Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend The Nasdaq Options Market LLC (“NOM”) Pricing Schedule at Options 7, Section 2, 55644-55648 [2019-22594]

Download as PDF 55644 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices market Plan to Address Extraordinary Market Volatility. The proposed rule change was published for comment in the Federal Register on August 29, 2019.3 On October 10, 2019, the Exchange filed Amendment No. 1 to the proposed rule change.4 The Commission has received no comment letters on the proposed rule change. Section 19(b)(2) of the Act 5 provides that, within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is October 13, 2019. The Commission is extending the 45day time period for Commission action on the proposed rule change. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change, as modified by Amendment No. 1. Accordingly, pursuant to Section 19(b)(2) of the Act,6 the Commission designates October 18, 2019, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–CBOE–2019–049), as modified by Amendment No. 1. SECURITIES AND EXCHANGE COMMISSION For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Jill M. Peterson, Assistant Secretary. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2019–22701 Filed 10–16–19; 8:45 am] BILLING CODE 8011–01–P 3 See Securities Exchange Act Release No. 86744 (August 23, 2019), 84 FR 45565. 4 In Amendment No. 1, the Exchange revised the proposed rule text to reflect rule numbering and organizational changes enacted by separate proposed rule changes that became effective while the instant proposal was pending before the Commission. 5 15 U.S.C. 78s(b)(2). 6 Id. 7 17 CFR 200.30–3(a)(31). VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 [Release No. 34–87276; File No. SR– NASDAQ–2019–084] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend The Nasdaq Options Market LLC (‘‘NOM’’) Pricing Schedule at Options 7, Section 2 The Exchange proposes to amend NOM’s Pricing Schedule at Options 7, Section 2, titled ‘‘Nasdaq Options Market—Fees and Rebates.’’ Specifically, the Exchange proposes to amend the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options. October 10, 2019. Description of Proposed NOM Market Maker Pricing 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 September 27, 2019, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend The Nasdaq Options Market LLC (‘‘NOM’’) Pricing Schedule at Options 7, Section 2, titled ‘‘Nasdaq Options Market—Fees and Rebates.’’ 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. 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 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00105 Fmt 4703 Sfmt 4703 The purpose of the proposed rule change is to incentivize Market Makers to add liquidity on the Exchange. Today, NOM offers Market Maker Rebates to Add Liquidity in Penny Pilot Options. There are currently 6 tiers of Rebates to Add Liquidity.3 This proposal seeks to amend Tier 5 of the NOM Market Maker Rebates to Add Liquidity in Penny Pilot Options, which currently pays a $0.40 per contract rebate to a Participant that adds NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.30% of total industry customer equity and ETF option ADV contracts per day in a month and qualifies for the Tier 6 Customer and/or Professional Rebate to Add Liquidity in Penny Pilot Options. The Exchange proposes to increase the Tier 5 Market Maker Rebate to Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per contract. Further, the Exchange proposes to amend the first requirements to obtain a Tier 5 Market Maker Rebate to Add Liquidity. The Exchange proposes to amend the current rule text to require a Participant to add NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.40% of total industry customer equity and ETF option ADV contracts per day in a month This amendment increases the amount of total industry customer equity and ETF options ADV contracts per day in a month from 0.30% to 0.40%. In addition to the aforementioned requirement, Tier 5 additionally currently requires, as a second requirement, that a Participant qualify for the Tier 6 4 Customer and/or 3 See NOM Pricing Schedule at Options 7, Section 2(1). 4 Tier 6 of the Customer and/or Professional Rebate to Add Liquidity in Penny Pilot Options requires that, ‘‘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 0.80% or more of total industry customer equity and ETF option E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices Professional Rebate to Add Liquidity in Penny Pilot Options. The Exchange proposes to remove this requirement to qualify for the Tier 6 Customer and/or Professional Rebate to Add Liquidity in Penny Pilot Options and instead require, as the second part of the overall Tier 5 requirements, that a Participant transact in all securities through one or more of its Nasdaq Market Center MPIDs that represent 0.40% or more of Consolidated Volume (‘‘CV’’) 5 which adds liquidity in the same month on The Nasdaq Stock Market.6 This particular requirement is intended to incentivize Participants to transact a greater volume on The Nasdaq Stock Market in order to qualify for the Tier 5 rebate on NOM. As proposed, the Tier 5 Market Maker Rebate to Add Liquidity in Penny Pilot Options requirement would provide. Participant adds NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.40% of total industry customer equity and ETF option ADV contracts per day in a month and transacts in all securities through one or more of its Nasdaq Market Center MPIDs that represent 0.40% or more of Consolidated Volume (‘‘CV’’) which adds liquidity in the same month on The Nasdaq Stock Market. Both the requirement to add 0.40% of total industry customer equity and ETF option ADV contracts per day in a month and the requirement to transact in all securities through one or more of its Nasdaq Market Center MPIDs that represent 0.40% or more of Consolidated Volume (‘‘CV’’), as specified, are necessary to achieve the proposed increased rebate of $0.44 per contract. This proposal would provide 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 (defined below).’’ 5 Consolidated Volume shall mean the total consolidated volume reported to all consolidated transaction reporting plans by all exchanges and trade reporting facilities during a month in equity securities, excluding executed orders with a size of less than one round lot. For purposes of calculating Consolidated Volume and the extent of an equity member’s trading activity, expressed as a percentage of or ratio to Consolidated Volume, the date of the annual reconstitution of the Russell Investments Indexes shall be excluded from both total Consolidated Volume and the member’s trading activity. 6 In calculating total volume, the Exchange would add the Participant’s total volume transacted on The Nasdaq Stock Market in a given month across its Nasdaq Market Center MPIDs which adds liquidity, and will divide this number by the total industry Consolidated Volume. VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 participants with additional opportunities to earn an increased Tier 5 NOM Market Maker rebate, and will encourage Participants to send order flow to both the options and equity markets to receive the rebate. This proposal is designed as a means to improve market quality by providing Participants with an incentive to increase their provision of liquidity on the Exchange’s equity and options markets. The Exchange also proposes to add a new note to Options 7, Section 2 of the Pricing Schedule which provides that NOM Participants that qualify for the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options and add NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.50% of total industry customer equity and ETF option ADV contracts per day in a month, will receive a $0.46 per contract rebate to add liquidity in Penny Pilot Options as Market Maker in lieu of the Tier 5 rebate. The Exchange notes that in comparison to proposed Tier 5 qualifications, which require 0.40% of total industry customer equity and ETF option ADV contracts per day in a month and pays a proposed $0.44 per contract rebate, this incentive would pay an increased rebate of $0.46 per contract for 0.50% of total industry customer equity and ETF option ADV contracts per day in a month, in lieu of the Tier 5 rebate. The Exchange believes that this incentive will attract additional liquidity to NOM to the benefit of all market participants who may interact with that order flow. Applicability to and Impact on Participants 7 The Exchange believes that increasing the NOM Market Maker Tier 5 Rebate to Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per contract as well as requiring a greater amount of total industry customer equity and ETF options ADV contracts per day in a month (from 0.30% to 0.40%) and also replacing the current criteria to qualify for the Tier 6 Customer and/or Professional Rebate to Add Liquidity in Penny Pilot Options with the 7 On May 21, 2019, the SEC Division of Trading and Markets (the ‘‘Division’’) issued fee filing guidance titled ‘‘Staff Guidance on SRO Rule Filings Relating to Fees’’ (‘‘Guidance’’). Within the Guidance, the Division noted, among other things, that the purpose discussion should address ‘‘how the fee may apply differently (e.g., additional cost vs. additional discount) to different types of market participants (e.g., market makers, institutional brokers, retail brokers, vendors, etc.) and different sizes of market participants.’’ See Guidance (available at https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees). PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 55645 requirement to transact in all securities through one or more of its Nasdaq Market Center MPIDs that represent 0.40% or more of Consolidated Volume (‘‘CV’’) which adds liquidity in the same month on The Nasdaq Stock Market will attract greater volume to both NOM and The Nasdaq Stock Market. Any NOM Market Maker may obtain the Tier 5 rebate provided the qualifications are met. The Exchange notes that Market Makers have certain obligations 8 on NOM, unlike other market participants. Market Maker are a source of liquidity. The proposed amendments are generally designed to attract additional order flow to the Exchange by incentivizing NOM Market Makers. 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. Furthermore, the additional incentive to receive an even greater Tier 5 rebate of $0.46 per contract to add liquidity in Penny Pilot Options as Market Maker, provided the NOM Participant qualified for the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options and added NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.50% of total industry customer equity and ETF option ADV contracts per day in a month, will further incentivize NOM Market Makers to add liquidity to NOM. These incentives are intended to benefit all NOM market participants who will be able to interact with additional liquidity which this incentive attracts to the Exchange. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,9 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,10 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 8 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. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(4) and (5). E:\FR\FM\17OCN1.SGM 17OCN1 55646 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices discrimination between customers, issuers, brokers, or dealers. The proposal is also consistent with Section 11A of the Act relating to the establishment of the national market system for securities. Moreover, the Exchange believes that its proposal complies with Commission guidance on SRO fee filings that the Commission Staff issued on May 21, 2019.11 The Proposal Is Reasonable The Exchange’s proposed amendments to Options 7, Section 2 relating to the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options are reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for options transaction services that constrain its pricing determinations in that market. The fact that this market is competitive has long been recognized by the courts. In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their orderrouting agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers’. . . .’’ 12 Numerous indicia demonstrate the competitive nature of this market. For example, clear substitutes to the Exchange exist in the market for options transaction services. The Exchange is one of several options venues to which market participants may direct their order flow, and it represents a small percentage of the overall market. Competing options exchanges offer similar options functionality, with varying pricing schedules. Within this environment, market participants can freely and often do shift their order flow among the Exchange and competing 11 See Guidance, supra note 7. Although the Exchange believes that this filing complies with the Guidance, the Exchange does not concede that the standards set forth in the Guidance are consistent with the Exchange Act and reserves its right to challenge those standards through administrative and judicial review, as appropriate. 12 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782– 83 (December 9, 2008) (SR–NYSEArca–2006–21)). VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 venues in response to changes in their respective pricing schedules.13 Within the foregoing context, the proposal represents a reasonable attempt by the Exchange to increase its liquidity and market share relative to its competitors. The Exchange believes that its proposed rebate is a reasonable attempt to achieve this end as this rebate represents competitive pricing as compared to other options markets. Market participants have a number of choices in deciding where to direct their options orders. Options exchanges offer different markets offering incentives and rebates to market participants to lower transaction fees. With this proposal, the Exchange is attempting to attract additional order flow to both NOM and The Nasdaq Stock Market. The Exchange may be unsuccessful in its initial attempt to attract order flow with the proposed rebate. NOM Market Maker Rebates With respect to the proposed Tier 5 NOM Market Maker rebate amendment, the Exchange believes that increasing the Tier 5 Market Maker Rebate to Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per contract while also amending the qualifications for the Tier 5 rebate is reasonable. The Exchange believes that increasing the volume requirement for NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options, from above 0.30% to above 0.40% of total industry customer equity and ETF options ADV contracts per day in a month, will attract additional liquidity to NOM. Further, the proposal to amend the second part of the Tier 5 rebate requirement by eliminating the requirement that a Participant qualify for the Tier 6 Customer and/or Professional Rebate to Add Liquidity in Penny Pilot Options 14 and instead require a Participant transact in all securities through one or more of its Nasdaq Market Center MPIDs that represent 0.40% or more of Consolidated Volume (‘‘CV’’) which adds liquidity in the same month on The Nasdaq Stock Market, will also attract liquidity to NOM and also The Nasdaq Stock Market. Specifically, the new second requirement for the Tier 5 rebate is intended to incentivize Participants to transact greater volume on The Nasdaq Stock Market in order to qualify for the Tier 5 rebate on NOM. Because the Exchange requires a Participant to comply with both the first 13 The Exchange perceives no regulatory, structural, or cost impediments to market participants shifting order flow away from it as a result of this rule change. 14 See note 4 above. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 requirement,15 to add NOM Market Maker liquidity, and the second requirement,16 to transact in securities and add liquidity on The Nasdaq Stock Market, in order to qualify for the proposed increased $0.44 per contract Tier 5 rebate, the Exchange believes that Market Makers will be incentivized to direct additional order flow to NOM and The Nasdaq Stock Market and, in turn, market participants will benefit from the opportunity to interact with such order flow. The Exchange acknowledges that the proposed new criteria would require additional volume to achieve the first requirement 17 of the Tier 5 rebate and different volume to achieve the second requirement 18 of the Tier 5 rebate to qualify for the increased proposed $0.44 per contract Tier 5 rebate, as compared to the current Tier 5 rebate qualifications.19 The Exchange’s proposal offers to pay a higher Tier 5 rebate ($0.44 per contract as compared to the current $0.40 per contract) to NOM Market Makers who qualify for the rebate with the new requirements. The Exchange believes that it is reasonable to create an additional opportunity for Participants to earn the Tier 5 rebate by incentivizing Participants to transact greater volume on The Nasdaq Stock Market in order to qualify for the Tier 5 rebate on NOM. The Exchange notes that this proposal is designed as a means to improve market quality by providing Participants with an incentive to increase their provision of liquidity on the Exchange’s equity and options markets. This proposal will encourage Participants to send order flow to both the options and equity markets to receive the Tier 5 rebate. The Exchange believes that replacing the second requirement of the Tier 5 rebate, which currently requires Participants to achieve the Tier 6 Customer and Professional Rebate to Add Liquidity in 15 The first requirement to qualify for the Tier 5 rebate requires a Participant to add NOM Market Maker liquidity in Penny Pilot Options and/or NonPenny Pilot Options of above 0.40% of total industry customer equity and ETF options ADV contracts per day in a month. 16 The second requirement to qualify for the Tier 5 rebate requires a Participant to transact in all securities through one or more of its Nasdaq Market Center MPIDs that represent 0.40% or more of CV which adds liquidity in the same month on The Nasdaq Stock Market. 17 See note 15 above. 18 See note 16 above. 19 Today, the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options requires a Participant to add NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.30% of total industry customer equity and ETF option ADV contracts per day in a month and qualifies for the Tier 6 Customer and/ or Professional Rebate to Add Liquidity in Penny Pilot Options. E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices Penny Pilot Options, with the proposed requirement to add liquidity to The Nasdaq Stock Market will permit a greater number of market participants to qualify for the Tier 5 rebate. Today, NOM Market Makers also transact an equities business on The Nasdaq Stock Market. The proposed qualifications for the Tier 5 rebate will incentivize those Participants that are engaged in an equities business to add a greater amount of liquidity both on NOM and The Nasdaq Stock Market. Furthermore, the concept of linking an incentive on NOM to activity on The Nasdaq Stock Market exists today. The Exchange currently offers rebates on NOM that relate to activity on The Nasdaq Stock Market.20 Similarly, The Nasdaq Stock Market offers credits that are based on activity on NOM.21 As such, the Exchange believes that the volume requirement to transact in all securities through one or more of the Participant’s Nasdaq Market Center MPIDs that represent 0.40% or more of Consolidated Volume (‘‘CV’’) which adds liquidity in the same month on The Nasdaq Stock Market is reasonable because the Exchange already offers rebates based on similar volume requirements.22 Further, the Exchange proposes to add a new note to Options 7, Section 2 of the Pricing Schedule which provides that NOM Participants that qualify for the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options, as proposed herein, and add NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.50% of total industry customer equity and ETF option ADV contracts per day in a month, will receive an increased Tier 5 rebate of 20 For example, the Tier 3 NOM Market Maker Rebate to Add Liquidity requires: Participant: (a) Adds NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.20% to 0.60% of total industry customer equity and ETF option ADV contracts per day in a month: Or (b)(1) transacts in all securities through one or more of its Nasdaq Market Center MPIDs that represent 0.70% or more of Consolidated Volume (‘‘CV’’) which adds liquidity in the same month on The Nasdaq Stock Market, (2) transacts in Tape B securities through one or more of its Nasdaq Market Center MPIDs that represent 0.18% or more of CV which adds liquidity in the same month on The Nasdaq Stock Market, and (3) executes greater than 0.01% of CV via Market-on- Close/Limit-on-Close (‘‘MOC/LOC’’) volume within The Nasdaq Stock Market Closing Cross in the same month. See Options 7, Section 2(1). 21 For example, Nasdaq offers a credit of $0.0029 per share if the member adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/ or Non- Penny Pilot Options of 1.15% or more of total industry ADV in the customer clearing range for Equity and ETF option contracts per day in a month on NOM. See Equity 7, Section 118(a)(1). 22 Id. VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 $0.46 per contract rebate (in lieu of the $0.44 per contract Tier 5 rebate) to add liquidity in Penny Pilot Options as Market Maker in lieu of the Tier 5 rebate. The Exchange notes that in comparison to the proposed Tier 5 qualifications, which require Participant to add NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.40% of total industry customer equity and ETF option ADV contracts per day in a month, and pays a proposed $0.44 per contract rebate, this additional incentive would pay an increased rebate of $0.46 per contract to add liquidity in Penny Pilot Options as Market Maker, provided the Participants adds liquidity in Penny Pilot Options and/or NonPenny Pilot Options of above 0.50% of total industry customer equity and ETF option ADV contracts per day in a month. The Exchange believes that this incentive will attract additional liquidity to NOM. The Exchange’s proposal to increase the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per contract while also amending the qualifications for the Tier 5 rebate is equitable and not unfairly discriminatory. All eligible Participants that qualify for the Tier 5 rebate will uniformly receive the rebate. The Exchange believes that the proposed volume requirements to qualify for the Tier 5 rebate are proportionate to the amount of the increased Tier 5 rebate of $0.44 per contract and equitably reflect the purpose of the rebate, which is to incentivize Participants to transact greater volume on both the Exchange’s equity and options markets. In addition, the Exchange believes that it is equitable and not unfairly discriminatory to offer this rebate to NOM Participants that transact as NOM Market Makers and also transact on The Nasdaq Stock Market. Any NOM Participant may trade on The Nasdaq Stock Market because they are approved members.23 Furthermore, unlike other market participants, NOM Market Makers add value through continuous quoting and the commitment of capital.24 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 23 Although a NOM Participant may incur additional labor and/or costs to establish connectivity to The Nasdaq Stock Market, there are no additional membership fees for NOM Participants that want to transact on The Nasdaq Stock Market. 24 See note 8 above. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 55647 equitable and not unfairly discriminatory in light of their obligations. Finally, encouraging NOM Market Makers to add greater liquidity on the Exchange benefits all market participants in the quality of order interaction. The Exchange’s proposal to offer Participants that qualify for the Tier 5 rebate and add NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.50% of total industry customer equity and ETF option ADV contracts per day in a month, a rebate of $0.46 per contract to add liquidity in Penny Pilot Options as Market Maker is reasonable. This additional incentive will further incentivize NOM Market Makers to add liquidity to NOM and The Nasdaq Stock Market to achieve the greater rebate. The incentive is intended to benefit all NOM market participants who will be able to interact with additional liquidity which this incentive attracts to the Exchange. The Exchange’s proposal to offer Participants that qualify for the Tier 5 rebate and add NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of above 0.50% of total industry customer equity and ETF option ADV contracts per day in a month, a rebate of $0.46 per contract to add liquidity in Penny Pilot Options as Market Maker is equitable and not unfairly discriminatory. As noted above, NOM Market Makers add value through continuous quoting and the commitment of capital.25 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, on both NOM and The Nasdaq Stock Market, in the quality of order interaction. 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. 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. 25 See E:\FR\FM\17OCN1.SGM note 8 above. 17OCN1 55648 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices Inter-Market Competition The proposed amendments to the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options do not impose an undue burden on intermarket competition. The pricing changes proposed above are generally designed to attract additional order flow to the Exchange, which strengthens the Exchange’s competitive position. The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees and rebates to remain competitive with other exchanges that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees and rebates in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which pricing changes in this market may impose any burden on competition is extremely limited. NOM is a relatively small market so its ability to burden intermarket competition is limited. Moreover, as noted above, price competition between exchanges is fierce, with liquidity and market share moving freely between exchanges in reaction to fee and credit changes. In sum, if the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. Intra-Market Competition The proposed amendments to the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options do not impose an undue burden on intramarket competition. Increasing the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options and also requiring participants to add more volume on NOM and add liquidity on The Nasdaq Stock Market will attract liquidity to the Exchange. The additional rebate incentive that is being offered to Participants that qualify for the Tier 5 rebate and also add NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 Options of above 0.50% of total industry customer equity and ETF option ADV contracts per day in a month will further incentivize Market Makers to direct order flow to the Exchange. 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. Overall, the Exchange believes that the tiered NOM Market Maker Rebates to Add Liquidity in Penny Pilot Options along with the proposed Tier 5 increased rebate incentive will continue to reflect the progressively increasing rebate requirements offered to NOM Market Maker to incentivize them to earn the highest possible rebates by bringing the most order flow to the Exchange. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.26 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–2019–084 on the subject line. 26 15 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00109 Fmt 4703 Sfmt 4703 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–2019–084. 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–2019–084 and should be submitted on or before November 7, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–22594 Filed 10–16–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 27 17 E:\FR\FM\17OCN1.SGM CFR 200.30–3(a)(12). 17OCN1

Agencies

[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55644-55648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22594]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87276; File No. SR-NASDAQ-2019-084]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend The Nasdaq Options Market LLC (``NOM'') Pricing Schedule at 
Options 7, Section 2

October 10, 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 September 27, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend The Nasdaq Options Market LLC 
(``NOM'') Pricing Schedule at Options 7, Section 2, titled ``Nasdaq 
Options Market--Fees and Rebates.''
    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.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NOM's Pricing Schedule at Options 7, 
Section 2, titled ``Nasdaq Options Market--Fees and Rebates.'' 
Specifically, the Exchange proposes to amend the Tier 5 NOM Market 
Maker Rebate to Add Liquidity in Penny Pilot Options.
Description of Proposed NOM Market Maker Pricing
    The purpose of the proposed rule change is to incentivize Market 
Makers to add liquidity on the Exchange. Today, NOM offers Market Maker 
Rebates to Add Liquidity in Penny Pilot Options. There are currently 6 
tiers of Rebates to Add Liquidity.\3\ This proposal seeks to amend Tier 
5 of the NOM Market Maker Rebates to Add Liquidity in Penny Pilot 
Options, which currently pays a $0.40 per contract rebate to a 
Participant that adds NOM Market Maker liquidity in Penny Pilot Options 
and/or Non-Penny Pilot Options of above 0.30% of total industry 
customer equity and ETF option ADV contracts per day in a month and 
qualifies for the Tier 6 Customer and/or Professional Rebate to Add 
Liquidity in Penny Pilot Options.
---------------------------------------------------------------------------

    \3\ See NOM Pricing Schedule at Options 7, Section 2(1).
---------------------------------------------------------------------------

    The Exchange proposes to increase the Tier 5 Market Maker Rebate to 
Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per contract. 
Further, the Exchange proposes to amend the first requirements to 
obtain a Tier 5 Market Maker Rebate to Add Liquidity. The Exchange 
proposes to amend the current rule text to require a Participant to add 
NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny 
Pilot Options of above 0.40% of total industry customer equity and ETF 
option ADV contracts per day in a month This amendment increases the 
amount of total industry customer equity and ETF options ADV contracts 
per day in a month from 0.30% to 0.40%. In addition to the 
aforementioned requirement, Tier 5 additionally currently requires, as 
a second requirement, that a Participant qualify for the Tier 6 \4\ 
Customer and/or

[[Page 55645]]

Professional Rebate to Add Liquidity in Penny Pilot Options. The 
Exchange proposes to remove this requirement to qualify for the Tier 6 
Customer and/or Professional Rebate to Add Liquidity in Penny Pilot 
Options and instead require, as the second part of the overall Tier 5 
requirements, that a Participant transact in all securities through one 
or more of its Nasdaq Market Center MPIDs that represent 0.40% or more 
of Consolidated Volume (``CV'') \5\ which adds liquidity in the same 
month on The Nasdaq Stock Market.\6\ This particular requirement is 
intended to incentivize Participants to transact a greater volume on 
The Nasdaq Stock Market in order to qualify for the Tier 5 rebate on 
NOM. As proposed, the Tier 5 Market Maker Rebate to Add Liquidity in 
Penny Pilot Options requirement would provide.
---------------------------------------------------------------------------

    \4\ Tier 6 of the Customer and/or Professional Rebate to Add 
Liquidity in Penny Pilot Options requires that, ``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 0.80% 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 (defined 
below).''
    \5\ Consolidated Volume shall mean the total consolidated volume 
reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities during a month in equity 
securities, excluding executed orders with a size of less than one 
round lot. For purposes of calculating Consolidated Volume and the 
extent of an equity member's trading activity, expressed as a 
percentage of or ratio to Consolidated Volume, the date of the 
annual reconstitution of the Russell Investments Indexes shall be 
excluded from both total Consolidated Volume and the member's 
trading activity.
    \6\ In calculating total volume, the Exchange would add the 
Participant's total volume transacted on The Nasdaq Stock Market in 
a given month across its Nasdaq Market Center MPIDs which adds 
liquidity, and will divide this number by the total industry 
Consolidated Volume.
---------------------------------------------------------------------------

    Participant adds NOM Market Maker liquidity in Penny Pilot Options 
and/or Non-Penny Pilot Options of above 0.40% of total industry 
customer equity and ETF option ADV contracts per day in a month and 
transacts in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent 0.40% or more of Consolidated Volume 
(``CV'') which adds liquidity in the same month on The Nasdaq Stock 
Market.
    Both the requirement to add 0.40% of total industry customer equity 
and ETF option ADV contracts per day in a month and the requirement to 
transact in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent 0.40% or more of Consolidated Volume 
(``CV''), as specified, are necessary to achieve the proposed increased 
rebate of $0.44 per contract. This proposal would provide participants 
with additional opportunities to earn an increased Tier 5 NOM Market 
Maker rebate, and will encourage Participants to send order flow to 
both the options and equity markets to receive the rebate. This 
proposal is designed as a means to improve market quality by providing 
Participants with an incentive to increase their provision of liquidity 
on the Exchange's equity and options markets.
    The Exchange also proposes to add a new note to Options 7, Section 
2 of the Pricing Schedule which provides that NOM Participants that 
qualify for the Tier 5 NOM Market Maker Rebate to Add Liquidity in 
Penny Pilot Options and add NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options of above 0.50% of total industry 
customer equity and ETF option ADV contracts per day in a month, will 
receive a $0.46 per contract rebate to add liquidity in Penny Pilot 
Options as Market Maker in lieu of the Tier 5 rebate. The Exchange 
notes that in comparison to proposed Tier 5 qualifications, which 
require 0.40% of total industry customer equity and ETF option ADV 
contracts per day in a month and pays a proposed $0.44 per contract 
rebate, this incentive would pay an increased rebate of $0.46 per 
contract for 0.50% of total industry customer equity and ETF option ADV 
contracts per day in a month, in lieu of the Tier 5 rebate. The 
Exchange believes that this incentive will attract additional liquidity 
to NOM to the benefit of all market participants who may interact with 
that order flow.
Applicability to and Impact on Participants 7
---------------------------------------------------------------------------

    \7\ On May 21, 2019, the SEC Division of Trading and Markets 
(the ``Division'') issued fee filing guidance titled ``Staff 
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance''). 
Within the Guidance, the Division noted, among other things, that 
the purpose discussion should address ``how the fee may apply 
differently (e.g., additional cost vs. additional discount) to 
different types of market participants (e.g., market makers, 
institutional brokers, retail brokers, vendors, etc.) and different 
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees).
---------------------------------------------------------------------------

    The Exchange believes that increasing the NOM Market Maker Tier 5 
Rebate to Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per 
contract as well as requiring a greater amount of total industry 
customer equity and ETF options ADV contracts per day in a month (from 
0.30% to 0.40%) and also replacing the current criteria to qualify for 
the Tier 6 Customer and/or Professional Rebate to Add Liquidity in 
Penny Pilot Options with the requirement to transact in all securities 
through one or more of its Nasdaq Market Center MPIDs that represent 
0.40% or more of Consolidated Volume (``CV'') which adds liquidity in 
the same month on The Nasdaq Stock Market will attract greater volume 
to both NOM and The Nasdaq Stock Market. Any NOM Market Maker may 
obtain the Tier 5 rebate provided the qualifications are met. The 
Exchange notes that Market Makers have certain obligations \8\ on NOM, 
unlike other market participants. Market Maker are a source of 
liquidity. The proposed amendments are generally designed to attract 
additional order flow to the Exchange by incentivizing NOM Market 
Makers. 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.
---------------------------------------------------------------------------

    \8\ 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.
---------------------------------------------------------------------------

    Furthermore, the additional incentive to receive an even greater 
Tier 5 rebate of $0.46 per contract to add liquidity in Penny Pilot 
Options as Market Maker, provided the NOM Participant qualified for the 
Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options 
and added NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of above 0.50% of total industry customer equity 
and ETF option ADV contracts per day in a month, will further 
incentivize NOM Market Makers to add liquidity to NOM. These incentives 
are intended to benefit all NOM market participants who will be able to 
interact with additional liquidity which this incentive attracts to the 
Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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

[[Page 55646]]

discrimination between customers, issuers, brokers, or dealers. The 
proposal is also consistent with Section 11A of the Act relating to the 
establishment of the national market system for securities. Moreover, 
the Exchange believes that its proposal complies with Commission 
guidance on SRO fee filings that the Commission Staff issued on May 21, 
2019.\11\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
    \11\ See Guidance, supra note 7. Although the Exchange believes 
that this filing complies with the Guidance, the Exchange does not 
concede that the standards set forth in the Guidance are consistent 
with the Exchange Act and reserves its right to challenge those 
standards through administrative and judicial review, as 
appropriate.
---------------------------------------------------------------------------

The Proposal Is Reasonable
    The Exchange's proposed amendments to Options 7, Section 2 relating 
to the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot 
Options are reasonable in several respects. As a threshold matter, the 
Exchange is subject to significant competitive forces in the market for 
options transaction services that constrain its pricing determinations 
in that market. The fact that this market is competitive has long been 
recognized by the courts. In NetCoalition v. Securities and Exchange 
Commission, the D.C. Circuit stated as follows: ``[n]o one disputes 
that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \12\
---------------------------------------------------------------------------

    \12\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is one of several options 
venues to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. Competing options 
exchanges offer similar options functionality, with varying pricing 
schedules. Within this environment, market participants can freely and 
often do shift their order flow among the Exchange and competing venues 
in response to changes in their respective pricing schedules.\13\
---------------------------------------------------------------------------

    \13\ The Exchange perceives no regulatory, structural, or cost 
impediments to market participants shifting order flow away from it 
as a result of this rule change.
---------------------------------------------------------------------------

    Within the foregoing context, the proposal represents a reasonable 
attempt by the Exchange to increase its liquidity and market share 
relative to its competitors. The Exchange believes that its proposed 
rebate is a reasonable attempt to achieve this end as this rebate 
represents competitive pricing as compared to other options markets. 
Market participants have a number of choices in deciding where to 
direct their options orders. Options exchanges offer different markets 
offering incentives and rebates to market participants to lower 
transaction fees. With this proposal, the Exchange is attempting to 
attract additional order flow to both NOM and The Nasdaq Stock Market. 
The Exchange may be unsuccessful in its initial attempt to attract 
order flow with the proposed rebate.
NOM Market Maker Rebates
    With respect to the proposed Tier 5 NOM Market Maker rebate 
amendment, the Exchange believes that increasing the Tier 5 Market 
Maker Rebate to Add Liquidity in Penny Pilot Options from $0.40 to 
$0.44 per contract while also amending the qualifications for the Tier 
5 rebate is reasonable. The Exchange believes that increasing the 
volume requirement for NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options, from above 0.30% to above 0.40% 
of total industry customer equity and ETF options ADV contracts per day 
in a month, will attract additional liquidity to NOM. Further, the 
proposal to amend the second part of the Tier 5 rebate requirement by 
eliminating the requirement that a Participant qualify for the Tier 6 
Customer and/or Professional Rebate to Add Liquidity in Penny Pilot 
Options \14\ and instead require a Participant transact in all 
securities through one or more of its Nasdaq Market Center MPIDs that 
represent 0.40% or more of Consolidated Volume (``CV'') which adds 
liquidity in the same month on The Nasdaq Stock Market, will also 
attract liquidity to NOM and also The Nasdaq Stock Market. 
Specifically, the new second requirement for the Tier 5 rebate is 
intended to incentivize Participants to transact greater volume on The 
Nasdaq Stock Market in order to qualify for the Tier 5 rebate on NOM. 
Because the Exchange requires a Participant to comply with both the 
first requirement,\15\ to add NOM Market Maker liquidity, and the 
second requirement,\16\ to transact in securities and add liquidity on 
The Nasdaq Stock Market, in order to qualify for the proposed increased 
$0.44 per contract Tier 5 rebate, the Exchange believes that Market 
Makers will be incentivized to direct additional order flow to NOM and 
The Nasdaq Stock Market and, in turn, market participants will benefit 
from the opportunity to interact with such order flow.
---------------------------------------------------------------------------

    \14\ See note 4 above.
    \15\ The first requirement to qualify for the Tier 5 rebate 
requires a Participant to add NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options of above 0.40% of total 
industry customer equity and ETF options ADV contracts per day in a 
month.
    \16\ The second requirement to qualify for the Tier 5 rebate 
requires a Participant to transact in all securities through one or 
more of its Nasdaq Market Center MPIDs that represent 0.40% or more 
of CV which adds liquidity in the same month on The Nasdaq Stock 
Market.
---------------------------------------------------------------------------

    The Exchange acknowledges that the proposed new criteria would 
require additional volume to achieve the first requirement \17\ of the 
Tier 5 rebate and different volume to achieve the second requirement 
\18\ of the Tier 5 rebate to qualify for the increased proposed $0.44 
per contract Tier 5 rebate, as compared to the current Tier 5 rebate 
qualifications.\19\ The Exchange's proposal offers to pay a higher Tier 
5 rebate ($0.44 per contract as compared to the current $0.40 per 
contract) to NOM Market Makers who qualify for the rebate with the new 
requirements. The Exchange believes that it is reasonable to create an 
additional opportunity for Participants to earn the Tier 5 rebate by 
incentivizing Participants to transact greater volume on The Nasdaq 
Stock Market in order to qualify for the Tier 5 rebate on NOM. The 
Exchange notes that this proposal is designed as a means to improve 
market quality by providing Participants with an incentive to increase 
their provision of liquidity on the Exchange's equity and options 
markets. This proposal will encourage Participants to send order flow 
to both the options and equity markets to receive the Tier 5 rebate. 
The Exchange believes that replacing the second requirement of the Tier 
5 rebate, which currently requires Participants to achieve the Tier 6 
Customer and Professional Rebate to Add Liquidity in

[[Page 55647]]

Penny Pilot Options, with the proposed requirement to add liquidity to 
The Nasdaq Stock Market will permit a greater number of market 
participants to qualify for the Tier 5 rebate. Today, NOM Market Makers 
also transact an equities business on The Nasdaq Stock Market. The 
proposed qualifications for the Tier 5 rebate will incentivize those 
Participants that are engaged in an equities business to add a greater 
amount of liquidity both on NOM and The Nasdaq Stock Market. 
Furthermore, the concept of linking an incentive on NOM to activity on 
The Nasdaq Stock Market exists today. The Exchange currently offers 
rebates on NOM that relate to activity on The Nasdaq Stock Market.\20\ 
Similarly, The Nasdaq Stock Market offers credits that are based on 
activity on NOM.\21\ As such, the Exchange believes that the volume 
requirement to transact in all securities through one or more of the 
Participant's Nasdaq Market Center MPIDs that represent 0.40% or more 
of Consolidated Volume (``CV'') which adds liquidity in the same month 
on The Nasdaq Stock Market is reasonable because the Exchange already 
offers rebates based on similar volume requirements.\22\
---------------------------------------------------------------------------

    \17\ See note 15 above.
    \18\ See note 16 above.
    \19\ Today, the Tier 5 NOM Market Maker Rebate to Add Liquidity 
in Penny Pilot Options requires a Participant to add NOM Market 
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of above 0.30% of total industry customer equity and ETF 
option ADV contracts per day in a month and qualifies for the Tier 6 
Customer and/or Professional Rebate to Add Liquidity in Penny Pilot 
Options.
    \20\ For example, the Tier 3 NOM Market Maker Rebate to Add 
Liquidity requires: Participant: (a) Adds NOM Market Maker liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options above 0.20% to 
0.60% of total industry customer equity and ETF option ADV contracts 
per day in a month: Or (b)(1) transacts in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent 0.70% 
or more of Consolidated Volume (``CV'') which adds liquidity in the 
same month on The Nasdaq Stock Market, (2) transacts in Tape B 
securities through one or more of its Nasdaq Market Center MPIDs 
that represent 0.18% or more of CV which adds liquidity in the same 
month on The Nasdaq Stock Market, and (3) executes greater than 
0.01% of CV via Market-on- Close/Limit-on-Close (``MOC/LOC'') volume 
within The Nasdaq Stock Market Closing Cross in the same month. See 
Options 7, Section 2(1).
    \21\ For example, Nasdaq offers a credit of $0.0029 per share if 
the member adds Customer, Professional, Firm, Non-NOM Market Maker 
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non- 
Penny Pilot Options of 1.15% or more of total industry ADV in the 
customer clearing range for Equity and ETF option contracts per day 
in a month on NOM. See Equity 7, Section 118(a)(1).
    \22\ Id.
---------------------------------------------------------------------------

    Further, the Exchange proposes to add a new note to Options 7, 
Section 2 of the Pricing Schedule which provides that NOM Participants 
that qualify for the Tier 5 NOM Market Maker Rebate to Add Liquidity in 
Penny Pilot Options, as proposed herein, and add NOM Market Maker 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 
above 0.50% of total industry customer equity and ETF option ADV 
contracts per day in a month, will receive an increased Tier 5 rebate 
of $0.46 per contract rebate (in lieu of the $0.44 per contract Tier 5 
rebate) to add liquidity in Penny Pilot Options as Market Maker in lieu 
of the Tier 5 rebate. The Exchange notes that in comparison to the 
proposed Tier 5 qualifications, which require Participant to add NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of above 0.40% of total industry customer equity and ETF option 
ADV contracts per day in a month, and pays a proposed $0.44 per 
contract rebate, this additional incentive would pay an increased 
rebate of $0.46 per contract to add liquidity in Penny Pilot Options as 
Market Maker, provided the Participants adds liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options of above 0.50% of total industry 
customer equity and ETF option ADV contracts per day in a month. The 
Exchange believes that this incentive will attract additional liquidity 
to NOM.
    The Exchange's proposal to increase the Tier 5 NOM Market Maker 
Rebate to Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per 
contract while also amending the qualifications for the Tier 5 rebate 
is equitable and not unfairly discriminatory. All eligible Participants 
that qualify for the Tier 5 rebate will uniformly receive the rebate. 
The Exchange believes that the proposed volume requirements to qualify 
for the Tier 5 rebate are proportionate to the amount of the increased 
Tier 5 rebate of $0.44 per contract and equitably reflect the purpose 
of the rebate, which is to incentivize Participants to transact greater 
volume on both the Exchange's equity and options markets. In addition, 
the Exchange believes that it is equitable and not unfairly 
discriminatory to offer this rebate to NOM Participants that transact 
as NOM Market Makers and also transact on The Nasdaq Stock Market. Any 
NOM Participant may trade on The Nasdaq Stock Market because they are 
approved members.\23\ Furthermore, unlike other market participants, 
NOM Market Makers add value through continuous quoting and the 
commitment of capital.\24\ 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 on the Exchange 
benefits all market participants in the quality of order interaction.
---------------------------------------------------------------------------

    \23\ Although a NOM Participant may incur additional labor and/
or costs to establish connectivity to The Nasdaq Stock Market, there 
are no additional membership fees for NOM Participants that want to 
transact on The Nasdaq Stock Market.
    \24\ See note 8 above.
---------------------------------------------------------------------------

    The Exchange's proposal to offer Participants that qualify for the 
Tier 5 rebate and add NOM Market Maker liquidity in Penny Pilot Options 
and/or Non-Penny Pilot Options of above 0.50% of total industry 
customer equity and ETF option ADV contracts per day in a month, a 
rebate of $0.46 per contract to add liquidity in Penny Pilot Options as 
Market Maker is reasonable. This additional incentive will further 
incentivize NOM Market Makers to add liquidity to NOM and The Nasdaq 
Stock Market to achieve the greater rebate. The incentive is intended 
to benefit all NOM market participants who will be able to interact 
with additional liquidity which this incentive attracts to the 
Exchange.
    The Exchange's proposal to offer Participants that qualify for the 
Tier 5 rebate and add NOM Market Maker liquidity in Penny Pilot Options 
and/or Non-Penny Pilot Options of above 0.50% of total industry 
customer equity and ETF option ADV contracts per day in a month, a 
rebate of $0.46 per contract to add liquidity in Penny Pilot Options as 
Market Maker is equitable and not unfairly discriminatory. As noted 
above, NOM Market Makers add value through continuous quoting and the 
commitment of capital.\25\ 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, on both NOM and The Nasdaq Stock Market, in the 
quality of order interaction.
---------------------------------------------------------------------------

    \25\ See note 8 above.
---------------------------------------------------------------------------

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. 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.

[[Page 55648]]

Inter-Market Competition
    The proposed amendments to the Tier 5 NOM Market Maker Rebate to 
Add Liquidity in Penny Pilot Options do not impose an undue burden on 
inter-market competition. The pricing changes proposed above are 
generally designed to attract additional order flow to the Exchange, 
which strengthens the Exchange's competitive position.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive, or rebate 
opportunities available at other venues to be more favorable. In such 
an environment, the Exchange must continually adjust its fees and 
rebates to remain competitive with other exchanges that have been 
exempted from compliance with the statutory standards applicable to 
exchanges. Because competitors are free to modify their own fees and 
rebates in response, and because market participants may readily adjust 
their order routing practices, the Exchange believes that the degree to 
which pricing changes in this market may impose any burden on 
competition is extremely limited.
    NOM is a relatively small market so its ability to burden 
intermarket competition is limited. Moreover, as noted above, price 
competition between exchanges is fierce, with liquidity and market 
share moving freely between exchanges in reaction to fee and credit 
changes.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.
Intra-Market Competition
    The proposed amendments to the Tier 5 NOM Market Maker Rebate to 
Add Liquidity in Penny Pilot Options do not impose an undue burden on 
intra-market competition. Increasing the Tier 5 NOM Market Maker Rebate 
to Add Liquidity in Penny Pilot Options and also requiring participants 
to add more volume on NOM and add liquidity on The Nasdaq Stock Market 
will attract liquidity to the Exchange. The additional rebate incentive 
that is being offered to Participants that qualify for the Tier 5 
rebate and also add NOM Market Maker liquidity in Penny Pilot Options 
and/or Non-Penny Pilot Options of above 0.50% of total industry 
customer equity and ETF option ADV contracts per day in a month will 
further incentivize Market Makers to direct order flow to the Exchange. 
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. Overall, the Exchange believes that 
the tiered NOM Market Maker Rebates to Add Liquidity in Penny Pilot 
Options along with the proposed Tier 5 increased rebate incentive will 
continue to reflect the progressively increasing rebate requirements 
offered to NOM Market Maker to incentivize them to earn the highest 
possible rebates by bringing the most order flow to the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\26\
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    \26\ 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-2019-084 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-2019-084. 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-2019-084 and should be submitted 
on or before November 7, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22594 Filed 10-16-19; 8:45 am]
BILLING CODE 8011-01-P
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