exchange’s proposal to permit
Affiliated Entities to aggregate volume
for purposes of qualifying Appointed
OFPs for higher Penny Pilot and NonPenny Pilot Options rebates and
qualifying Appointed MMs for lower
fees in Chapter XV, Section 2(1) and the
note ‘‘c’’ incentive is equitable and not
unfairly discriminatory because all
NOM Participants, other than those that
meet the definition of Common
Ownership, may elect to become an
Affiliated Entity as either an Appointed
MM or an Appointed OFP.26 Also, each
NOM Participant may participate in
only one Affiliated Entity relationship at
a given time, which imposes a measure
of exclusivity among market
participants, allowing each party to rely
on the other’s executed volume on NOM
to receive a corresponding benefit in
terms of a higher rebate or lower fee.
Any market participant that by
definition is not under Common
Ownership may elect to become a
counterparty of an Affiliated Entity.
Also, NOM Market Makers are valuable
market participants that provide
liquidity in the marketplace and incur
costs that other market participants do
not incur. NOM Market Makers are
subject to burdensome quoting
obligations 27 to the market that do not
apply to other market participants.
Incentivizing these market participants
to execute volume on NOM may result
in tighter spreads.
The Exchange’s proposal to exclude
Participants that are under Common
Ownership from qualifying as an
Affiliated Entity is reasonable because
Participants under Common Ownership
may aggregate volume today for
purposes of Chapter XV, Section 2(1)
pricing.28 The Exchange’s proposal to
exclude Participants that by definition
are under Common Ownership from
qualifying as an Affiliated Entity is
equitable and not unfairly
discriminatory because the Exchange
will apply all qualifications in a
uniform manner when approving
Affiliated Entities. Excluding
Participants under Common Ownership
from also qualifying as an Affiliated
Entity is equitable and not unfairly
discriminatory because they are able to
aggregate volume today and qualify for
higher rebates or lower fees.
26 Both Participants must elect each other to
qualify as an Affiliated Entity for one year.
Participation is effected by an agreement of both
parties. One party may elect terminate the
agreement at any time.
27 Pursuant to NOM Rules at Chapter VII, Section
5, entitled ‘‘Obligations of Market Makers’’, in
registering as a market maker, an Options
Participant commits himself to various obligations.
Transactions of a NOM Market Maker 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 2.
28 See NOM Rules at Chapter XV for Common
Ownership.
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Chapter XV, Section 2(6)—MARS
Pricing
The Exchange’s proposal to permit
NOM Participants that provide certain
order routing functionalities to other
NOM Participants and/or use such
functionalities themselves, and meet
certain System Eligibility, to aggregate
volume as an Affiliated Entity for
purposes of receiving MARS Payments
including the note ‘‘d’’ incentive is
reasonable because NOM Participants
will be incentivized to send more order
flow to NOM. MARS Payments are
made on Firm, Non-NOM Market
Maker, Broker-Dealer and JBO equity
option orders that add liquidity and are
electronically delivered and executed.
All Participants may benefit from the
increased order flow because they may
interact with this liquidity. Permitting
NOM Participants to affiliate for
purposes of qualifying Appointed OFPs
for higher MARS rebates may also
encourage Affiliated Entities to
incentivize each other to attract and
seek to execute more volume on NOM.
The Affiliated Entity relationship would
permit the Appointed OFP to benefit
from orders executed on NOM in terms
of qualifying for higher MARS rebates.
In turn, market participants would
benefit from the increased liquidity with
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sradovich on DSK3GMQ082PROD with NOTICES
which to interact, potentially tighter
spreads on orders.
The Exchange’s proposal to permit
NOM Participants that provide certain
order routing functionalities to other
NOM Participants and/or use such
functionalities themselves, and meet
certain System Eligibility, to aggregate
volume as an Affiliated Entity for
purposes of receiving MARS Payments
including the note ‘‘d’’ incentive is
equitable and not unfairly
discriminatory because all NOM
Participants, other than those that meet
the definition of Common Ownership,
may qualify as an Affiliated Entity as
either an Appointed MM or an
Appointed OFP. Also, all NOM
Participants may qualify for a MARS
Payment provided they meet applicable
System Eligibility requirements. NOM
Participants may participate in only one
Affiliated Entity relationship at a given
time, which imposes a measure of
exclusivity among market participants,
allowing each party to rely on the
other’s executed volume on NOM to
receive a corresponding benefit in terms
of a rebate. The Exchange will apply all
qualifications in a uniform manner to all
market participants that elect to become
counterparties of an Affiliated Entity.
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. Specifically,
the Exchange does not believe that
permitting Affiliated Entities to
aggregate volume to qualify for certain
rebates and reduced fees will impose
any undue burden on competition, as
discussed below.
The Exchange operates in a highly
competitive market in which many
sophisticated and knowledgeable
market participants can readily and do
send order flow to competing exchanges
if they deem fee levels or rebate
incentives at a particular exchange to be
excessive or inadequate. Additionally,
new competitors have entered the
market and still others are reportedly
entering the market shortly. These
market forces ensure that the Exchange’s
fees and rebates remain competitive
with the fee structures at other trading
platforms.
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
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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 sum, if the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share as a
result. Accordingly, the Exchange does
not believe that the proposed changes
will impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets. In terms of intermarket competition, the Exchange notes
that other options markets have similar
incentives in place to attract volume to
their markets.29
The Exchange’s proposal to amend
Chapter XV to add the definitions of
‘‘Appointed MM,’’ ‘‘Appointed OFP,’’
and ‘‘Affiliated Entity’’ does not impose
an undue burden on competition
because these definitions apply to all
Participants uniformly.
Chapter XV, Section 2(1)—Penny Pilot
and Non-Penny Pilot Options Pricing
In terms of intra-market competition,
the Exchange does not believe that its
proposal to permit counterparties of an
Affiliated Entities to aggregate volume
for purposes of qualifying for Chapter
XV, Section 2(1) higher rebates and
lower fees and the note ‘‘c’’ incentive
imposes an undue burden on intramarket competition because all NOM
Participants, other than those under
Common Ownership, may qualify as an
Affiliated Entity as either an Appointed
MM or an Appointed OFP. Also, each
NOM Participant may participate in
only one Affiliated Entity relationship at
29 See NYSE MKT LLC’s (‘‘NYSE Amex’’) pricing
at NYSE Amex Options Fee Schedule). NYSE Amex
permits aggregation of volume to qualify for the
Amex Customer Engagement or ACE Program. See
Bats BZX Exchange, Inc.’s (‘‘BZX’’) fee schedule.
BZX permits aggregation of volume to qualify for
tiered pricing. See the Chicago Board Options
Exchange Incorporated (‘‘CBOE’’) Fees Schedule.
CBOE permits aggregation of volume to qualify for
credits available under an Affiliated Volume Plan
or ‘‘AVP.’’
PO 00000
Frm 00085
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Sfmt 4703
a given time, which imposes a measure
of exclusivity among market
participants, allowing each party to rely
on the other’s executed NOM volume on
NOM to receive a corresponding benefit
in terms of a higher rebate or lower fee.
The Exchange will apply all
qualifications in a uniform manner to all
market participants that elect to become
counterparties of an Affiliated Entity.
Any market participant that by
definition is a Participant under
Common Ownership may not become a
counterparty of an Affiliated Entity.
Also, NOM Market Makers are
valuable market participants that
provide liquidity in the marketplace and
incur costs that other market
participants do not incur. NOM Market
Makers are subject to burdensome
quoting obligations 30 to the market that
do not apply to other market
participants. Incentivizing these market
participants to execute Customer and
Professional volume on NOM may result
in tighter spreads. An increase in the
activity of these market participants in
turn facilitates tighter spreads, which
may cause an additional corresponding
increase in order flow from other market
participants. Appointed OFPs directing
order flow to the Exchange may be
eligible to qualify for a higher rebate and
Appointed MMs may be eligible to
qualify for lower fees, with this
proposal, as a result of aggregating
volume. Permitting Participants to
affiliate for purposes of qualifying for
Chapter XV, Section 2(1) higher rebates
or lower fees may also encourage the
counterparties that comprise the
Affiliated Entities to incentivize each
other to attract and seek to execute more
volume on NOM.
The Exchange’s proposal to exclude
Participants that are under Common
Ownership from becoming an Affiliated
Entity does not impose and [sic] undue
burden on intra-market competition
because Participants under Common
Ownership may aggregate volume today
for purposes of qualifying for higher
rebates or lower fees.
Chapter XV, Section 2(6) –MARS
Pricing
In terms of intra-market competition,
the Exchange does not believe that its
proposal to permit Affiliated Entities to
aggregate volume for purposes of
qualifying for Chapter XV, Section 2(6)
MARS rebates and the note ‘‘d’’
incentive imposes an undue burden on
intra-market competition because all
NOM Participants, other than those
under Common Ownership, may qualify
as an Affiliated Entity as either an
30 See
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27JYN1
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Appointed MM or an Appointed OFP.
Also, all NOM Participants may qualify
for a MARS Payment provided they
meet applicable System Eligibility
requirements. NOM Participants may
participate in only one Affiliated Entity
relationship at a given time, which
imposes a measure of exclusivity among
market participants, allowing each party
to rely on the other’s executed volume
on NOM to receive a corresponding
benefit in terms of a rebate. The
Exchange will apply all qualifications in
a uniform manner to all market
participants that elect to become
counterparties of an Affiliated Entity.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.31
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (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
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–17666 Filed 7–26–16; 8:45 am]
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–2016–090 on the subject line.
sradovich on DSK3GMQ082PROD with NOTICES
All submissions should refer to File
Number SR–NASDAQ–2016–090. 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–2016–090 and should be
submitted on or before August 17, 2016.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78382; File No. SR–Phlx–
2016–62]
Self-Regulatory Organizations;
NASDAQ PHLX LLC; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Related to
Affiliated Entities
July 21, 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 July 15,
2016, NASDAQ PHLX LLC (‘‘Phlx’’ or
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
31 15
U.S.C. 78s(b)(3)(A)(ii).
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49293
‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Preface, Section B and Section II of the
Exchange’s Pricing Schedule to permit
certain affiliated market participants to
aggregate volume and qualify for various
pricing incentives in the Pricing
Schedule.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqphlx.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 purpose of the proposed rule
change is to permit certain affiliated
market participants to aggregate volume
and qualify for various pricing
incentives in the Pricing Schedule.
Specifically, the Exchange proposes to
amend the Pricing Schedule at Section
B, Customer 3 Rebates and at Section II,
Multiply-Listed Options Fees,4 to offer
3 The term ‘‘Customer’’ applies to any transaction
that is identified by a member or member
organization for clearing in the Customer range at
The Options Clearing Corporation which is not for
the account of a broker or dealer or for the account
of a ‘‘Professional’’ (as that term is defined in Rule
1000(b)(14)).
4 These fees include options overlying equities,
ETFs, ETNs and indexes which are Multiply Listed.
E:\FR\FM\27JYN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)]
[Notices]
[Pages 49288-49293]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17666]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78380; File No. SR-NASDAQ-2016-090]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Related to Affiliated Entities
July 21, 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 July 11, 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 the NASDAQ Options Market LLC's
(``NOM'') pricing at Chapter XV to permit certain affiliated market
participants to aggregate eligible volume for pricing in Chapter XV,
Sections 2(1) and 2(6), for which a volume threshold or volume
percentage is required to obtain the pricing.
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 purpose of the proposed rule change is to permit certain
affiliated market participants to aggregate volume in Chapter XV,
Sections 2(1) and 2(6), for which a volume threshold or volume
percentage is required to qualify for various pricing incentives. The
Exchange's proposal is intended to incentivize Participants to submit
for execution a greater amount of order flow on NOM to obtain more
advantageous pricing.
Affiliated Entity
The Exchange proposes to add three definitions to Chapter XV of NOM
[[Page 49289]]
Rules. The Exchange proposes to define the terms ``Appointed MM,''
``Appointed OFP,'' and ``Affiliated Entity.''
The Exchange proposes to define the term ``Appointed MM'' as a NOM
Market Maker \3\ who has been appointed by an Order Flow Provider
(``OFP'') for purposes of qualifying as an Affiliated Entity. An OFP is
a Participant, other than a NOM Market Maker, that submits orders, as
agent or principal, to the Exchange.\4\
---------------------------------------------------------------------------
\3\ The term ``NOM Market Maker'' or (``M'') is a Participant
that has registered as a Market Maker on NOM pursuant to Chapter
VII, Section 2, and must also remain in good standing pursuant to
Chapter VII, Section 4. In order to receive NOM Market Maker pricing
in all securities, the Participant must be registered as a NOM
Market Maker in at least one security.
\4\ Market Makers submitting quotes through SQF or orders
through OTTO to the Exchange shall not be considered Appointed OFPs
for the purpose of becoming an Affiliated Entity.
---------------------------------------------------------------------------
The Exchange proposes to define the term ``Appointed OFP'' as an
OFP who has been appointed by a NOM Market Maker for purposes of
qualifying as an Affiliated Entity.
The Exchange proposes to define the term ``Affiliated Entity'' as a
relationship between an Appointed MM and an Appointed OFP for purposes
of aggregating eligible volume for pricing in Chapter XV, Sections 2(1)
and 2(6), for which a volume threshold or volume percentage is required
to qualify for higher rebates or lower fees.
In order to become an Affiliated Entity, NOM Market Makers and OFPs
will be required to send an email to the Exchange to appoint their
counterpart, at least 3 business days prior to the last day of the
month to qualify for the next month.\5\ For example, with this
proposal, market participants may submit emails to the Exchange to
become Affiliated Entities eligible to qualify for discounted pricing
starting August 1, 2016, provided the emails are sent at least 3
business days prior to the first business day of August 2016. The
Exchange will acknowledge receipt of the emails and specify the date
the Affiliated Entity is eligible for applicable pricing in Chapter XV,
Section 2(1) and (6).
---------------------------------------------------------------------------
\5\ The Exchange shall issue an Options Trader Alert specifying
the email address and details required to apply to become an
Affiliated Entity. Once the Exchange receives both emails, from the
Affiliated [sic] MM and the Affiliated [sic] OFP, the Exchange will
send a confirming email with the date of approval of the one (1)
year term.
---------------------------------------------------------------------------
Each Affiliated Entity relationship will commence on the 1st of a
month and may not be terminated prior to the end of any month. An
Affiliated Entity relationship will terminate after a one (1) year
period, unless either party terminates earlier in writing by sending an
email to the Exchange at least 3 business days prior to the last day of
the month to terminate for the next month. Affiliated Entity
relationships must be renewed annually. For example, if the start date
of the Affiliated Entity relationship is August 1, 2016, the
counterparties may determine to commence a new relationship as of
August 1, 2017 by sending two new emails by July 27, 2017 (3 business
days prior to the end of the month). Participants under Common
Ownership \6\ may not qualify as a counterparty comprising an
Affiliated Entity. Each Participant may qualify for only one (1)
Affiliated Entity relationship at any given time.
---------------------------------------------------------------------------
\6\ The term ``Common Ownership'' means Participants under 75%
common ownership or control. See Chapter XV. Participants that are
under 75% common ownership or control shall be considered under
Common Ownership for purposes of pricing.
---------------------------------------------------------------------------
As proposed, an Affiliated Entity shall be eligible to aggregate
their volume for purposes of qualifying for certain pricing in Chapter
XV, Sections 2(1) and 2(6) for which a volume threshold or volume
percentage is required to obtain a higher rebate or lower fee. With
this proposal, Affiliated Entities will be eligible to aggregate
pricing in Chapter XV, Section 2(1) in both Penny and Non-Penny Pilot
Options \7\ and also aggregate MARS Payments in Chapter XV, Section
2(6).
---------------------------------------------------------------------------
\7\ See NOM Rules at Section 2(1) of Chapter XV.
---------------------------------------------------------------------------
Chapter XV, Section 2(1)--Penny Pilot and Non-Penny Pilot Options
Pricing
Currently, the Exchange offers Customers,\8\ Professionals \9\ and
NOM Market Makers the ability to obtain higher Penny Pilot Options
Rebates to Add Liquidity with tiered pricing models.\10\ The Exchange
offers additional volume incentives to Customers and Professionals in
note 1 of Chapter XV, Section 2(1) to increase the Non-Penny Pilot
Options Rebate to Add Liquidity, provided certain qualifications are
met.\11\ The Exchange also offers NOM Market Makers the ability to
obtain higher Penny Pilot Options Rebates to Add Liquidity.\12\
Additionally, the Exchange also offers additional volume incentives to
NOM Market Makers in note 2 of Chapter XV, Section 2(1) to lower the
Penny Pilot Options Fee for Removing Liquidity.\13\ Note ``c'' of
Chapter XV, Section 2(1) \14\
[[Page 49290]]
offers Participants an opportunity to increase the Tier 8 Customer and
Professional Penny Pilot Options rebate, provided certain
qualifications are met. This pricing is reflected at Chapter XV,
Section 2(1) and would be subject to aggregation by Affiliated
Entities.
---------------------------------------------------------------------------
\8\ 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)).
\9\ 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.
\10\ For Customers and Professionals, there are currently 8
Penny Pilot Options Rebate to Add Liquidity Tiers for Customers and
Professionals with rebates that range from $0.20 to $0.48 per
contract. Additionally, notes c and d in Chapter XV, Section 2(1)
permit additional incentives based on volume in the Customer and
Professional Penny Pilot Options Rebate to Add Liquidity tiers. For
NOM Market Makers, there are currently 6 Penny Pilot Options Rebate
to Add Liquidity Tiers with rebates ranging from $0.20 to $0.42 per
contract.
\11\ Note 1 of Chapter XV, Section 2(1) states that a
Participant that qualifies for Customer or Professional Penny Pilot
Options Rebate to Add Liquidity Tiers 2, 3, 4, 5 or 6 in a month
will receive an additional $0.10 per contract Non-Penny Pilot
Options Rebate to Add Liquidity for each transaction which adds
liquidity in Non-Penny Pilot Options in that month. A Participant
that qualifies for Customer or Professional Penny Pilot Options
Rebate to Add Liquidity Tiers 7 or 8 in a month will receive an
additional $0.20 per contract Non-Penny Pilot Options Rebate to Add
Liquidity for each transaction which adds liquidity in Non-Penny
Pilot Options in that month.
\12\ There are currently 6 Penny Pilot Options Rebate to Add
Liquidity Tiers for NOM Market Makers with rebates that range from
$0.20 to $0.42 per contract.
\13\ Note 2 of Chapter XV, Section 2(1) states that 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 will be subject to the following
pricing applicable to executions: A $0.48 per contract Penny Pilot
Options Fee for Removing Liquidity when the Participant is (i) both
the buyer and the seller or (ii) the Participant removes liquidity
from another Participant under Common Ownership. Participants that
add 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 meet or exceed the cap for the
NASDAQ Stock Market Opening Cross during the month will be subject
to the following pricing applicable to executions less than 10,000
contracts: a $0.32 per contract Penny Pilot Options Fee for Removing
Liquidity when the Participant is (i) both the buyer and seller or
(ii) the Participant removes liquidity from another Participant
under Common Ownership. Participants that add 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 will be subject to the following pricing applicable to
executions less than 10,000 contracts: a $0.32 per contract Penny
Pilot Options Fee for Removing Liquidity when the Participant is (i)
both the buyer and seller or (ii) the Participant removes liquidity
from another Participant under Common Ownership
\14\ Note ``c'' of Chapter XV, Section 2(1) provides,
``Participants 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 and/or Professional 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 1.30% 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 and/or
Professional Rebate to Add Liquidity for each transaction 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 0.80% of total industry customer equity and ETF option
ADV contracts per day in a month, (b) add Customer, Professional,
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Non-
Penny Pilot Options above 0.15% of total industry customer equity
and ETF option ADV contracts per day in a month, and (c) execute
greater than 0.04% of Consolidated Volume (``CV'') via Market-on-
Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ Stock
Market Closing Cross within a month will receive an additional $0.05
per contract Penny Pilot Options Customer and/or Professional Rebate
to Add Liquidity for each transaction which adds liquidity in Penny
Pilot Options in a month. Consolidated Volume shall mean 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.''
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The Exchange's proposal would incentivize certain Participants, who
are not by definition under Common Ownership, to enter into an
Affiliated Entity relationship for the purpose of aggregating volume to
qualify for higher rebates and lower fees. With this proposal the
Exchange is offering Affiliated [sic] OFPs the ability to obtain higher
rebates and is also offering Appointed MMs the ability to obtain lower
fees by aggregating volume at Chapter XV, Section 2(1).
Chapter XV, Section 2(6)--MARS Pricing
The Exchange currently offers a Market Access and Routing Subsidy
or ``MARS'' to qualifying NOM Participants in Chapter XV, Section
2(6).\15\ NOM Participants that have System Eligibility and have
executed the requisite number of Eligible Contracts in a month are paid
rebates based on average daily volume in a month. There is a 3 tiered
rebate schedule today for such MARS rebates.\16\ MARS Payments are made
to NOM Participants that have System Eligibility and have routed the
requisite number of Eligible Contracts daily in a month, which were
executed on NOM, for the purpose of qualifying for the MARS
Payment.\17\
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\15\ The Participant remains solely responsible for implementing
and operating its System, as that term is defined in note 17 below.
\16\ NOM Participants that qualify for Customer and Professional
Penny Pilot Options Rebate to Add Liquidity Tier 8 are eligible to
receive $0.09 per contract in addition to any MARS Payment tier on
MARS Eligible Contracts the NOM Participant qualifies for in a given
month. Also, note 4 of Chapter XV, Section 2(1) permits NOM
Participants that qualify for MARS Payment Tiers 1, 2 or 3 to
receive a Customer and Professional Penny Pilot Options Fee for
Removing Liquidity of $0.48 per contract when removing Customer and
Professional liquidity in Penny Pilot Options, excluding SPY.
\17\ To qualify for MARS, the NOM Participant's routing system
(``System'') would be required to meet the following criteria: (1)
Enable the electronic routing of orders to all of the U.S. options
exchanges, including NOM; (2) provide current consolidated market
data from the U.S. options exchanges; and (3) be capable of
interfacing with NOM's API to access current NOM match engine
functionality. Also, the Participant's System would also need to
cause NOM to be the one of the top three default destination
exchanges for individually executed marketable orders if NOM is at
the national best bid or offer (``NBBO''), regardless of size or
time, but allow any user to manually override NOM as a default
destination on an order-by-order basis (``System Eligibility''). Any
NOM Participant would be permitted to avail itself of this
arrangement, provided that its order routing functionality meets the
requirements described herein and satisfies NOM that it appears to
be robust and reliable. Eligible Contracts do not include Mini
Option orders. A NOM Participant is not be entitled to receive any
other revenue for the use of its System specifically with respect to
orders routed to NOM.
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In note ``d'' of Chapter XV, Section 2(1), the Exchange also offers
NOM Participants that qualify for MARS Payment Tiers 1, 2 or 3 an
additional $0.03 per contract Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity for each transaction which adds
liquidity in Penny Pilot Options in that month, in addition to
qualifying Penny Pilot Options Customer and/or Professional Rebate to
Add Liquidity Tiers 1 through 8. NOM Participants that qualify for a
note ``c'' incentive receive the greater of the note ``c'' or note
``d'' incentive.\18\
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\18\ See note 14 above.
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The Exchange's proposal would incentivize certain Participants, who
are not by definition under Common Ownership, to enter into an
Affiliated Entity relationship for the purpose of aggregating volume to
qualify for higher MARS rebates. With this proposal the Exchange is
offering Affiliated [sic] OFPs the ability to obtain higher MARS
rebates by aggregating volume with an Affiliated [sic] MM with whom
they are qualified as an Affiliated Entity and also be able to
aggregate volume for purposes of qualifying for the Chapter XV, Section
2(1) note ``d'' rebate.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act,\19\ in general,
and furthers the objectives of Section 6(b)(4) and (b)(5) of the
Act,\20\ 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.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(4), (5).
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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, 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.'' \21\
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\21\ Securities Exchange Act Release No. 51808 (June 29, 2005),
70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\22\ (``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.\23\ 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.'' \24\
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\22\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\23\ See id. at 534-535.
\24\ 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
[[Page 49291]]
the execution of order flow from broker dealers' . . . .'' \25\
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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\25\ See id. at 539 (quoting Securities Exchange Act Commission
at Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-74783
(December 9, 2008) (SR-NYSEArca-2006-21)).
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The Exchange's proposal to amend Chapter XV to add the definitions
of ``Appointed MM,'' ``Appointed OFP'' and ``Affiliated Entity'' is
reasonable because the Exchange is proposing to identify the applicable
market participants that may qualify to aggregate volume as an
Affiliated Entity. Further the Exchange seeks to make clear the manner
in which Participants may participate on the Exchange as Affiliated
Entities by setting timeframes for communicating agreements among
market participants and terms of early termination. The Exchange also
clearly states that no Participant under Common Ownership may become a
counterparty to an Affiliated Entity. Any Participant who meets the
definition of Common Ownership shall not be eligible to become an
Affiliated Entity. The Exchange believes that these terms are
reasonable because they would allow Participants to elect to become a
counterparty to an Affiliated Entity, provided they are not under
Common Ownership.
The Exchange's proposal to amend Chapter XV to add the definitions
of ``Appointed MM,'' ``Appointed OFP'' and ``Affiliated Entity'' is
equitable and not unreasonably discriminatory because all Participants
that are not under Common Ownership by definition may choose to enter
into an Affiliated Entity relationship.
Chapter XV, Section 2(1)--Penny Pilot and Non-Penny Pilot Options
Pricing
The Exchange's proposal to permit Affiliated Entities to aggregate
volume for purposes of qualifying Appointed OFPs for higher Penny Pilot
and Non-Penny Pilot Options rebates\\\ and qualifying Appointed MMs for
lower fees in Chapter XV, Section 2(1) and the note ``c'' incentive is
reasonable because it will attract additional Customer and non-Customer
order flow to the Exchange. Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
NOM Market Makers. An increase in the activity of these market
participants in turn facilitates tighter spreads, which may cause an
additional corresponding increase in order flow from other market
participants. Also, the Exchange is incentivizing Participants to send
non-Customer order flow to NOM, which order flow will benefit all
Participants because they may interact with the liquidity. Market
participants directing order flow as OFPs may be eligible to qualify
for higher rebates with this proposal as a result of aggregating volume
with an Appointed MM and thereby qualifying for higher rebates.
Permitting Participants to affiliate for purposes of qualifying
Appointed OFPs for higher rebates and qualifying Appointed MMs for
lower fees may also encourage Affiliated Entities to incentivize each
other to attract and seek to execute more volume on NOM. In turn,
market participants would benefit from the increased liquidity with
which to interact, potentially tighter spreads on orders. Overall,
incentivizing market participants with increased opportunities to earn
higher or lower fees may increase the quality of the liquidity
available on NOM.
The Exchange's proposal to permit Affiliated Entities to aggregate
volume for purposes of qualifying Appointed OFPs for higher Penny Pilot
and Non-Penny Pilot Options rebates and qualifying Appointed MMs for
lower fees in Chapter XV, Section 2(1) and the note ``c'' incentive is
equitable and not unfairly discriminatory because all NOM Participants,
other than those that meet the definition of Common Ownership, may
elect to become an Affiliated Entity as either an Appointed MM or an
Appointed OFP.\26\ Also, each NOM Participant may participate in only
one Affiliated Entity relationship at a given time, which imposes a
measure of exclusivity among market participants, allowing each party
to rely on the other's executed volume on NOM to receive a
corresponding benefit in terms of a higher rebate or lower fee. Any
market participant that by definition is not under Common Ownership may
elect to become a counterparty of an Affiliated Entity. Also, NOM
Market Makers are valuable market participants that provide liquidity
in the marketplace and incur costs that other market participants do
not incur. NOM Market Makers are subject to burdensome quoting
obligations \27\ to the market that do not apply to other market
participants. Incentivizing these market participants to execute volume
on NOM may result in tighter spreads.
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\26\ Both Participants must elect each other to qualify as an
Affiliated Entity for one year. Participation is effected by an
agreement of both parties. One party may elect terminate the
agreement at any time.
\27\ Pursuant to NOM Rules at Chapter VII, Section 5, entitled
``Obligations of Market Makers'', in registering as a market maker,
an Options Participant commits himself to various obligations.
Transactions of a NOM Market Maker 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 2.
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The Exchange's proposal to exclude Participants that are under
Common Ownership from qualifying as an Affiliated Entity is reasonable
because Participants under Common Ownership may aggregate volume today
for purposes of Chapter XV, Section 2(1) pricing.\28\ The Exchange's
proposal to exclude Participants that by definition are under Common
Ownership from qualifying as an Affiliated Entity is equitable and not
unfairly discriminatory because the Exchange will apply all
qualifications in a uniform manner when approving Affiliated Entities.
Excluding Participants under Common Ownership from also qualifying as
an Affiliated Entity is equitable and not unfairly discriminatory
because they are able to aggregate volume today and qualify for higher
rebates or lower fees.
---------------------------------------------------------------------------
\28\ See NOM Rules at Chapter XV for Common Ownership.
---------------------------------------------------------------------------
Chapter XV, Section 2(6)--MARS Pricing
The Exchange's proposal to permit NOM Participants that provide
certain order routing functionalities to other NOM Participants and/or
use such functionalities themselves, and meet certain System
Eligibility, to aggregate volume as an Affiliated Entity for purposes
of receiving MARS Payments including the note ``d'' incentive is
reasonable because NOM Participants will be incentivized to send more
order flow to NOM. MARS Payments are made on Firm, Non-NOM Market
Maker, Broker-Dealer and JBO equity option orders that add liquidity
and are electronically delivered and executed. All Participants may
benefit from the increased order flow because they may interact with
this liquidity. Permitting NOM Participants to affiliate for purposes
of qualifying Appointed OFPs for higher MARS rebates may also encourage
Affiliated Entities to incentivize each other to attract and seek to
execute more volume on NOM. The Affiliated Entity relationship would
permit the Appointed OFP to benefit from orders executed on NOM in
terms of qualifying for higher MARS rebates. In turn, market
participants would benefit from the increased liquidity with
[[Page 49292]]
which to interact, potentially tighter spreads on orders.
The Exchange's proposal to permit NOM Participants that provide
certain order routing functionalities to other NOM Participants and/or
use such functionalities themselves, and meet certain System
Eligibility, to aggregate volume as an Affiliated Entity for purposes
of receiving MARS Payments including the note ``d'' incentive is
equitable and not unfairly discriminatory because all NOM Participants,
other than those that meet the definition of Common Ownership, may
qualify as an Affiliated Entity as either an Appointed MM or an
Appointed OFP. Also, all NOM Participants may qualify for a MARS
Payment provided they meet applicable System Eligibility requirements.
NOM Participants may participate in only one Affiliated Entity
relationship at a given time, which imposes a measure of exclusivity
among market participants, allowing each party to rely on the other's
executed volume on NOM to receive a corresponding benefit in terms of a
rebate. The Exchange will apply all qualifications in a uniform manner
to all market participants that elect to become counterparties of an
Affiliated Entity.
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. Specifically, the Exchange does
not believe that permitting Affiliated Entities to aggregate volume to
qualify for certain rebates and reduced fees will impose any undue
burden on competition, as discussed below.
The Exchange operates in a highly competitive market in which many
sophisticated and knowledgeable market participants can readily and do
send order flow to competing exchanges if they deem fee levels or
rebate incentives at a particular exchange to be excessive or
inadequate. Additionally, new competitors have entered the market and
still others are reportedly entering the market shortly. These market
forces ensure that the Exchange's fees and rebates remain competitive
with the fee structures at other trading platforms.
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 sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
changes will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
In terms of inter-market competition, the Exchange notes that other
options markets have similar incentives in place to attract volume to
their markets.\29\
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\29\ See NYSE MKT LLC's (``NYSE Amex'') pricing at NYSE Amex
Options Fee Schedule). NYSE Amex permits aggregation of volume to
qualify for the Amex Customer Engagement or ACE Program. See Bats
BZX Exchange, Inc.'s (``BZX'') fee schedule. BZX permits aggregation
of volume to qualify for tiered pricing. See the Chicago Board
Options Exchange Incorporated (``CBOE'') Fees Schedule. CBOE permits
aggregation of volume to qualify for credits available under an
Affiliated Volume Plan or ``AVP.''
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The Exchange's proposal to amend Chapter XV to add the definitions
of ``Appointed MM,'' ``Appointed OFP,'' and ``Affiliated Entity'' does
not impose an undue burden on competition because these definitions
apply to all Participants uniformly.
Chapter XV, Section 2(1)--Penny Pilot and Non-Penny Pilot Options
Pricing
In terms of intra-market competition, the Exchange does not believe
that its proposal to permit counterparties of an Affiliated Entities to
aggregate volume for purposes of qualifying for Chapter XV, Section
2(1) higher rebates and lower fees and the note ``c'' incentive imposes
an undue burden on intra-market competition because all NOM
Participants, other than those under Common Ownership, may qualify as
an Affiliated Entity as either an Appointed MM or an Appointed OFP.
Also, each NOM Participant may participate in only one Affiliated
Entity relationship at a given time, which imposes a measure of
exclusivity among market participants, allowing each party to rely on
the other's executed NOM volume on NOM to receive a corresponding
benefit in terms of a higher rebate or lower fee. The Exchange will
apply all qualifications in a uniform manner to all market participants
that elect to become counterparties of an Affiliated Entity. Any market
participant that by definition is a Participant under Common Ownership
may not become a counterparty of an Affiliated Entity.
Also, NOM Market Makers are valuable market participants that
provide liquidity in the marketplace and incur costs that other market
participants do not incur. NOM Market Makers are subject to burdensome
quoting obligations \30\ to the market that do not apply to other
market participants. Incentivizing these market participants to execute
Customer and Professional volume on NOM may result in tighter spreads.
An increase in the activity of these market participants in turn
facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Appointed OFPs directing order flow to the Exchange may be eligible to
qualify for a higher rebate and Appointed MMs may be eligible to
qualify for lower fees, with this proposal, as a result of aggregating
volume. Permitting Participants to affiliate for purposes of qualifying
for Chapter XV, Section 2(1) higher rebates or lower fees may also
encourage the counterparties that comprise the Affiliated Entities to
incentivize each other to attract and seek to execute more volume on
NOM.
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\30\ See note 27 above.
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The Exchange's proposal to exclude Participants that are under
Common Ownership from becoming an Affiliated Entity does not impose and
[sic] undue burden on intra-market competition because Participants
under Common Ownership may aggregate volume today for purposes of
qualifying for higher rebates or lower fees.
Chapter XV, Section 2(6) -MARS Pricing
In terms of intra-market competition, the Exchange does not believe
that its proposal to permit Affiliated Entities to aggregate volume for
purposes of qualifying for Chapter XV, Section 2(6) MARS rebates and
the note ``d'' incentive imposes an undue burden on intra-market
competition because all NOM Participants, other than those under Common
Ownership, may qualify as an Affiliated Entity as either an
[[Page 49293]]
Appointed MM or an Appointed OFP. Also, all NOM Participants may
qualify for a MARS Payment provided they meet applicable System
Eligibility requirements. NOM Participants may participate in only one
Affiliated Entity relationship at a given time, which imposes a measure
of exclusivity among market participants, allowing each party to rely
on the other's executed volume on NOM to receive a corresponding
benefit in terms of a rebate. The Exchange will apply all
qualifications in a uniform manner to all market participants that
elect to become counterparties of an Affiliated Entity.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\31\
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\31\ 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-2016-090 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-2016-090. 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-2016-090 and should
be submitted on or before August 17, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17666 Filed 7-26-16; 8:45 am]
BILLING CODE 8011-01-P
