Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule in Options 7, Section 2, 16730-16736 [2019-07988]
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16730
Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
executed Specialist and Market Maker
Simple Order contracts per day in a
month in SPY. Every Specialist and
Market Maker will be equally impacted.
Also, the Exchange notes that every
Specialist and Market Maker may earn
a rebate on each contract as the tier
schedule starts with 1 contract.
Electronic Comments
MARS
The Exchange believes that adopting
a new Tier 2 with an ADV of 20,000
contracts which pays a MARS Payment
of $0.05 for Non-Penny and Penny does
not impose an undue burden on intramarket competition because the
Exchange will uniformly pay all Phlx
members the rebates specified in the
proposed MARS Payment tiers provided
the Phlx member has executed the
requisite number of Eligible Contracts.
Moreover, the Exchange believes that
the proposed MARS Payments offered
by the Exchange are equitable and not
unfairly discriminatory because any
qualifying Phlx member that offers
market access and connectivity to the
Exchange and/or utilizes such
functionality themselves may earn the
MARS Payment for all Eligible
Contracts.
Paper Comments
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.
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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.24
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:
• 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–
PHLX–2019–15 on the subject line.
• 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–PHLX–2019–15. 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–PHLX–2019–15 and should
be submitted on or before May 13, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–07980 Filed 4–19–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85662; File No. SR–
NASDAQ–2019–029]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Exchange’s Pricing Schedule in
Options 7, Section 2
April 16, 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 April 10,
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, 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
Exchange’s Pricing Schedule in Options
7, Section 2, which governs the pricing
for Nasdaq participants using The
Nasdaq Options Market (‘‘NOM’’),
Nasdaq’s facility for executing and
routing standardized equity and index
options. The proposed changes are
described further below.
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.
1 15
24 15
U.S.C. 78s(b)(3)(A)(ii).
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes a number of
changes to NOM pricing in Options 7,
Section 2. Each change is discussed
below.
The Exchange initially filed the
proposed pricing changes on April 1,
2019 (SR–NASDAQ–2019–025). On
April 10, 2019, the Exchange withdrew
that filing and submitted this filing.
Customer and Professional Fee for
Removing Liquidity in Penny Pilot
Options
The Exchange currently charges
Participants a Penny Pilot Options Fee
for Removing Customer 3 or
Professional 4 Liquidity that is $0.50 per
contract, excluding SPY. For
Participants that remove Customer or
Professional liquidity in SPY, this fee is
reduced to $0.49 per contract.5 The
Exchange also offers a reduced $0.48 per
contract Customer or Professional Penny
Pilot Options Fee for Removing
Liquidity for Participants that qualify
for any MARS 6 Payment Tier in Section
(6). SPY is excluded from this discount
because Participants are already offered
the $0.49 per contract discounted fee for
SPY.
The Exchange now proposes to
eliminate both discounts, and instead
charge a flat fee of $0.48 per contract
(reduced from $0.50 per contract) for
each Customer or Professional
transaction which removes liquidity in
Penny Pilot Options, including SPY.
The Exchange is making this change to
simplify the operation of the Penny
Pilot Options Fee to Remove Customer
and Professional Liquidity.
Customer and Professional Rebate To
Add Liquidity in Penny Pilot Options
The Exchange proposes a number of
changes to the Customer and
Professional Rebates to Add Liquidity in
Penny Pilot Options set forth in Section
2(1). First, the Exchange is proposing to
increase certain volume thresholds in
the Tier 5 and Tier 6 Customer and
Professional Rebates to Add Liquidity in
Penny Pilot Options. Today, the
Exchange offers the following Customer
and Professional Rebates to Add
Liquidity in Penny Pilot Options, which
are structured as a six tier program with
increasing volume requirements for
each tier:
Monthly
volume
Tier 1 ......
Tier 2 ......
Tier 3 ......
Tier 4 ......
Tier 5 ......
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Tier 6 ......
16731
Rebate to add
liquidity
Participant adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options of up to 0.10% of total industry customer equity and ETF option average daily volume (‘‘ADV’’) contracts per
day in a month.
Participant adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.10% to 0.20% of total industry customer equity and ETF option ADV contracts per day in a month.
Participant adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.20% to 0.30% of total industry customer equity and ETF option ADV contracts per day in a month.
Participant adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.30% to 0.40% of total industry customer equity and ETF option ADV contracts per day in a month.
Participant adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.40% to 0.75% of total industry customer equity and ETF option ADV contracts per day in a month.
Participant adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 0.75% or more of total industry customer equity and ETF option ADV contracts per day in a month,
or Participant adds: (1) Customer and/or Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 0.20% or
more of total industry customer equity and ETF option ADV contracts per day in a month, and (2) has added liquidity in all securities
through one or more of its Nasdaq Market Center MPIDs that represent 1.00% or more of Consolidated Volume in a month or qualifies for MARS.
$0.20
0.25
0.42
0.43
0.45
0.48
The Exchange first proposes to amend
the criteria in Tier 5 to increase the
percentage of total industry customer
equity and ETF option ADV contracts
per day in a month from 0.75% to
0.80%, and to make a corresponding
change in Tier 6 to increase the
percentage from 0.75% to 0.80%. As
proposed, Participants will receive a
$0.45 per contract Tier 5 rebate for
adding Customer, Professional, Firm,7
Non-NOM Market Maker 8 and/or
Broker-Dealer 9 liquidity in Penny Pilot
Options and/or Non-Penny Pilot
Options above 0.40% to 0.80% of total
industry customer equity and ETF
option ADV contracts per day in a
month. In addition, Participants will
receive a $0.48 per contract Tier 6 rebate
for adding Customer, Professional, Firm,
Non-NOM Market Maker and/or BrokerDealer liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options above
0.80% or more of total industry
customer equity and ETF option ADV
contracts per day in a month.10
Further, the Exchange proposes to
decrease the Customer and Professional
Rebate to Add Liquidity in Penny Pilot
Options set forth in note ‘‘e’’ of Section
2(1). Today, this rebate is $0.52 per
contract if the Participant transacts in
all securities through one or more of its
Nasdaq Market Center MPIDs that
represent 3.00% or more of
Consolidated Volume 11 in the same
month on The Nasdaq Stock Market.
Participants that qualify for this rebate
would not be eligible for any other
3 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 (‘‘OCC’’) which is not for the
account of broker or dealer or for the account of a
‘‘Professional’’ (as that term is defined in Chapter
I, Section 1(a)(48)).
4 The 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.
5 See Options 7, Section 2(1), note 3. Firms, NonNOM Market Makers, NOM Market Makers and
Broker-Dealers are assessed a $0.50 per contract
Penny Pilot Options Fee for Removing Liquidity in
SPY, similar to other Penny Pilot Options.
6 ‘‘MARS’’ is the Market Access and Routing
Subsidy program, which offers rebates to
Participants that have System Eligibility and have
executed the requisite number of Eligible Contracts
in a month. See Options 7, Section 2(6).
7 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at OCC.
8 The term ‘‘Non-NOM Market Maker’’ or (‘‘O’’) is
a registered market maker on another options
exchange that is not a NOM Market Maker. A NonNOM Market Maker must append the proper Non-
NOM Market Maker designation to orders routed to
NOM.
9 The term ‘‘Broker-Dealer’’ or (‘‘B’’) applies to
any transaction which is not subject to any of the
other transaction fees applicable within a particular
category.
10 The alternative method to earn the $0.48 per
contract Tier 6 rebate described above is not being
amended under this proposal.
11 Consolidated Volume would be determined as
set forth in Equity 7, Section 118(a). In calculating
total volume, the Exchange will add the
Participant’s total volume transacted on The Nasdaq
Stock Market in a given month across its Nasdaq
Market Center MPIDs, and will divide this number
by the total industry Consolidated Volume.
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
Customer and Professional rebates in
Tiers 1–6 or other rebate incentives on
NOM for Customer and Professional
order flow in Options 7, Section 2(1).
The Exchange now proposes to reduce
this Customer and Professional Rebate
to Add Liquidity in Penny Pilot Options
from $0.52 to $0.50 per contract.
MARS Pricing
The Exchange currently offers a
Market Access and Routing Subsidy or
‘‘MARS’’ to qualifying Participants in
Options 7, Section 2(6). Participants that
have System Eligibility 12 and have
executed the requisite number of
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MARS
payment
(penny)
Average daily volume
(‘‘ADV’’)
Tiers
1
2
3
4
5
Eligible Contracts 13 daily in a month
(‘‘Average Daily Volume’’) are entitled
to a MARS Payment. The Exchange
currently pays the following MARS
Payments according to Average Daily
Volume (‘‘ADV’’) submitted on NOM:
........................
........................
........................
........................
........................
2,000 .........................................................................................................................................
5,000 .........................................................................................................................................
10,000 .......................................................................................................................................
20,000 .......................................................................................................................................
45,000 .......................................................................................................................................
$0.07
0.09
0.11
0.15
0.17
MARS
payment
(non-penny)
$0.15
0.20
0.30
0.50
0.60
The Exchange also provides
Participants that qualify for the Tier 6
Customer and Professional Penny Pilot
Options Rebate to Add Liquidity in
Section 2(1) an additional $0.09 per
contract, which is paid in addition to
any MARS Payment tier on MARS
Eligible Contracts the NOM Participant
qualifies for in a given month. The
specified MARS Payments are paid on
all executed Eligible Contracts that add
liquidity, which are routed to NOM
through a participating NOM
Participant’s System and meet the
requisite Eligible Contracts ADV. No
payments will be made with respect to
orders that are routed to NOM, but not
executed.14
The Exchange now proposes to
eliminate the additional $0.09 per
contract incentive provided to
Participants that qualify for Customer
and Professional Penny Pilot Options
Rebate to Add Liquidity Tier 6 for the
Non-Penny MARS Payment tiers. The
Exchange will make related changes
within Section 2(6) to clarify that it will
continue to pay an additional $0.09 per
contract in addition to any MARS
Payment tier on MARS Eligible
Contracts in a given month on the
Penny Pilot Options transactions,
provided the Participant qualified for
the Customer and Professional Penny
Pilot Options Rebate to Add Liquidity
Tier 6 in Options 7, Section 2(1). The
Exchange did not observe an
appreciable increase in Non-Penny Pilot
order flow sent to the Exchange to
qualify for this rebate, and therefore
proposes to eliminate this incentive to
apply its resources to other, possibly
more effective incentives. As such, the
Exchange proposes to offer another
incentive in lieu of the eliminated
rebate, which the Exchange will pay to
qualifying Participants on both Penny
and Non-Penny Pilot Options
transactions in addition to any MARS
Payment tier on MARS Eligible
Contracts in a given month. Specifically,
the Exchange proposes to offer
Participants that have total Affiliated
Entity 15 or Common Ownership 16
average daily add volume (‘‘ADAV’’) of
3.00% or more of total industry
customer equity and ETF option ADV
contracts per day in a month an
additional $0.01 per contract in Penny
Pilot Options and an additional $0.03
per contract in Non-Penny Pilot
Options, in addition to any MARS
Payment tier on MARS Eligible
Contracts the Participant qualifies for in
a given month.17 The Exchange believes
that its proposal will encourage
Participants that are affiliated either
under Common Ownership or as
Affiliated Entities to send additional
order flow that add liquidity to the
Exchange to qualify for the higher
MARS rebates.
The Exchange also proposes to
provide Participants that qualify for the
Tier 5 MARS Payment two
supplemental rebates that are based on
progressively increasing volume
requirements of executed MARS Eligible
Contracts ADV and total Affiliated
Entity or Common Ownership ADAV.
The Exchange believes that its proposal
will encourage Participants to bring
additional order flow to the Exchange to
qualify for the higher MARS incentives.
First, the Exchange proposes to offer
Participants that execute at least 75,000
of MARS Eligible Contracts per day and
have total Affiliated Entity or Common
Ownership ADAV of 3.25% or more of
total industry customer equity and ETF
option ADV contracts per day in a
month an additional $0.01 per contract
in Penny Pilot Options and an
additional $0.10 per contract in NonPenny Pilot Options, in addition to
MARS Payment Tier 5 on MARS
12 To qualify for MARS, the Participant’s routing
system (‘‘System’’) would be required to: (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. Further, the Participant’s
System would also need to cause NOM to be the
one of the top three default destination exchanges
for (a) individually executed marketable orders if
NOM is at the national best bid or offer (‘‘NBBO’’),
regardless of size or time or (b) orders that establish
a new NBBO on NOM’s Order Book, but allow any
user to manually override NOM as a default
destination on an order-by-order basis. Any NOM
Participant would be permitted to avail itself of this
arrangement, provided that its order routing
functionality incorporates the features described
above and satisfies NOM that it appears to be robust
and reliable. The Participant remains solely
responsible for implementing and operating its
System.
13 For the purpose of qualifying for the MARS
Payment, Eligible Contracts may include Firm, NonNOM Market Maker, Broker-Dealer, or Joint Back
Office or ‘‘JBO’’ equity option orders that add
liquidity and are electronically delivered and
executed. Eligible Contracts do not include Mini
Option orders.
14 A Participant will not be entitled to receive any
other revenue for the use of its System specifically
with respect to orders routed to NOM.
15 The term ‘‘Affiliated Entity’’ is a relationship
between an Appointed MM and an Appointed OFP
for purposes of aggregating eligible volume for
pricing in Options 7, Sections 2(1) and 2(6) for
which a volume threshold or volume percentage is
required to qualify for higher rebates or lower fees.
The term ‘‘Appointed MM’’ is a NOM Market Maker
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. The term ‘‘Appointed
OFP’’ is an OFP who has been appointed by a NOM
Market Maker for purposes of qualifying as an
Affiliated Entity. Participants under Common
Ownership 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.
16 The term ‘‘Common Ownership’’ shall mean
Participants under 75% common ownership or
control. Common Ownership shall apply to all
pricing in Options 7, Section 2 for which a volume
threshold or volume percentage is required to
obtain the pricing.
17 See proposed note ‘‘∧’’ in Section 2(6).
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
Eligible Contracts the Participant
qualifies for in a given month.18 Second,
Participants that execute at least
100,000 of MARS Eligible Contracts per
day and have total Affiliated Entity or
Common Ownership ADAV of 3.25% 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 in Penny Pilot
Options and an additional $0.19 per
contract in Non-Penny Pilot Options, in
addition to MARS Payment Tier 5 on
MARS Eligible Contracts the NOM
Participant qualifies for in a given
month.19 NOM Participants that qualify
for this incentive will not receive the
proposed note ‘‘@’’ incentive.
NOM Market Maker Rebate To Add
Liquidity in Non-Penny Pilot Options
The Exchange currently offers
Participants that qualify for the Tier 6
NOM Market Maker Rebate to Add
Liquidity in Penny Pilot Options 20 a
$0.86 per contract NOM Market Maker
Rebate to Add Liquidity in Non-Penny
Pilot options.21 This rebate is paid to
qualifying Participants in lieu of the
$0.35 per contract fee normally charged
to NOM Market Maker transactions that
add Non-Penny Pilot liquidity.22 The
18 See
proposed note ‘‘@’’ in Section 2(6).
proposed note ‘‘&’’ in Section 2(6).
20 To qualify for the Tier 6 rebate, Participant
must: (a)(1) Add NOM Market Maker liquidity in
Penny Pilot Options and/or Non-Penny Pilot
Options above 0.95% of total industry customer
equity and ETF option ADV contracts per day in a
month, (2) execute Total Volume of 250,000 or more
contracts per day in a month, of which 30,000 or
more contracts per day in a month must be
removing liquidity, and (3) add Firm, Broker-Dealer
and Non-NOM Market Maker liquidity in NonPenny Pilot Options of 10,000 or more contracts per
day in a month; or (b)(1) add NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options above 1.50% of total industry
customer equity and ETF option ADV contracts per
day in a month, and (2) execute Total Volume of
250,000 or more contracts per day in a month, of
which 15,000 or more contracts per day in a month
must be removing liquidity. For purposes of Tier 6,
‘‘Total Volume’’ shall be defined as Customer,
Professional, Firm, Broker-Dealer, Non-NOM
Market Maker and NOM Market Maker volume in
Penny Pilot Options and/or Non-Penny Pilot
Options which either adds or removes liquidity on
NOM. See Options 7, Section 2(1).
21 See Options 7, Section 2(1), note ‘‘6.’’
22 The Exchange also offers additional incentives
in note ‘‘5’’ to reduce this fee or earn a rebate,
provided Participants meet the volume-based
requirements. Specifically, Participants who add
NOM Market Maker liquidity in Non-Penny Pilot
Options of 7,500 to 9,999 ADV contracts per day in
a month would be assessed a $0.00 per contract
Non- Penny Options Fee for Adding Liquidity in
that month. In addition, Participants that add NOM
Market Maker liquidity in Non-Penny Pilot Options
of 10,000 or more ADV contracts per day in a month
would receive a $0.30 per contract Non-Penny
Rebate to Add Liquidity for that month instead of
paying the Non-Penny Fee for Adding Liquidity.
See Options 7, Section 2(1), note ‘‘5.’’ Participants
that qualify for a note ‘‘5’’ incentive would receive
the greater of the note ‘‘5’’ or note ‘‘6’’ incentive.
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19 See
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note ‘‘6’’ incentive is designed to
encourage Participants that transact as
NOM Market Makers to send more order
flow to the Exchange in either Penny or
Non-Penny Pilot Options in order to
qualify for the Tier 6 Penny Pilot Rebate
to Add NOM Market Maker Liquidity to
earn the $0.86 Non-Penny Rebate to
Add NOM Market Maker Liquidity. To
further incentivize Participants to direct
order flow to NOM, the Exchange
proposes to provide an additional $0.02
per contract NOM Market Maker Rebate
to Add Liquidity in Non-Penny Pilot
Options for Participants that qualify for
the note ‘‘&’’ incentive proposed above
in the MARS Payment Schedule, in
addition to receiving the $0.86 per
contract NOM Market Maker Rebate to
Add Liquidity in Non-Penny Pilot
Options. Participants would continue to
receive the greater of the note ‘‘5’’ or
note ‘‘6’’ incentive if they qualify for
both.
16733
The Tier 3 and Tier 4 rebates will
otherwise remain unchanged under this
proposal.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,25 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,26 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.
Customer and Professional Fee for
Removing Liquidity in Penny Pilot
Options
The Exchange believes that the
proposed changes to the Customer and
Professional Fees for Removing
Liquidity in Penny Pilot Options are
NOM Market Maker Rebate To Add
reasonable. As discussed above, the
Liquidity in Penny Pilot Options
Exchange is proposing to eliminate the
reduced fees of $0.49 per contract
Lastly, the Exchange proposes to
(provided to Participants that remove
replace VXX with VXXB in the Tiers 3
Customer and Professional liquidity in
and 4 NOM Market Maker Rebates to
SPY Options) and $0.48 per contract
Add Liquidity in Penny Pilot Options
(provided to Participants that qualify for
which currently apply to AAPL, QQQ,
any MARS Payment Tier). Instead, the
IWM, SPY and VXX. By way of
Exchange will charge a flat fee of $0.48
background, options on the iPath S&P
per contract (reduced from $0.50 per
500 VIX Short-Term Futures exchangetraded note (‘‘VXX’’) are no longer listed contract) for each Customer or
Professional transaction which removes
for trading on the Exchange since VXX
matured on January 30, 2019 23 and VXX liquidity in Penny Pilot Options,
shares are no longer listed for trading on including SPY. The Exchange believes
that these changes will simplify the
equity trading venues. Prior to its
operation of this fee by uniformly
maturity, VXX’s issuer Barclays Bank
charging $0.48 per contract for all
PLC introduced a substantially similar
product, the iPath Series B S&P 500 VIX Customer and Professional transactions
that remove liquidity in Penny Pilot
Short-Term Futures exchange-traded
Options. Furthermore, the Exchange
note (‘‘VXXB’’),24 and was intended to
believes that the fee decrease will
serve as the replacement for VXX upon
maturity. The Exchange has since listed further incentivize Participants to send
more Customer and Professional order
VXXB options for trading on NOM.
flow to NOM. All market participants
Accordingly, the Exchange proposes to
replace references to VXX with VXXB in benefit from the increased order
interaction when more order flow is
its Pricing Schedule. In particular, the
available on NOM.
Exchange proposes to delete references
The Exchange further believes that the
to VXX from the Tiers 3 and 4 NOM
proposed fee changes are equitable and
Market Maker Rebates to Add Liquidity
not unfairly discriminatory because they
in Penny Pilot Options currently
will apply equally to all similarly
applicable to AAPL, QQQ, IWM, SPY
and VXX, and replace those with VXXB. situated Participants. With the proposed
changes, Participants will be charged a
23 See VXX Prospectus and Pricing Supplement
uniform $0.48 per contract Fee for
available at https://www.ipathetn.com/US/16/en/
Removing Liquidity in all Penny Pilot
documentation.app?instrumentId=259118
Options, including SPY. The Exchange
&documentId=6204338.
also believes that it is equitable and not
24 VXXB was introduced on January 17, 2018 and
unfairly discriminatory to offer the
has a maturity date of January 23, 2048. See VXXB
lower $0.48 per contract fee to
Prospectus and Pricing Supplement available at
https://www.ipathetn.com/US/16/en/document
Participants that transact as Customers
ation.app?instrumentId=341408&document
or Professionals, and not to other market
Id=6585610. While VXXB is currently a Non-Penny
Pilot Option, it will replace VXX in the Penny Pilot
Program as of April 2, 2019. See Options Trader
Alert #2019–8.
PO 00000
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25 15
26 15
E:\FR\FM\22APN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
22APN1
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amozie on DSK9F9SC42PROD with NOTICES
participants. Customer liquidity offers
unique benefits to the market by
providing more trading opportunities,
which attracts specialists and market
makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause a corresponding increase in order
flow from other market participants.
The Exchange believes that encouraging
Participants to add Professional
liquidity is similarly beneficial, as the
lower fee may cause market participants
to select NOM as a venue to send
Professional order flow, which benefits
all market participants by attracting
valuable liquidity to the market and
thereby enhancing the trading quality
and efficiency of all.
Customer and Professional Rebate To
Add Liquidity in Penny Pilot Options
The Exchange believes that it is
reasonable to amend the Customer and
Professional Rebates to Add Liquidity in
Penny Pilot Options by increasing the
percentages of total industry customer
equity and ETF option ADV contracts in
Tiers 5 and 6, as discussed above. The
Exchange believes that the increased
volume thresholds are more closely
aligned to the corresponding rebates
than the current volume threshold. This
increase is also reflective of the
Exchange’s desire to provide incentives
to attract order flow to the Exchange in
return for significant market-improving
behavior. By increasing the volume of
liquidity that a Participant must add
during the month in order to qualify for
the corresponding Tier 5 and Tier 6
rebates, this change will help ensure
that Participants are providing
significant market-improving behavior
in return for the incentives.
In addition, the proposed change in
note ‘‘e’’ to decrease the Customer and
Professional Rebate to Add Liquidity in
Penny Pilot Options provided to eligible
Participants that transact 3.00% or more
in Consolidated Volume on The Nasdaq
Stock Market from $0.52 to $0.50 per
contract is reasonable because the
proposed change is a modest reduction,
and the Exchange believes that its rebate
program will continue to incentivize
Participants to transact greater volume
on The Nasdaq Stock Market in order to
qualify for a higher rebate on NOM.
The Exchange also believes that the
modifications to the Customer and
Professional Rebates to Add Liquidity in
Penny Pilot Options proposed above are
equitable and not unfairly
discriminatory because all eligible
Participants that meet the relevant
qualifications will uniformly receive the
rebates. Further, the Exchange believes
that it is equitable and not unfairly
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17:22 Apr 19, 2019
Jkt 247001
discriminatory to offer the rebates to
Participants that transact as Customers
or Professionals, and not to other market
participants. Customer liquidity offers
unique benefits to the market by
providing more trading opportunities,
which attracts specialists and market
makers. An increase in the activity of
these market participants in turn
facilitates tighter spreads, which may
cause an additional corresponding
increase in order flow from other market
participants. The Exchange believes that
encouraging Participants to add
Professional liquidity is similarly
beneficial, as the rebates may cause
market participants to select NOM as a
venue to send Professional order flow,
which benefits all market participants
by attracting valuable liquidity to the
market and thereby enhancing the
trading quality and efficiency of all.
MARS Pricing
The Exchange’s proposal to modify
MARS pricing in Section 2(6) is
reasonable, equitable and not unfairly
discriminatory for the reasons that
follow.
The Exchange believes that the
elimination of the additional $0.09 per
contract incentive for Non-Penny MARS
Payment Tiers proposed above is
reasonable because as noted above, the
Exchange did not observe an
appreciable increase in Non-Penny Pilot
order flow sent to the Exchange to
qualify for this rebate. The Exchange
must periodically assess the
effectiveness of the incentives it
provides in the form of discounts or
rebates and, in the case of ineffective
incentives, eliminate the incentive so
that the Exchange may apply its
resources to other, possibly more
effective discounts or rebates such as
the note ‘‘∧’’ incentive based on total
Affiliated Entity or Common Ownership
proposed above. Accordingly, while the
Exchange is eliminating the additional
$0.09 per contract incentive for NonPenny MARS Payment Tiers, the
Exchange believes that the additional
note ‘‘∧’’ incentives of $0.01 and $0.03
in Penny and Non-Penny Pilot Options
respectively, will better align the cost of
the MARS program with the benefit it
brings to the marketplace.
Furthermore, the Exchange believes
that the proposed total Affiliated Entity
or Common Ownership ADAV
requirement of 3.00% is reasonable
because it is set at a level that the
Exchange believes will encourage
Participants to bring more order flow to
the Exchange to qualify for the higher
note ‘‘∧’’ incentive. To the extent that
order flow is increased by the proposal,
market participants will increasingly
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
compete for the opportunity to trade on
the Exchange, including sending more
orders to reach higher tiers or rebates.
The resulting increased volume and
liquidity will benefit all market
participants by providing more trading
opportunities and tighter spreads. The
Exchange also notes that the concept of
allowing market participants to
aggregate volume for purposes of
volume pricing is not novel. Other
options markets have similar incentives
in place to attract volume to their
markets.27
The Exchange believes that the
qualifying volume requirements in the
two additional incentives proposed in
note ‘‘@’’ and note ‘‘&’’ of Section 2(6)
are reasonable and equitable for the
same reasons discussed above for the
note ‘‘∧’’ incentive. Specifically, the
Exchange believes that the total
Affiliated Entity or Common Ownership
ADAV requirement of 3.25% proposed
for both incentives is set at an
appropriate level, which the Exchange
believes will encourage Participants to
bring more order flow to the Exchange
to qualify for the higher note ‘‘@’’ and
note ‘‘&’’ incentives, which liquidity
will benefit all market participants. The
Exchange similarly believes that the
proposed MARS Eligible Contracts ADV
requirements of 75,000 and 100,000
ADV for note ‘‘@’’ and note ‘‘&,’’
respectively, are reasonable and
equitable because they are set at levels
that the Exchange believes will
encourage Participants and, in
particular, Participants that transact in
Firm, Non-NOM Market Maker, BrokerDealer, or JBO electronic equity and ETF
options orders that add liquidity to
execute more volume on NOM.
The Exchange also believes that the
proposed rebate amounts for the note
‘‘@’’ and note ‘‘&’’ incentives reflect the
progressively increasing volume
requirements to earn the highest MARS
incentives by bringing the most order
flow to the Exchange. For instance,
Participants will have to meet the 3.25%
total Affiliated Entity or Common
Ownership ADAV requirement and
execute 75,000 of MARS Eligible
Contracts ADV, to qualify for the
proposed ‘‘@’’ incentives and receive the
additional $0.01 per contract in Penny
Pilot Options and the additional $0.10
per contract in Non-Penny Pilot
27 See Cboe Exchange (‘‘CBOE’’) Fees Schedule.
CBOE permits aggregation of volume to qualify for
credits available under an Affiliated Volume Plan
or AVP. See NYSE American Options (‘‘NYSE
Amex’’) Fee Schedule at Section I.E. NYSE Amex
permits aggregation of volume to qualify for the
Amex Customer Engagement or ACE Program.
E:\FR\FM\22APN1.SGM
22APN1
Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
Options.28 Participants that qualify for
note ‘‘@’’ would therefore receive total
MARS rebates of $0.18 per contract for
Penny Pilot Options and $0.70 per
contract for Non-Penny Pilot Options.
Furthermore, Participants will have to
meet the 3.25% total Affiliated Entity or
Common Ownership ADAV
requirement and execute 100,000 of
MARS Eligible Contracts ADV, to
qualify for the proposed ‘‘&’’ incentives
and receive the additional $0.02 per
contract in Penny Pilot Options and the
additional $0.19 per contract in NonPenny Pilot Options.29 Participants that
qualify for note ‘‘&’’ would therefore
receive total MARS rebates of $0.19 per
contract for Penny Pilot Options and
$0.79 per contract for Non-Penny Pilot
Options. The Exchange further believes
that it is reasonable to not provide the
note ‘‘@’’ incentives to Participants that
qualify for the note ‘‘&’’ incentives. As
noted above, the proposed note ‘‘&’’
incentives are higher, and in some cases
significantly higher, than the proposed
incentives in note ‘‘@,’’ and also require
higher qualifying volume thresholds.
Accordingly, the Exchange believes it is
reasonable to provide the note ‘‘@’’
incentives instead of the note ‘‘&’’
incentives to Participants that qualify
for both.
The Exchange’s proposal to modify
MARS pricing in Section 2(6) is
equitable and not unfairly
discriminatory because all Participants
may elect to become an Affiliated Entity
as either Appointed MM or Appointed
OFP, or an affiliate under Common
Ownership, for purposes of aggregating
eligible volume to qualify for higher
rebates or lower fees. Furthermore, any
Participant may qualify for MARS
provided they have the requisite System
Eligibility. The Exchange will also
uniformly pay MARS rebates to
qualifying Participants on all Eligible
Contracts.
amozie on DSK9F9SC42PROD with NOTICES
NOM Market Maker Rebate To Add
Liquidity in Non-Penny Pilot Options
The Exchange believes that its
proposal to provide an additional $0.02
per contract NOM Market Maker Rebate
to Add Liquidity in Non-Penny Pilot
Options for Participants that qualify for
the note ‘‘&’’ incentive proposed above,
in addition to receiving the $0.86 per
contract NOM Market Maker Rebate to
Add Liquidity in Non-Penny Pilot
28 The supplemental rebates would be paid in
addition to the Tier 5 MARS Payments of $0.17 per
contract in Penny Pilot Options and $0.60 per
contract in Non-Penny Pilot Options.
29 The supplemental rebates would be paid in
addition to the Tier 5 MARS Payments of $0.17 per
contract in Penny Pilot Options and $0.60 per
contract in Non-Penny Pilot Options.
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17:22 Apr 19, 2019
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Options, is reasonable, equitable, and
not unfairly discriminatory. The
Exchange notes that the additional
incentive in note ‘‘6’’ will be the highest
available rebate (totaling $0.88 per
contract) provided to Participants that
add NOM Market Maker liquidity in
Non-Penny Pilot Options. The Exchange
believes that the additional incentive is
reasonable because it will require
Participants to meet the stringent
volume requirements set forth in the
note ‘‘&’’ incentive proposed above, in
addition to those set forth in the Tier 6
Penny Pilot Options Rebate to Add
NOM Market Maker Liquidity.30 The
Exchange believes that this incentive
will continue to encourage Participants
to bring order flow to the Exchange to
qualify for the higher rebate, which will
be beneficial for all market participants
and will encourage an active and
liquidity market on NOM. The Exchange
also believes that it is reasonable to offer
Participants that qualify for a note ‘‘5’’
incentive the greater of the current note
‘‘5’’ or new note ‘‘6’’ incentive because
the Participant will be able to receive
the greater of the two rebates with this
proposal.
The Exchange believes that the
additional $0.02 per contract incentive
in note ‘‘6’’ is equitable and not unfairly
discriminatory because all similarlysituated Participants are equally capable
of qualifying for the proposed rebates,
and the rebate will be uniformly paid to
all qualifying Participants. Further, the
Exchange believes that offering only
Participants that transact as NOM
Market Makers the opportunity to
qualify for the additional incentive is
equitable and not unfairly
discriminatory. Unlike other market
participants, NOM Market Makers add
value through continuous quoting and
the commitment of capital.31 Because
NOM Market Makers have these
obligations to the market and regulatory
requirements that normally do not apply
to other market participants, the
Exchange believes that offering these
rebates to only NOM Market Makers is
equitable and not unfairly
discriminatory in light of their
30 See
note 22 above.
to Chapter VII (Market Participants),
Section 5 (Obligations of Market Makers), in
registering as a market maker, an Options
Participant commits himself to various obligations.
Transactions of a Market Maker in its market
making capacity must constitute a course of
dealings reasonably calculated to contribute to the
maintenance of a fair and orderly market, and
Market Makers should not make bids or offers or
enter into transactions that are inconsistent with
such course of dealings. Further, all Market Makers
are designated as specialists on NOM for all
purposes under the Act or rules thereunder. See
Chapter VII, Section 5.
31 Pursuant
PO 00000
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Fmt 4703
Sfmt 4703
16735
obligations. Finally, encouraging NOM
Market Makers to add greater liquidity
benefits all market participants in the
quality of order interaction.
NOM Market Maker Rebate To Add
Liquidity in Penny Pilot Options
The Exchange believes that the
replacing VXX with VXXB in the Tiers
3 and 4 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options
currently applicable to AAPL, QQQ,
IWM, SPY and VXX is reasonable,
equitable and not unfairly
discriminatory because VXX options are
no longer listed for trading on the
Exchange, and have been replaced by a
substantially similar product, VXXB
options.
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 pricing
changes proposed above are generally
designed to attract additional order flow
to NOM, which strengthens NOM’s
competitive position. Greater liquidity
benefits all market participants by
providing more trading opportunities
and attracting greater participation by
market makers. An increase in the
activity of these market participants in
turn facilitates tighter spreads.
The Exchange 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 and rebates to
remain competitive. Because
competitors are free to modify their own
fees and rebates in response, the
Exchange believes that the degree to
which pricing changes in this market
may impose any burden on competition
is extremely limited.
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.
E:\FR\FM\22APN1.SGM
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
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.32
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–2019–029 on the subject line.
amozie on DSK9F9SC42PROD with NOTICES
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–2019–029. 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,
32 15
U.S.C. 78s(b)(3)(A)(ii).
VerDate Sep<11>2014
17:22 Apr 19, 2019
Jkt 247001
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–2019–029, and
should be submitted on or before May
13, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–07988 Filed 4–19–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85667; File No. SRCboeEDGX–2019–023]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Extend the
Pilot Program Related to EDGX Rule
11.16, Trading Halts Due to
Extraordinary Market Volatility, to the
Close of Business on October 18, 2019
April 16, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 12,
2019, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘‘‘EDGX’’’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
33 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
PO 00000
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Sfmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (‘‘EDGX’’
or the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change to extend the pilot program
related to EDGX Rule 11.16, Trading
Halts Due to Extraordinary Market
Volatility, to the close of business on
October 18, 2019. The text of the
proposed rule change is attached as
Exhibit 5[sic].
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, 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
EDGX Rules 11.16(a) through (d), (f)
and (g) describe the methodology for
determining when to halt trading in all
stocks due to extraordinary market
volatility, i.e., market-wide circuit
breakers. The market-wide circuit
breaker mechanism was approved by
the Commission to operate on a pilot
basis, the term of which is to coincide
with the pilot period for the Plan to
Address Extraordinary Market Volatility
Pursuant to Rule 608 of Regulation NMS
(the ‘‘LULD Plan’’ or ‘‘Plan’’),5 including
any extensions to the pilot period for
the Plan. The Commission published an
amendment to the LULD Plan for it to
operate on a permanent, rather than
pilot, basis on December 18, 2018,6 and
5 See Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012) (the
‘‘Limit Up-Limit Down Release’’).
6 See Securities Exchange Act Release No. 84843
(December 18, 2018), 83 FR 66464 (December 26,
2018) (Amendment No. 18 Proposing Release).
E:\FR\FM\22APN1.SGM
22APN1
]]>Agencies
[Federal Register Volume 84, Number 77 (Monday, April 22, 2019)]
[Notices]
[Pages 16730-16736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07988]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85662; File No. SR-NASDAQ-2019-029]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Pricing Schedule in Options 7, Section 2
April 16, 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 April 10, 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, 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 Exchange's Pricing Schedule in
Options 7, Section 2, which governs the pricing for Nasdaq participants
using The Nasdaq Options Market (``NOM''), Nasdaq's facility for
executing and routing standardized equity and index options. The
proposed changes are described further below.
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 16731]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes a number of changes to NOM pricing in Options
7, Section 2. Each change is discussed below.
The Exchange initially filed the proposed pricing changes on April
1, 2019 (SR-NASDAQ-2019-025). On April 10, 2019, the Exchange withdrew
that filing and submitted this filing.
Customer and Professional Fee for Removing Liquidity in Penny Pilot
Options
The Exchange currently charges Participants a Penny Pilot Options
Fee for Removing Customer \3\ or Professional \4\ Liquidity that is
$0.50 per contract, excluding SPY. For Participants that remove
Customer or Professional liquidity in SPY, this fee is reduced to $0.49
per contract.\5\ The Exchange also offers a reduced $0.48 per contract
Customer or Professional Penny Pilot Options Fee for Removing Liquidity
for Participants that qualify for any MARS \6\ Payment Tier in Section
(6). SPY is excluded from this discount because Participants are
already offered the $0.49 per contract discounted fee for SPY.
---------------------------------------------------------------------------
\3\ 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 (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Chapter I, Section
1(a)(48)).
\4\ The 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.
\5\ See Options 7, Section 2(1), note 3. Firms, Non-NOM Market
Makers, NOM Market Makers and Broker-Dealers are assessed a $0.50
per contract Penny Pilot Options Fee for Removing Liquidity in SPY,
similar to other Penny Pilot Options.
\6\ ``MARS'' is the Market Access and Routing Subsidy program,
which offers rebates to Participants that have System Eligibility
and have executed the requisite number of Eligible Contracts in a
month. See Options 7, Section 2(6).
---------------------------------------------------------------------------
The Exchange now proposes to eliminate both discounts, and instead
charge a flat fee of $0.48 per contract (reduced from $0.50 per
contract) for each Customer or Professional transaction which removes
liquidity in Penny Pilot Options, including SPY. The Exchange is making
this change to simplify the operation of the Penny Pilot Options Fee to
Remove Customer and Professional Liquidity.
Customer and Professional Rebate To Add Liquidity in Penny Pilot
Options
The Exchange proposes a number of changes to the Customer and
Professional Rebates to Add Liquidity in Penny Pilot Options set forth
in Section 2(1). First, the Exchange is proposing to increase certain
volume thresholds in the Tier 5 and Tier 6 Customer and Professional
Rebates to Add Liquidity in Penny Pilot Options. Today, the Exchange
offers the following Customer and Professional Rebates to Add Liquidity
in Penny Pilot Options, which are structured as a six tier program with
increasing volume requirements for each tier:
------------------------------------------------------------------------
Rebate to add
Monthly volume liquidity
------------------------------------------------------------------------
Tier 1........... Participant adds Customer, $0.20
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-
Penny Pilot Options of up to 0.10%
of total industry customer equity
and ETF option average daily volume
(``ADV'') contracts per day in a
month.
Tier 2........... Participant adds Customer, 0.25
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.10% to
0.20% of total industry customer
equity and ETF option ADV contracts
per day in a month.
Tier 3........... Participant adds Customer, 0.42
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.20% to
0.30% of total industry customer
equity and ETF option ADV contracts
per day in a month.
Tier 4........... Participant adds Customer, 0.43
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.30% to
0.40% of total industry customer
equity and ETF option ADV contracts
per day in a month.
Tier 5........... Participant adds Customer, 0.45
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.40% to
0.75% of total industry customer
equity and ETF option ADV contracts
per day in a month.
Tier 6........... Participant adds Customer, 0.48
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.75% or
more of total industry customer
equity and ETF option ADV contracts
per day in a month, or Participant
adds: (1) Customer and/or
Professional liquidity in Penny
Pilot Options and/or Non-Penny Pilot
Options of 0.20% or more of total
industry customer equity and ETF
option ADV contracts per day in a
month, and (2) has added liquidity
in all securities through one or
more of its Nasdaq Market Center
MPIDs that represent 1.00% or more
of Consolidated Volume in a month or
qualifies for MARS.
------------------------------------------------------------------------
The Exchange first proposes to amend the criteria in Tier 5 to
increase the percentage of total industry customer equity and ETF
option ADV contracts per day in a month from 0.75% to 0.80%, and to
make a corresponding change in Tier 6 to increase the percentage from
0.75% to 0.80%. As proposed, Participants will receive a $0.45 per
contract Tier 5 rebate for adding Customer, Professional, Firm,\7\ Non-
NOM Market Maker \8\ and/or Broker-Dealer \9\ liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options above 0.40% to 0.80% of total
industry customer equity and ETF option ADV contracts per day in a
month. In addition, Participants will receive a $0.48 per contract Tier
6 rebate for adding 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% or more of total industry customer equity and
ETF option ADV contracts per day in a month.\10\
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\7\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\8\ The term ``Non-NOM Market Maker'' or (``O'') is a registered
market maker on another options exchange that is not a NOM Market
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market
Maker designation to orders routed to NOM.
\9\ The term ``Broker-Dealer'' or (``B'') applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category.
\10\ The alternative method to earn the $0.48 per contract Tier
6 rebate described above is not being amended under this proposal.
---------------------------------------------------------------------------
Further, the Exchange proposes to decrease the Customer and
Professional Rebate to Add Liquidity in Penny Pilot Options set forth
in note ``e'' of Section 2(1). Today, this rebate is $0.52 per contract
if the Participant transacts in all securities through one or more of
its Nasdaq Market Center MPIDs that represent 3.00% or more of
Consolidated Volume \11\ in the same month on The Nasdaq Stock Market.
Participants that qualify for this rebate would not be eligible for any
other
[[Page 16732]]
Customer and Professional rebates in Tiers 1-6 or other rebate
incentives on NOM for Customer and Professional order flow in Options
7, Section 2(1). The Exchange now proposes to reduce this Customer and
Professional Rebate to Add Liquidity in Penny Pilot Options from $0.52
to $0.50 per contract.
---------------------------------------------------------------------------
\11\ Consolidated Volume would be determined as set forth in
Equity 7, Section 118(a). In calculating total volume, the Exchange
will add the Participant's total volume transacted on The Nasdaq
Stock Market in a given month across its Nasdaq Market Center MPIDs,
and will divide this number by the total industry Consolidated
Volume.
---------------------------------------------------------------------------
MARS Pricing
The Exchange currently offers a Market Access and Routing Subsidy
or ``MARS'' to qualifying Participants in Options 7, Section 2(6).
Participants that have System Eligibility \12\ and have executed the
requisite number of Eligible Contracts \13\ daily in a month (``Average
Daily Volume'') are entitled to a MARS Payment. The Exchange currently
pays the following MARS Payments according to Average Daily Volume
(``ADV'') submitted on NOM:
---------------------------------------------------------------------------
\12\ To qualify for MARS, the Participant's routing system
(``System'') would be required to: (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. Further, the
Participant's System would also need to cause NOM to be the one of
the top three default destination exchanges for (a) individually
executed marketable orders if NOM is at the national best bid or
offer (``NBBO''), regardless of size or time or (b) orders that
establish a new NBBO on NOM's Order Book, but allow any user to
manually override NOM as a default destination on an order-by-order
basis. Any NOM Participant would be permitted to avail itself of
this arrangement, provided that its order routing functionality
incorporates the features described above and satisfies NOM that it
appears to be robust and reliable. The Participant remains solely
responsible for implementing and operating its System.
\13\ For the purpose of qualifying for the MARS Payment,
Eligible Contracts may include Firm, Non-NOM Market Maker, Broker-
Dealer, or Joint Back Office or ``JBO'' equity option orders that
add liquidity and are electronically delivered and executed.
Eligible Contracts do not include Mini Option orders.
------------------------------------------------------------------------
Average daily MARS payment MARS payment
Tiers volume (``ADV'') (penny) (non-penny)
------------------------------------------------------------------------
1..................... 2,000........... $0.07 $0.15
2..................... 5,000........... 0.09 0.20
3..................... 10,000.......... 0.11 0.30
4..................... 20,000.......... 0.15 0.50
5..................... 45,000.......... 0.17 0.60
------------------------------------------------------------------------
The Exchange also provides Participants that qualify for the Tier 6
Customer and Professional Penny Pilot Options Rebate to Add Liquidity
in Section 2(1) an additional $0.09 per contract, which is paid in
addition to any MARS Payment tier on MARS Eligible Contracts the NOM
Participant qualifies for in a given month. The specified MARS Payments
are paid on all executed Eligible Contracts that add liquidity, which
are routed to NOM through a participating NOM Participant's System and
meet the requisite Eligible Contracts ADV. No payments will be made
with respect to orders that are routed to NOM, but not executed.\14\
---------------------------------------------------------------------------
\14\ A Participant will not be entitled to receive any other
revenue for the use of its System specifically with respect to
orders routed to NOM.
---------------------------------------------------------------------------
The Exchange now proposes to eliminate the additional $0.09 per
contract incentive provided to Participants that qualify for Customer
and Professional Penny Pilot Options Rebate to Add Liquidity Tier 6 for
the Non-Penny MARS Payment tiers. The Exchange will make related
changes within Section 2(6) to clarify that it will continue to pay an
additional $0.09 per contract in addition to any MARS Payment tier on
MARS Eligible Contracts in a given month on the Penny Pilot Options
transactions, provided the Participant qualified for the Customer and
Professional Penny Pilot Options Rebate to Add Liquidity Tier 6 in
Options 7, Section 2(1). The Exchange did not observe an appreciable
increase in Non-Penny Pilot order flow sent to the Exchange to qualify
for this rebate, and therefore proposes to eliminate this incentive to
apply its resources to other, possibly more effective incentives. As
such, the Exchange proposes to offer another incentive in lieu of the
eliminated rebate, which the Exchange will pay to qualifying
Participants on both Penny and Non-Penny Pilot Options transactions in
addition to any MARS Payment tier on MARS Eligible Contracts in a given
month. Specifically, the Exchange proposes to offer Participants that
have total Affiliated Entity \15\ or Common Ownership \16\ average
daily add volume (``ADAV'') of 3.00% or more of total industry customer
equity and ETF option ADV contracts per day in a month an additional
$0.01 per contract in Penny Pilot Options and an additional $0.03 per
contract in Non-Penny Pilot Options, in addition to any MARS Payment
tier on MARS Eligible Contracts the Participant qualifies for in a
given month.\17\ The Exchange believes that its proposal will encourage
Participants that are affiliated either under Common Ownership or as
Affiliated Entities to send additional order flow that add liquidity to
the Exchange to qualify for the higher MARS rebates.
---------------------------------------------------------------------------
\15\ The term ``Affiliated Entity'' is a relationship between an
Appointed MM and an Appointed OFP for purposes of aggregating
eligible volume for pricing in Options 7, Sections 2(1) and 2(6) for
which a volume threshold or volume percentage is required to qualify
for higher rebates or lower fees. The term ``Appointed MM'' is a NOM
Market Maker 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. The term ``Appointed
OFP'' is an OFP who has been appointed by a NOM Market Maker for
purposes of qualifying as an Affiliated Entity. Participants under
Common Ownership 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.
\16\ The term ``Common Ownership'' shall mean Participants under
75% common ownership or control. Common Ownership shall apply to all
pricing in Options 7, Section 2 for which a volume threshold or
volume percentage is required to obtain the pricing.
\17\ See proposed note ``[caret]'' in Section 2(6).
---------------------------------------------------------------------------
The Exchange also proposes to provide Participants that qualify for
the Tier 5 MARS Payment two supplemental rebates that are based on
progressively increasing volume requirements of executed MARS Eligible
Contracts ADV and total Affiliated Entity or Common Ownership ADAV. The
Exchange believes that its proposal will encourage Participants to
bring additional order flow to the Exchange to qualify for the higher
MARS incentives. First, the Exchange proposes to offer Participants
that execute at least 75,000 of MARS Eligible Contracts per day and
have total Affiliated Entity or Common Ownership ADAV of 3.25% or more
of total industry customer equity and ETF option ADV contracts per day
in a month an additional $0.01 per contract in Penny Pilot Options and
an additional $0.10 per contract in Non-Penny Pilot Options, in
addition to MARS Payment Tier 5 on MARS
[[Page 16733]]
Eligible Contracts the Participant qualifies for in a given month.\18\
Second, Participants that execute at least 100,000 of MARS Eligible
Contracts per day and have total Affiliated Entity or Common Ownership
ADAV of 3.25% 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 in Penny Pilot Options and an additional $0.19 per contract in
Non-Penny Pilot Options, in addition to MARS Payment Tier 5 on MARS
Eligible Contracts the NOM Participant qualifies for in a given
month.\19\ NOM Participants that qualify for this incentive will not
receive the proposed note ``@'' incentive.
---------------------------------------------------------------------------
\18\ See proposed note ``@'' in Section 2(6).
\19\ See proposed note ``&'' in Section 2(6).
---------------------------------------------------------------------------
NOM Market Maker Rebate To Add Liquidity in Non-Penny Pilot Options
The Exchange currently offers Participants that qualify for the
Tier 6 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options
\20\ a $0.86 per contract NOM Market Maker Rebate to Add Liquidity in
Non-Penny Pilot options.\21\ This rebate is paid to qualifying
Participants in lieu of the $0.35 per contract fee normally charged to
NOM Market Maker transactions that add Non-Penny Pilot liquidity.\22\
The note ``6'' incentive is designed to encourage Participants that
transact as NOM Market Makers to send more order flow to the Exchange
in either Penny or Non-Penny Pilot Options in order to qualify for the
Tier 6 Penny Pilot Rebate to Add NOM Market Maker Liquidity to earn the
$0.86 Non-Penny Rebate to Add NOM Market Maker Liquidity. To further
incentivize Participants to direct order flow to NOM, the Exchange
proposes to provide an additional $0.02 per contract NOM Market Maker
Rebate to Add Liquidity in Non-Penny Pilot Options for Participants
that qualify for the note ``&'' incentive proposed above in the MARS
Payment Schedule, in addition to receiving the $0.86 per contract NOM
Market Maker Rebate to Add Liquidity in Non-Penny Pilot Options.
Participants would continue to receive the greater of the note ``5'' or
note ``6'' incentive if they qualify for both.
---------------------------------------------------------------------------
\20\ To qualify for the Tier 6 rebate, Participant must: (a)(1)
Add NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.95% of total industry customer equity
and ETF option ADV contracts per day in a month, (2) execute Total
Volume of 250,000 or more contracts per day in a month, of which
30,000 or more contracts per day in a month must be removing
liquidity, and (3) add Firm, Broker-Dealer and Non-NOM Market Maker
liquidity in Non-Penny Pilot Options of 10,000 or more contracts per
day in a month; or (b)(1) add NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options above 1.50% of total
industry customer equity and ETF option ADV contracts per day in a
month, and (2) execute Total Volume of 250,000 or more contracts per
day in a month, of which 15,000 or more contracts per day in a month
must be removing liquidity. For purposes of Tier 6, ``Total Volume''
shall be defined as Customer, Professional, Firm, Broker-Dealer,
Non-NOM Market Maker and NOM Market Maker volume in Penny Pilot
Options and/or Non-Penny Pilot Options which either adds or removes
liquidity on NOM. See Options 7, Section 2(1).
\21\ See Options 7, Section 2(1), note ``6.''
\22\ The Exchange also offers additional incentives in note
``5'' to reduce this fee or earn a rebate, provided Participants
meet the volume-based requirements. Specifically, Participants who
add NOM Market Maker liquidity in Non-Penny Pilot Options of 7,500
to 9,999 ADV contracts per day in a month would be assessed a $0.00
per contract Non- Penny Options Fee for Adding Liquidity in that
month. In addition, Participants that add NOM Market Maker liquidity
in Non-Penny Pilot Options of 10,000 or more ADV contracts per day
in a month would receive a $0.30 per contract Non-Penny Rebate to
Add Liquidity for that month instead of paying the Non-Penny Fee for
Adding Liquidity. See Options 7, Section 2(1), note ``5.''
Participants that qualify for a note ``5'' incentive would receive
the greater of the note ``5'' or note ``6'' incentive.
---------------------------------------------------------------------------
NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
Lastly, the Exchange proposes to replace VXX with VXXB in the Tiers
3 and 4 NOM Market Maker Rebates to Add Liquidity in Penny Pilot
Options which currently apply to AAPL, QQQ, IWM, SPY and VXX. By way of
background, options on the iPath S&P 500 VIX Short-Term Futures
exchange-traded note (``VXX'') are no longer listed for trading on the
Exchange since VXX matured on January 30, 2019 \23\ and VXX shares are
no longer listed for trading on equity trading venues. Prior to its
maturity, VXX's issuer Barclays Bank PLC introduced a substantially
similar product, the iPath Series B S&P 500 VIX Short-Term Futures
exchange-traded note (``VXXB''),\24\ and was intended to serve as the
replacement for VXX upon maturity. The Exchange has since listed VXXB
options for trading on NOM. Accordingly, the Exchange proposes to
replace references to VXX with VXXB in its Pricing Schedule. In
particular, the Exchange proposes to delete references to VXX from the
Tiers 3 and 4 NOM Market Maker Rebates to Add Liquidity in Penny Pilot
Options currently applicable to AAPL, QQQ, IWM, SPY and VXX, and
replace those with VXXB. The Tier 3 and Tier 4 rebates will otherwise
remain unchanged under this proposal.
---------------------------------------------------------------------------
\23\ See VXX Prospectus and Pricing Supplement available at
https://www.ipathetn.com/US/16/en/documentation.app?instrumentId=259118&documentId=6204338.
\24\ VXXB was introduced on January 17, 2018 and has a maturity
date of January 23, 2048. See VXXB Prospectus and Pricing Supplement
available at https://www.ipathetn.com/US/16/en/documentation.app?instrumentId=341408&documentId=6585610. While VXXB
is currently a Non-Penny Pilot Option, it will replace VXX in the
Penny Pilot Program as of April 2, 2019. See Options Trader Alert
#2019-8.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\25\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\26\ 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.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
Customer and Professional Fee for Removing Liquidity in Penny Pilot
Options
The Exchange believes that the proposed changes to the Customer and
Professional Fees for Removing Liquidity in Penny Pilot Options are
reasonable. As discussed above, the Exchange is proposing to eliminate
the reduced fees of $0.49 per contract (provided to Participants that
remove Customer and Professional liquidity in SPY Options) and $0.48
per contract (provided to Participants that qualify for any MARS
Payment Tier). Instead, the Exchange will charge a flat fee of $0.48
per contract (reduced from $0.50 per contract) for each Customer or
Professional transaction which removes liquidity in Penny Pilot
Options, including SPY. The Exchange believes that these changes will
simplify the operation of this fee by uniformly charging $0.48 per
contract for all Customer and Professional transactions that remove
liquidity in Penny Pilot Options. Furthermore, the Exchange believes
that the fee decrease will further incentivize Participants to send
more Customer and Professional order flow to NOM. All market
participants benefit from the increased order interaction when more
order flow is available on NOM.
The Exchange further believes that the proposed fee changes are
equitable and not unfairly discriminatory because they will apply
equally to all similarly situated Participants. With the proposed
changes, Participants will be charged a uniform $0.48 per contract Fee
for Removing Liquidity in all Penny Pilot Options, including SPY. The
Exchange also believes that it is equitable and not unfairly
discriminatory to offer the lower $0.48 per contract fee to
Participants that transact as Customers or Professionals, and not to
other market
[[Page 16734]]
participants. Customer liquidity offers unique benefits to the market
by providing more trading opportunities, which attracts specialists and
market makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause a corresponding
increase in order flow from other market participants. The Exchange
believes that encouraging Participants to add Professional liquidity is
similarly beneficial, as the lower fee may cause market participants to
select NOM as a venue to send Professional order flow, which benefits
all market participants by attracting valuable liquidity to the market
and thereby enhancing the trading quality and efficiency of all.
Customer and Professional Rebate To Add Liquidity in Penny Pilot
Options
The Exchange believes that it is reasonable to amend the Customer
and Professional Rebates to Add Liquidity in Penny Pilot Options by
increasing the percentages of total industry customer equity and ETF
option ADV contracts in Tiers 5 and 6, as discussed above. The Exchange
believes that the increased volume thresholds are more closely aligned
to the corresponding rebates than the current volume threshold. This
increase is also reflective of the Exchange's desire to provide
incentives to attract order flow to the Exchange in return for
significant market-improving behavior. By increasing the volume of
liquidity that a Participant must add during the month in order to
qualify for the corresponding Tier 5 and Tier 6 rebates, this change
will help ensure that Participants are providing significant market-
improving behavior in return for the incentives.
In addition, the proposed change in note ``e'' to decrease the
Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options provided to eligible Participants that transact 3.00% or more
in Consolidated Volume on The Nasdaq Stock Market from $0.52 to $0.50
per contract is reasonable because the proposed change is a modest
reduction, and the Exchange believes that its rebate program will
continue to incentivize Participants to transact greater volume on The
Nasdaq Stock Market in order to qualify for a higher rebate on NOM.
The Exchange also believes that the modifications to the Customer
and Professional Rebates to Add Liquidity in Penny Pilot Options
proposed above are equitable and not unfairly discriminatory because
all eligible Participants that meet the relevant qualifications will
uniformly receive the rebates. Further, the Exchange believes that it
is equitable and not unfairly discriminatory to offer the rebates to
Participants that transact as Customers or Professionals, and not to
other market participants. Customer liquidity offers unique benefits to
the market by providing more trading opportunities, which attracts
specialists and market makers. An increase in the activity of these
market participants in turn facilitates tighter spreads, which may
cause an additional corresponding increase in order flow from other
market participants. The Exchange believes that encouraging
Participants to add Professional liquidity is similarly beneficial, as
the rebates may cause market participants to select NOM as a venue to
send Professional order flow, which benefits all market participants by
attracting valuable liquidity to the market and thereby enhancing the
trading quality and efficiency of all.
MARS Pricing
The Exchange's proposal to modify MARS pricing in Section 2(6) is
reasonable, equitable and not unfairly discriminatory for the reasons
that follow.
The Exchange believes that the elimination of the additional $0.09
per contract incentive for Non-Penny MARS Payment Tiers proposed above
is reasonable because as noted above, the Exchange did not observe an
appreciable increase in Non-Penny Pilot order flow sent to the Exchange
to qualify for this rebate. The Exchange must periodically assess the
effectiveness of the incentives it provides in the form of discounts or
rebates and, in the case of ineffective incentives, eliminate the
incentive so that the Exchange may apply its resources to other,
possibly more effective discounts or rebates such as the note
``[caret]'' incentive based on total Affiliated Entity or Common
Ownership proposed above. Accordingly, while the Exchange is
eliminating the additional $0.09 per contract incentive for Non-Penny
MARS Payment Tiers, the Exchange believes that the additional note
``[caret]'' incentives of $0.01 and $0.03 in Penny and Non-Penny Pilot
Options respectively, will better align the cost of the MARS program
with the benefit it brings to the marketplace.
Furthermore, the Exchange believes that the proposed total
Affiliated Entity or Common Ownership ADAV requirement of 3.00% is
reasonable because it is set at a level that the Exchange believes will
encourage Participants to bring more order flow to the Exchange to
qualify for the higher note ``[caret]'' incentive. To the extent that
order flow is increased by the proposal, market participants will
increasingly compete for the opportunity to trade on the Exchange,
including sending more orders to reach higher tiers or rebates. The
resulting increased volume and liquidity will benefit all market
participants by providing more trading opportunities and tighter
spreads. The Exchange also notes that the concept of allowing market
participants to aggregate volume for purposes of volume pricing is not
novel. Other options markets have similar incentives in place to
attract volume to their markets.\27\
---------------------------------------------------------------------------
\27\ See Cboe Exchange (``CBOE'') Fees Schedule. CBOE permits
aggregation of volume to qualify for credits available under an
Affiliated Volume Plan or AVP. See NYSE American Options (``NYSE
Amex'') Fee Schedule at Section I.E. NYSE Amex permits aggregation
of volume to qualify for the Amex Customer Engagement or ACE
Program.
---------------------------------------------------------------------------
The Exchange believes that the qualifying volume requirements in
the two additional incentives proposed in note ``@'' and note ``&'' of
Section 2(6) are reasonable and equitable for the same reasons
discussed above for the note ``[caret]'' incentive. Specifically, the
Exchange believes that the total Affiliated Entity or Common Ownership
ADAV requirement of 3.25% proposed for both incentives is set at an
appropriate level, which the Exchange believes will encourage
Participants to bring more order flow to the Exchange to qualify for
the higher note ``@'' and note ``&'' incentives, which liquidity will
benefit all market participants. The Exchange similarly believes that
the proposed MARS Eligible Contracts ADV requirements of 75,000 and
100,000 ADV for note ``@'' and note ``&,'' respectively, are reasonable
and equitable because they are set at levels that the Exchange believes
will encourage Participants and, in particular, Participants that
transact in Firm, Non-NOM Market Maker, Broker-Dealer, or JBO
electronic equity and ETF options orders that add liquidity to execute
more volume on NOM.
The Exchange also believes that the proposed rebate amounts for the
note ``@'' and note ``&'' incentives reflect the progressively
increasing volume requirements to earn the highest MARS incentives by
bringing the most order flow to the Exchange. For instance,
Participants will have to meet the 3.25% total Affiliated Entity or
Common Ownership ADAV requirement and execute 75,000 of MARS Eligible
Contracts ADV, to qualify for the proposed ``@'' incentives and receive
the additional $0.01 per contract in Penny Pilot Options and the
additional $0.10 per contract in Non-Penny Pilot
[[Page 16735]]
Options.\28\ Participants that qualify for note ``@'' would therefore
receive total MARS rebates of $0.18 per contract for Penny Pilot
Options and $0.70 per contract for Non-Penny Pilot Options.
---------------------------------------------------------------------------
\28\ The supplemental rebates would be paid in addition to the
Tier 5 MARS Payments of $0.17 per contract in Penny Pilot Options
and $0.60 per contract in Non-Penny Pilot Options.
---------------------------------------------------------------------------
Furthermore, Participants will have to meet the 3.25% total
Affiliated Entity or Common Ownership ADAV requirement and execute
100,000 of MARS Eligible Contracts ADV, to qualify for the proposed
``&'' incentives and receive the additional $0.02 per contract in Penny
Pilot Options and the additional $0.19 per contract in Non-Penny Pilot
Options.\29\ Participants that qualify for note ``&'' would therefore
receive total MARS rebates of $0.19 per contract for Penny Pilot
Options and $0.79 per contract for Non-Penny Pilot Options. The
Exchange further believes that it is reasonable to not provide the note
``@'' incentives to Participants that qualify for the note ``&''
incentives. As noted above, the proposed note ``&'' incentives are
higher, and in some cases significantly higher, than the proposed
incentives in note ``@,'' and also require higher qualifying volume
thresholds. Accordingly, the Exchange believes it is reasonable to
provide the note ``@'' incentives instead of the note ``&'' incentives
to Participants that qualify for both.
---------------------------------------------------------------------------
\29\ The supplemental rebates would be paid in addition to the
Tier 5 MARS Payments of $0.17 per contract in Penny Pilot Options
and $0.60 per contract in Non-Penny Pilot Options.
---------------------------------------------------------------------------
The Exchange's proposal to modify MARS pricing in Section 2(6) is
equitable and not unfairly discriminatory because all Participants may
elect to become an Affiliated Entity as either Appointed MM or
Appointed OFP, or an affiliate under Common Ownership, for purposes of
aggregating eligible volume to qualify for higher rebates or lower
fees. Furthermore, any Participant may qualify for MARS provided they
have the requisite System Eligibility. The Exchange will also uniformly
pay MARS rebates to qualifying Participants on all Eligible Contracts.
NOM Market Maker Rebate To Add Liquidity in Non-Penny Pilot Options
The Exchange believes that its proposal to provide an additional
$0.02 per contract NOM Market Maker Rebate to Add Liquidity in Non-
Penny Pilot Options for Participants that qualify for the note ``&''
incentive proposed above, in addition to receiving the $0.86 per
contract NOM Market Maker Rebate to Add Liquidity in Non-Penny Pilot
Options, is reasonable, equitable, and not unfairly discriminatory. The
Exchange notes that the additional incentive in note ``6'' will be the
highest available rebate (totaling $0.88 per contract) provided to
Participants that add NOM Market Maker liquidity in Non-Penny Pilot
Options. The Exchange believes that the additional incentive is
reasonable because it will require Participants to meet the stringent
volume requirements set forth in the note ``&'' incentive proposed
above, in addition to those set forth in the Tier 6 Penny Pilot Options
Rebate to Add NOM Market Maker Liquidity.\30\ The Exchange believes
that this incentive will continue to encourage Participants to bring
order flow to the Exchange to qualify for the higher rebate, which will
be beneficial for all market participants and will encourage an active
and liquidity market on NOM. The Exchange also believes that it is
reasonable to offer Participants that qualify for a note ``5''
incentive the greater of the current note ``5'' or new note ``6''
incentive because the Participant will be able to receive the greater
of the two rebates with this proposal.
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\30\ See note 22 above.
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The Exchange believes that the additional $0.02 per contract
incentive in note ``6'' is equitable and not unfairly discriminatory
because all similarly-situated Participants are equally capable of
qualifying for the proposed rebates, and the rebate will be uniformly
paid to all qualifying Participants. Further, the Exchange believes
that offering only Participants that transact as NOM Market Makers the
opportunity to qualify for the additional incentive is equitable and
not unfairly discriminatory. Unlike other market participants, NOM
Market Makers add value through continuous quoting and the commitment
of capital.\31\ Because NOM Market Makers have these obligations to the
market and regulatory requirements that normally do not apply to other
market participants, the Exchange believes that offering these rebates
to only NOM Market Makers is equitable and not unfairly discriminatory
in light of their obligations. Finally, encouraging NOM Market Makers
to add greater liquidity benefits all market participants in the
quality of order interaction.
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\31\ Pursuant to Chapter VII (Market Participants), Section 5
(Obligations of Market Makers), in registering as a market maker, an
Options Participant commits himself to various obligations.
Transactions of a Market Maker in its market making capacity must
constitute a course of dealings reasonably calculated to contribute
to the maintenance of a fair and orderly market, and Market Makers
should not make bids or offers or enter into transactions that are
inconsistent with such course of dealings. Further, all Market
Makers are designated as specialists on NOM for all purposes under
the Act or rules thereunder. See Chapter VII, Section 5.
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NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
The Exchange believes that the replacing VXX with VXXB in the Tiers
3 and 4 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options
currently applicable to AAPL, QQQ, IWM, SPY and VXX is reasonable,
equitable and not unfairly discriminatory because VXX options are no
longer listed for trading on the Exchange, and have been replaced by a
substantially similar product, VXXB options.
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 pricing changes proposed
above are generally designed to attract additional order flow to NOM,
which strengthens NOM's competitive position. Greater liquidity
benefits all market participants by providing more trading
opportunities and attracting greater participation by market makers. An
increase in the activity of these market participants in turn
facilitates tighter spreads.
The Exchange 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 and rebates to remain
competitive. Because competitors are free to modify their own fees and
rebates in response, the Exchange believes that the degree to which
pricing changes in this market may impose any burden on competition is
extremely limited.
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.
[[Page 16736]]
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.\32\
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\32\ 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 [email protected]. Please include
File Number SR-NASDAQ-2019-029 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-2019-029. 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-2019-029, and should be submitted
on or before May 13, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07988 Filed 4-19-19; 8:45 am]
BILLING CODE 8011-01-P
