81 FR 4731 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NOM Rules at Chapter XV, Section 2

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 17 (January 27, 2016)

Page Range		4731-4734
FR Document		2016-01666
Federal Register, Volume 81 Issue 17 (Wednesday, January 27, 2016)
[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4731-4734]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-01666]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76967; File No. SR-NASDAQ-2016-004]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend NOM Rules at Chapter XV, Section 2

January 22, 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 January 11, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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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.
    The Exchange purposes [sic] to amend its NOM Market Maker \3\ and 
Non-NOM Market Maker \4\ Fees for Removing Liquidity in Penny Pilot 
Options to offer Participants an incentive to direct a greater amount 
of order flow to NOM from January 11, 2016 through January 29, 2016.
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    \3\ 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.
    \4\ A ``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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    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 for executing and routing 
standardized equity and index options under the Penny Pilot Options 
program. The Exchange desires to incentivize NOM Participants to add an 
even greater amount of liquidity to NOM from January 11, 2016 through 
January 29, 2016. Specifically, the Exchange proposes to incentivize 
Participants by offering the opportunity to reduce the NOM Market Maker 
and Non-NOM Market Maker Penny Pilot Options Fees for Removing 
Liquidity from $0.50 to $0.48 per contract, for the time period from 
January 11, 2016 through January 29, 2016, provided the Participant 
adds 1.30% of Customer,\5\ Professional,\6\ Firm,\7\ Broker-Dealer \8\ 
or Non-NOM Market Maker liquidity and the Participant is (i) both the 
buyer and seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership.\9\
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    \5\ 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)).
    \6\ 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.
    \7\ 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.
    \8\ 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.
    \9\ 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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    This incentive offer will not apply to volume transacted prior to 
January 11, 2016 or after January 29, 2016.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\10\ in general, and with Section 6(b)(4) and 
6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f.
    \11\ 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. 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'. . . .'' \12\ 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 and this proposal

[[Page 4732]]

is consistent with those views in that it is a price cut driven by 
competition.
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    \12\ Id. [sic] at 539 (quoting Securities Exchange Release No. 
59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-
NYSEArca-2006-21) at 73 FR at 74782-74783).
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    The Exchange's proposal to incentivize Participants by offering the 
opportunity to reduce the NOM Market Maker and Non-NOM Market Maker 
Penny Pilot Options Fees for Removing Liquidity from $0.50 to $0.48 per 
contract, for the time period from January 11, 2016 through January 29, 
2016, provided the Participant adds 1.30% of Customer, Professional, 
Firm, Broker-Dealer or Non-NOM Market Maker liquidity and the 
Participant is (i) both the buyer and seller or (ii) the Participant 
removes liquidity from another Participant under Common Ownership is 
reasonable because the Exchange believes NOM will attract a greater 
amount of order flow by offering this discounted rate. The Exchange 
believes that this additional fee reduction for Non-NOM Market Makers 
and NOM Market Makers should further incentivize Participants to add 
liquidity in Penny Pilot Options on NOM to obtain the discounted rate 
from January 11, 2016 through January 29, 2016.
    The Exchange's proposal to incentivize Participants by offering the 
opportunity to reduce the NOM Market Maker and Non-NOM Market Maker 
Penny Pilot Options Fees for Removing Liquidity from $0.50 to $0.48 per 
contract, for the time period from January 11, 2016 through January 29, 
2016, provided the Participant adds 1.30% of Customer, Professional, 
Firm, Broker-Dealer or Non-NOM Market Maker liquidity and the 
Participant is (i) both the buyer and seller or (ii) the Participant 
removes liquidity from another Participant under Common Ownership is 
equitable and not unfairly discriminatory for the reasons which follow. 
NOM Market Makers have obligations to the market and regulatory 
requirements, which normally do not apply to other market 
participants.\13\ 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 [sic] 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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    \13\ Pursuant to Chapter VII (Market Participants), Section 5 
(Obligations of Market Makers), in registering as a market maker, an 
Options Participant commits himself to various obligations. 
Transactions of a Market Maker in its market making capacity must 
constitute a course of dealings reasonably calculated to contribute 
to the maintenance of a fair and orderly market, and Market Makers 
should not make bids or offers or enter into transactions that are 
inconsistent with such course of dealings. Further, all Market 
Makers are designated as specialists on NOM for all purposes under 
the Act or rules thereunder. See Chapter VII, Section 5.
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    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to only offer the fee reduction to NOM Market 
Makers and Non-NOM Market Makers because the Exchange is offering this 
$0.02 per contract fee discount to the Penny Pilot Options Fees for 
Removing Liquidity to incentivize NOM Participants to select NOM as a 
venue to send Customer, Professional, Firm, Broker-Dealer or Non-NOM 
Market Maker order flow from January 11, 2016 through January 29, 2016.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to permit NOM Participants with 75 percent 
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 these NOM Participants 
should be treated as one entity for purposes of qualifying for the 
discounted Fee for Removing Liquidity in Penny Pilot Options, from 
January 11, 2016 through January 29, 2016, 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 a $0.02 per contract reduced 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 
from January 11. 2016 through January 29, 2016. 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 aggressively pursue order flow in order to receive 
the benefit of the reduction. Offering the additional fee reduction is 
reasonable, equitable and not unfairly discriminatory because 
Participants would be entitled to receive the fee reduction when the 
Participant is both the buyer and seller. By way of example, if a NOM 
Participant that is assigned the firm code \14\ ``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 $0.02 per contract fee reduction for that trade ($0.50 to 
$0.48 per contract). The fee reduction would only be applicable from 
January 11, 2016 through January 29, 2016. The Exchange proposes to 
utilize the Exchange assigned firm code to determine which NOM 
Participant executed an order and to apply the fee reduction 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.\15\ This concept is not novel. Today NASDAQ 
OMX 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.\16\
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    \14\ Each NOM Participant is assigned a firm code by the 
Exchange.
    \15\ In this example, the same Participant that added and 
removed the order would be entitled to the fee reduction because the 
NOM Participant was the buyer and seller on the transaction.
    \16\ The Firm Floor Options Transaction Charges will be waived 
for members executing facilitation orders pursuant to Exchange 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.

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[[Page 4733]]

    Finally, the Exchange's proposal to count all order flow toward the 
1.30% requisite volume, except for NOM Market Maker order flow is 
reasonable, equitable and not unfairly discriminatory because NOM 
Market Makers are 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.'' \17\ 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.'' \18\ 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.\19\ The Exchange offers NOM Market Makers rebates in 
acknowledgment of the obligations \20\ these Participants bear in the 
market. The Exchange believes that it is not necessary to count NOM 
Market Maker volume toward the volume to qualify for the fee reduction 
because that volume is counted toward the qualifiers for the NOM Market 
Maker rebates.
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    \17\ 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.
    \18\ See Professional Filing.
    \19\ See Professional Filing. The Exchange also in [sic] 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.
    \20\ See note 13.
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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 do 
not impose 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 offering the 
opportunity to reduce the NOM Market Maker and Non-NOM Market Maker 
Penny Pilot Options Fees for Removing Liquidity from $0.50 to $0.48 per 
contract, for the time period from January 11, 2016 through January 29, 
2016, provided the Participant adds 1.30% of Customer, Professional, 
Firm, Broker-Dealer or Non-NOM Market Maker liquidity and the 
Participant is (i) both the buyer and seller or (ii) the Participant 
removes liquidity from another Participant under Common Ownership does 
not create an undue burden on intra-market competition because NOM 
Market Makers have obligations to the market and regulatory 
requirements, which normally do not apply to other market 
participants.\21\ 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.
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    \21\ See note 13.
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    The Exchange believes that permitting NOM Participants with 75 
percent 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.
    Participants would be entitled to receive the fee reduction when 
the Participant is both the buyer and seller 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 
reduction, to the benefit of all Participants.
    The Exchange's proposal to count all order flow toward the 1.30% 
requisite volume, except for NOM Market Maker order flow does not 
impose an undue burden on intra-market competition because the Exchange 
believes 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.

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.\22\
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    \22\ 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

[[Page 4734]]

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-2016-004 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2016-004. 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 such 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-2016-004, and should 
be submitted on or before February 17, 2016.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Brent J. Fields,
Secretary.
[FR Doc. 2016-01666 Filed 1-26-16; 8:45 am]
BILLING CODE 8011-01-P
4732 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices

is consistent with those views in that it inconsistent with a [sic] course of unfairly discriminatory to offer a $0.02
is a price cut driven by competition. dealings. The proposed differentiation per contract reduced Penny Pilot Option
The Exchange’s proposal to as between NOM Market Makers and Fee for Removing Liquidity to Non-
incentivize Participants by offering the other market participants recognizes the NOM Market Makers and NOM Market
opportunity to reduce the NOM Market differing contributions made to the Makers for transactions in which the
Maker and Non-NOM Market Maker trading environment on the Exchange by same NOM Participant or a NOM
Penny Pilot Options Fees for Removing NOM Market Makers. For the above Participant under Common Ownership
Liquidity from $0.50 to $0.48 per reasons, the Exchange believes that is the buyer and the seller from January
contract, for the time period from NOM Market Makers are entitled to 11. 2016 through January 29, 2016.
January 11, 2016 through January 29, discounted fees, provided they qualify NOM Participants that chose to
2016, provided the Participant adds for the discount. The Exchange believes segregate their businesses into different
1.30% of Customer, Professional, Firm, it is equitable and not unfairly legal entities should still be afforded the
Broker-Dealer or Non-NOM Market discriminatory to offer the fee discount opportunity to receive the discount as if
Maker liquidity and the Participant is (i) to Non-NOM Market Makers because the they were the same NOM Participant on
both the buyer and seller or (ii) the Exchange is offering Participants both sides of the transaction.
Participant removes liquidity from flexibility in the manner in which they It is important to note that NOM
another Participant under Common are submitting their orders. Non-NOM Participants are unaware at the time the
Ownership is reasonable because the Market Makers have obligations on order is entered of the identity of the
Exchange believes NOM will attract a other exchanges to qualify as a market contra-party. Because contra-parties are
greater amount of order flow by offering maker. Also, the Exchange believes that anonymous, the Exchange believes that
this discounted rate. The Exchange market makers not registered on NOM NOM Participants would aggressively
believes that this additional fee will be encouraged to send orders to pursue order flow in order to receive the
reduction for Non-NOM Market Makers NOM as an away market maker (Non- benefit of the reduction. Offering the
and NOM Market Makers should further NOM Market Maker) with this additional fee reduction is reasonable,
incentivize Participants to add liquidity incentive. Because the incentive is being equitable and not unfairly
in Penny Pilot Options on NOM to offered to both market makers registered discriminatory because Participants
obtain the discounted rate from January on NOM and those not registered on would be entitled to receive the fee
11, 2016 through January 29, 2016. NOM, the Exchange believes that the reduction when the Participant is both
The Exchange’s proposal to proposal is equitable and not unfairly the buyer and seller. By way of example,
incentivize Participants by offering the discriminatory because it encourages if a NOM Participant that is assigned the
opportunity to reduce the NOM Market market makers to direct liquidity to firm code 14 ‘‘ABC’’ by the Exchange
Maker and Non-NOM Market Maker NOM to the benefit of all Participants. posted an order utilizing its Customer
Penny Pilot Options Fees for Removing This proposal recognizes the overall order router, and the order was removed
Liquidity from $0.50 to $0.48 per contributions made by market makers to by an ABC NOM Market Maker order,
contract, for the time period from a listed options market. the NOM Participant would receive the
January 11, 2016 through January 29, The Exchange believes that it is $0.02 per contract fee reduction for that
2016, provided the Participant adds reasonable, equitable and not unfairly trade ($0.50 to $0.48 per contract). The
1.30% of Customer, Professional, Firm, discriminatory to only offer the fee fee reduction would only be applicable
Broker-Dealer or Non-NOM Market reduction to NOM Market Makers and from January 11, 2016 through January
Maker liquidity and the Participant is (i) Non-NOM Market Makers because the 29, 2016. The Exchange proposes to
both the buyer and seller or (ii) the Exchange is offering this $0.02 per utilize the Exchange assigned firm code
Participant removes liquidity from contract fee discount to the Penny Pilot to determine which NOM Participant
another Participant under Common Options Fees for Removing Liquidity to executed an order and to apply the fee
Ownership is equitable and not unfairly incentivize NOM Participants to select reduction to the Non-NOM Market
discriminatory for the reasons which NOM as a venue to send Customer, Maker or NOM Market Maker Penny
follow. NOM Market Makers have Professional, Firm, Broker-Dealer or Pilot Option Fee for Removing Liquidity
obligations to the market and regulatory Non-NOM Market Maker order flow if the same NOM Participant was the
requirements, which normally do not from January 11, 2016 through January buyer and the seller to a transaction.15
apply to other market participants.13 A 29, 2016. This concept is not novel. Today
The Exchange believes that it is NASDAQ OMX PHLX LLC (‘‘Phlx’’)
NOM Market Maker has the obligation,
reasonable, equitable and not unfairly assesses a Firm Floor Options
for example, to make continuous
discriminatory to permit NOM Transaction Charge based on which side
markets, engage in a course of dealings
Participants with 75 percent common of the transaction the member
reasonably calculated to contribute to
ownership to aggregate their volume for represents as well whether the same
the maintenance of a fair and orderly
purposes of obtaining the fee discount member or its affiliates under Common
market, and not make bids or offers or
because certain NOM Participants chose Ownership was represented.16
enter into transactions that are
to segregate their businesses into
13 Pursuant to Chapter VII (Market Participants),
different legal entities for purposes of 14 Each NOM Participant is assigned a firm code

Section 5 (Obligations of Market Makers), in conducting business. The Exchange by the Exchange.
registering as a market maker, an Options believes that these NOM Participants 15 In this example, the same Participant that

should be treated as one entity for added and removed the order would be entitled to
asabaliauskas on DSK5VPTVN1PROD with NOTICES

Participant commits himself to various obligations.
Transactions of a Market Maker in its market the fee reduction because the NOM Participant was
purposes of qualifying for the the buyer and seller on the transaction.
making capacity must constitute a course of
dealings reasonably calculated to contribute to the
discounted Fee for Removing Liquidity 16 The Firm Floor Options Transaction Charges

maintenance of a fair and orderly market, and in Penny Pilot Options, from January 11, will be waived for members executing facilitation
Market Makers should not make bids or offers or 2016 through January 29, 2016, as long orders pursuant to Exchange Rule 1064 when such
enter into transactions that are inconsistent with as there is at least 75% common members are trading in their own proprietary
such course of dealings. Further, all Market Makers account (including Cabinet Options Transaction
are designated as specialists on NOM for all
ownership or control among the NOM Charges). The Firm Floor Options Transaction
purposes under the Act or rules thereunder. See Participants. The Exchange also believes Charges will be waived for the buy side of a
Chapter VII, Section 5. that it is reasonable, equitable and not transaction if the same member or its affiliates

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Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices 4733

Finally, the Exchange’s proposal to any burden on competition not with this incentive. Because the
count all order flow toward the 1.30% necessary or appropriate in furtherance incentive is being offered to both market
requisite volume, except for NOM of the purposes of the Act. In terms of makers registered on NOM and those
Market Maker order flow is reasonable, inter-market competition, the Exchange not registered on NOM, the Exchange
equitable and not unfairly notes that it operates in a highly believes that the proposal does not
discriminatory because NOM Market competitive market in which market impose an undue burden on intra-
Makers are entitled to rebates today participants can readily favor competing market competition because it
similar to Customers and Professionals. venues if they deem fee levels at a encourages market makers to direct
Customer volume is important because particular venue to be excessive, or liquidity to NOM to the benefit of all
it continues to attract liquidity to the rebate opportunities available at other Participants.
Exchange, which benefits all market venues to be more favorable. In such an The Exchange believes that permitting
participants. Further, with respect to environment, the Exchange must NOM Participants with 75 percent
Professional liquidity, the Exchange continually adjust its fees to remain common ownership to aggregate their
initially established Professional pricing competitive with other exchanges and volume for purposes of obtaining the fee
in order to ‘‘. . . bring additional with alternative trading systems that discount does not create an undue
revenue to the Exchange.’’ 17 The have been exempted from compliance burden on intra-market competition
Exchange noted in the Professional with the statutory standards applicable because certain NOM Participants chose
Filing that it believes ‘‘. . . that the to exchanges. Because competitors are to segregate their businesses into
increased revenue from the proposal free to modify their own fees in different legal entities for purposes of
would assist the Exchange to recoup response and because market conducting business. NOM Participants
fixed costs.’’ 18 Further, the Exchange participants may readily adjust their that chose to segregate their businesses
noted in that filing that it believes that order routing practices, the Exchange into different legal entities should still
establishing separate pricing for a believes that the degree to which fee be afforded the opportunity to receive
Professional, which ranges between that changes in this market may impose any the discount as if they were the same
of a Customer and market maker, burden on competition is extremely NOM Participant on both sides of the
accomplishes this objective.19 The limited. transaction.
Exchange offers NOM Market Makers In this instance, the proposed Participants would be entitled to
rebates in acknowledgment of the amendments to NOM Market Maker and receive the fee reduction when the
obligations 20 these Participants bear in Non-NOM Market Maker Penny Pilot Participant is both the buyer and seller
the market. The Exchange believes that Options Fees for Removing Liquidity do and therefore this qualifier does not
it is not necessary to count NOM Market not impose an undue burden on inter- create an undue burden on intra-market
Maker volume toward the volume to market competition because the competition. NOM Participants are
qualify for the fee reduction because Exchange’s execution services are unaware at the time the order is entered
that volume is counted toward the completely voluntary and subject to of the identity of the contra-party,
qualifiers for the NOM Market Maker extensive competition. therefore, since contra-parties are
rebates. The Exchange’s proposal to anonymous, the Exchange believes that
incentivize Participants by offering the NOM Participants would aggressively
B. Self-Regulatory Organization’s opportunity to reduce the NOM Market
Statement on Burden on Competition pursue order flow in order to receive the
Maker and Non-NOM Market Maker benefit of the reduction, to the benefit
The Exchange does not believe that Penny Pilot Options Fees for Removing of all Participants.
the proposed rule change will impose Liquidity from $0.50 to $0.48 per The Exchange’s proposal to count all
contract, for the time period from order flow toward the 1.30% requisite
under Common Ownership represents both sides of January 11, 2016 through January 29, volume, except for NOM Market Maker
a Firm transaction when such members are trading 2016, provided the Participant adds
in their own proprietary account. In addition, the order flow does not impose an undue
Broker-Dealer Floor Options Transaction Charge 1.30% of Customer, Professional, Firm, burden on intra-market competition
(including Cabinet Options Transaction Charges) Broker-Dealer or Non-NOM Market because the Exchange believes it is not
will be waived for members executing facilitation Maker liquidity and the Participant is (i) necessary to count NOM Market Maker
orders pursuant to Exchange Rule 1064 when such both the buyer and seller or (ii) the
members would otherwise incur this charge for volume in qualifying for the fee
trading in their own proprietary account contra to Participant removes liquidity from discount as that volume is counted
a Customer (‘‘BD-Customer Facilitation’’), if the another Participant under Common toward qualifying for NOM Market
member’s BD-Customer Facilitation average daily Ownership does not create an undue Maker rebates.
volume (including both FLEX and non-FLEX burden on intra-market competition
transactions) exceeds 10,000 contracts per day in a
given month. See Phlx’s Pricing Schedule. because NOM Market Makers have C. Self-Regulatory Organization’s
17 See Securities Exchange Act Release No. 64494 obligations to the market and regulatory Statement on Comments on the
(May 13, 2011), 76 FR 29014 (May 19, 2011) (SR– requirements, which normally do not Proposed Rule Change Received From
NASDAQ–2011–066) (‘‘Professional Filing’’). In this apply to other market participants.21 Members, Participants, or Others
filing, the Exchange addressed the perceived
favorable pricing of Professionals who were
Offering the fee discount to Non-NOM No written comments were either
assessed fees and paid rebates like a Customer prior Market Makers provides Participants solicited or received.
to the filing. The Exchange noted in that filing that with flexibility in the manner in which
a Professional, unlike a retail Customer, has access they are submitting their orders. Non- III. Date of Effectiveness of the
to sophisticated trading systems that contain
NOM Market Makers have obligations Proposed Rule Change and Timing for
asabaliauskas on DSK5VPTVN1PROD with NOTICES

functionality not available to retail Customers. Commission Action
18 See Professional Filing. on other exchanges to qualify as a
19 See Professional Filing. The Exchange also in market maker. Also, the Exchange The foregoing rule change has become
[sic] the Professional Filing that it believes the role believes that market makers not effective pursuant to Section
of the retail Customer in the marketplace is distinct registered on NOM will be encouraged 19(b)(3)(A)(ii) of the Act.22
from that of the Professional and the Exchange’s fee
proposal at that time accounted for this distinction
to send orders to NOM as an away At any time within 60 days of the
by pricing each market participant according to market maker (Non-NOM Market Maker) filing of the proposed rule change, the
their roles and obligations.
20 See note 13. 21 See note 13. 22 15 U.S.C. 78s(b)(3)(A)(ii).

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4734 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices

Commission summarily may available publicly. All submissions its reasons for so finding or as to which
temporarily suspend such rule change if should refer to File Number SR– the self-regulatory organization
it appears to the Commission that such NASDAQ–2016–004, and should be consents, the Commission shall either
action is: (i) Necessary or appropriate in submitted on or before February 17, approve the proposed rule change,
the public interest; (ii) for the protection 2016. disapprove the proposed rule change, or
of investors; or (iii) otherwise in For the Commission, by the Division of institute proceedings to determine
furtherance of the purposes of the Act. Trading and Markets, pursuant to delegated whether the proposed rule change
If the Commission takes such action, the authority.23 should be disapproved. The 45th day for
Commission shall institute proceedings Brent J. Fields, this filing is January 23, 2016.
to determine whether the proposed rule Secretary. The Commission is extending this 45-
should be approved or disapproved. day time period. The Commission finds
[FR Doc. 2016–01666 Filed 1–26–16; 8:45 am]
IV. Solicitation of Comments that it is appropriate to designate a
BILLING CODE 8011–01–P
longer period within which to take
Interested persons are invited to action on the proposed rule change so
submit written data, views, and that it has sufficient time to consider the
arguments concerning the foregoing, SECURITIES AND EXCHANGE
COMMISSION proposal.
including whether the proposed rule Accordingly, pursuant to Section
change is consistent with the Act. [Release No. 34–76945; File No. SR–BATS– 19(b)(2) of the Act,7 the Commission
Comments may be submitted by any of 2015–108] designates March 8, 2016, as the date by
the following methods: which the Commission should either
Self-Regulatory Organizations; BATS approve, disapprove, or institute
Electronic Comments Exchange, Inc.; Notice of Designation proceedings to determine whether to
• Use the Commission’s Internet of Longer Period for Commission disapprove the proposed rule change
comment form (http://www.sec.gov/ Action on a Proposed Rule Change To (File No. SR–BATS–2015–108).
rules/sro.shtml); or Adopt Rule 11.27 To Implement the
• Send an email to rule-comments@ Quoting and Trading Requirements of For the Commission, by the Division of
sec.gov. Please include File Number SR– Trading and Markets, pursuant to delegated
the Tick Size Pilot Program
NASDAQ–2016–004 on the subject line. authority.8
January 21, 2016. Brent J. Fields,
Paper Comments
On November 30, 2015, BATS Secretary.
• Send paper comments in triplicate Exchange, Inc. (‘‘Exchange’’ or ‘‘BATS’’) [FR Doc. 2016–01529 Filed 1–26–16; 8:45 am]
to Brent J. Fields, Secretary, Securities filed with the Securities and Exchange BILLING CODE 8011–01–P
and Exchange Commission, 100 F Street Commission (‘‘Commission’’), pursuant
NE., Washington, DC 20549–1090. to Section 19(b)(1) of the Securities
All submissions should refer to File Exchange Act of 1934 (‘‘Act’’) 1 and Rule SMALL BUSINESS ADMINISTRATION
Number SR–NASDAQ–2016–004. This 19b–4 thereunder,2 a proposed rule
file number should be included on the change to adopt Exchange Rule 11.27 to Data Collection Available for Public
subject line if email is used. To help the implement the quoting and trading Comments
Commission process and review your requirements set forth in the Regulation
comments more efficiently, please use NMS Plan to Implement a Tick Size 60-Day notice and request for
ACTION:
only one method. The Commission will Pilot Program.3 The proposed rule comments.
post all comments on the Commission’s change was published for comment in
Internet Web site (http://www.sec.gov/ the Federal Register on December 9, SUMMARY: The Small Business
rules/sro.shtml). Copies of the 2015.4 The Commission has received Administration (SBA) intends to request
submission, all subsequent three comment letters on the proposal.5 approval, from the Office of
amendments, all written statements Section 19(b)(2) of the Act 6 provides Management and Budget (OMB) for the
with respect to the proposed rule that, within 45 days of the publication collection of information described
change that are filed with the of the notice of the filing of a proposed below. The Paperwork Reduction Act
Commission, and all written rule change, or within such longer (PRA) of 1995, 44 U.S.C Chapter 35
communications relating to the period up to 90 days as the Commission requires federal agencies to publish a
proposed rule change between the may designate if it finds such longer notice in the Federal Register
Commission and any person, other than period to be appropriate and publishes concerning each proposed collection of
those that may be withheld from the information before submission to OMB,
public in accordance with the 23 17 CFR 200.30–3(a)(12).
and to allow 60 days for public
provisions of 5 U.S.C. 552, will be 1 15 U.S.C. 78s(b)(1). comment in response to the notice. This
available for Web site viewing and 2 17 CFR 240.19b–4. notice complies with that requirement.
printing in the Commission’s Public
3 See Securities Exchange Act Release No. 74892
DATES: Submit comments on or before
(May 6, 2015), 80 FR 27513 (May 13, 2015). March 28, 2016.
Reference Room, 100 F Street NE., 4 See Securities Exchange Act Release No. 76552
Washington, DC 20549 on official (December 3, 2015), 80 FR 76591. ADDRESSES: Send all comments to
business days between the hours of 5 See Letters from Brendon J. Weiss, Co-Head Rachel Newman Karton, Program
10:00 a.m. and 3:00 p.m. Copies of such Government Affairs, Intercontinental Exchange Inc. Analyst, Office of Entrepreneurial
asabaliauskas on DSK5VPTVN1PROD with NOTICES

filing also will be available for and John K. Kerin, CEO, Chicago Stock Exchange Development, Small Business
dated January 15, 2016, to Brent J. Fields, Secretary,
inspection and copying at the principal Commission; Mary Lou Von Kaenel, Managing Administration, 409 3rd Street, 6th
office of the Exchange. All comments Director, Financial Information Forum, dated Floor, Washington, DC 20416.
received will be posted without change; December 22, 2015; and Theodore R. Lazo, FOR FURTHER INFORMATION CONTACT:
the Commission does not edit personal Managing Director and Associate General Counsel,
Securities Industry and Financial Markets Rachel Newman Karton, Program
identifying information from Association, dated December 18, 2015, to Robert W.
submissions. You should submit only Errett, Deputy Secretary, Commission. 7 Id.

information that you wish to make 6 15 U.S.C. 78s(b)(2). 8 17 CFR 200.30–3(a)(31).

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Document Created: 2018-02-02 12:40:08
Document Modified: 2018-02-02 12:40:08
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 4731