81 FR 62212 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change Related to the NASDAQ Options Market LLC's Pricing at Chapter XV, Section 2(6)
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 174 (September 8, 2016)
Federal Register Volume 81, Issue 174 (September 8, 2016)
| Page Range | 62212-62216 | |
| FR Document | 2016-21492 |
[Federal Register Volume 81, Number 174 (Thursday, September 8, 2016)] [Notices] [Pages 62212-62216] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-21492] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78749; File No. SR-NASDAQ-2016-121] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change Related to the NASDAQ Options Market LLC's Pricing at Chapter XV, Section 2(6) September 1, 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 August 29, 2016, The Nasdaq Stock Market LLC (``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes related to the NASDAQ Options Market LLC's (``NOM'') pricing at chapter XV, section 2(6). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to file to provide notice that Execution Access, LLC \3\ will offer a credit to its clients authorized to transact business at EA, provided those clients, who are also NOM Participants (``dual access client''), qualify for one of the two highest Market Access and Routing Subsidy or ``MARS'' Payment tiers available on NOM. The NOM Participant must qualify for the MARS Payment tier in order for the dual access client to receive a credit on EA. The dual access client may be an affiliate entity of the NOM Participant at EA.\4\ The qualification and credit are explained further below.\5\ The purpose [[Page 62213]] of this proposal is to lower prices to transact U.S. Treasury securities on EA in response to competitive forces in the treasury markets and increase trading on NOM. --------------------------------------------------------------------------- \3\ Execution Access, LLC (``EA'') is a broker-dealer that operates a fully electronic central limit order book known as eSpeed. EA facilitates the matching of client orders in U.S. Treasury securities. \4\ Affiliates would include other legal entities under common control. \5\ Nasdaq believes that EA is not a ``facility'' of the Exchange. 15 U.S.C. 78c(a)(2). The Act defines ``facility'' to include an exchange's ``premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service.'' EA is a distinct entity that is separate from NOM and engages in a discrete line of business that is not ``for the purpose of effecting or reporting a transaction'' on an exchange. --------------------------------------------------------------------------- MARS Program The Exchange currently offers MARS Payments to qualifying NOM Participants in chapter XV, section 2(6). NOM Participants that have System Eligibility \6\ and have executed the requisite number of Eligible Contracts \7\ in a month are paid rebates based on average daily volume (``ADV'') in a month. Today, MARS Payments are currently based on a 3 tier rebate based on ADV. The Exchange pays a MARS Payment of $0.07 for ADV of 2,500 Eligible Contracts. The Exchange pays a MARS Payment of $0.09 for ADV of 5,000 Eligible Contracts. Finally, the Exchange pays a MARS Payment of $0.11 for ADV of 10,000 Eligible Contracts. The Exchange pays a MARS Payment on all executed Eligible Contracts that add liquidity, which are routed to NOM through a participating NOM Participant's System and meet the requisite Eligible Contracts ADV. --------------------------------------------------------------------------- \6\ To qualify for MARS, a Participant's routing system (``System'') is required to: (1) Enable the electronic routing of orders to all of the U.S. options exchanges, including NOM; (2) provide current consolidated market data from the U.S. options exchanges; and (3) be capable of interfacing with NOM's API to access current NOM match engine functionality. Further, the Participant's System would also need to cause NOM to be the one of the top three default destination exchanges for individually executed marketable orders if NOM is at the national best bid or offer (``NBBO''), regardless of size or time, but allow any user to manually override NOM as a default destination on an order-by-order basis. Any NOM Participant would be permitted to avail itself of this arrangement, provided that its order routing functionality incorporates the features described above and satisfies NOM that it appears to be robust and reliable. The Participant remains solely responsible for implementing and operating its System. See Chapter XV, Section 2(6). \7\ MARS Eligible Contracts include electronic Firm, Non-NOM Market Maker, Broker-Dealer or Joint Back Office orders that add liquidity, excluding Mini Options. See Chapter XV, Section 2(6). --------------------------------------------------------------------------- EA Credit Proposal Provided a dual access client qualifies for NOM's MARS Payment Tier 2 or 3 in a given month, EA will credit the dual access client or its affiliate a specific dollar amount on its monthly billing statement for that same corresponding month, depending on the MARS Payment tier the dual access client qualified for in that month on NOM.\8\ If the dual access client qualified for NOM MARS Payment Tier 2, which requires ADV of 5,000 Eligible Contracts, the dual access client would receive a credit of $22,000 on its EA bill for the corresponding month. If the dual access client qualified for NOM MARS Payment Tier 3, which requires ADV of 10,000 Eligible Contracts, the dual access client would receive a credit of $40,000 on its EA bill for the corresponding month.\9\ These rebates are the same rebates that any qualifying NOM Participant would receive for transacting Eligible Contracts. --------------------------------------------------------------------------- \8\ This credit will not be paid by NOM, but by EA. The credit is not transferable and will offset transaction fees. \9\ The Exchange would request that the dual access client consent to certain information sharing for purposes of providing information related to the credit. --------------------------------------------------------------------------- By way of example, if the dual access client, who has System Eligibility, transacts ADV of 7,000 Eligible Contracts on NOM during the month of August 2016, the dual access client would be credited $22,000 on its EA August 2016 monthly statement because the dual access client qualified for NOM MARS Payment Tier 2. As provided in NOM's fee schedule, the dual access client would also be paid a $0.09 per contract rebate for all Eligible Contracts transacted on NOM during the month of August 2016. This rebate would be the same rebate paid to any qualifying NOM Participant. The NOM Participant would receive the MARS rebate on its NOM August 2016 monthly billing statement. The Exchange would offer the credit to dual access clients as of November 1, 2016, if approved by the SEC. 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act,\10\ in general, and furthers the objectives of sections 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 its members and issuers and other persons using its facilities, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \10\ 15 U.S.C. 78f(b). \11\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- 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.'' \12\ --------------------------------------------------------------------------- \12\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting Release''). --------------------------------------------------------------------------- Likewise, in NetCoalition v. Securities and Exchange Commission \13\ (``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.\14\ 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.'' \15\ --------------------------------------------------------------------------- \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \14\ See NetCoalition, at 534-535. \15\ Id. at 537. --------------------------------------------------------------------------- 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'. . . .'' \16\ 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. --------------------------------------------------------------------------- \16\ Id. at 539 (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)). --------------------------------------------------------------------------- EA Credit Proposal Nasdaq, Inc., the parent company of NOM and EA, has various affiliates that offer services to firms conducting a securities business. In the U.S., Nasdaq has six options exchanges and three equities exchanges along with EA and a routing broker-dealer.\17\ Firms have overlapping memberships at various Nasdaq entities. Any firm may register to become a member of The NASDAQ Stock Market LLC and transact business on NOM. There are various NOM members that are members of other options exchanges and transact business on other platforms such as eSpeed. Today, NOM does not offer a U.S. Treasury securities product. EA and [[Page 62214]] NOM offer different services to firms, such as banking institutions seeking to establish securities positions and hedge their portfolios. --------------------------------------------------------------------------- \17\ Nasdaq, Inc. owns and operates, among other entities, Nasdaq, NASDAQ PHLX, LLC, NASDAQ BX, INC., the International Securities Exchange, Inc., ISE GEMINI, LLC, ISE Mercury, LLC, EA and Nasdaq Execution Services. --------------------------------------------------------------------------- This proposal for EA to pay a credit to a dual access client is reasonable because it would attract greater liquidity to NOM for the benefit of its market participants because it would encourage NOM Participants to execute a greater number of Eligible Contracts \18\ on NOM to qualify for the higher MARS Payment tiers. Order flow benefits all market participants that have an opportunity to interact with the additional order flow. NOM Participants receive a corresponding benefit in terms of a NOM MARS Payment in return for that order flow. --------------------------------------------------------------------------- \18\ See note 6 above. --------------------------------------------------------------------------- This proposal for EA to pay a credit to a dual access client is equitable and not unfairly discriminatory because all NOM Participants are eligible to qualify for MARS Payments provided they have System Eligibility and execute the requisite number of Eligible Contracts on NOM. The Exchange uniformly pays MARS Payments to NOM Participants. Diversity in the products and services offered by Nasdaq among its affiliates enhances competition and benefits consumers. Dual access clients seeking to transact business on NOM and also on EA are eligible to receive multiple benefits with this proposal that would result in lower costs to transact business on NOM and EA. This proposal will continue to treat all NOM Participants in a similar fashion as explained in more detail below. Likewise, all EA clients will be treated uniformly. The proposal does not create a disparity in the treatment of market participants transacting business on NOM or EA. This proposal would allow dual access clients to benefit from lower costs of transacting business as a result of providing a benefit to NOM in terms of order flow. NOM will reward all NOM Participants that execute Eligible Contracts on NOM in a uniform fashion; all NOM Participants are eligible to qualify for MARS and receive rebates. The Exchange believes that this proposal serves the interests of customers, issuers, broker-dealers, and other persons using the facilities of NOM because this proposal continues to offer rebates to NOM Participants directing order flow to NOM to the benefit of all NOM Participants who then have access to the additional liquidity. The credit being paid by EA is not inconsistent with the Act in any respect. The NOM rebates and the EA credit are both reasonable for the reasons mentioned herein. The proposed EA credit should attract order flow to NOM to the benefit of NOM Participants. The Exchange's proposal continues to provide all NOM Participants an opportunity to receive rebates and therefore enables them to lower costs. The proposal does not restrict any existing rebates or increase any other fees, and therefore will not place any NOM Participants that do not qualify for the rebate in a less favorable position. In fact, to the extent that the proposal succeeds in its competitive goal of attracting more order flow to NOM, it has the potential to benefit all NOM Participants. The proposed credit to dual access clients is consistent with an equitable allocation of fees because it benefits not only NOM Participants receiving the MARS rebate, but has the potential to benefit all other NOM Participants as well. Specifically, the proposal is intended to attract a larger amount of Eligible Contracts to the Exchange. Today, NOM offers MARS Payments to encourage NOM to direct Eligible Contracts to the Exchange, and the proposal will provide an additional incentive to direct order flow to NOM. The proposed credit to dual access clients is structured as a volume-based discount. The Commission has previously accepted such volume tiers, and they have been adopted by various options exchanges. Tiers are a well-established method for drawing liquidity to an exchange by paying higher rebates to those members that direct a greater amount of order flow to the Exchange. Volume tiers in both the cash equity and options markets provide reduced pricing to the heaviest liquidity providers and liquidity takers. As with existing tiers, the higher the percentage of a market participant's executed orders on NOM, the higher the rebate. This proposal pays MARS Payments on the volume executed only on NOM, thereby targeting the benefit on the exchange. The MARS rebate is an equitable means of incentivizing dual access clients to increase the amount of Eligible contracts transacted on NOM to receive multiple benefits. The Exchange's proposal is not unfairly discriminatory. MARS Payments will continue to be paid uniformly to NOM Participants that qualify for these rebates. Any NOM Participant may qualify for MARS. Those NOM Participants that send a certain amount of Eligible Contracts today already benefit by receiving MARS rebates for those Eligible Contracts when transacted on NOM. This proposal seeks to incentivize those Participants to send more Eligible Contracts to receive not only the MARS rebate, but also another benefit associated with their participation at EA. Any firm may register to access EA to transact U.S. Treasury securities and therefore would become eligible for the credit, provided the market participant transacted the requisite Eligible Contracts on NOM. Therefore, the proposal does not discriminate among NOM Participants, but rather continues to incentivize them to execute as many Eligible Contracts as possible on NOM in order to receive the benefit of the rebate on those orders. The proposal may also incentivize NOM Participants to register to transact business on EA to enjoy even more benefits in addition to the MARS rebates they may receive on NOM if they qualify. 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. The proposed fee changes are competitive and do not impose a burden on inter-market competition. Today, other venues offer rebate programs, discounted fees and incentives for maintain routing systems.\19\ In sum, if the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does not believe that the [[Page 62215]] proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. --------------------------------------------------------------------------- \19\ See Phlx's Pricing Schedule at Section B (Customer Rebate Program) and Section IV, Part E (MARS). Also, the International Securities Exchange LLC (``ISE'') offers a lower Market Maker Taker Fee for Select Symbols of $0.44 per contract for Market Makers with total affiliated Priority Customer Complex ADV of 150,000 or more contracts. See ISE's Fee Schedule. --------------------------------------------------------------------------- EA Credit Proposal This proposal is not anti-competitive in nature. Today, NOM Participants are eligible to receive MARS Payments without being clients of EA. The proposal does not require NOM Participants to become clients of EA; rather dual access clients are simply provided another benefit for transacting volume on NOM, as NOM Participants. The proposal does not burden intra-market competition on NOM; rather, it incentivizes NOM Participants to execute as many Eligible Contracts on NOM as possible to obtain higher MARS rebates and reduce costs--an inherently pro-competitive result. NOM and EA offer firms diverse product offerings. This proposal simply encourage NOM Participants to utilize EA's services and provides them discounted costs. NOM Participants that do not become clients of EA continue to receive the same rebates as NOM Participants that are clients of EA when executing the same number of Eligible Contracts on NOM. For these reasons the Exchange does not believe that the proposal imposes a burden on competition with respect to NOM Participants. The Exchange does not believe that a NOM Participant transacting Eligible Contracts on NOM is in any worse of a position with this proposal. All NOM Participants are eligible to participate in the MARS program and receive rebates, provided they qualify for MARS. The NOM Participant that does not choose to be a client of EA is not able to take advantage of the credit in this proposal, because it has not expended the effort to become a client of EA and therefore transacted business on eSpeed, but it is free to do so at any time. Any firm may register to access EA to transact U.S. Treasury securities and therefore would become eligible for the credit, provided the market participant transacted the requisite Eligible Contracts on NOM. Fundamentally, this proposal offers market participants a price decrease, the essence of competition. There is no evidence to support a conclusion that competition would be harmed with the implementation of this proposal. The interests of all investors are furthered by the lowering of prices as a result of robust competition. NOM does not have market power with respect to U.S. Treasury securities. Therefore, offering a credit to dual access clients on EA is not anti-competitive and does not result in an undue burden on inter-market competition with respect to U.S. Treasury securities. The Exchange believes that paying the proposed MARS Payment to qualifying NOM Participants that have System eligibility and have executed the Eligible Contracts in a month does not create an undue burden on intra-market competition because the Exchange is counting all Firm, JBO, Broker-Dealer and Professional volume toward the Eligible Contracts. The increased order flow will bring increased liquidity to the Exchange for the benefit of all Exchange participants. To the extent the purpose of the proposed MARS is achieved, all the Exchange's market participants, including Professionals and Broker-Dealers, should benefit from the improved market liquidity. The Exchange believes that the proposed change would increase both inter-market and intra-market competition by providing an opportunity to lower costs on eSpeed and offering NOM Participants continued rebates, thereby lowering costs. The proposed EA credit would enable dual access clients to lower their costs of transacting on eSpeed, as well as NOM, and incent them to provide additional liquidity at the Exchange, thereby enhancing the quality of its markets and increasing the volume of contracts traded on NOM. To the extent that this purpose is achieved, all the Exchange's market participants should benefit from the improved market liquidity. With respect to inter-market competition on NOM, today there is fierce competition in options pricing. Several exchanges offer programs similar to MARS.\20\ The rebates reduce the transaction cost of doing business on NOM, which ultimately reduces the costs passed on to investors. As a result, investors would be more likely to direct order flow to NOM, which results in tighter spreads, increased trading opportunities, and an overall better functioning trading platform. Thus both the liquidity provider and the investing public would benefit from the price reduction. The rebates on NOM would also provide an incentive for other options exchanges to match the discounted prices by developing their own innovative pricing strategies or increasing the quality of their execution services. --------------------------------------------------------------------------- \20\ The Chicago Board of Options Exchange, Inc. (``CBOE'') currently offers a similar Order Routing Subsidy (``ORS'') and Complex Order Routing Subsidy (``CORS'') which, similar to the current proposal, allows CBOE members to enter into subsidy arrangements with CBOE Trading Permit Holders (``TPHs'') that provide certain order routing functionalities to other CBOE TPHs and/or use such functionalities themselves. See Securities Exchange Act Release Nos. 55629 (April 13, 2007), 72 FR 19992 (April 20, 2007) (SR-CBOE-2007-34) and 57498 (March 14, 2008), 73 FR 15018 (March 20, 2008) (SR-CBOE-2008-27). Also, NYSE MKT LLC (``NYSE MKT'') had a Market Access and Connectivity Subsidy (``MAC'') which allowed NYSE MKT members to enter into subsidy arrangements with ATP Holders that provided certain order routing functionalities to other ATP Holders and/or use such functionalities themselves. The NYSE MKT program was discontinued. See Securities Exchange Act Release Nos. 71532 (February 19, 2014), 79 FR 9563 (February 12, 2015) (SR- NYSEMKT-2014-12) and 75609 (August 11, 2015), 80 FR 48132 (August 5, 2015) (SR-NYSEMKT-2015-59). --------------------------------------------------------------------------- With respect to the intra-market burden on competition on EA, the market has very few barriers to entry. Many broker-dealers can facilitate transactions in U.S. Treasuries. EA is one of a number of broker-dealers that offers a trading platform in U.S. Treasury securities. The transaction fees are competitive and often bilaterally negotiated. Competition comes in the form of negotiation with clients over fees, which clients compare with similar fees they are charged on other similar competitive platforms. The Exchange does not believe this proposal imposes an undue burden on intra-market competition for EA because of the nature of its business model and competitive nature of its fees. With respect to the inter-market burden on competition, EA has various broker-dealer competitors. The competitive nature of pricing for EA's services vis-a-vis its competitors has led to the reduction of fees charged by EA over the last few years. The ability to negotiate pricing provides market participants with negotiating power at each venue. Furthermore, as compared to several years ago, the increased number of competitors in this space has forced pricing to be reduced on all venues, which has resulted in lower costs to participants of these venues, including EA. Introducing this credit for participants transacting business on EA, provided they transact business on NOM, will further lower costs to these participants on both venues. The Exchange believes EA's proposed pricing will not impose an undue harm on intra-market competition but rather will benefit market participants transacting business on EA by lowering costs and providing a more competitive environment to transact treasury securities. EA competitors can adjust their prices to compete with EA. There is no need for EA competitors to replicate the same proposal offered by EA. Fundamentally, the proposal is a price reduction, and therefore is consistent with achieving the benefits of the robust competition that clearly exists in this market. Forcing other [[Page 62216]] competitors to lower prices to compete with EA benefits investors. Given the robust competition for volume among options markets, many of which offer the same products, attracting order flow by offering rebates is consistent with the pro-competitive goals of the Act. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be 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 CommentsUse 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-2016-121 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-2016-121. 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-2016-121 and should be submitted on or before September 29, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\21\ --------------------------------------------------------------------------- \21\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-21492 Filed 9-7-16; 8:45 am] BILLING CODE 8011-01-P
![62212 Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices
All submissions should refer to File applicable to FTSE Developed Europe, publishing this notice to solicit
Number SR–CBOE–2016–049. This file FTSE Emerging, MSCI EAFE, and MSCI comments on the proposed rule change
number should be included on the Emerging Markets Index options; and (2) from interested persons.
subject line if email is used. To help the the maintenance listing criteria
I. Self-Regulatory Organization’s
Commission process and review your applicable to FTSE Developed Europe,
Statement of the Terms of Substance of
comments more efficiently, please use FTSE Emerging, MSCI EAFE, MSCI
the Proposed Rule Change
only one method. The Commission will Emerging Markets, FTSE 100, and FTSE
post all comments on the Commission’s China 50 Index options. The Exchange proposes related to the
Internet Web site (http://www.sec.gov/ The Commission believes that the NASDAQ Options Market LLC’s
rules/sro.shtml). Copies of the changes proposed in Amendment No. 1 (‘‘NOM’’) pricing at chapter XV, section
submission, all subsequent act to limit the scope of certain aspects 2(6).
amendments, all written statements of the original proposal, as described II. Self-Regulatory Organization’s
with respect to the proposed rule above,29 and do not raise any new Statement of the Purpose of, and
change that are filed with the substantive issues or unique regulatory Statutory Basis for, the Proposed Rule
Commission, and all written concerns not originally subjected to the Change
communications relating to the proposal’s full 21-day comment period,
proposed rule change between the during which no comments were In its filing with the Commission, the
Commission and any person, other than received. Therefore, the Commission Exchange included statements
those that may be withheld from the finds that good cause exists to approve concerning the purpose of and basis for
public in accordance with the the proposal, as modified by the proposed rule change and discussed
provisions of 5 U.S.C. 552, will be Amendment No. 1, on an accelerated any comments it received on the
available for Web site viewing and basis. proposed rule change. The text of these
printing in the Commission’s Public statements may be examined at the
Reference Room, 100 F Street, NE., VI. Conclusion places specified in Item IV below. The
Washington, DC 20549, on official It is therefore ordered, pursuant to Exchange has prepared summaries, set
business days between the hours of Section 19(b)(2) of the Act,30 that the forth in sections A, B, and C below, of
10:00 a.m. and 3:00 p.m. Copies of the proposed rule change (SR–CBOE–2016– the most significant aspects of such
filing also will be available for 049), as modified by Amendment No. 1, statements.
inspection and copying at the principal be, and hereby is, approved on an A. Self-Regulatory Organization’s
office of the Exchange. All comments accelerated basis. Statement of the Purpose of, and
received will be posted without change; For the Commission, by the Division of Statutory Basis for, the Proposed Rule
the Commission does not edit personal Trading and Markets, pursuant to delegated Change
identifying information from authority.31
submissions. You should submit only Brent J. Fields, 1. Purpose
information that you wish to make Secretary. The Exchange proposes to file to
available publicly. All submissions [FR Doc. 2016–21643 Filed 9–7–16; 8:45 am] provide notice that Execution Access,
should refer to File Number SR–CBOE– LLC 3 will offer a credit to its clients
BILLING CODE 8011–01–P
2016–049 and should be submitted on authorized to transact business at EA,
or before September 29, 2016. provided those clients, who are also
V. Accelerated Approval of Proposed SECURITIES AND EXCHANGE NOM Participants (‘‘dual access
Rule Change, as Modified by COMMISSION client’’), qualify for one of the two
Amendment No. 1 highest Market Access and Routing
[Release No. 34–78749; File No. SR–
NASDAQ–2016–121] Subsidy or ‘‘MARS’’ Payment tiers
The Commission finds good cause,
available on NOM. The NOM
pursuant to Section 19(b)(2) of the
Self-Regulatory Organizations; The Participant must qualify for the MARS
Act,27 for approving the proposed rule
Nasdaq Stock Market LLC; Notice of Payment tier in order for the dual access
change, as modified by Amendment No.
Filing of Proposed Rule Change client to receive a credit on EA. The
1, prior to the 30th day after the date of
Related to the NASDAQ Options dual access client may be an affiliate
publication of notice of Amendment No.
Market LLC’s Pricing at Chapter XV, entity of the NOM Participant at EA.4
1 in the Federal Register. As noted
above, the Commission previously Section 2(6) The qualification and credit are
approved the listing and trading of explained further below.5 The purpose
September 1, 2016.
options on the MSCI EAFE Index and Pursuant to section 19(b)(1) of the 3 Execution Access, LLC (‘‘EA’’) is a broker-dealer
the MSCI Emerging Markets Index on Securities Exchange Act of 1934 that operates a fully electronic central limit order
the Exchange,28 and the current (‘‘Act’’),1 and Rule 19b–4 thereunder,2 book known as eSpeed. EA facilitates the matching
proposal is substantially similar to the of client orders in U.S. Treasury securities.
notice is hereby given that on August 4 Affiliates would include other legal entities
rules applicable to MSCI EAFE and 29, 2016, The Nasdaq Stock Market LLC under common control.
MSCI Emerging Markets Index options (‘‘Exchange’’) filed with the Securities 5 Nasdaq believes that EA is not a ‘‘facility’’ of the
that were approved by the Commission. and Exchange Commission (‘‘SEC’’ or Exchange. 15 U.S.C. 78c(a)(2). The Act defines
The original proposal was subject to a ‘‘Commission’’) the proposed rule ‘‘facility’’ to include an exchange’s ‘‘premises,
full 21-day comment period and no tangible or intangible property whether on the
change as described in Items I and II premises or not, any right to the use of such
mstockstill on DSK3G9T082PROD with NOTICES
comments were received on the below, which Items have been prepared premises or property or any service thereof for the
proposal. In Amendment No. 1, the by the Exchange. The Commission is purpose of effecting or reporting a transaction on an
Exchange proposed changes to limit the exchange (including, among other things, any
scope of its original proposal with 29 See system of communication to or from the exchange,
supra note 5.
by ticker or otherwise, maintained by or with the
respect to (1) the CSA requirements 30 15 U.S.C. 78s(b)(2). consent of the exchange), and any right of the
31 17 CFR 200.30–3(a)(12).
exchange to the use of any property or service.’’ EA
27 15 U.S.C. 78s(b)(2). 1 15 U.S.C. 78s(b)(1).
is a distinct entity that is separate from NOM and
28 See supra note 22. 2 17 CFR 240.19b–4. engages in a discrete line of business that is not ‘‘for
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![Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices 62213
of this proposal is to lower prices to for NOM MARS Payment Tier 2, which promoting market competition in its
transact U.S. Treasury securities on EA requires ADV of 5,000 Eligible broader forms that are most important to
in response to competitive forces in the Contracts, the dual access client would investors and listed companies.’’ 12
treasury markets and increase trading on receive a credit of $22,000 on its EA bill Likewise, in NetCoalition v. Securities
NOM. for the corresponding month. If the dual and Exchange Commission 13
access client qualified for NOM MARS (‘‘NetCoalition’’) the D.C. Circuit upheld
MARS Program
Payment Tier 3, which requires ADV of the Commission’s use of a market-based
The Exchange currently offers MARS 10,000 Eligible Contracts, the dual approach in evaluating the fairness of
Payments to qualifying NOM access client would receive a credit of market data fees against a challenge
Participants in chapter XV, section 2(6). $40,000 on its EA bill for the claiming that Congress mandated a cost-
NOM Participants that have System corresponding month.9 These rebates based approach.14 As the court
Eligibility 6 and have executed the are the same rebates that any qualifying emphasized, the Commission ‘‘intended
requisite number of Eligible Contracts 7 NOM Participant would receive for in Regulation NMS that ‘market forces,
in a month are paid rebates based on transacting Eligible Contracts. rather than regulatory requirements’
average daily volume (‘‘ADV’’) in a By way of example, if the dual access play a role in determining the market
month. Today, MARS Payments are client, who has System Eligibility, data . . . to be made available to
currently based on a 3 tier rebate based transacts ADV of 7,000 Eligible investors and at what cost.’’ 15
on ADV. The Exchange pays a MARS Contracts on NOM during the month of Further, ‘‘[n]o one disputes that
Payment of $0.07 for ADV of 2,500 August 2016, the dual access client competition for order flow is ‘fierce.’
Eligible Contracts. The Exchange pays a would be credited $22,000 on its EA . . . As the SEC explained, ‘[i]n the U.S.
MARS Payment of $0.09 for ADV of August 2016 monthly statement because national market system, buyers and
5,000 Eligible Contracts. Finally, the the dual access client qualified for NOM sellers of securities, and the broker-
Exchange pays a MARS Payment of MARS Payment Tier 2. As provided in dealers that act as their order-routing
$0.11 for ADV of 10,000 Eligible NOM’s fee schedule, the dual access agents, have a wide range of choices of
Contracts. The Exchange pays a MARS client would also be paid a $0.09 per where to route orders for execution’;
Payment on all executed Eligible contract rebate for all Eligible Contracts [and] ‘no exchange can afford to take its
Contracts that add liquidity, which are transacted on NOM during the month of market share percentages for granted’
routed to NOM through a participating August 2016. This rebate would be the because ‘no exchange possesses a
NOM Participant’s System and meet the same rebate paid to any qualifying NOM monopoly, regulatory or otherwise, in
requisite Eligible Contracts ADV. Participant. The NOM Participant the execution of order flow from broker
EA Credit Proposal would receive the MARS rebate on its dealers’. . . .’’ 16 Although the court
NOM August 2016 monthly billing and the SEC were discussing the cash
Provided a dual access client qualifies statement.
for NOM’s MARS Payment Tier 2 or 3 equities markets, the Exchange believes
The Exchange would offer the credit that these views apply with equal force
in a given month, EA will credit the to dual access clients as of November 1,
dual access client or its affiliate a to the options markets.
2016, if approved by the SEC.
specific dollar amount on its monthly EA Credit Proposal
billing statement for that same 2. Statutory Basis
Nasdaq, Inc., the parent company of
corresponding month, depending on the The Exchange believes that its NOM and EA, has various affiliates that
MARS Payment tier the dual access proposal is consistent with section 6(b)
offer services to firms conducting a
client qualified for in that month on of the Act,10 in general, and furthers the
securities business. In the U.S., Nasdaq
NOM.8 If the dual access client qualified objectives of sections 6(b)(4) and 6(b)(5)
has six options exchanges and three
of the Act,11 in particular, in that it
equities exchanges along with EA and a
the purpose of effecting or reporting a transaction’’ provides for the equitable allocation of
on an exchange. routing broker-dealer.17 Firms have
reasonable dues, fees and other charges
6 To qualify for MARS, a Participant’s routing overlapping memberships at various
among its members and issuers and
system (‘‘System’’) is required to: (1) Enable the Nasdaq entities. Any firm may register
electronic routing of orders to all of the U.S. options other persons using its facilities, and is
to become a member of The NASDAQ
exchanges, including NOM; (2) provide current not designed to permit unfair
consolidated market data from the U.S. options Stock Market LLC and transact business
discrimination between customers,
exchanges; and (3) be capable of interfacing with on NOM. There are various NOM
issuers, brokers, or dealers.
NOM’s API to access current NOM match engine
The Commission and the courts have members that are members of other
functionality. Further, the Participant’s System options exchanges and transact business
would also need to cause NOM to be the one of the repeatedly expressed their preference
top three default destination exchanges for for competition over regulatory on other platforms such as eSpeed.
individually executed marketable orders if NOM is intervention in determining prices, Today, NOM does not offer a U.S.
at the national best bid or offer (‘‘NBBO’’), Treasury securities product. EA and
regardless of size or time, but allow any user to products, and services in the securities
manually override NOM as a default destination on markets. In Regulation NMS, while 12 Securities Exchange Act Release No. 51808
an order-by-order basis. Any NOM Participant adopting a series of steps to improve the (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
would be permitted to avail itself of this current market model, the Commission
arrangement, provided that its order routing (‘‘Regulation NMS Adopting Release’’).
functionality incorporates the features described highlighted the importance of market 13 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
above and satisfies NOM that it appears to be robust forces in determining prices and SRO 2010).
14 See NetCoalition, at 534–535.
and reliable. The Participant remains solely revenues and, also, recognized that
responsible for implementing and operating its 15 Id. at 537.
current regulation of the market system
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System. See Chapter XV, Section 2(6). 16 Id. at 539 (quoting Securities Exchange Act
7 MARS Eligible Contracts include electronic
‘‘has been remarkably successful in Release No. 59039 (December 2, 2008), 73 FR
Firm, Non-NOM Market Maker, Broker-Dealer or 74770, 74782–83 (December 9, 2008) (SR–
9 The Exchange would request that the dual
Joint Back Office orders that add liquidity, NYSEArca–2006–21)).
excluding Mini Options. See Chapter XV, Section access client consent to certain information sharing 17 Nasdaq, Inc. owns and operates, among other
2(6). for purposes of providing information related to the entities, Nasdaq, NASDAQ PHLX, LLC, NASDAQ
8 This credit will not be paid by NOM, but by EA. credit. BX, INC., the International Securities Exchange,
10 15 U.S.C. 78f(b).
The credit is not transferable and will offset Inc., ISE GEMINI, LLC, ISE Mercury, LLC, EA and
transaction fees. 11 15 U.S.C. 78f(b)(4) and (5). Nasdaq Execution Services.
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![62216 Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices
competitors to lower prices to compete change that are filed with the Commission is publishing this notice to
with EA benefits investors. Commission, and all written solicit comments on the proposed rule
Given the robust competition for communications relating to the change from interested persons.
volume among options markets, many of proposed rule change between the
I. Self-Regulatory Organization’s
which offer the same products, Commission and any person, other than
Statement of the Terms of the Substance
attracting order flow by offering rebates those that may be withheld from the
of the Proposed Rule Change
is consistent with the pro-competitive public in accordance with the
goals of the Act. provisions of 5 U.S.C. 552, will be The Exchange proposes to amend the
available for Web site viewing and NYSE MKT Equities Price List (‘‘Price
C. Self-Regulatory Organization’s List’’) and the NYSE Amex Options Fee
printing in the Commission’s Public
Statement on Comments on the Reference Room, 100 F Street NE., Schedule (‘‘Fee Schedule’’) to amend
Proposed Rule Change Received From Washington, DC 20549, on official the date that two wireless connections
Members, Participants, or Others business days between the hours of to third party data feeds are expected to
No written comments were either 10:00 a.m. and 3:00 p.m. Copies of the be available. The proposed change is
solicited or received. filing also will be available for available on the Exchange’s Web site at
inspection and copying at the principal www.nyse.com, at the principal office of
III. Date of Effectiveness of the the Exchange, and at the Commission’s
office of the Exchange. All comments
Proposed Rule Change and Timing for Public Reference Room.
received will be posted without change;
Commission Action
the Commission does not edit personal II. Self-Regulatory Organization’s
Within 45 days of the date of identifying information from
publication of this notice in the Federal Statement of the Purpose of, and
submissions. You should submit only Statutory Basis for, the Proposed Rule
Register or within such longer period information that you wish to make
up to 90 days (i) as the Commission may Change
available publicly. All submissions
designate if it finds such longer period should refer to File Number SR– In its filing with the Commission, the
to be appropriate and publishes its NASDAQ–2016–121 and should be self-regulatory organization included
reasons for so finding or (ii) as to which submitted on or before September 29, statements concerning the purpose of,
the self-regulatory organization 2016. and basis for, the proposed rule change
consents, the Commission will: and discussed any comments it received
For the Commission, by the Division of
(a) By order approve or disapprove Trading and Markets, pursuant to delegated on the proposed rule change. The text
such proposed rule change, or authority.21 of those statements may be examined at
(b) institute proceedings to determine Robert W. Errett, the places specified in Item IV below.
whether the proposed rule change Deputy Secretary. The Exchange has prepared summaries,
should be disapproved. set forth in sections A, B, and C below,
[FR Doc. 2016–21492 Filed 9–7–16; 8:45 am]
of the most significant parts of such
IV. Solicitation of Comments BILLING CODE 8011–01–P
statements.
Interested persons are invited to
submit written data, views, and A. Self-Regulatory Organization’s
SECURITIES AND EXCHANGE Statement of the Purpose of, and
arguments concerning the foregoing,
COMMISSION Statutory Basis for, the Proposed Rule
including whether the proposed rule
change is consistent with the Act. [Release No. 34–78751; File No. SR– Change
Comments may be submitted by any of NYSEMKT–2016–82] 1. Purpose
the following methods: The Exchange proposes to amend the
Self-Regulatory Organizations; NYSE
Electronic Comments MKT LLC; Notice of Filing and Price List and Fee Schedule to amend
• Use the Commission’s Internet Immediate Effectiveness of Proposed the date that two wireless connections
comment form (http://www.sec.gov/ Change Amending the NYSE MKT to third party data feeds are expected to
rules/sro.shtml); or Equities Price List and the NYSE Amex be available.
The Exchange’s co-location 4 services
• Send an email to rule-comments@ Options Fee Schedule To Amend the
sec.gov. Please include File Number SR– Date That Two Wireless Connections include the means for Users 5 to receive
NASDAQ–2016–121 on the subject line. to Third Party Data Feeds Are
4 The Exchange initially filed rule changes
Expected To Be Available
Paper Comments relating to its co-location services with the
September 1, 2016. Securities and Exchange Commission
• Send paper comments in triplicate (‘‘Commission’’) in 2010. See Securities Exchange
Pursuant to section 19(b)(1) 1 of the Act Release No. 62961 (September 21, 2010), 75 FR
to Secretary, Securities and Exchange
Securities Exchange Act of 1934 (the 59299 (September 27, 2010) (SR–NYSEAmex–2010–
Commission, 100 F Street NE.,
‘‘Act’’) 2 and Rule 19b–4 thereunder,3 80). The Exchange operates a data center in
Washington, DC 20549–1090. Mahwah, New Jersey (the ‘‘data center’’) from
notice is hereby given that, on August
All submissions should refer to File 24, 2016, NYSE MKT LLC (the
which it provides co-location services to Users.
5 For purposes of the Exchange’s co-location
Number SR–NASDAQ–2016–121. This ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with services, a ‘‘User’’ means any market participant
file number should be included on the the Securities and Exchange that requests to receive co-location services directly
subject line if email is used. To help the Commission (the ‘‘Commission’’) the from the Exchange. See Securities Exchange Act
Commission process and review your proposed rule change as described in Release No. 76009 (September 29, 2015), 80 FR
comments more efficiently, please use 60213 (October 5, 2015) (SR–NYSEMKT–2015–67).
mstockstill on DSK3G9T082PROD with NOTICES
Items I, II, and III below, which Items As specified in the Price List and Fee Schedule, a
only one method. The Commission will have been prepared by the self- User that incurs co-location fees for a particular co-
post all comments on the Commission’s regulatory organization. The location service pursuant thereto would not be
Internet Web site (http://www.sec.gov/ subject to co-location fees for the same co-location
rules/sro.shtml). Copies of the 21 17
service charged by the Exchange’s affiliates New
CFR 200.30–3(a)(12). York Stock Exchange LLC (‘‘NYSE LLC’’) and NYSE
submission, all subsequent 1 15 U.S.C. 78s(b)(1). Arca, Inc. (‘‘NYSE Arca’’). See Securities Exchange
amendments, all written statements 2 15 U.S.C. 78a.
Act Release No. 70176 (August 13, 2013), 78 FR
with respect to the proposed rule 3 17 CFR 240.19b–4. 50471 (August 19, 2013) (SR–NYSEMKT–2013–67).
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Document Created: 2018-02-09 13:12:25
Document Modified: 2018-02-09 13:12:25
| 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 62212 |
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