Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Provisions for Excluding a Day From Its Volume Calculations for Purposes of Determining Tiered Pricing, 5528-5532 [2019-02892]

Download as PDF amozie on DSK3GDR082PROD with NOTICES1 5528 Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Notices The Commission received three comment letters on the proposed rule change, each supporting it.22 One commenter argues that the proposal ‘‘is a critical first step to reduce risk in listed-options clearing,’’ and will facilitate the ability of Clearing Members ‘‘to properly assess and enforce credit limits for authorized executing brokers and their clients.’’ 23 Another commenter notes that the Exchange’s proposal is the culmination of efforts among industry participants to address and ultimately reduce clearing member risks.24 Further, one commenter believes that the proposal ‘‘strikes the right balance across all participants.’’ 25 The Commission believes that the proposal is designed to foster cooperation and coordination among the parties engaged in facilitating transactions in securities by setting forth a basic framework within which a Clearing Member can exercise greater control over the use of its clearing services by customers using the services of third party executing brokers in a manner that is not intended to allow for or impose a burden on competition that is not necessary or appropriate in furtherance of the Act. In particular, the Exchange’s proposal will implement a defined and standardized process through which a Clearing Member can ‘‘opt in’’ to limit the use of one or more of its OCC clearing numbers to member organizations that it pre-authorizes in writing, which the Exchange will then enforce through its systems. These provisions are designed to help assure the orderly clearance and settlement of Exchange trades and should, for example, reduce the chance for keypunch errors and may assist Clearing Members in enforcing the provisions of their clearing arrangements with customers. As an integral and important part of this process, the Exchange will provide notice to affected member organizations, including by providing a 90-day delayed effectiveness on newly restricted OCC numbers, by providing notice to affected member organizations whose authorized status changes, and by providing publicly available information on all Restricted OCC Numbers and the corresponding Clearing Member contact information. In so doing, the proposed rule is designed to promote transparency and provide an orderly process by which third party executing 22 See supra note 7. 23 SIFMA Letter, supra note 7, at 2. 24 Davidson Letter, supra note 7, at 2. 25 Scott Letter, supra note 7, at 1. See also SIFMA Letter, supra note 7, at 2. VerDate Sep<11>2014 17:08 Feb 20, 2019 Jkt 247001 brokers can make arrangements for clearing services to facilitate transactions on the Exchange. Further, requiring Clearing Members to use standardized forms to designate all Restricted OCC Numbers and Authorized Member Organizations, and to make amendments to those items, should enhance Phlx’s ability to monitor and enforce compliance with its proposed rule relating to the give up process. Use of standardized forms also may make it easier for Clearing Members and member organizations to comply with the proposed rule, and should benefit all members by providing written confirmation of a member organization’s authorized status with respect to a specific Restricted OCC Number for a particular Clearing Member. The Commission believes that the proposal seeks to address the needs of different parties involved in facilitating transactions in securities and does so in a balanced manner that provides a reasonable framework for the authorization process. Moreover, the proposal recognizes the need for a member organization to be able to give up its guarantor, and minimizes burdens on the member organization and Clearing Member by allowing such give ups to occur without the need to obtain any further authorization through use of the Clearing Member Restriction Form. In this manner, the proposed rule change recognizes that there will always be a Clearing Member that will be financially responsible for a trade, which should foster operational certainty and facilitate cooperation and coordination with persons engaged in clearing transactions. For the foregoing reason, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 26 and the rules and regulations thereunder applicable to national securities exchanges. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,27 that the proposed rule change (SR– Phlx–2018–72) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–02895 Filed 2–20–19; 8:45 am] BILLING CODE 8011–01–P U.S.C. 78f(b)(5). U.S.C. 78s(b)(2). 28 17 CFR 200.30–3(a)(12). SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85132; File No. SR– NASDAQ–2019–003] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange’s Provisions for Excluding a Day From Its Volume Calculations for Purposes of Determining Tiered Pricing February 14, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 31, 2019, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by 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 Exchange’s provisions for excluding a day from its volume calculations for purposes of determining tiered pricing. The text of the proposed rule change is available on the Exchange’s website 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. 26 15 27 15 PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 1 15 2 17 E:\FR\FM\21FEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 21FEN1 Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Notices 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 amend the Exchange’s provisions for excluding a day from its volume calculations for purposes of determining tiered pricing. The Exchange is standardizing its practice for removing a day from its options volume calculations with its affiliated options market, Nasdaq PHLX (‘‘Phlx’’).3 To avoid penalizing members when aberrant low volume days result from systems or other issues at the Exchange, or where the Exchange closes early for holiday observance, NOM currently has language in its pricing schedule allowing it to exclude certain days from its average daily volume (‘‘ADV’’) or other volume calculations.4 Currently, language in Options 7, Section 2(5) provides that, for purposes of determining Monthly Volume Tiers under this section, any day that the market is not open for the entire trading day will be excluded from such calculation. The Exchange now proposes to amend this provision by first, renumbering this rule as paragraph (a) to Section 2(5) and second, replacing the term ‘‘Monthly Volume Tiers’’ with ‘‘equity tier calculations’’ to clarify the application of its rule.5 The Exchange also proposes to adopt language similar to that on Phlx, which will apply to the options tier calculations in the NOM pricing schedule.6 Specifically, the Exchange proposes to adopt a new paragraph (b) to Section 2(5), entitled ‘‘Removal of Days for Purposes of Options Pricing Tiers,’’ which will provide: amozie on DSK3GDR082PROD with NOTICES1 (i)(A) Any day that the Exchange announces in advance that it will not be open for trading will be excluded from the options tier calculations set forth in its Pricing Schedule; and (B) any day with a scheduled 3 See Phlx pricing schedule, Options 7, Section 1(b). The Exchange’s other affiliated options markets, Nasdaq ISE, Nasdaq GEMX, Nasdaq MRX, and Nasdaq BX will also file similar rule change proposals to conform to Phlx’s rule. 4 Other volume calculations include certain crossasset volume tiers that link rebates on NOM to activity on the Nasdaq Stock Market such as the Tier 6 Customer and Professional Rebate to Add Liquidity in Penny Pilot Options. See Options 7, Section 2(1). 5 Because the Exchange is conforming its practice for options markets only, the current language will remain in place for the equity tier calculations in the NOM pricing schedule such as the Tier 6 Customer and Professional Rebate to Add Liquidity in Penny Pilot Options described in note 4 above, with the clarifying modifications discussed above. 6 See note 3 above. VerDate Sep<11>2014 17:08 Feb 20, 2019 Jkt 247001 early market close (‘‘Scheduled Early Close’’) may be excluded from the options tier calculations only pursuant to paragraph (iii) below. (ii) The Exchange may exclude the following days (‘‘Unanticipated Events’’) from the options tier calculations only pursuant to paragraph (iii) below, specifically any day that: (A) The market is not open for the entire trading day, (B) the Exchange instructs Participants in writing to route their orders to other markets, (C) the Exchange is inaccessible to Participants during the 30minute period before the opening of trade due to an Exchange system disruption, or (D) the Exchange’s system experiences a disruption that lasts for more than 60 minutes during regular trading hours. (iii) If a day is to be excluded as a result of paragraph (i)(B) or (ii) above, the Exchange will exclude the day from any Participant’s monthly options tier calculations as follows: (A) The Exchange may exclude from the ADV calculation any Scheduled Early Close or Unanticipated Event; and (B) the Exchange may exclude from any other applicable options tier calculation provided for in its Pricing Schedule (together with (iii)(A), ‘‘Tier Calculations’’) any Scheduled Early Close or Unanticipated Event. provided, in each case, that the Exchange will only remove the day for Participants that would have a lower Tier Calculation with the day included. While similar to the language currently in place on the Exchange, the proposed language: (1) Provides greater flexibility to remove a day in more circumstances, (2) categorizes the potential excluded days into days that are known in advance (i.e., days in proposed paragraph (i), including Scheduled Early Closes), and those that are not (i.e., Unanticipated Events in proposed paragraph (ii)), and (3) modifies the provision so that Participants will only have the day removed when doing so is beneficial for the Participant (i.e., only if the Participant would have a lower volume tier calculation with the day included, hereinafter, the ‘‘better of rule’’). As it relates to Unanticipated Events, the Exchange will inform all Participants if any such day will be excluded from its Tier Calculations via a system status message disseminated to all Participants. The Exchange notes that it is not proposing to amend the thresholds a Participant must achieve to become eligible for, or the dollar amount associated with, the tiered rebates or fees. Potential Excluded Days The Exchange first proposes to adopt language identical to Phlx providing that it will always exclude days where the Exchange announces in advance that it will not be open for trading (e.g., PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 5529 Thanksgiving) from all options tier calculations set forth in its Pricing Schedule.7 This is also the case today since no trading activity occurs on those days, and the Exchange is only clarifying its current practice within the proposed rule. In addition, Phlx adopted the language on instructing members to route away to prevent situations where days that have artificially lower volume could not be excluded, for example, because the exchange experienced an issue in the morning that did not carry over into the trading day.8 Like Phlx, the Exchange believes that it should have the flexibility to exclude days if members have been instructed to send their orders elsewhere, regardless of whether the issue that resulted in this instruction ultimately impacts the availability of the Exchange for trading. In addition, the Exchange proposes to adopt identical language as on Phlx to exclude days where the Exchange is inaccessible to Participants during the 30-minute period before the opening of trade (i.e., between 9:00 a.m. to 9:30 a.m. Eastern Time) due to an Exchange system disruption.9 While the language proposed above on instructing Participants to route away may also cover Exchange system disruptions that occur before the market opens, the Exchange notes that it may not always instruct Participants to route away in such instances. For example, the Exchange may be inaccessible to Participants in the morning due to a systems disruption but the Exchange resolves the issue shortly before 9:30 a.m. and as a result, the Exchange does not instruct Participants to route away. In this instance, the Exchange would not be permitted to exclude the day from its volume calculations. The Exchange generally experiences a high volume of member participation within the 30-minute window leading up to the opening of trade from Participants who submit eligible interest to be included in the Exchange’s opening process. As a result, days where Participants are precluded from submitting eligible interest during this 30-minute time period due to an Exchange systems disruption, even if the issue is ultimately resolved by the Exchange before the market opens (and Participants therefore are not instructed to route away), are likely to have lower trading volume. Including such days in calculations of ADV will therefore make it more difficult for Participants to achieve particular pricing tiers for that 7 See id. at paragraph (1)(A). id. at paragraph (2)(B). 9 See id. at paragraph (2)(C). 8 See E:\FR\FM\21FEN1.SGM 21FEN1 5530 Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Notices month. Accordingly, excluding such days from the monthly tier calculations will diminish the likelihood of a cost increase occurring because a Participant is not able to reach a pricing tier on that date that it would reach on other trading days during the month. The Exchange further proposes to adopt language identical to Phlx to exclude days where there is an Exchange system disruption that lasts for more than 60 minutes during regular trading hours (i.e., 9:30 a.m. to 4:00 p.m. Eastern Time), even if such disruption would not be categorized as a complete outage of the Exchange’s system.10 Such a disruption may occur where a certain options series traded on the Exchange is unavailable for trading due to an Exchange systems issue, or where the Exchange may be able to perform certain functions with respect to accepting and processing orders, but may have a failure to another significant process, such as routing to other market centers, that would lead Participants who rely on such processes to avoid using the Exchange until the Exchange’s entire system was operational. The Exchange believes that certain system disruptions that are not complete system outages could preclude some members from submitting orders to the Exchange. The Exchange also notes that this proposal is consistent with the rules of other options exchanges.11 Because the potential excluded days proposed above generally have artificially lower trading volume, the Exchange believes it is reasonable and equitable to exclude such days in determining its options fee and rebate tiers. The Exchange desires to avoid penalizing Participants that might otherwise qualify for certain tiered pricing but that, because of special circumstances on a particular day, did not participate on the Exchange to the extent that they might have otherwise participated. Absent the authority to exclude such days, Participants may experience an effective increase in the cost of trading on NOM, a result that is both unintended and undesirable to the Exchange and to its Participants. amozie on DSK3GDR082PROD with NOTICES1 Categories of Excluded Days In light of the foregoing proposal, the Exchange seeks to categorize the potential excluded days proposed above 10 See id. at paragraph 2(D). BATS BZX Options Exchange Fee Schedule (defining an ‘‘Exchange System Disruption’’ as any day that the exchange’s system experiences a disruption that lasts for more than 60 minutes during regular trading hours); and NYSE Arca Options Fee Schedule (defining an ‘‘Exchange System Disruption’’ as a disruption affects an Exchange system that lasts for more than 60 minutes during regular trading hours). 11 See VerDate Sep<11>2014 17:08 Feb 20, 2019 Jkt 247001 between days that are known in paragraph (i) and days that are not in paragraph (ii), and define the latter as Unanticipated Events. For planned days, the Exchange proposes to further distinguish between days that the Exchange announces in advance that it will not be open for trading in paragraph (i)(A) (e.g., Thanksgiving), and Scheduled Early Closes in paragraph (ii)(B) (e.g., the trading day after Thanksgiving). The Exchange notes that it currently considers Scheduled Early Closes as a subset of days that the market is not open for the entire trading day. The Exchange believes it would be more clear to distinguish Scheduled Early Closes in paragraph (i) as a day that is planned for in advance, and separately consider days that are not open for the entire trading day as Unanticipated Events in paragraph (ii)(A). As proposed, (ii)(A) would continue to cover unplanned days where the Exchange declares a trading halt in all securities or honors a marketwide trading halt declared by another market. The other scenarios that will be categorized as Unanticipated Events in paragraph (ii) are days that the Exchange instructs members in writing to route away and the two systemsrelated disruptions, each as further described above. The foregoing proposal is consistent with how Phlx categorizes potential excluded days today.12 Better of Rule Similar to Phlx, the proposed language also specifies how the potential excluded days will be removed from the Exchange’s volume calculations. In particular, the language will allow the Exchange to exclude any Scheduled Early Close or Unanticipated Event from its calculations of ADV or any other applicable options volume tiers provided for in its Pricing Schedule, provided that the Exchange will only remove such days for Participants that would have a lower volume calculation with the day included (i.e., the better of rule).13 Phlx adopted the better of rule to avoid penalizing members that step up and trade on days with artificially low volume so that it only excludes such days for members that would have a lower volume calculation with the day included. This language would also be helpful on the Exchange as it would ensure that Participants that continue to 12 See note 3 above at paragraphs (1) and (2). similarly excludes Scheduled Early Closes and Unanticipated Events from its ADV calculations and other applicable volume calculations in its pricing schedule, subject in each case to the better of rule. See note 3 above at paragraph (3). 13 Phlx PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 execute a large volume of contracts are not inadvertently disadvantaged when the Exchange removes a day from its volume calculations. Furthermore, Phlx adopted the catch-all provision applying to other options tier calculations set forth in its pricing schedule, but not specified within paragraph (3) of its rule, so that it would have flexibility to apply the better of rule going forward to all options pricing programs administered by the Exchange that are based on volume calculations.14 The Exchange believes that adopting a similar principle-based approach for its options volume calculations would ensure that days are removed from such calculations only if doing so would be beneficial for the Participant. As such, the proposed language will not apply to straight volume accumulations as Participants do not benefit when a day is removed for such accumulations. Again, the Exchange believes that the approach of Phlx would be beneficial as it counts volume executed during an excluded day toward its members’ straight volume accumulations. In addition, the Exchange proposes to harmonize its language with Phlx’s language by adding further detail throughout the proposed rule text to bring greater transparency as to how the Exchange will apply the better of rule when removing days from its tier calculations. First, the Exchange proposes to make clear that it will only remove days pursuant to the better of rule by specifying in paragraphs (i)(B) and (ii) that such days may be excluded from the tier calculations only pursuant to paragraph (iii).15 Paragraph (iii) will then provide that if a day is to be excluded as a result of paragraph (i)(B) or (ii), the Exchange will be required to exclude the day from any Participant’s monthly options tier calculations as detailed within paragraph (iii).16 With the proposed changes, the Exchange seeks to clarify that it will exclude days from any Participant’s tier calculations in a uniform manner to ensure that days are removed only in situations where the Participant benefits. The Exchange will look at each potential excluded day in a month and determine for every Participant their ADV or other applicable volume calculation based on their trading volume on that day. If any Participant would have a lower volume calculation with the particular day included, the Exchange will exclude that day for that Participant. As such, 14 See id. at paragraph (3)(C). id. at paragraphs (1)(B) and (2) for similar language on Phlx. 16 See id. at paragraph (3) for similar language on Phlx. 15 See E:\FR\FM\21FEN1.SGM 21FEN1 Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Notices the proposed changes specify that the Exchange will apply the better of rule in a uniform manner for all Participants, and that there is no arbitrary selection of ‘‘winners’’ or ‘‘losers’’ when the Exchange excludes days. Equity 7, Section 118 In light of the foregoing proposal to amend the provisions for removing days in Options 7, Section 2, the Exchange proposes to make related changes to its current provisions for removing days in Equity 7, Section 118. Currently, the Exchange has a number of cross-asset volume tiers in its equity pricing schedule, which link reduced transaction fees on the Nasdaq Stock Market to activity on NOM,17 similar to the rebate tiers on NOM that link to activity on the Nasdaq Stock Market as discussed above.18 Furthermore, the Exchange has language in Equity 7, Section 118(j) allowing it to exclude certain days from the volume calculations in its equity pricing schedule.19 The Exchange now seeks to amend Section 118(j) to make clear that this language will continue to apply to the equity tier calculations within Section 118, and the language proposed in Options 7, Section 2(5)(b) will apply to the options tier calculations in Section 118.20 amozie on DSK3GDR082PROD with NOTICES1 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,21 in general, and furthers the 17 For example, Nasdaq charges a reduced transaction fee of $0.0029 per share if the member adds 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 ADV in the customer clearing range for Equity and ETF option contracts per day in a month on NOM. See Equity 7, Section 118(a)(1). 18 See note 4 above. Also, for example, footnote ‘‘e’’ of the NOM pricing schedule provides that NOM Participants that transact in all securities through one or more of its Nasdaq Market Center MPIDs that represent 3.00% or more of Consolidated Volume in the same month on The Nasdaq Stock Market will receive a $0.52 per contract rebate to add liquidity in Penny Pilot Options as Customer or Professional and $1.00 per contract rebate to add liquidity in Non-Penny Pilot Options as Customer or Professional. See Options 7, Section 2(1). 19 In particular, Section 118(j) presently provides that, for purposes of determining average daily volume and total consolidated volume under this section, any day that the market is not open for the entire trading day will be excluded from such calculation. In addition, for purposes of calculating Consolidated Volume and the extent of a 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. 20 See note 17 above. 21 15 U.S.C. 78f(b). VerDate Sep<11>2014 17:08 Feb 20, 2019 Jkt 247001 objectives of Sections 6(b)(4) and 6(b)(5) of the Act,22 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, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange believes that the proposed rule change is reasonable and equitable as it provides a new framework for removing days from the Exchange’s options volume tier calculations that the Exchange believes is beneficial to Participants and consistent with similar provisions already in place on Phlx. The proposed rule change would allow the Exchange to remove a day from its options volume calculations in more circumstances, and ensures that the Exchange will only do so in circumstances where beneficial for the Participant. The Exchange believes that it is reasonable and equitable to exclude a day from its volume calculations when Participants are instructed to route their orders to other markets as this preserves the Exchange’s intent behind adopting volume-based pricing, and avoids penalizing Participants that follow this instruction. The Exchange similarly believes it is reasonable and equitable to exclude a day from its volume calculations when the Exchange’s system experiences a disruption during the 30-minute period prior to the opening of trade which renders the Exchange inaccessible to Participants. Without this change, Participants that are precluded from submitting eligible interest during the 30-minute window before the opening of trade may be negatively impacted, even if the Exchange resolves the issue before the market opens and as a result, does not instruct Participants to route away. The proposed change to exclude such days will diminish the likelihood of a cost increase occurring because a member is not able to reach a volume tier calculation on that date that it would reach on other trading days during the month. Similarly, excluding a day where the Exchange’s system experiences a disruption that lasts for more than 60 minutes intra-day is reasonable and equitable because the proposal seeks to avoid penalizing Participants that might otherwise qualify for certain tiered pricing but that, because of an Exchange systems disruption, did not participate on the Exchange to the extent they might have otherwise participated. The Exchange believes that certain systems disruptions could preclude some 22 15 PO 00000 U.S.C. 78f(b)(4) and (5). Frm 00128 Fmt 4703 Sfmt 4703 5531 Participants from submitting orders to the Exchange even if such issue is not actually a complete systems outage. In addition, the Exchange believes that it is reasonable and equitable to only exclude a day from its volume calculations for Participants that would otherwise have a lower volume calculation with the day included. Without these changes, Participants that route away in accordance with the Exchange’s instructions, or that step up and trade significant volume on excluded trading days, may be negatively impacted, resulting in an effective cost increase for those Participants. In addition, having a catchall in paragraph (iii)(B) so that the better of rule applies to other options volume calculations than ADV to allow the Exchange to apply the rule going forward to all pricing programs based on volume calculations will further protect Participants. The Exchange notes that aberrant low volume days resulting from, for instance, an Unanticipated Event, impacts all volume calculations, and allowing the Exchange to exclude such days from any volume tier calculation if the Participant would have a lower tier calculation with the day included will further protect Participants from being inadvertently penalized. Furthermore, the Exchange believes that categorizing the potential excluded days is reasonable and equitable because it will bring greater transparency to the application of its rule. Specifically, the Exchange is distinguishing between planned and unplanned days in paragraphs (i) and (ii), defining the latter as Unanticipated Events, and stipulating how the Exchange will exclude such days pursuant to this rule. Categorizing days in this manner will clarify the application of its rule in light of the Exchange’s proposal to expand the rule to adopt additional days that may be excluded from its volume calculations. Providing in paragraph (i)(A) that the Exchange will always exclude from its tier calculations days that it announces in advance it will not be open for trading will clarify current practice. Furthermore, the Exchange believes that the proposed changes to specify how days in paragraphs (i)(B) and (ii) may be excluded from its volume calculations will bring greater transparency by delineating the various circumstances in which the better of rule will apply. Providing in paragraph (iii) that the Exchange may exclude any Scheduled Early Close or Unanticipated Event from the Tier Calculations, subject to the better of rule, will make clear that the Exchange will take a consistent E:\FR\FM\21FEN1.SGM 21FEN1 5532 Federal Register / Vol. 84, No. 35 / Thursday, February 21, 2019 / Notices amozie on DSK3GDR082PROD with NOTICES1 approach when excluding days for purposes of its volume based pricing tiers. Furthermore, the proposed changes specifying that the days in paragraphs (i)(B) and (ii) may be excluded only pursuant to paragraph (iii), and requiring the Exchange to exclude such days pursuant to the specifications in paragraph (iii) will likewise make clear that the Exchange will take a consistent approach with respect to excluding days from its Tier Calculations. As discussed above, these modifications will clarify that the Exchange will apply the better of rule in a uniform manner to all Participants, and that there is no arbitrary selection of ‘‘winners’’ or ‘‘losers.’’ The Exchange also believes that specifying in its equity and options pricing schedules that the proposed rule for excluding days in Options 7, Section 2(5)(b) applies only to options tier calculations, and that the current rules for excluding days 23 continue to apply to the equity tier calculations is reasonable and equitable. As discussed above, the Exchange has a number of cross-asset tiers within its equity and options pricing schedule,24 and believes that the proposed changes will clarify the application of the Exchange’s provisions for excluding days in light of the Exchange’s initiative to standardize its practice across the options markets. Finally, the Exchange believes that the proposed rule change is not unfairly discriminatory because it will apply equally to all Exchange members that transact on the Nasdaq Stock Market and on NOM. Nasdaq Stock Market members that are not currently Participants on NOM are eligible to become Participants by amending their membership application to add NOM. Moreover, the Exchange notes that any NOM Participant may trade equities on the Nasdaq Stock Market because they are already approved members. 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. The proposed rule change is designed to protect Participants from the possibility of a cost increase by excluding days when overall participation might be significantly lower than a typical trading day. The Exchange believes that the proposed modifications to its tier calculations are pro-competitive and 23 See Equity 7, Section 118(j) and Options 7, Section 2(5)(a). 24 See notes 4, 17, and 18 above. VerDate Sep<11>2014 17:08 Feb 20, 2019 Jkt 247001 will result in lower total costs to end users, a positive outcome of competitive markets. Furthermore, other options exchanges have adopted rules that are substantially similar to the Exchange’s proposal.25 The Exchange operates in a highly competitive market in which market participants can readily direct their order flow to competing venues. In such an environment, the Exchange must continually review, and consider adjusting, its fees and rebates to remain competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed fee changes reflect this competitive environment. 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 26 and paragraph (f) of Rule 19b–4 thereunder.27 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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–2019–003 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. notes 3 and 11 above. U.S.C. 78s(b)(3)(A)(ii). 27 17 CFR 240.19b–4(f). All submissions should refer to File Number SR–NASDAQ–2019–003. 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 website (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 website 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NASDAQ–2019–003, and should be submitted on or before March 14, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–02892 Filed 2–20–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85131; File No. SR–BX– 2019–001] Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 2 February 14, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 25 See 28 17 26 15 1 15 PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\21FEN1.SGM 21FEN1

Agencies

[Federal Register Volume 84, Number 35 (Thursday, February 21, 2019)]
[Notices]
[Pages 5528-5532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02892]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85132; File No. SR-NASDAQ-2019-003]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend the Exchange's Provisions for Excluding a Day From Its Volume 
Calculations for Purposes of Determining Tiered Pricing

February 14, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 31, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II, below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's provisions for 
excluding a day from its volume calculations for purposes of 
determining tiered pricing.
    The text of the proposed rule change is available on the Exchange's 
website 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.

[[Page 5529]]

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 amend the Exchange's 
provisions for excluding a day from its volume calculations for 
purposes of determining tiered pricing. The Exchange is standardizing 
its practice for removing a day from its options volume calculations 
with its affiliated options market, Nasdaq PHLX (``Phlx'').\3\
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    \3\ See Phlx pricing schedule, Options 7, Section 1(b). The 
Exchange's other affiliated options markets, Nasdaq ISE, Nasdaq 
GEMX, Nasdaq MRX, and Nasdaq BX will also file similar rule change 
proposals to conform to Phlx's rule.
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    To avoid penalizing members when aberrant low volume days result 
from systems or other issues at the Exchange, or where the Exchange 
closes early for holiday observance, NOM currently has language in its 
pricing schedule allowing it to exclude certain days from its average 
daily volume (``ADV'') or other volume calculations.\4\ Currently, 
language in Options 7, Section 2(5) provides that, for purposes of 
determining Monthly Volume Tiers under this section, any day that the 
market is not open for the entire trading day will be excluded from 
such calculation. The Exchange now proposes to amend this provision by 
first, renumbering this rule as paragraph (a) to Section 2(5) and 
second, replacing the term ``Monthly Volume Tiers'' with ``equity tier 
calculations'' to clarify the application of its rule.\5\ The Exchange 
also proposes to adopt language similar to that on Phlx, which will 
apply to the options tier calculations in the NOM pricing schedule.\6\ 
Specifically, the Exchange proposes to adopt a new paragraph (b) to 
Section 2(5), entitled ``Removal of Days for Purposes of Options 
Pricing Tiers,'' which will provide:
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    \4\ Other volume calculations include certain cross-asset volume 
tiers that link rebates on NOM to activity on the Nasdaq Stock 
Market such as the Tier 6 Customer and Professional Rebate to Add 
Liquidity in Penny Pilot Options. See Options 7, Section 2(1).
    \5\ Because the Exchange is conforming its practice for options 
markets only, the current language will remain in place for the 
equity tier calculations in the NOM pricing schedule such as the 
Tier 6 Customer and Professional Rebate to Add Liquidity in Penny 
Pilot Options described in note 4 above, with the clarifying 
modifications discussed above.
    \6\ See note 3 above.

    (i)(A) Any day that the Exchange announces in advance that it 
will not be open for trading will be excluded from the options tier 
calculations set forth in its Pricing Schedule; and (B) any day with 
a scheduled early market close (``Scheduled Early Close'') may be 
excluded from the options tier calculations only pursuant to 
paragraph (iii) below.
    (ii) The Exchange may exclude the following days 
(``Unanticipated Events'') from the options tier calculations only 
pursuant to paragraph (iii) below, specifically any day that:
    (A) The market is not open for the entire trading day, (B) the 
Exchange instructs Participants in writing to route their orders to 
other markets, (C) the Exchange is inaccessible to Participants 
during the 30-minute period before the opening of trade due to an 
Exchange system disruption, or (D) the Exchange's system experiences 
a disruption that lasts for more than 60 minutes during regular 
trading hours.
    (iii) If a day is to be excluded as a result of paragraph (i)(B) 
or (ii) above, the Exchange will exclude the day from any 
Participant's monthly options tier calculations as follows:
    (A) The Exchange may exclude from the ADV calculation any 
Scheduled Early Close or Unanticipated Event; and
    (B) the Exchange may exclude from any other applicable options 
tier calculation provided for in its Pricing Schedule (together with 
(iii)(A), ``Tier Calculations'') any Scheduled Early Close or 
Unanticipated Event.

provided, in each case, that the Exchange will only remove the day for 
Participants that would have a lower Tier Calculation with the day 
included.
    While similar to the language currently in place on the Exchange, 
the proposed language: (1) Provides greater flexibility to remove a day 
in more circumstances, (2) categorizes the potential excluded days into 
days that are known in advance (i.e., days in proposed paragraph (i), 
including Scheduled Early Closes), and those that are not (i.e., 
Unanticipated Events in proposed paragraph (ii)), and (3) modifies the 
provision so that Participants will only have the day removed when 
doing so is beneficial for the Participant (i.e., only if the 
Participant would have a lower volume tier calculation with the day 
included, hereinafter, the ``better of rule''). As it relates to 
Unanticipated Events, the Exchange will inform all Participants if any 
such day will be excluded from its Tier Calculations via a system 
status message disseminated to all Participants. The Exchange notes 
that it is not proposing to amend the thresholds a Participant must 
achieve to become eligible for, or the dollar amount associated with, 
the tiered rebates or fees.
Potential Excluded Days
    The Exchange first proposes to adopt language identical to Phlx 
providing that it will always exclude days where the Exchange announces 
in advance that it will not be open for trading (e.g., Thanksgiving) 
from all options tier calculations set forth in its Pricing 
Schedule.\7\ This is also the case today since no trading activity 
occurs on those days, and the Exchange is only clarifying its current 
practice within the proposed rule.
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    \7\ See id. at paragraph (1)(A).
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    In addition, Phlx adopted the language on instructing members to 
route away to prevent situations where days that have artificially 
lower volume could not be excluded, for example, because the exchange 
experienced an issue in the morning that did not carry over into the 
trading day.\8\ Like Phlx, the Exchange believes that it should have 
the flexibility to exclude days if members have been instructed to send 
their orders elsewhere, regardless of whether the issue that resulted 
in this instruction ultimately impacts the availability of the Exchange 
for trading.
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    \8\ See id. at paragraph (2)(B).
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    In addition, the Exchange proposes to adopt identical language as 
on Phlx to exclude days where the Exchange is inaccessible to 
Participants during the 30-minute period before the opening of trade 
(i.e., between 9:00 a.m. to 9:30 a.m. Eastern Time) due to an Exchange 
system disruption.\9\ While the language proposed above on instructing 
Participants to route away may also cover Exchange system disruptions 
that occur before the market opens, the Exchange notes that it may not 
always instruct Participants to route away in such instances. For 
example, the Exchange may be inaccessible to Participants in the 
morning due to a systems disruption but the Exchange resolves the issue 
shortly before 9:30 a.m. and as a result, the Exchange does not 
instruct Participants to route away. In this instance, the Exchange 
would not be permitted to exclude the day from its volume calculations. 
The Exchange generally experiences a high volume of member 
participation within the 30-minute window leading up to the opening of 
trade from Participants who submit eligible interest to be included in 
the Exchange's opening process. As a result, days where Participants 
are precluded from submitting eligible interest during this 30-minute 
time period due to an Exchange systems disruption, even if the issue is 
ultimately resolved by the Exchange before the market opens (and 
Participants therefore are not instructed to route away), are likely to 
have lower trading volume. Including such days in calculations of ADV 
will therefore make it more difficult for Participants to achieve 
particular pricing tiers for that

[[Page 5530]]

month. Accordingly, excluding such days from the monthly tier 
calculations will diminish the likelihood of a cost increase occurring 
because a Participant is not able to reach a pricing tier on that date 
that it would reach on other trading days during the month.
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    \9\ See id. at paragraph (2)(C).
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    The Exchange further proposes to adopt language identical to Phlx 
to exclude days where there is an Exchange system disruption that lasts 
for more than 60 minutes during regular trading hours (i.e., 9:30 a.m. 
to 4:00 p.m. Eastern Time), even if such disruption would not be 
categorized as a complete outage of the Exchange's system.\10\ Such a 
disruption may occur where a certain options series traded on the 
Exchange is unavailable for trading due to an Exchange systems issue, 
or where the Exchange may be able to perform certain functions with 
respect to accepting and processing orders, but may have a failure to 
another significant process, such as routing to other market centers, 
that would lead Participants who rely on such processes to avoid using 
the Exchange until the Exchange's entire system was operational. The 
Exchange believes that certain system disruptions that are not complete 
system outages could preclude some members from submitting orders to 
the Exchange. The Exchange also notes that this proposal is consistent 
with the rules of other options exchanges.\11\
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    \10\ See id. at paragraph 2(D).
    \11\ See BATS BZX Options Exchange Fee Schedule (defining an 
``Exchange System Disruption'' as any day that the exchange's system 
experiences a disruption that lasts for more than 60 minutes during 
regular trading hours); and NYSE Arca Options Fee Schedule (defining 
an ``Exchange System Disruption'' as a disruption affects an 
Exchange system that lasts for more than 60 minutes during regular 
trading hours).
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    Because the potential excluded days proposed above generally have 
artificially lower trading volume, the Exchange believes it is 
reasonable and equitable to exclude such days in determining its 
options fee and rebate tiers. The Exchange desires to avoid penalizing 
Participants that might otherwise qualify for certain tiered pricing 
but that, because of special circumstances on a particular day, did not 
participate on the Exchange to the extent that they might have 
otherwise participated. Absent the authority to exclude such days, 
Participants may experience an effective increase in the cost of 
trading on NOM, a result that is both unintended and undesirable to the 
Exchange and to its Participants.
Categories of Excluded Days
    In light of the foregoing proposal, the Exchange seeks to 
categorize the potential excluded days proposed above between days that 
are known in paragraph (i) and days that are not in paragraph (ii), and 
define the latter as Unanticipated Events. For planned days, the 
Exchange proposes to further distinguish between days that the Exchange 
announces in advance that it will not be open for trading in paragraph 
(i)(A) (e.g., Thanksgiving), and Scheduled Early Closes in paragraph 
(ii)(B) (e.g., the trading day after Thanksgiving). The Exchange notes 
that it currently considers Scheduled Early Closes as a subset of days 
that the market is not open for the entire trading day. The Exchange 
believes it would be more clear to distinguish Scheduled Early Closes 
in paragraph (i) as a day that is planned for in advance, and 
separately consider days that are not open for the entire trading day 
as Unanticipated Events in paragraph (ii)(A). As proposed, (ii)(A) 
would continue to cover unplanned days where the Exchange declares a 
trading halt in all securities or honors a market-wide trading halt 
declared by another market. The other scenarios that will be 
categorized as Unanticipated Events in paragraph (ii) are days that the 
Exchange instructs members in writing to route away and the two 
systems-related disruptions, each as further described above. The 
foregoing proposal is consistent with how Phlx categorizes potential 
excluded days today.\12\
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    \12\ See note 3 above at paragraphs (1) and (2).
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Better of Rule
    Similar to Phlx, the proposed language also specifies how the 
potential excluded days will be removed from the Exchange's volume 
calculations. In particular, the language will allow the Exchange to 
exclude any Scheduled Early Close or Unanticipated Event from its 
calculations of ADV or any other applicable options volume tiers 
provided for in its Pricing Schedule, provided that the Exchange will 
only remove such days for Participants that would have a lower volume 
calculation with the day included (i.e., the better of rule).\13\
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    \13\ Phlx similarly excludes Scheduled Early Closes and 
Unanticipated Events from its ADV calculations and other applicable 
volume calculations in its pricing schedule, subject in each case to 
the better of rule. See note 3 above at paragraph (3).
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    Phlx adopted the better of rule to avoid penalizing members that 
step up and trade on days with artificially low volume so that it only 
excludes such days for members that would have a lower volume 
calculation with the day included. This language would also be helpful 
on the Exchange as it would ensure that Participants that continue to 
execute a large volume of contracts are not inadvertently disadvantaged 
when the Exchange removes a day from its volume calculations. 
Furthermore, Phlx adopted the catch-all provision applying to other 
options tier calculations set forth in its pricing schedule, but not 
specified within paragraph (3) of its rule, so that it would have 
flexibility to apply the better of rule going forward to all options 
pricing programs administered by the Exchange that are based on volume 
calculations.\14\ The Exchange believes that adopting a similar 
principle-based approach for its options volume calculations would 
ensure that days are removed from such calculations only if doing so 
would be beneficial for the Participant. As such, the proposed language 
will not apply to straight volume accumulations as Participants do not 
benefit when a day is removed for such accumulations. Again, the 
Exchange believes that the approach of Phlx would be beneficial as it 
counts volume executed during an excluded day toward its members' 
straight volume accumulations.
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    \14\ See id. at paragraph (3)(C).
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    In addition, the Exchange proposes to harmonize its language with 
Phlx's language by adding further detail throughout the proposed rule 
text to bring greater transparency as to how the Exchange will apply 
the better of rule when removing days from its tier calculations. 
First, the Exchange proposes to make clear that it will only remove 
days pursuant to the better of rule by specifying in paragraphs (i)(B) 
and (ii) that such days may be excluded from the tier calculations only 
pursuant to paragraph (iii).\15\ Paragraph (iii) will then provide that 
if a day is to be excluded as a result of paragraph (i)(B) or (ii), the 
Exchange will be required to exclude the day from any Participant's 
monthly options tier calculations as detailed within paragraph 
(iii).\16\ With the proposed changes, the Exchange seeks to clarify 
that it will exclude days from any Participant's tier calculations in a 
uniform manner to ensure that days are removed only in situations where 
the Participant benefits. The Exchange will look at each potential 
excluded day in a month and determine for every Participant their ADV 
or other applicable volume calculation based on their trading volume on 
that day. If any Participant would have a lower volume calculation with 
the particular day included, the Exchange will exclude that day for 
that Participant. As such,

[[Page 5531]]

the proposed changes specify that the Exchange will apply the better of 
rule in a uniform manner for all Participants, and that there is no 
arbitrary selection of ``winners'' or ``losers'' when the Exchange 
excludes days.
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    \15\ See id. at paragraphs (1)(B) and (2) for similar language 
on Phlx.
    \16\ See id. at paragraph (3) for similar language on Phlx.
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Equity 7, Section 118
    In light of the foregoing proposal to amend the provisions for 
removing days in Options 7, Section 2, the Exchange proposes to make 
related changes to its current provisions for removing days in Equity 
7, Section 118. Currently, the Exchange has a number of cross-asset 
volume tiers in its equity pricing schedule, which link reduced 
transaction fees on the Nasdaq Stock Market to activity on NOM,\17\ 
similar to the rebate tiers on NOM that link to activity on the Nasdaq 
Stock Market as discussed above.\18\ Furthermore, the Exchange has 
language in Equity 7, Section 118(j) allowing it to exclude certain 
days from the volume calculations in its equity pricing schedule.\19\ 
The Exchange now seeks to amend Section 118(j) to make clear that this 
language will continue to apply to the equity tier calculations within 
Section 118, and the language proposed in Options 7, Section 2(5)(b) 
will apply to the options tier calculations in Section 118.\20\
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    \17\ For example, Nasdaq charges a reduced transaction fee of 
$0.0029 per share if the member adds 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 ADV in the customer clearing range for Equity and ETF 
option contracts per day in a month on NOM. See Equity 7, Section 
118(a)(1).
    \18\ See note 4 above. Also, for example, footnote ``e'' of the 
NOM pricing schedule provides that NOM Participants that transact in 
all securities through one or more of its Nasdaq Market Center MPIDs 
that represent 3.00% or more of Consolidated Volume in the same 
month on The Nasdaq Stock Market will receive a $0.52 per contract 
rebate to add liquidity in Penny Pilot Options as Customer or 
Professional and $1.00 per contract rebate to add liquidity in Non-
Penny Pilot Options as Customer or Professional. See Options 7, 
Section 2(1).
    \19\ In particular, Section 118(j) presently provides that, for 
purposes of determining average daily volume and total consolidated 
volume under this section, any day that the market is not open for 
the entire trading day will be excluded from such calculation. In 
addition, for purposes of calculating Consolidated Volume and the 
extent of a 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.
    \20\ See note 17 above.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\21\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\22\ 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, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed rule change is reasonable 
and equitable as it provides a new framework for removing days from the 
Exchange's options volume tier calculations that the Exchange believes 
is beneficial to Participants and consistent with similar provisions 
already in place on Phlx. The proposed rule change would allow the 
Exchange to remove a day from its options volume calculations in more 
circumstances, and ensures that the Exchange will only do so in 
circumstances where beneficial for the Participant. The Exchange 
believes that it is reasonable and equitable to exclude a day from its 
volume calculations when Participants are instructed to route their 
orders to other markets as this preserves the Exchange's intent behind 
adopting volume-based pricing, and avoids penalizing Participants that 
follow this instruction.
    The Exchange similarly believes it is reasonable and equitable to 
exclude a day from its volume calculations when the Exchange's system 
experiences a disruption during the 30-minute period prior to the 
opening of trade which renders the Exchange inaccessible to 
Participants. Without this change, Participants that are precluded from 
submitting eligible interest during the 30-minute window before the 
opening of trade may be negatively impacted, even if the Exchange 
resolves the issue before the market opens and as a result, does not 
instruct Participants to route away. The proposed change to exclude 
such days will diminish the likelihood of a cost increase occurring 
because a member is not able to reach a volume tier calculation on that 
date that it would reach on other trading days during the month.
    Similarly, excluding a day where the Exchange's system experiences 
a disruption that lasts for more than 60 minutes intra-day is 
reasonable and equitable because the proposal seeks to avoid penalizing 
Participants that might otherwise qualify for certain tiered pricing 
but that, because of an Exchange systems disruption, did not 
participate on the Exchange to the extent they might have otherwise 
participated. The Exchange believes that certain systems disruptions 
could preclude some Participants from submitting orders to the Exchange 
even if such issue is not actually a complete systems outage.
    In addition, the Exchange believes that it is reasonable and 
equitable to only exclude a day from its volume calculations for 
Participants that would otherwise have a lower volume calculation with 
the day included. Without these changes, Participants that route away 
in accordance with the Exchange's instructions, or that step up and 
trade significant volume on excluded trading days, may be negatively 
impacted, resulting in an effective cost increase for those 
Participants. In addition, having a catch-all in paragraph (iii)(B) so 
that the better of rule applies to other options volume calculations 
than ADV to allow the Exchange to apply the rule going forward to all 
pricing programs based on volume calculations will further protect 
Participants. The Exchange notes that aberrant low volume days 
resulting from, for instance, an Unanticipated Event, impacts all 
volume calculations, and allowing the Exchange to exclude such days 
from any volume tier calculation if the Participant would have a lower 
tier calculation with the day included will further protect 
Participants from being inadvertently penalized.
    Furthermore, the Exchange believes that categorizing the potential 
excluded days is reasonable and equitable because it will bring greater 
transparency to the application of its rule. Specifically, the Exchange 
is distinguishing between planned and unplanned days in paragraphs (i) 
and (ii), defining the latter as Unanticipated Events, and stipulating 
how the Exchange will exclude such days pursuant to this rule. 
Categorizing days in this manner will clarify the application of its 
rule in light of the Exchange's proposal to expand the rule to adopt 
additional days that may be excluded from its volume calculations. 
Providing in paragraph (i)(A) that the Exchange will always exclude 
from its tier calculations days that it announces in advance it will 
not be open for trading will clarify current practice. Furthermore, the 
Exchange believes that the proposed changes to specify how days in 
paragraphs (i)(B) and (ii) may be excluded from its volume calculations 
will bring greater transparency by delineating the various 
circumstances in which the better of rule will apply. Providing in 
paragraph (iii) that the Exchange may exclude any Scheduled Early Close 
or Unanticipated Event from the Tier Calculations, subject to the 
better of rule, will make clear that the Exchange will take a 
consistent

[[Page 5532]]

approach when excluding days for purposes of its volume based pricing 
tiers. Furthermore, the proposed changes specifying that the days in 
paragraphs (i)(B) and (ii) may be excluded only pursuant to paragraph 
(iii), and requiring the Exchange to exclude such days pursuant to the 
specifications in paragraph (iii) will likewise make clear that the 
Exchange will take a consistent approach with respect to excluding days 
from its Tier Calculations. As discussed above, these modifications 
will clarify that the Exchange will apply the better of rule in a 
uniform manner to all Participants, and that there is no arbitrary 
selection of ``winners'' or ``losers.''
    The Exchange also believes that specifying in its equity and 
options pricing schedules that the proposed rule for excluding days in 
Options 7, Section 2(5)(b) applies only to options tier calculations, 
and that the current rules for excluding days \23\ continue to apply to 
the equity tier calculations is reasonable and equitable. As discussed 
above, the Exchange has a number of cross-asset tiers within its equity 
and options pricing schedule,\24\ and believes that the proposed 
changes will clarify the application of the Exchange's provisions for 
excluding days in light of the Exchange's initiative to standardize its 
practice across the options markets.
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    \23\ See Equity 7, Section 118(j) and Options 7, Section 
2(5)(a).
    \24\ See notes 4, 17, and 18 above.
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    Finally, the Exchange believes that the proposed rule change is not 
unfairly discriminatory because it will apply equally to all Exchange 
members that transact on the Nasdaq Stock Market and on NOM. Nasdaq 
Stock Market members that are not currently Participants on NOM are 
eligible to become Participants by amending their membership 
application to add NOM. Moreover, the Exchange notes that any NOM 
Participant may trade equities on the Nasdaq Stock Market because they 
are already approved members.

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. The proposed rule change is 
designed to protect Participants from the possibility of a cost 
increase by excluding days when overall participation might be 
significantly lower than a typical trading day. The Exchange believes 
that the proposed modifications to its tier calculations are pro-
competitive and will result in lower total costs to end users, a 
positive outcome of competitive markets. Furthermore, other options 
exchanges have adopted rules that are substantially similar to the 
Exchange's proposal.\25\
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    \25\ See notes 3 and 11 above.
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    The Exchange operates in a highly competitive market in which 
market participants can readily direct their order flow to competing 
venues. In such an environment, the Exchange must continually review, 
and consider adjusting, its fees and rebates to remain competitive with 
other exchanges. For the reasons described above, the Exchange believes 
that the proposed fee changes reflect this competitive environment.

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 \26\ and paragraph (f) of Rule 19b-4 
thereunder.\27\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \26\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \27\ 17 CFR 240.19b-4(f).
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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-NASDAQ-2019-003 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-2019-003. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2019-003, and should be submitted 
on or before March 14, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02892 Filed 2-20-19; 8:45 am]
 BILLING CODE 8011-01-P
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