81 FR 41359 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Options Pricing at Chapter XV, Section 2

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 122 (June 24, 2016)

Page Range		41359-41364
FR Document		2016-14929
Federal Register, Volume 81 Issue 122 (Friday, June 24, 2016)
[Federal Register Volume 81, Number 122 (Friday, June 24, 2016)]
[Notices]
[Pages 41359-41364]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-14929]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78103; File No. SR-NASDAQ-2016-089]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Options Pricing at Chapter XV, Section 2

June 20, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 14, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter XV, entitled ``Options 
Pricing,'' at Section 2, which governs pricing for Exchange members 
using the NASDAQ Options Market (``NOM''), the Exchange's facility for 
executing and routing standardized equity and index options.\3\
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    \3\ References in this proposal to Chapter and Series are to NOM 
rules, unless otherwise indicated.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes certain amendments to the NOM transaction 
fees set forth at Chapter XV, Section 2(1) for executing and routing 
standardized equity and index options under the Penny Pilot Option \4\ 
program. Specifically, the Exchange proposes in Section 2(1) two new 
incentives regarding Non-NOM Market Makers and NOM Market Makers Penny 
Pilot Options Fees for Removing Liquidity; and proposes to delete note 
4 regarding Non-Penny Pilot Options Fee for Removing Liquidity. The 
proposed changes will allow the Exchange to continue to offer and 
expand incentives to NOM Participants to add more liquidity to NOM.
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    \4\ The Penny Pilot was established in March 2008 and was last 
extended in 2015. See Securities Exchange Act Release Nos. 57579 
(March 28, 2008), 73 FR 18587 (April 4, 2008) (SR-NASDAQ-2008-026) 
(notice of filing and immediate effectiveness establishing Penny 
Pilot); and 75283 (June 24, 2015), 80 FR 37347 (June 30, 2015) (SR-
NASDAQ-2015-063) (notice of filing and immediate effectiveness 
extending the Penny Pilot through June 30, 2016). All Penny Pilot 
Options listed on the Exchange can be found at http://www.nasdaqtrader.com/Micro.aspx?id=phlx.
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Change 1: Penny Pilot Options--Incentives To Earn Additional Discounts 
on Fee for Removing Liquidity
    Note 2 to Section 2(1) applies to Non-NOM Market Makers \5\ and NOM 
Market
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    \5\ The term ``Non-NOM Market Maker'' is a registered market 
maker on another options exchange that is not a NOM Market Maker. A 
Non-NOM Market Maker must append the proper Non-NOM Market Maker 
designation to orders routed to NOM.
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    Makers \6\ Penny Pilot Options Fees for Removing Liquidity. 
Currently, note 2 offers a $0.02 discount (reduction to $0.48 per 
contract fee) on the Penny Pilot Options Fee for Removing Liquidity.\7\ 
Currently, note 2 offers that Participants \8\ that add 1.30% of 
Customer,\9\ Professional,\10\ Firm,\11\ Broker-Dealer,\12\ or Non-NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of total industry customer equity and ETF option average daily 
volume or ADV contracts per day are assessed a $0.48 per contract Penny 
Pilot Options Fee for Removing Liquidity provided the Participant is 
(i) both the buyer and the seller or (ii) the Participant removes 
liquidity from another Participant under Common Ownership.\13\ The 
Exchange proposes two additional ways to earn an enhanced discount on 
the NOM Market Maker and Non-NOM Market Maker Penny Pilot Options Fee 
for Removing Liquidity.
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    \6\ The term ``NOM Market Maker'' is a Participant that has 
registered as a Market Maker on NOM pursuant to Chapter VII, Section 
2, and must also remain in good standing pursuant to Chapter VII, 
Section 4. In order to receive NOM Market Maker pricing in all 
securities, the Participant must be registered as a NOM Market Maker 
in at least one security.
    \7\ The NOM Market Maker and Non-NOM Market Maker Penny Pilot 
Options Fees for Removing Liquidity are $0.50 per contract.
    \8\ The term ``Participant'' or ``Options Participant'' means a 
firm, or organization that is registered with the Exchange pursuant 
to Chapter II of these Rules for purposes of participating in 
options trading on NOM as a ``Nasdaq Options Order Entry Firm'' or 
``Nasdaq Options Market Maker''. Participants on NOM are also known 
as ``NOM Participants.''
    \9\ The term ``Customer'' or (``C'') applies to any transaction 
that is identified by a Participant for clearing in the Customer 
range at The Options Clearing Corporation which is not for the 
account of broker or dealer or for the account of a ``Professional'' 
(as that term is defined in Chapter I, Section 1(a)(48)).
    \10\ The term ``Professional'' or (``P'') means any person or 
entity that (i) is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s) pursuant 
to Chapter I, Section 1(a)(48). All Professional orders shall be 
appropriately marked by Participants.
    \11\ The term ``Firm'' or (``F'') applies to any transaction 
that is identified by a Participant for clearing in the Firm range 
at The Options Clearing Corporation.
    \12\ The term ``Broker-Dealer'' or (``B'') applies to any 
transaction which is not subject to any of the other transaction 
fees applicable within a particular category.
    \13\ The term ``Common Ownership'' shall mean Participants under 
75% common ownership or control. Common Ownership shall apply to all 
pricing in Chapter XV, Section 2 for which a volume threshold or 
volume percentage is required to obtain the pricing.
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    First, the Exchange proposes to amend note 2 to Section 2(1) to add 
a new incentive that would assess NOM Market Maker and Non-NOM Market 
Maker a $0.32 per contract fee applicable to executions less than 
10,000 contracts provided the Participant adds 1.50% of Customer, 
Professional, Firm, Broker-Dealer or Non-NOM Market Maker liquidity in

[[Page 41360]]

Penny Pilot Options and/or Non-Penny Pilot Options of total industry 
customer equity and ETF option ADV contracts per day in a month and the 
Participant meets or exceeds the cap for the Nasdaq Stock Market 
Opening Cross \14\, and the Participant is (i) both the buyer and 
seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership. The Exchange believes that this 
proposed change, which includes a new methodology to earn an incentive 
via meeting or exceeding the cap for the Nasdaq Stock Market Opening 
Cross, will incentivize bringing additional flow to the Exchange. This 
proposal offers an $0.18 per contract discount from the current Penny 
Pilot Options Fees for Removing Liquidity for NOM Market Maker and Non-
NOM Market Makers.\15\
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    \14\ The term ``Nasdaq Opening Cross'' means the process for 
determining the price at which orders shall be executed at the open 
and for executing those orders. See Nasdaq Rule 4752(a)(2)(E)(5). 
Nasdaq firms that execute orders in the Nasdaq Opening Cross will be 
subject to fees for such executions up to a monthly maximum of 
$30,000, provided, however, that such firms add at least one million 
shares of liquidity, on average, per month. See Nasdaq Rule 
7018(e)(2).
    \15\ The Penny Pilot Options Fee for Removing Liquidity for NOM 
Market Maker and Non-NOM Market Makers is $0.50 per contract.
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    Second, the Exchange proposes to amend note 2 to Section 2(1) to 
add a new incentive that would assess NOM Market Maker and Non-NOM 
Market Maker a $0.32 per contract fee applicable to executions less 
than 10,000 contracts provided the Participant adds 1.75% of Customer, 
Professional, Firm, Broker-Dealer, or Non-NOM Market Maker liquidity in 
Penny Pilot Options and/or Non-Penny Pilot Options of total industry 
customer equity and ETF option ADV contracts per day in a month and the 
Participant is (i) both the buyer and seller or (ii) the Participant 
removes liquidity from another Participant under Common Ownership. This 
proposal offers an $0.18 per contract discount from the current Penny 
Pilot Options Fees for Removing Liquidity for NOM Market Maker and Non-
NOM Market Makers.\16\
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    \16\ Id.
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    The amendments proposed herein to note 2 to Section 2(1) would, for 
executions less than 10,000 contracts, offer Participants two ways to 
earn an $0.18 per contract discount from the current Penny Pilot 
Options NOM Market Maker or Non-NOM Market Maker Fee for Removing 
Liquidity by delivering a greater amount of Customer, Professional, 
Firm, Broker-Dealer or Non-NOM Market Maker liquidity on NOM.\17\
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    \17\ For all executions 10,000 contracts or greater, a $0.48 per 
contract fee will be applicable provided the Participant adds 1.30% 
of Customer, Professional, Firm, Broker-Dealer, or Non-NOM Market 
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of total industry customer equity and ETF option ADV 
contracts per day in a month and the Participant is (i) both the 
buyer and seller or (ii) the Participant removes liquidity from 
another Participant under Common Ownership. This $0.48 fee 
represents a $0.02 per contract discount from the current Penny 
Pilot Options Fees for Removing Liquidity of $0.50 for NOM Market 
Maker and Non-NOM Market Makers and represents no change from the 
current Pricing Schedule.
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Change 2: Non-Penny Pilot Options--Delete Note 4
    Note 4 currently states that a Participant that qualifies for 
Customer or Professional Penny Pilot Options Rebate to Add Liquidity 
Tiers 2, 3, 4, 5, 6, 7, or 8 in a month will be assessed a Non-Penny 
Pilot Options Fee for Removing Liquidity of $1.08 per contract in that 
month. The Exchange proposes to remove note 4 from the Non-Penny Pilot 
Options Fee for Removing Liquidity and at the same time proposes 
additional ways to earn an enhanced discount on the NOM Market Maker 
and Non-NOM Market Maker Penny Pilot Options Fee for Removing 
Liquidity. The Exchange is incentivizing Participants to bring Penny 
Pilot Options liquidity to the Exchange since Penny Pilot Options 
represent the most highly-traded options in the market.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\18\ in general, and with Section 6(b)(4) and 
6(b)(5) of the Act,\19\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
members and issuers and other persons using any facility or system 
which the Exchange operates or controls, and is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers. 
Attracting order flow to the Exchange benefits all Participants who 
have the opportunity to interact with this order flow.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \20\
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    \20\ Securities Exchange Act Release No. 51808 (June 29, 2005), 
70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting 
Release'') [sic].
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\21\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\22\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \23\
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    \21\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \22\ See id. at 534-535.
    \23\ See id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \24\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \24\ See id. at 539 (quoting Securities Exchange Act Commission 
at [sic] Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-
74783 (December 9, 2008) (SR-NYSEArca-2006-21)).
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Change 1: Penny Pilot Options--Incentives To Earn Additional Discounts 
on Fee for Removing Liquidity
    The Exchange's proposal to amend note 2 to Section 2(1) to create 
two new incentives that would assess NOM Market Maker and Non-NOM 
Market Maker a $0.32 per contract fee applicable to executions less 
than 10,000 contracts. The first new incentive is if the Participant 
adds 1.50% of Customer, Professional, Firm, Broker-Dealer or Non-NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of total industry customer equity and ETF option ADV contracts 
per day in a month and the Participant meets or exceeds the cap for the 
Nasdaq Stock Market Opening Cross and the Participant is (i) both the 
buyer and

[[Page 41361]]

seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership. The second new incentive is if the 
Participant adds 1.75% of Customer, Professional, Firm, Broker-Dealer 
or Non-NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of total industry customer equity and ETF option 
ADV contracts per day in a month and the Participant is (i) both the 
buyer and seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership. The new incentives are reasonable, 
equitable, and not unfairly discriminatory for the reasons that follow.
    The Exchange believes that the new incentives will attract a 
greater amount of order flow on NOM by offering a discounted rate. 
Participants are provided additional opportunities to lower NOM Market 
Maker and Non-NOM Market Maker fees when removing Penny Pilot Options 
liquidity, thereby attracting order flow to the Exchange to the benefit 
of all other market participants. Participants may send either Penny or 
Non-Penny Pilot Options to qualify for the discount. All Participant 
order flow that adds liquidity to the order book, other than NOM Market 
Maker volume, will apply to the 1.50% or 1.75% threshold to qualify for 
the discount. The Exchange believes that it is not necessary to count 
NOM Market Maker volume toward the volume to qualify for the fee 
discount because that volume is counted toward the qualifiers for the 
NOM Market Maker rebates. The Exchange also believes, as discussed 
below, that the proposal is reasonable in light of what is offered on 
other exchanges and the Exchange's effort to bring Penny Pilot Options 
liquidity to the Exchange.
    Providing the discount to NOM Market Makers is equitable and not 
unfairly discriminatory because NOM Market Makers obligations to the 
market and regulatory requirements, which normally do not apply to 
other market participants.\25\ A NOM Market Maker has the obligation, 
for example, to make continuous markets, engage in a course of dealings 
reasonably calculated to contribute to the maintenance of a fair and 
orderly market, and not make bids or offers or enter into transactions 
that are inconsistent with a course of dealings. The proposed 
differentiation as between NOM Market Makers and other market 
participants recognizes the differing contributions made to the trading 
environment on the Exchange by NOM Market Makers. For the above 
reasons, the Exchange believes that NOM Market Makers are entitled to 
discounted fees, provided they qualify for the discount. The Exchange 
believes it is equitable and not unfairly discriminatory to offer the 
fee discount to Non-NOM Market Makers because the Exchange is offering 
Participants flexibility in the manner in which they are submitting 
their orders. Non-NOM Market Makers have obligations on other exchanges 
to qualify as a market maker. Also, the Exchange believes that market 
makers not registered on NOM will be encouraged to send orders to NOM 
as an away market maker (Non-NOM Market Maker) with this incentive. 
Because the incentive is being offered to both market makers registered 
on NOM and those not registered on NOM, the Exchange believes that the 
proposal is equitable and not unfairly discriminatory because it 
encourages market makers to direct liquidity to NOM to the benefit of 
all Participants. This proposal recognizes the overall contributions 
made by market makers to a listed options market.
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    \25\ Pursuant to Chapter VII (Market Participants), Section 5 
(Obligations of Market Makers), in registering as a market maker, an 
Options Participant commits himself to various obligations. 
Transactions of a Market Maker in its market making capacity must 
constitute a course of dealings reasonably calculated to contribute 
to the maintenance of a fair and orderly market, and Market Makers 
should not make bids or offers or enter into transactions that are 
inconsistent with such course of dealings. Further, all Market 
Makers are designated as specialists on NOM for all purposes under 
the Act or rules thereunder. See Chapter VII, Section 5 [sic].
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    The Exchange's proposal to count all order flow (Penny and Non-
Penny Pilot Options) toward the 1.50% and 1.75% requisites for volume, 
except for NOM Market Maker order flow, is reasonable, equitable, and 
not unfairly discriminatory because NOM Market Makers continue to be 
entitled to rebates today similar to Customers and Professionals. 
Customer volume is important because it continues to attract liquidity 
to the Exchange, which benefits all market participants. Further, with 
respect to Professional liquidity, the Exchange initially established 
Professional pricing in order to ``. . . bring additional revenue to 
the Exchange.'' \26\ The Exchange noted in the Professional Filing that 
it believes ``. . . that the increased revenue from the proposal would 
assist the Exchange to recoup fixed costs.'' \27\ Further, the Exchange 
noted in that filing that it believes that establishing separate 
pricing for a Professional, which ranges between that of a Customer and 
market maker, accomplishes this objective.\28\ The Exchange offers NOM 
Market Makers rebates in acknowledgment of the obligations these 
Participants bear in the market.\29\
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    \26\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066) 
(``Professional Filing''). In this filing, the Exchange addressed 
the perceived favorable pricing of Professionals who were assessed 
fees and paid rebates like a Customer prior to the filing. The 
Exchange noted in that filing that a Professional, unlike a retail 
Customer, has access to sophisticated trading systems that contain 
functionality not available to retail Customers.
    \27\ See 76 FR 29014, 29015 (Professional Filing).
    \28\ See 76 FR 29014 [sic] (Professional Filing). The Exchange 
also noted in the Professional Filing that it believes the role of 
the retail Customer in the marketplace is distinct from that of the 
Professional and the Exchange's fee proposal at that time accounted 
for this distinction by pricing each market participant according to 
their roles and obligations.
    \29\ See e.g., Chapter VII (Market Participants), Section 5 
(Obligations of Market Makers).
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    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to continue to permit NOM Participants under 
Common Ownership to aggregate their volume for purposes of obtaining 
the fee discount because certain NOM Participants chose to segregate 
their businesses into different legal entities for purposes of 
conducting business. The Exchange believes that, in terms of Common 
Ownership, these NOM Participants should continue to be treated as one 
entity for purposes of qualifying for the discounted Fee for Removing 
Liquidity in Penny Pilot Options, as long as there is at least 75% 
Common Ownership or control among the NOM Participants. The Exchange 
also believes that it is reasonable, equitable and not unfairly 
discriminatory to offer an $0.18 per contract discount of the Penny 
Pilot Option Fee for Removing Liquidity to Non-NOM Market Makers and 
NOM Market Makers for transactions in which the same NOM Participant or 
a NOM Participant under Common Ownership is the buyer and the seller. 
NOM Participants that chose to segregate their businesses into 
different legal entities should still be afforded the opportunity to 
receive the discount as if they were the same NOM Participant on both 
sides of the transaction.
    It is important to note that NOM Participants are unaware at the 
time the order is entered of the identity of the contra-party. Because 
contra-parties are anonymous, the Exchange believes that NOM 
Participants would continue to aggressively pursue order flow in order 
to receive the benefit of the fee discount. NOM Participants would 
continue to only receive the incentive if they interact with their own 
order flow, recognizing Common Ownership where applicable. Offering the 
additional fee discount is reasonable, equitable and

[[Page 41362]]

not unfairly discriminatory because Participants would be entitled to 
receive the fee discount only when the Participant is both the buyer 
and seller. By way of example, if a NOM Participant that is assigned 
the firm code \30\ ``ABC'' by the Exchange posted an order utilizing 
its Customer order router, and the order was removed by an ABC NOM 
Market Maker order, the NOM Participant would receive the proposed 
$0.18 per contract fee discount for that trade,\31\ which would be 
$0.16 more than the current $0.02 per contract discount. The Exchange 
proposes to utilize the Exchange assigned firm code to determine which 
NOM Participant executed an order and to apply the fee discount to the 
Non-NOM Market Maker or NOM Market Maker Penny Pilot Option Fee for 
Removing Liquidity if the same NOM Participant was the buyer and the 
seller to a transaction.\32\ This concept is not novel. Today NASDAQ 
PHLX LLC (``Phlx'') assesses a Firm Floor Options Transaction Charge 
based on which side of the transaction the member represents as well 
whether the same member or its affiliates under Common Ownership was 
represented.\33\ Also today, NASDAQ BX Options (``BX Options'') 
provides discounted Fees for Removing Liquidity for registered BX 
Options Market Makers, based on Tier positions for the BX 
Participant.\34\ The Exchange believes that the note 2 proposal is 
reasonable in comparison to other exchanges and also because of its 
decision to deploy Penny Pilot Options incentives in a concentrated 
manner.
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    \30\ Each NOM Participant is assigned a firm code by the 
Exchange.
    \31\ The discount would be applicable to executions less than 
10,000 contracts if: (a) the Participant adds 1.50% of Customer, 
Professional, Firm, Broker-Dealer or Non-NOM Market Maker liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options of total 
industry customer equity and ETF option ADV contracts per day in a 
month and the Participant meets or exceeds the cap for the Nasdaq 
Stock Market Opening Cross and the Participant is (i) both the buyer 
and seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership; or (b) the Participant adds 
1.75% of Customer, Professional, Firm, Broker-Dealer or Non-NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of total industry customer equity and ETF option ADV 
contracts per day in a month and the Participant is (i) both the 
buyer and seller or (ii) the Participant removes liquidity from 
another Participant under Common Ownership.
    \32\ In this example, the same Participant that added and 
removed the order would be entitled to the fee discount because the 
NOM Participant was the buyer and seller (or removes liquidity from 
another Participant under Common Ownership) on the transaction.
    \33\ The Firm Floor Options Transaction Charges will be waived 
for members executing facilitation orders pursuant to Phlx Rule 1064 
when such members are trading in their own proprietary account 
(including Cabinet Options Transaction Charges). The Firm Floor 
Options Transaction Charges will be waived for the buy side of a 
transaction if the same member or its affiliates under Common 
Ownership represents both sides of a Firm transaction when such 
members are trading in their own proprietary account. In addition, 
the Broker-Dealer Floor Options Transaction Charge (including 
Cabinet Options Transaction Charges) will be waived for members 
executing facilitation orders pursuant to Exchange Rule 1064 when 
such members would otherwise incur this charge for trading in their 
own proprietary account contra to a Customer (``BD-Customer 
Facilitation''), if the member's BD-Customer Facilitation average 
daily volume (including both FLEX and non-FLEX transactions) exceeds 
10,000 contracts per day in a given month. See Phlx's Pricing 
Schedule.
    \34\ The BX Options Select Symbols Fee to Remove Liquidity when 
BX Options Market Maker trading with a Customer (``BX Options Fee'') 
is generally inversely proportional to the BX Select Symbols Options 
Tier Schedule, which requires additional liquidity with increased 
Tiers. The BX Options Fee is, for example, $0.42 in Tier 1 and Tier 
2, $0.39 in Tier 3, and $0.25 in Tier 4. The following are BX 
Options Select Symbols: ASHR, DIA, DXJ, EEM, EFA, EWJ, EWT, EWW, 
EWY, EWZ, FAS, FAZ, FXE, FXI, FXP, GDX, GLD, HYG, IWM, IYR, KRE, 
OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SPY, SRS, SSO, TBT, TLT, 
TNA, TZA, UNG, URE, USO, UUP, UVXY, UYG, VXX, XHB, XLB, XLE, XLF, 
XLI, XLK, XLP, XLU, XLV, XLY, XME, XOP, XRT. See BX Options Pricing 
Schedule.
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    Today the Exchange offers a $0.02 discount ($0.48 vs. $0.50 per 
contract) in current note 2 of Chapter XV, Section 2(1) to Participants 
that add 1.30% of Customer, Professional, Firm, Broker-Dealer, or Non-
NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny 
Pilot Options of total industry customer equity and ETF option ADV 
contracts per day in a month when the Participant is (i) both the buyer 
and the seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership. The Exchange is proposing to offer 
a deeper $0.18 discount ($0.32 vs. $0.50 per contract), for executions 
less than 10,000 contracts,\35\ provided; (a.) the Participant adds 
1.50% of Customer, Professional, Firm, Broker-Dealer or Non-NOM Market 
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options 
of total industry customer equity and ETF option ADV contracts per day 
in a month and the Participant meets or exceeds the cap for the Nasdaq 
Stock Market Opening Cross and the Participant is (i) both the buyer 
and seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership; or (b.) the Participant adds 1.75% 
of Customer, Professional, Firm, Broker-Dealer or Non-NOM Market Maker 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 
total industry customer equity and ETF option ADV contracts per day in 
a month and the Participant is (i) both the buyer and seller or (ii) 
the Participant removes liquidity from another Participant under Common 
Ownership. The Exchange believes that it is reasonable to offer this 
deeper discount when the Participant is both the buyer and the seller 
(or removes liquidity from another Participant under Common Ownership) 
because qualifying for the discount requires a NOM Participant to 
commit a substantially larger volume of liquidity on NOM. This 
significantly more substantial investment of order flow and liquidity 
into the market is beneficial to all market participants, who are free 
to interact with such order flow.
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    \35\ The intention of the new pricing discount is, as discussed, 
to attract customer orders to the Exchange. We reviewed the minimum 
and maximum execution size for year to date activity on the Exchange 
order book and determined the 10,000 contract threshold was 
equitable and reasonable as trades above this threshold are not 
typical of customer orders.
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    The Exchange believes the proposed discount where Participant adds 
1.50% of Customer, Professional, Firm, Broker-Dealer or Non-NOM Market 
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options 
is reasonable, equitable, and not unfairly discriminatory. The Exchange 
believes that the proposed change is reasonable because the methodology 
used to qualify for the proposed discount includes the Participant 
meeting or exceeding the cap for the Nasdaq Stock Market Opening Cross. 
This concept is not novel as NOM currently uses the NASDAQ Stock Market 
Closing Cross ``MOC'' and ``LOC'' % of total volume to determine the 
NOM Participants Customer and Professional tier position.\36\ The 
Exchange believes that incentivizing Participants to bring added 
liquidity by meeting or exceeding the cap for the NASDAQ Stock Market 
Opening Cross will benefit all Participants by providing greater 
opportunity for price discovery and liquidity during the Opening Cross 
process.
---------------------------------------------------------------------------

    \36\ See, e.g., Securities Exchange Act Release No. 77661 (April 
20, 2016), 81 FR 24668 (April 26, 2016) (SR-NASDAQ-2016-055) (notice 
of filing and immediate effectiveness to amend options pricing at 
NOM Chapter VX, Section 2).
---------------------------------------------------------------------------

    Moreover, the condition to meet or exceed the cap for the Nasdaq 
Stock Market Opening Cross is reasonable, equitable and not unfairly 
discriminatory because it provides Participants that are not able to 
meet the Opening Cross requirement and therefore are not able to 
achieve the 1.75% tier [sic] an additional way in which to qualify for 
the NOM Market Maker and Non-NOM Market Maker $0.32 per contract fee. 
That is, a Participant unable to achieve the 1.75% tier [sic] can still 
achieve the 1.50% tier

[[Page 41363]]

[sic] provided also that the Participant adds 1.50% [sic] of Customer, 
Professional, Firm, Broker-Dealer or Non-NOM Market Maker liquidity in 
Penny Pilot Options and/or Non-Penny Pilot Options of total industry 
customer equity and ETF option ADV contracts per day in a month and the 
Participant is (i) both the buyer and seller or (ii) the Participant 
removes liquidity from another Participant under Common Ownership.
    Like all of the changes proposed herein, this proposed change is 
equitable and not unfairly discriminatory because it will apply 
uniformly to all Participants.
Change 2: Non-Penny Pilot Options--Delete Note 4
    In Change 2 the Exchange proposes to delete Note 4 which currently 
indicates the assessment for Non-Penny Pilot Options Fee for Removing 
Liquidity. The proposal is reasonable, equitable, and not unfairly 
discriminatory for the reasons that follow.
    The removal of note 4 is reasonable because it is proposed 
commensurate with proposing two additional ways to earn an enhanced 
discount on the NOM Market Maker and Non-NOM Market Maker Penny Pilot 
Options Fee for Removing Liquidity in note 2. This is reasonable 
because in its Fee Schedule the Exchanges is encouraging bringing Penny 
Pilot Options liquidity to the Exchange. Since Penny Pilot Options 
represent the most highly-traded and liquid options on the Exchange it 
is reasonable for the exchange to make a concerted effort to bring 
Penny Pilot Options liquidity to the Exchange. Participants are 
provided additional opportunities to lower NOM Market Maker and Non-NOM 
Market Maker fees when removing Penny Pilot Options liquidity, thereby 
attracting order flow to the Exchange to the benefit of all other 
market participants. Participants may send either Penny or Non-Penny 
Pilot Options to qualify for the discount. All Participant order flow 
that adds liquidity to the order book, other than NOM Market Maker 
volume, will apply to the 1.50% or 1.75% threshold to qualify for the 
discount. Additional order flow on the Exchange promotes interaction 
with the added liquidity.
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to offer the discounted remove fee in note 2 
applicable to Penny Pilot Options without having an alternate fee in 
note 4 applicable in Non-Penny Pilot Options because, as discussed, 
Penny Pilot Options are clearly the highest volume, most liquid options 
traded on the Exchange and the Exchange is promoting such liquidity. 
Moreover, in light of the Exchange's effort to focus on Penny Pilot 
Options liquidity on the Exchange, the proposal to discontinue note 4 
regarding Non-Penny Pilot Options is equitable and not unfairly 
discriminatory because it will apply uniformly to all Participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed amendments to NOM Market Maker and 
Non-NOM Market Maker Penny Pilot Options Fees for Removing Liquidity 
seek to continue to incentivize Participants to send order flow to NOM. 
The Exchange does not believe this proposal to add two incentives 
imposes an undue burden on inter-market competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition.
    The Exchange's proposal to incentivize Participants by continuing 
to offer the opportunity to reduce the NOM Market Maker and Non-NOM 
Market Maker Penny Pilot Options Fees for Removing Liquidity and also 
offering additional incentives to lower these fees from $0.50 to $0.32 
per contract, does not create an undue burden on intra-market 
competition for various reasons. NOM Market Makers have obligations to 
the market and regulatory requirements,\37\ which, as discussed, 
normally do not apply to other market participants. Offering the fee 
discount to Non-NOM Market Makers provides Participants with 
flexibility in the manner in which they are submitting their orders. 
Non-NOM Market Makers have obligations on other exchanges to qualify as 
a market maker. Also, the Exchange believes that market makers not 
registered on NOM will be encouraged to send orders to NOM as an away 
market maker (Non-NOM Market Maker) with this incentive. Because the 
incentive is being offered to both market makers registered on NOM and 
those not registered on NOM, the Exchange believes that the proposal 
does not impose an undue burden on intra-market competition because it 
encourages market makers to direct liquidity to NOM to the benefit of 
all Participants.
---------------------------------------------------------------------------

    \37\ See supra note 25.
---------------------------------------------------------------------------

    Participants would be entitled to receive the fee discount when the 
Participant is both the buyer and seller (or removes liquidity from 
another Participant under Common Ownership) and therefore this 
qualifier does not create an undue burden on intra-market competition. 
NOM Participants are unaware at the time the order is entered of the 
identity of the contra-party, therefore, since contra-parties are 
anonymous, the Exchange believes that NOM Participants would 
aggressively pursue order flow in order to receive the benefit of the 
fee discount, to the benefit of all Participants.
    The Exchange's proposal to continue to count all order flow toward 
the 1.50% or 1.75% requisite volume discussed herein, except for NOM 
Market Maker order flow, does not impose an undue burden on intra-
market competition. It is not necessary to count NOM Market Maker 
volume in qualifying for the fee discount as that volume is counted 
toward qualifying for NOM Market Maker rebates.
    The Exchange believes that permitting NOM Participants with 75% 
Common Ownership to aggregate their volume for purposes of obtaining 
the fee discount does not create an undue burden on intra-market 
competition because certain NOM Participants chose to segregate their 
businesses into different legal entities for purposes of conducting 
business. NOM Participants that chose to segregate their businesses 
into different legal entities should still be afforded the opportunity 
to receive the discount as if they were the same NOM Participant on 
both sides of the transaction.

[[Page 41364]]

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\38\
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2016-089 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-089. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2016-089 and should 
be submitted on or before July 15, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-14929 Filed 6-23-16; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 122 / Friday, June 24, 2016 / Notices 41361

seller or (ii) the Participant removes of dealings reasonably calculated to the proposal would assist the Exchange
liquidity from another Participant under contribute to the maintenance of a fair to recoup fixed costs.’’ 27 Further, the
Common Ownership. The second new and orderly market, and not make bids Exchange noted in that filing that it
incentive is if the Participant adds or offers or enter into transactions that believes that establishing separate
1.75% of Customer, Professional, Firm, are inconsistent with a course of pricing for a Professional, which ranges
Broker-Dealer or Non-NOM Market dealings. The proposed differentiation between that of a Customer and market
Maker liquidity in Penny Pilot Options as between NOM Market Makers and maker, accomplishes this objective.28
and/or Non-Penny Pilot Options of total other market participants recognizes the The Exchange offers NOM Market
industry customer equity and ETF differing contributions made to the Makers rebates in acknowledgment of
option ADV contracts per day in a trading environment on the Exchange by the obligations these Participants bear in
month and the Participant is (i) both the NOM Market Makers. For the above the market.29
buyer and seller or (ii) the Participant reasons, the Exchange believes that The Exchange believes that it is
removes liquidity from another NOM Market Makers are entitled to reasonable, equitable and not unfairly
Participant under Common Ownership. discounted fees, provided they qualify discriminatory to continue to permit
The new incentives are reasonable, for the discount. The Exchange believes NOM Participants under Common
equitable, and not unfairly it is equitable and not unfairly Ownership to aggregate their volume for
discriminatory for the reasons that discriminatory to offer the fee discount purposes of obtaining the fee discount
follow. to Non-NOM Market Makers because the because certain NOM Participants chose
The Exchange believes that the new Exchange is offering Participants to segregate their businesses into
incentives will attract a greater amount flexibility in the manner in which they different legal entities for purposes of
of order flow on NOM by offering a are submitting their orders. Non-NOM conducting business. The Exchange
discounted rate. Participants are Market Makers have obligations on believes that, in terms of Common
provided additional opportunities to other exchanges to qualify as a market Ownership, these NOM Participants
lower NOM Market Maker and Non- maker. Also, the Exchange believes that should continue to be treated as one
NOM Market Maker fees when removing market makers not registered on NOM entity for purposes of qualifying for the
Penny Pilot Options liquidity, thereby will be encouraged to send orders to discounted Fee for Removing Liquidity
attracting order flow to the Exchange to NOM as an away market maker (Non- in Penny Pilot Options, as long as there
the benefit of all other market NOM Market Maker) with this is at least 75% Common Ownership or
participants. Participants may send incentive. Because the incentive is being control among the NOM Participants.
either Penny or Non-Penny Pilot offered to both market makers registered The Exchange also believes that it is
Options to qualify for the discount. All on NOM and those not registered on reasonable, equitable and not unfairly
Participant order flow that adds NOM, the Exchange believes that the discriminatory to offer an $0.18 per
liquidity to the order book, other than proposal is equitable and not unfairly contract discount of the Penny Pilot
NOM Market Maker volume, will apply discriminatory because it encourages Option Fee for Removing Liquidity to
to the 1.50% or 1.75% threshold to market makers to direct liquidity to Non-NOM Market Makers and NOM
qualify for the discount. The Exchange NOM to the benefit of all Participants. Market Makers for transactions in which
believes that it is not necessary to count This proposal recognizes the overall the same NOM Participant or a NOM
NOM Market Maker volume toward the contributions made by market makers to Participant under Common Ownership
volume to qualify for the fee discount a listed options market. is the buyer and the seller. NOM
because that volume is counted toward Participants that chose to segregate their
The Exchange’s proposal to count all
the qualifiers for the NOM Market businesses into different legal entities
order flow (Penny and Non-Penny Pilot
Maker rebates. The Exchange also should still be afforded the opportunity
Options) toward the 1.50% and 1.75%
believes, as discussed below, that the to receive the discount as if they were
requisites for volume, except for NOM
proposal is reasonable in light of what the same NOM Participant on both sides
Market Maker order flow, is reasonable,
is offered on other exchanges and the of the transaction.
equitable, and not unfairly It is important to note that NOM
Exchange’s effort to bring Penny Pilot discriminatory because NOM Market Participants are unaware at the time the
Options liquidity to the Exchange. Makers continue to be entitled to rebates order is entered of the identity of the
Providing the discount to NOM today similar to Customers and contra-party. Because contra-parties are
Market Makers is equitable and not Professionals. Customer volume is anonymous, the Exchange believes that
unfairly discriminatory because NOM important because it continues to attract NOM Participants would continue to
Market Makers obligations to the market liquidity to the Exchange, which aggressively pursue order flow in order
and regulatory requirements, which benefits all market participants. Further, to receive the benefit of the fee discount.
normally do not apply to other market with respect to Professional liquidity, NOM Participants would continue to
participants.25 A NOM Market Maker the Exchange initially established only receive the incentive if they
has the obligation, for example, to make Professional pricing in order to ‘‘. . . interact with their own order flow,
continuous markets, engage in a course bring additional revenue to the recognizing Common Ownership where
Exchange.’’ 26 The Exchange noted in applicable. Offering the additional fee
25 Pursuant to Chapter VII (Market Participants),
the Professional Filing that it believes discount is reasonable, equitable and
Section 5 (Obligations of Market Makers), in
registering as a market maker, an Options
‘‘. . . that the increased revenue from
Participant commits himself to various obligations. 27 See 76 FR 29014, 29015 (Professional Filing).
Transactions of a Market Maker in its market 26 See Securities Exchange Act Release No. 64494 28 See 76 FR 29014 [sic] (Professional Filing). The
sradovich on DSK3GDR082PROD with NOTICES

making capacity must constitute a course of (May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– Exchange also noted in the Professional Filing that
dealings reasonably calculated to contribute to the NASDAQ–2011–066) (‘‘Professional Filing’’). In this it believes the role of the retail Customer in the
maintenance of a fair and orderly market, and filing, the Exchange addressed the perceived marketplace is distinct from that of the Professional
Market Makers should not make bids or offers or favorable pricing of Professionals who were and the Exchange’s fee proposal at that time
enter into transactions that are inconsistent with assessed fees and paid rebates like a Customer prior accounted for this distinction by pricing each
such course of dealings. Further, all Market Makers to the filing. The Exchange noted in that filing that market participant according to their roles and
are designated as specialists on NOM for all a Professional, unlike a retail Customer, has access obligations.
purposes under the Act or rules thereunder. See to sophisticated trading systems that contain 29 See e.g., Chapter VII (Market Participants),

Chapter VII, Section 5 [sic]. functionality not available to retail Customers. Section 5 (Obligations of Market Makers).

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41362 Federal Register / Vol. 81, No. 122 / Friday, June 24, 2016 / Notices

not unfairly discriminatory because today, NASDAQ BX Options (‘‘BX Non-NOM Market Maker liquidity in
Participants would be entitled to receive Options’’) provides discounted Fees for Penny Pilot Options and/or Non-Penny
the fee discount only when the Removing Liquidity for registered BX Pilot Options of total industry customer
Participant is both the buyer and seller. Options Market Makers, based on Tier equity and ETF option ADV contracts
By way of example, if a NOM positions for the BX Participant.34 The per day in a month and the Participant
Participant that is assigned the firm Exchange believes that the note 2 is (i) both the buyer and seller or (ii) the
code 30 ‘‘ABC’’ by the Exchange posted proposal is reasonable in comparison to Participant removes liquidity from
an order utilizing its Customer order other exchanges and also because of its another Participant under Common
router, and the order was removed by an decision to deploy Penny Pilot Options Ownership. The Exchange believes that
ABC NOM Market Maker order, the incentives in a concentrated manner. it is reasonable to offer this deeper
NOM Participant would receive the Today the Exchange offers a $0.02 discount when the Participant is both
proposed $0.18 per contract fee discount ($0.48 vs. $0.50 per contract) the buyer and the seller (or removes
discount for that trade,31 which would in current note 2 of Chapter XV, Section liquidity from another Participant under
be $0.16 more than the current $0.02 per 2(1) to Participants that add 1.30% of Common Ownership) because
contract discount. The Exchange Customer, Professional, Firm, Broker- qualifying for the discount requires a
proposes to utilize the Exchange Dealer, or Non-NOM Market Maker NOM Participant to commit a
assigned firm code to determine which liquidity in Penny Pilot Options and/or substantially larger volume of liquidity
NOM Participant executed an order and Non-Penny Pilot Options of total on NOM. This significantly more
to apply the fee discount to the Non- industry customer equity and ETF substantial investment of order flow and
NOM Market Maker or NOM Market option ADV contracts per day in a liquidity into the market is beneficial to
Maker Penny Pilot Option Fee for month when the Participant is (i) both all market participants, who are free to
Removing Liquidity if the same NOM the buyer and the seller or (ii) the interact with such order flow.
Participant was the buyer and the seller Participant removes liquidity from The Exchange believes the proposed
to a transaction.32 This concept is not another Participant under Common discount where Participant adds 1.50%
novel. Today NASDAQ PHLX LLC Ownership. The Exchange is proposing of Customer, Professional, Firm, Broker-
(‘‘Phlx’’) assesses a Firm Floor Options to offer a deeper $0.18 discount ($0.32 Dealer or Non-NOM Market Maker
Transaction Charge based on which side vs. $0.50 per contract), for executions liquidity in Penny Pilot Options and/or
of the transaction the member less than 10,000 contracts,35 provided; Non-Penny Pilot Options is reasonable,
represents as well whether the same (a.) the Participant adds 1.50% of equitable, and not unfairly
member or its affiliates under Common Customer, Professional, Firm, Broker- discriminatory. The Exchange believes
Ownership was represented.33 Also Dealer or Non-NOM Market Maker that the proposed change is reasonable
liquidity in Penny Pilot Options and/or because the methodology used to
30 Each NOM Participant is assigned a firm code Non-Penny Pilot Options of total qualify for the proposed discount
by the Exchange. industry customer equity and ETF includes the Participant meeting or
31 The discount would be applicable to
option ADV contracts per day in a exceeding the cap for the Nasdaq Stock
executions less than 10,000 contracts if: (a) the
Participant adds 1.50% of Customer, Professional, month and the Participant meets or Market Opening Cross. This concept is
Firm, Broker-Dealer or Non-NOM Market Maker exceeds the cap for the Nasdaq Stock not novel as NOM currently uses the
liquidity in Penny Pilot Options and/or Non-Penny Market Opening Cross and the NASDAQ Stock Market Closing Cross
Pilot Options of total industry customer equity and Participant is (i) both the buyer and ‘‘MOC’’ and ‘‘LOC’’ % of total volume
ETF option ADV contracts per day in a month and to determine the NOM Participants
the Participant meets or exceeds the cap for the seller or (ii) the Participant removes
Nasdaq Stock Market Opening Cross and the liquidity from another Participant under Customer and Professional tier
Participant is (i) both the buyer and seller or (ii) the Common Ownership; or (b.) the position.36 The Exchange believes that
Participant removes liquidity from another Participant adds 1.75% of Customer, incentivizing Participants to bring
Participant under Common Ownership; or (b) the added liquidity by meeting or exceeding
Participant adds 1.75% of Customer, Professional, Professional, Firm, Broker-Dealer or
Firm, Broker-Dealer or Non-NOM Market Maker the cap for the NASDAQ Stock Market
liquidity in Penny Pilot Options and/or Non-Penny a Customer (‘‘BD-Customer Facilitation’’), if the Opening Cross will benefit all
Pilot Options of total industry customer equity and member’s BD-Customer Facilitation average daily Participants by providing greater
ETF option ADV contracts per day in a month and volume (including both FLEX and non-FLEX opportunity for price discovery and
the Participant is (i) both the buyer and seller or (ii) transactions) exceeds 10,000 contracts per day in a
the Participant removes liquidity from another given month. See Phlx’s Pricing Schedule. liquidity during the Opening Cross
Participant under Common Ownership. 34 The BX Options Select Symbols Fee to Remove process.
32 In this example, the same Participant that Liquidity when BX Options Market Maker trading Moreover, the condition to meet or
added and removed the order would be entitled to with a Customer (‘‘BX Options Fee’’) is generally exceed the cap for the Nasdaq Stock
the fee discount because the NOM Participant was inversely proportional to the BX Select Symbols Market Opening Cross is reasonable,
the buyer and seller (or removes liquidity from Options Tier Schedule, which requires additional
another Participant under Common Ownership) on liquidity with increased Tiers. The BX Options Fee
equitable and not unfairly
the transaction. is, for example, $0.42 in Tier 1 and Tier 2, $0.39 discriminatory because it provides
33 The Firm Floor Options Transaction Charges in Tier 3, and $0.25 in Tier 4. The following are Participants that are not able to meet the
will be waived for members executing facilitation BX Options Select Symbols: ASHR, DIA, DXJ, EEM, Opening Cross requirement and
orders pursuant to Phlx Rule 1064 when such EFA, EWJ, EWT, EWW, EWY, EWZ, FAS, FAZ,
FXE, FXI, FXP, GDX, GLD, HYG, IWM, IYR, KRE,
therefore are not able to achieve the
members are trading in their own proprietary
account (including Cabinet Options Transaction OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SPY, 1.75% tier [sic] an additional way in
Charges). The Firm Floor Options Transaction SRS, SSO, TBT, TLT, TNA, TZA, UNG, URE, USO, which to qualify for the NOM Market
Charges will be waived for the buy side of a UUP, UVXY, UYG, VXX, XHB, XLB, XLE, XLF, XLI, Maker and Non-NOM Market Maker
transaction if the same member or its affiliates XLK, XLP, XLU, XLV, XLY, XME, XOP, XRT. See
$0.32 per contract fee. That is, a
sradovich on DSK3GDR082PROD with NOTICES

under Common Ownership represents both sides of BX Options Pricing Schedule.
a Firm transaction when such members are trading 35 The intention of the new pricing discount is, Participant unable to achieve the 1.75%
in their own proprietary account. In addition, the as discussed, to attract customer orders to the tier [sic] can still achieve the 1.50% tier
Broker-Dealer Floor Options Transaction Charge Exchange. We reviewed the minimum and
(including Cabinet Options Transaction Charges) maximum execution size for year to date activity on 36 See, e.g., Securities Exchange Act Release No.
will be waived for members executing facilitation the Exchange order book and determined the 10,000 77661 (April 20, 2016), 81 FR 24668 (April 26,
orders pursuant to Exchange Rule 1064 when such contract threshold was equitable and reasonable as 2016) (SR–NASDAQ–2016–055) (notice of filing
members would otherwise incur this charge for trades above this threshold are not typical of and immediate effectiveness to amend options
trading in their own proprietary account contra to customer orders. pricing at NOM Chapter VX, Section 2).

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[sic] provided also that the Participant Exchange is promoting such liquidity. Non-NOM Market Makers provides
adds 1.50% [sic] of Customer, Moreover, in light of the Exchange’s Participants with flexibility in the
Professional, Firm, Broker-Dealer or effort to focus on Penny Pilot Options manner in which they are submitting
Non-NOM Market Maker liquidity in liquidity on the Exchange, the proposal their orders. Non-NOM Market Makers
Penny Pilot Options and/or Non-Penny to discontinue note 4 regarding Non- have obligations on other exchanges to
Pilot Options of total industry customer Penny Pilot Options is equitable and not qualify as a market maker. Also, the
equity and ETF option ADV contracts unfairly discriminatory because it will Exchange believes that market makers
per day in a month and the Participant apply uniformly to all Participants. not registered on NOM will be
is (i) both the buyer and seller or (ii) the encouraged to send orders to NOM as an
B. Self-Regulatory Organization’s
Participant removes liquidity from
Statement on Burden on Competition away market maker (Non-NOM Market
another Participant under Common
The Exchange does not believe that Maker) with this incentive. Because the
Ownership.
Like all of the changes proposed the proposed rule change will impose incentive is being offered to both market
herein, this proposed change is any burden on competition not makers registered on NOM and those
equitable and not unfairly necessary or appropriate in furtherance not registered on NOM, the Exchange
discriminatory because it will apply of the purposes of the Act. In terms of believes that the proposal does not
uniformly to all Participants. inter-market competition, the Exchange impose an undue burden on intra-
notes that it operates in a highly market competition because it
Change 2: Non-Penny Pilot Options— competitive market in which market encourages market makers to direct
Delete Note 4 participants can readily favor competing liquidity to NOM to the benefit of all
In Change 2 the Exchange proposes to venues if they deem fee levels at a Participants.
delete Note 4 which currently indicates particular venue to be excessive, or
Participants would be entitled to
the assessment for Non-Penny Pilot rebate opportunities available at other
Options Fee for Removing Liquidity. receive the fee discount when the
venues to be more favorable. In such an
The proposal is reasonable, equitable, environment, the Exchange must Participant is both the buyer and seller
and not unfairly discriminatory for the continually adjust its fees to remain (or removes liquidity from another
reasons that follow. competitive with other exchanges and Participant under Common Ownership)
The removal of note 4 is reasonable with alternative trading systems that and therefore this qualifier does not
because it is proposed commensurate have been exempted from compliance create an undue burden on intra-market
with proposing two additional ways to with the statutory standards applicable competition. NOM Participants are
earn an enhanced discount on the NOM to exchanges. Because competitors are unaware at the time the order is entered
Market Maker and Non-NOM Market free to modify their own fees in of the identity of the contra-party,
Maker Penny Pilot Options Fee for response and because market therefore, since contra-parties are
Removing Liquidity in note 2. This is participants may readily adjust their anonymous, the Exchange believes that
reasonable because in its Fee Schedule order routing practices, the Exchange NOM Participants would aggressively
the Exchanges is encouraging bringing believes that the degree to which fee pursue order flow in order to receive the
Penny Pilot Options liquidity to the changes in this market may impose any benefit of the fee discount, to the benefit
Exchange. Since Penny Pilot Options burden on competition is extremely of all Participants.
represent the most highly-traded and limited.
liquid options on the Exchange it is In this instance, the proposed The Exchange’s proposal to continue
reasonable for the exchange to make a amendments to NOM Market Maker and to count all order flow toward the
concerted effort to bring Penny Pilot Non-NOM Market Maker Penny Pilot 1.50% or 1.75% requisite volume
Options liquidity to the Exchange. Options Fees for Removing Liquidity discussed herein, except for NOM
Participants are provided additional seek to continue to incentivize Market Maker order flow, does not
opportunities to lower NOM Market Participants to send order flow to NOM. impose an undue burden on intra-
Maker and Non-NOM Market Maker fees The Exchange does not believe this market competition. It is not necessary
when removing Penny Pilot Options proposal to add two incentives imposes to count NOM Market Maker volume in
liquidity, thereby attracting order flow an undue burden on inter-market qualifying for the fee discount as that
to the Exchange to the benefit of all competition because the Exchange’s volume is counted toward qualifying for
other market participants. Participants execution services are completely NOM Market Maker rebates.
may send either Penny or Non-Penny voluntary and subject to extensive The Exchange believes that permitting
Pilot Options to qualify for the discount. competition.
NOM Participants with 75% Common
All Participant order flow that adds The Exchange’s proposal to
incentivize Participants by continuing Ownership to aggregate their volume for
liquidity to the order book, other than
NOM Market Maker volume, will apply to offer the opportunity to reduce the purposes of obtaining the fee discount
to the 1.50% or 1.75% threshold to NOM Market Maker and Non-NOM does not create an undue burden on
qualify for the discount. Additional Market Maker Penny Pilot Options Fees intra-market competition because
order flow on the Exchange promotes for Removing Liquidity and also offering certain NOM Participants chose to
interaction with the added liquidity. additional incentives to lower these fees segregate their businesses into different
The Exchange believes that it is from $0.50 to $0.32 per contract, does legal entities for purposes of conducting
reasonable, equitable, and not unfairly not create an undue burden on intra- business. NOM Participants that chose
discriminatory to offer the discounted market competition for various reasons. to segregate their businesses into
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remove fee in note 2 applicable to NOM Market Makers have obligations to different legal entities should still be
Penny Pilot Options without having an the market and regulatory afforded the opportunity to receive the
alternate fee in note 4 applicable in requirements,37 which, as discussed, discount as if they were the same NOM
Non-Penny Pilot Options because, as normally do not apply to other market Participant on both sides of the
discussed, Penny Pilot Options are participants. Offering the fee discount to transaction.
clearly the highest volume, most liquid
options traded on the Exchange and the 37 See supra note 25.

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41364 Federal Register / Vol. 81, No. 122 / Friday, June 24, 2016 / Notices

C. Self-Regulatory Organization’s those that may be withheld from the proposed rule change from interested
Statement on Comments on the public in accordance with the persons.
Proposed Rule Change Received From provisions of 5 U.S.C. 552, will be
I. Self-Regulatory Organization’s
Members, Participants, or Others available for Web site viewing and
Statement of the Terms of Substance of
No written comments were either printing in the Commission’s Public
the Proposed Rule Change
solicited or received. Reference Room, 100 F Street NE.,
Washington, DC 20549, on official The Exchange proposes adopting new
III. Date of Effectiveness of the business days between the hours of rule text that is substantially similar to
Proposed Rule Change and Timing for 10:00 a.m. and 3:00 p.m. Copies of the Rules 2090 (Know Your Customer) and
Commission Action filing also will be available for 2111 (Suitability) of the Financial
The foregoing rule change has become inspection and copying at the principal Industry Regulatory Authority, Inc.
effective pursuant to Section office of the Exchange. All comments (‘‘FINRA’’), (2) deleting current Rule
19(b)(3)(A)(ii) of the Act.38 received will be posted without change; 405—Equities (Diligence as to Accounts)
At any time within 60 days of the the Commission does not edit personal (‘‘Rule 405’’), and (3) making other
filing of the proposed rule change, the identifying information from conforming changes. The proposed rule
Commission summarily may submissions. You should submit only change is available on the Exchange’s
temporarily suspend such rule change if information that you wish to make Web site at www.nyse.com, at the
it appears to the Commission that such available publicly. All submissions principal office of the Exchange, and at
action is: (i) Necessary or appropriate in should refer to File Number SR– the Commission’s Public Reference
the public interest; (ii) for the protection NASDAQ–2016–089 and should be Room.
of investors; or (iii) otherwise in submitted on or before July 15, 2016. II. Self-Regulatory Organization’s
furtherance of the purposes of the Act. For the Commission, by the Division of Statement of the Purpose of, and
If the Commission takes such action, the Trading and Markets, pursuant to delegated Statutory Basis for, the Proposed Rule
Commission shall institute proceedings authority.39 Change
to determine whether the proposed rule Robert W. Errett,
should be approved or disapproved. In its filing with the Commission, the
Deputy Secretary. self-regulatory organization included
IV. Solicitation of Comments [FR Doc. 2016–14929 Filed 6–23–16; 8:45 am] statements concerning the purpose of,
Interested persons are invited to BILLING CODE 8011–01–P and basis for, the proposed rule change
submit written data, views and and discussed any comments it received
arguments concerning the foregoing, on the proposed rule change. The text
including whether the proposed rule SECURITIES AND EXCHANGE of those statements may be examined at
change is consistent with the Act. COMMISSION the places specified in Item IV below.
Comments may be submitted by any of [Release No. 34–78106; File No. SR– The Exchange has prepared summaries,
the following methods: NYSEMKT–2016–59] set forth in sections A, B, and C below,
of the most significant parts of such
Electronic Comments
Self-Regulatory Organizations; NYSE statements.
• Use the Commission’s Internet MKT LLC; Notice of Filing and
comment form (http://www.sec.gov/ A. Self-Regulatory Organization’s
Immediate Effectiveness of Proposed Statement of the Purpose of, and the
rules/sro.shtml); or Rule Change Adopting New NYSE MKT
• Send an email to rule-comments@ Rules 2090—Equities (Know Your
Statutory Basis for, the Proposed Rule
sec.gov. Please include File Number SR– Change
Customer) and 2111—Equities
NASDAQ–2016–089 on the subject line. (Suitability) That Are Substantially 1. Purpose
Paper Comments Similar to FINRA Rules 2090 (Know The Exchange proposes to amend its
• Send paper comments in triplicate Your Customer) and 2111 (Suitability), rules to harmonize with certain FINRA
to Secretary, Securities and Exchange Deleting Current NYSE MKT Rule 405— rules. Specifically, the Exchange
Commission, 100 F Street NE., Equities (Diligence as to Accounts), proposes (1) adopting new rule text that
Washington, DC 20549–1090. and Making Other Conforming is substantially similar to FINRA Rules
Changes 2090 and 2111; (2) deleting Rule 405; 4
All submissions should refer to File
Number SR–NASDAQ–2016–089. This June 20, 2016. and (3) making other conforming
file number should be included on the Pursuant to Section 19(b)(1) 1 of the changes.
subject line if email is used. To help the Securities Exchange Act of 1934 (‘‘Act’’ Background
Commission process and review your or ‘‘Exchange Act’’) 2 and Rule 19b–4
comments more efficiently, please use In 2007, FINRA and the Exchange’s
thereunder,3 notice is hereby given that affiliate the New York Stock Exchange
only one method. The Commission will on June 9, 2016, NYSE MKT LLC
post all comments on the Commission’s LLC (‘‘NYSE’’) 5 entered into an
(‘‘Exchange’’ or ‘‘NYSE MKT’’) filed
Internet Web site (http://www.sec.gov/ with the Securities and Exchange 4 References to rules are to NYSE MKT rules
rules/sro.shtml). Copies of the Commission (‘‘Commission’’) the unless otherwise indicated.
submission, all subsequent proposed rule change as described in 5 NYSE Regulation, Inc., a former not-for-profit

amendments, all written statements Items I, II, and III below, which Items subsidiary of the NYSE, was also a party to the
with respect to the proposed rule Agreement by virtue of the fact that it performed
sradovich on DSK3GDR082PROD with NOTICES

have been prepared by the Exchange. regulatory functions for the NYSE pursuant to a
change that are filed with the The Commission is publishing this delegation agreement. See Securities Exchange Act
Commission, and all written notice to solicit comments on the Release No. 53382 (February 27, 2006), 71 FR
communications relating to the 11251, 11264–65 (March 6, 2006) (SR–NYSE–2005–
proposed rule change between the 39 17
77) (approving delegation agreement). NYSE
CFR 200.30–3(a)(12). Regulation also performed regulatory services for
Commission and any person, other than 1 15 U.S.C. 78s(b)(1). the Exchange pursuant to an intercompany
2 15 U.S.C. 78a.
Regulatory Services Agreement (‘‘RSA’’) that gave
38 15 U.S.C. 78s(b)(3)(A)(ii). 3 17 CFR 240.19b–4. the Exchange the contractual right to review NYSE

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Document Created: 2016-06-24 00:52:59
Document Modified: 2016-06-24 00:52:59
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 41359