81 FR 79536 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Market Access and Routing Subsidy Program
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 219 (November 14, 2016)
Federal Register Volume 81, Issue 219 (November 14, 2016)
| Page Range | 79536-79540 | |
| FR Document | 2016-27235 |
[Federal Register Volume 81, Number 219 (Monday, November 14, 2016)] [Notices] [Pages 79536-79540] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-27235] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79251; File No. SR-NASDAQ-2016-149] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Market Access and Routing Subsidy Program November 7, 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 October 31, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange's transaction fees at Chapter XV, Section 2 entitled ``NASDAQ Options Market--Fees and Rebates,'' which governs pricing for Nasdaq Participants using the NASDAQ Options Market (``NOM''), Nasdaq's facility for executing and routing standardized equity and index options. The Exchange proposes to amend its subsidy program, the Market Access and Routing Subsidy or ``MARS,'' for NOM Participants that provide certain order routing functionalities \3\ to other NOM Participants and/or use such functionalities themselves. --------------------------------------------------------------------------- \3\ The order routing functionalities permit a NOM Participant to provide access and connectivity to other Participants as well as utilize such access for themselves. The Exchange notes that one NOM Participant is eligible for payments under MARS, while another NOM Participant might potentially be liable for transaction charges associated with the execution of the order, because those orders were delivered to the Exchange through a NOM Participant's connection to the Exchange and that Participant qualified for the MARS Payment. --------------------------------------------------------------------------- While changes to the Pricing Schedule pursuant to this proposal are effective upon filing, the Exchange has designated these changes to be operative on November 1, 2016. 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 NOM proposes to amend the MARS subsidy program which pays a subsidy to NOM Participants that provide certain order routing functionalities to other NOM Participants and/or use such functionalities themselves. Generally, under MARS, the Exchange pays participating NOM Participants to subsidize their costs of providing routing services to route orders to NOM. The Exchange believes that MARS will continue to attract higher volumes of electronic equity and ETF options volume to the Exchange from non-NOM [[Page 79537]] Participants as well as NOM Participants. The Exchange proposes to amend Chapter XV, Section 2(6) to: (1) Provide another method to qualify for MARS System Eligibility; (2) expand the MARS Payment tiers; and (3) make clarifying changes to the rule text. Amendment to MARS System Eligibility Today, to qualify for MARS, a NOM Participant's routing system (hereinafter ``System'') is required to meet certain criteria. Specifically the Participant's 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. The NOM Participant's System would also need to cause NOM to be 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 the default destination on an order-by-order basis. The Exchange requires NOM Participants desiring to participate in MARS \4\ to complete a form, in a manner prescribed by the Exchange, and reaffirm their information on a quarterly basis to the Exchange. Any NOM Participant is permitted to apply for MARS, provided the above- referenced requirements are met, including a robust and reliable System. The Participant is solely responsible for implementing and operating its System. --------------------------------------------------------------------------- \4\ For example, a NOM Participant that desires to qualify for MARS in November must complete the form and submit it to the Exchange no later than the last business day of November. Such form will require the NOM Participant to identify the NOM Participant seeking the MARS Payment and must list, among other things, the connections utilized by the NOM Participant to provide Exchange access to other NOM Participants and/or itself. MARS Payments would be made one month in arrears (i.e., a MARS Payment earned for activity in November would be paid to the qualifying NOM Participant in December), as is the case with all other transactional payments and assessments made by the Exchange. --------------------------------------------------------------------------- The Exchange proposes to amend the requirements for MARS System Eligibility to continue to require the Participant's System 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. In the alternative, the Exchange proposes to permit a Participant to be eligible if the Participant's System causes NOM to be the one of the top three default destination exchanges for orders that establish a new NBBO on NOM's Order Book. The NOM Participant may become eligible for MARS System Eligibility by complying with one of the two options proposed herein. With respect to the new language, an example would be if the national best bid was 10 and national best offer was 20 and a NOM Participant bid 15 and that quote established a new NBBO on NOM's Order Book, that activity would also be considered eligible. The Exchange believes that this alternative method to qualify for MARS System Eligibility will further incentivize NOM Participants to provide liquidity at the NBBO on NOM to qualify for MARS. Amendment to MARS Payment Today, NOM Participants that have System Eligibility and have routed the requisite number of Eligible Contracts daily in a month (Average Daily Volume), which were executed on NOM, are entitled to a MARS Payment. For the purpose of qualifying for the MARS Payment, Eligible Contracts may include Firm,\5\ Non-NOM Market Maker,\6\ Broker-Dealer \7\ or Joint Back Office or ``JBO'' \8\ equity option orders that add liquidity and are electronically delivered and executed.\9\ --------------------------------------------------------------------------- \5\ The term ``Firm'' or (``F'') applies to any transaction that is identified by a Participant for clearing in the Firm range at OCC. \6\ The term ``Non-NOM Market Maker'' or (``O'') is a registered market maker on another options exchange that is not a NOM Market Maker. A Non-NOM Market Maker must append the proper Non-NOM Market Maker designation to orders routed to NOM. \7\ 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. \8\ The term ``Joint Back Office'' or ``JBO'' applies to any transaction that is identified by a Participant for clearing in the Firm range at OCC and is identified with an origin code as a JBO. A JBO will be priced the same as a Broker-Dealer as of September 1, 2014. A JBO participant is a Participant that maintains a JBO arrangement with a clearing broker-dealer (``JBO Broker'') subject to the requirements of Regulation T Section 220.7 of the Federal Reserve System as further discussed in Chapter XIII, Section 5. \9\ Eligible Contracts do not include Mini-Option orders. Mini Options are further specified in Chapter XV, Section 2(4). --------------------------------------------------------------------------- Today, the Exchange pays the following MARS Payments according to Average Daily Volume (``ADV'') \10\ submitted on NOM: --------------------------------------------------------------------------- \10\ Average Daily Volume is all Eligible Contracts daily in a month aggregating Penny and Non-Penny Pilot Options. ------------------------------------------------------------------------ Average Daily MARS Tiers Volume payment (``ADV'') ------------------------------------------------------------------------ 1.................................................. 2,500 $0.07 2.................................................. 5,000 0.09 3.................................................. 10,000 0.11 ------------------------------------------------------------------------ Also, NOM Participants that qualify for Customer and Professional Penny Pilot Options Rebate to Add Liquidity Tier 8 in Chapter XV, Section 2(1) will receive $0.09 per contract in addition to any MARS Payment tier on MARS Eligible Contracts the NOM Participant qualifies for in a given month. The specified MARS Payment is paid on all executed Eligible Contracts that add liquidity, which are routed to NOM through a participating NOM Participant's System and meet the requisite Eligible Contracts ADV. No payment will be made with respect to orders that are routed to NOM, but not executed. The Exchange proposes to add a new Tier 4 with an ADV of 20,000 contracts and pay a MARS Payment of $0.15 per contract. The Exchange also proposes to rename the aforementioned tier 4 payment along with the current tier 1 through 3 payments as MARS Payment (Penny). The three existing payment tiers, along with the aforementioned new tier 4 payment tier of $0.15 per contract would be paid for Penny Pilot Options transactions that qualify for the MARS Payment tier program. Additionally, the Exchange proposes 4 new tiers for Non-Penny Pilot Options transactions as follows: The 4 new tiers for MARS Payment (Non- Penny) shall be: Tier 1 with an ADV of 2,500 contracts would pay $0.15 per contract, tier 2 with an ADV of 5,000 contracts would pay $0.20 per contract, tier 3 with an ADV of 10,000 would pay $0.30 per contract and tier 4 with an ADV of 20,000 contracts would pay $0.50 per contract. The Exchange would continue to pay an additional $0.09 per contract in addition to any MARS Payment tier on MARS Eligible Contracts in a given month on the Non-Penny Pilot Options transactions, provided the NOM Participant qualified for the Customer and Professional Penny Pilot Options Rebate to Add Liquidity Tier 8 in Chapter XV, Section 2(1). The Exchange believes that MARS will continue to attract higher volumes of electronic equity and ETF options volume to the Exchange from non-NOM Participants as well as NOM Participants. This amendment may attract additional Non-Penny Pilot Options volume. [[Page 79538]] Clarifying Amendments Today, a Participant will not be entitled to receive any other revenue from the Exchange for the use of its System, specifically with respect to orders routed to NOM. The Exchange believes that the MARS Payment will subsidize the costs of NOM Participants in providing the routing services. The Exchange proposes to make clear that Participant will not be entitled to receive any other revenue for the use of its System from the Exchange. The Exchange believes this new rule text provides clarity. The Exchange also proposes to add a missing period into the rule text. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\11\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\12\ in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among Participants 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. --------------------------------------------------------------------------- \11\ 15 U.S.C. 78f(b). \12\ 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.'' \13\ --------------------------------------------------------------------------- \13\ 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 \14\ (``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.\15\ 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.'' \16\ --------------------------------------------------------------------------- \14\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \15\ See NetCoalition, at 534-535. \16\ 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'. . .. '' \17\ 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. --------------------------------------------------------------------------- \17\ 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)). --------------------------------------------------------------------------- Amendment to MARS System Eligibility The Exchange's proposal to amend the requirements for MARS System Eligibility to continue to permit in the alternative for a Participant to be eligible if the Participant's System causes NOM to be the one of the top three default destination exchanges for orders that establish a new NBBO on NOM's Order Book is reasonable because the amendment will continue to incentivize NOM Participants to quote at the NBBO on NOM to qualify for MARS. The Exchange believes that requiring NOM Participants to maintain their Systems according to the various requirements set forth by the Exchange in order to qualify for MARS is reasonable because the Exchange seeks to encourage market participants to send higher volumes of orders to NOM, which will contribute to the Exchange's depth of book as well as to the top of book liquidity. MARS is designed to enhance the competitiveness of the Exchange, particularly with respect to those exchanges that offer their own front-end order entry system or one they subsidize in some manner.\18\ The Exchange also notes that the Chicago Board of Options Exchange, Inc. (``CBOE'') currently offers a similar Order Routing Subsidy (``ORS''), which, similar to the current proposal, allows CBOE Participants 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.\19\ --------------------------------------------------------------------------- \18\ See, e.g., supra note 10; Securities Exchange Act Release No. 34-54121 (July 10, 2006), 71 FR 40566 (July 17, 2006) (SR-ISE- 2006-31) (describing PrecISE, which is a front-end, order entry application for trading options utilized by International Securities Exchange LLC). \19\ See CBOE's Fees Schedule. CBOE's program permits both CBOE Participants and CBOE non-Participants to be eligible for a rebate. CBOE Participants are eligible to receive exchange transaction fees on transactions that earn a non-CBOE Participant a subsidy payment. --------------------------------------------------------------------------- The Exchange's proposal to amend the requirements for MARS System Eligibility to further permit, in the alternative, for a Participant to be eligible if the Participant's System causes NOM to be the one of the top three default destination exchanges for orders that establish a new NBBO on NOM's Order Book is equitable and not unfairly discriminatory because these requirements will uniformly apply to all Participants desiring to qualify for MARS. Amendments to MARS Eligible Contracts The Exchange's proposal to add a new Tier 4 with an ADV of 20,000 contracts and pay a MARS Payment of $0.15 per contract and designate all remaining pricing as Penny Pilot Options transactions pricing and adopt new pricing for Non-Penny Pilot Options volume is reasonable because the amendments will attract higher volumes of electronic equity and ETF options volume to the Exchange, which will benefit all NOM Participants by offering greater price discovery, increased transparency, and an increased opportunity to trade on the Exchange. The expanded MARS Payments should enhance the competitiveness of the Exchange, particularly with respect to those exchanges that offer their own front-end order entry system or one they subsidize in some manner. The amendment to add Tier 4 will incentivize NOM Participants to achieve an even higher Penny Pilot Options rebate, provided the NOM Participant is eligible for MARS. Further, the tier structure will allow NOM Participants to price their services at a level that will enable them to attract order flow from market participants who would otherwise utilize an existing front-end order entry mechanism offered by the Exchange's competitors instead of incurring the cost in time and money to develop their own internal systems to be able to deliver orders directly to the Exchange's System. The Exchange's proposal to add a new Tier 4 with an ADV of 20,000 contracts and pay a MARS Payment of $0.15 per contract and designate all remaining pricing as Penny Pilot Options transactions pricing and adopt new pricing for Non-Penny Pilot Options volume is equitable and not unfairly [[Page 79539]] discriminatory because the Exchange will uniformly pay all NOM Participants the rebates specified in the proposed MARS Payment tiers provided the NOM Participant has executed the requisite number of Eligible Contracts. Moreover, the Exchange believes that the proposed MARS Payments offered by the Exchange are equitable and not unfairly discriminatory because any qualifying NOM Participant that offers market access and connectivity to the Exchange and/or utilize such functionality themselves may earn the MARS Payment for all Eligible Contracts. The Exchange's proposal to adopt new Non-Penny Pilot Options MARS Payments tiers with higher rebates as compared to the Penny Pilot Options MARS Payment tiers is reasonable because the amendments will attract higher volumes of electronic equity and ETF options volume to the Exchange, which will benefit all NOM Participants by offering greater price discovery, increased transparency, and an increased opportunity to trade on the Exchange. The expanded MARS Payments should enhance the competitiveness of the Exchange, particularly with respect to those exchanges that offer their own front-end order entry system or one they subsidize in some manner. Today the Exchange bifurcates Penny and Non-Penny Options pricing. The Exchange pays higher Non-Penny Pilot Options rebates as compared to Penny Pilot Options rebates.\20\ Penny Pilot Options are more liquid and traditionally are assessed lower fees and paid lower rebates. The Exchange believes it is reasonable to pay higher rebates for Non-Penny Pilot Options which are assessed higher transaction fees on the Exchange.\21\ --------------------------------------------------------------------------- \20\ See NOM Rules at Chapter XV, Section 2(1). \21\ Id. --------------------------------------------------------------------------- The Exchange's proposal to adopt new Non-Penny Pilot Options MARS Payments tiers with higher rebates as compared to the Penny Pilot Options MARS Payment tiers is equitable and not unfairly discriminatory because the Exchange will uniformly pay all NOM Participants the MARS Payments specified in the proposed MARS Payment tiers for Penny and Non-Penny Pilot Options provided the NOM Participant has executed the requisite number of Eligible Contracts. Clarifying Amendments The Exchange's proposal to amend the rule text to make clear that a Participant will not be entitled to receive any other revenue for the use of its System from the Exchange and add a missing period into the rule text is reasonable, equitable and not unfairly discriminatory because it will clarify existing rule text for all NOM Participants. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. In sum, if the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. Amendment to MARS System Eligibility The Exchange's proposal to amend the requirements for MARS System Eligibility to further permit, in the alternative, for a Participant to be eligible if the Participant's System causes NOM to be the one of the top three default destination exchanges for orders that establish a new NBBO on NOM's Order Book does not impose an undue burden on intra- market competition because these requirements will uniformly apply to all Participants desiring to qualify for MARS. Amendments to MARS Eligible Contracts The Exchange's proposal to add a new Tier 4 with an ADV of 20,000 contracts and pay a MARS Payment of $0.15 per contract and designate this, along with all remaining pricing as Penny Pilot Options transactions pricing and adopt new pricing for Non-Penny Pilot Options volume does not impose an undue burden on intra-market competition because the Exchange will uniformly pay all NOM Participants the rebates specified in the proposed MARS Payment tiers provided the NOM Participant has executed the requisite number of Eligible Contracts. Moreover, the Exchange believes that the proposed MARS Payments offered by the Exchange are equitable and not unfairly discriminatory because any qualifying NOM Participant that offers market access and connectivity to the Exchange and/or utilizes such functionality themselves may earn the MARS Payment for all Eligible Contracts. The Exchange's proposal to adopt new Non-Penny Pilot Options MARS Payments tiers with higher rebates as compared to the Penny Pilot Options MARS Payment tiers does not impose an undue burden on intra- market competition because the Exchange will uniformly pay all NOM Participants the MARS Payments specified in the proposed MARS Payment tiers for Penny and Non-Penny Pilot Options provided the NOM Participant has executed the requisite number of Eligible Contracts. Clarifying Amendments The Exchange's proposal to amend the rule text to make clear that a Participant will not be entitled to receive any other revenue for the use of its System from the Exchange and add a missing period into the rule text does not impose an undue burden on intra-market competition because it will clarify existing rule text for all NOM Participants. 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\ --------------------------------------------------------------------------- \22\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the [[Page 79540]] 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 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-2016-149 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-2016-149. 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-2016-149 and should be submitted on or before December 5, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\23\ --------------------------------------------------------------------------- \23\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-27235 Filed 11-10-16; 8:45 am] BILLING CODE 8011-01-P
![79536 Federal Register / Vol. 81, No. 219 / Monday, November 14, 2016 / Notices
previous filing, the Commission available for Web site viewing and Market (‘‘NOM’’), Nasdaq’s facility for
believes that waiving the 30-day printing in the Commission’s Public executing and routing standardized
operative delay17 is consistent with the Reference Room, 100 F Street NE., equity and index options. The Exchange
protection of investors and the public Washington, DC 20549, on official proposes to amend its subsidy program,
interest and designates the proposal business days between the hours of the Market Access and Routing Subsidy
operative on filing. 10:00 a.m. and 3:00 p.m. Copies of the or ‘‘MARS,’’ for NOM Participants that
At any time within 60 days of the filing also will be available for provide certain order routing
filing of the proposed rule change, the inspection and copying at the principal functionalities 3 to other NOM
Commission summarily may office of the Exchange. All comments Participants and/or use such
temporarily suspend such rule change if received will be posted without change; functionalities themselves.
it appears to the Commission that such the Commission does not edit personal While changes to the Pricing
action is necessary or appropriate in the identifying information from Schedule pursuant to this proposal are
public interest, for the protection of submissions. You should submit only effective upon filing, the Exchange has
investors, or otherwise in furtherance of information that you wish to make designated these changes to be operative
the purposes of the Act. If the available publicly. All submissions on November 1, 2016.
Commission takes such action, the should refer to File Number SR–BX– The text of the proposed rule change
Commission will institute proceedings 2016–056 and should be submitted on is available on the Exchange’s Web site
to determine whether the proposed rule or before December 5, 2016. at http://nasdaq.cchwallstreet.com, at
change should be approved or For the Commission, by the Division of the principal office of the Exchange, and
disapproved. Trading and Markets, pursuant to delegated at the Commission’s Public Reference
authority.18 Room.
IV. Solicitation of Comments
Brent J. Fields,
Interested persons are invited to II. Self-Regulatory Organization’s
Secretary.
submit written data, views and Statement of the Purpose of, and
[FR Doc. 2016–27151 Filed 11–10–16; 8:45 am]
arguments concerning the foregoing, Statutory Basis for, the Proposed Rule
BILLING CODE 8011–01–P Change
including whether the proposed rule
change is consistent with the Act. In its filing with the Commission, the
Comments may be submitted by any of SECURITIES AND EXCHANGE Exchange included statements
the following methods: COMMISSION concerning the purpose of and basis for
the proposed rule change and discussed
Electronic Comments [Release No. 34–79251; File No. SR–
NASDAQ–2016–149]
any comments it received on the
• Use the Commission’s Internet proposed rule change. The text of these
comment form (http://www.sec.gov/ Self-Regulatory Organizations; The statements may be examined at the
rules/sro.shtml); or NASDAQ Stock Market LLC; Notice of places specified in Item IV below. The
• Send an email to rule-comments@ Filing and Immediate Effectiveness of Exchange has prepared summaries, set
sec.gov. Please include File Number SR– Proposed Rule Change To Amend the forth in sections A, B, and C below, of
BX–2016–056 on the subject line. Exchange’s Market Access and the most significant aspects of such
Paper Comments Routing Subsidy Program statements.
• Send paper comments in triplicate November 7, 2016. A. Self-Regulatory Organization’s
to Secretary, Securities and Exchange Pursuant to Section 19(b)(1) of the Statement of the Purpose of, and
Commission, 100 F Street NE., Securities Exchange Act of 1934 Statutory Basis for, the Proposed Rule
Washington, DC 20549–1090. (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Change
All submissions should refer to File notice is hereby given that on October 1. Purpose
Number SR–BX–2016–056. This file 31, 2016, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed NOM proposes to amend the MARS
number should be included on the subsidy program which pays a subsidy
subject line if email is used. To help the with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’) to NOM Participants that provide
Commission process and review your certain order routing functionalities to
comments more efficiently, please use the proposed rule change as described
in Items I, II, and III, below, which Items other NOM Participants and/or use such
only one method. The Commission will functionalities themselves. Generally,
post all comments on the Commission’s have been prepared by the Exchange.
The Commission is publishing this under MARS, the Exchange pays
Internet Web site (http://www.sec.gov/ participating NOM Participants to
rules/sro.shtml). Copies of the notice to solicit comments on the
proposed rule change from interested subsidize their costs of providing
submission, all subsequent routing services to route orders to NOM.
amendments, all written statements persons.
The Exchange believes that MARS will
with respect to the proposed rule I. Self-Regulatory Organization’s continue to attract higher volumes of
change that are filed with the Statement of the Terms of Substance of electronic equity and ETF options
Commission, and all written the Proposed Rule Change volume to the Exchange from non-NOM
communications relating to the
proposed rule change between the The Exchange proposes to amend the
3 The order routing functionalities permit a NOM
Commission and any person, other than Exchange’s transaction fees at Chapter
Participant to provide access and connectivity to
mstockstill on DSK3G9T082PROD with NOTICES
those that may be withheld from the XV, Section 2 entitled ‘‘NASDAQ other Participants as well as utilize such access for
public in accordance with the Options Market—Fees and Rebates,’’ themselves. The Exchange notes that one NOM
provisions of 5 U.S.C. 552, will be which governs pricing for Nasdaq Participant is eligible for payments under MARS,
Participants using the NASDAQ Options while another NOM Participant might potentially
be liable for transaction charges associated with the
17 For purposes only of waiving the 30-day execution of the order, because those orders were
18 17 CFR 200.30–3(a)(12).
operative delay, the Commission has considered the delivered to the Exchange through a NOM
1 15 U.S.C. 78s(b)(1).
proposed rule’s impact on efficiency, competition, Participant’s connection to the Exchange and that
and capital formation. See 15 U.S.C. 78c(f). 2 17 CFR 240.19b–4. Participant qualified for the MARS Payment.
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Clarifying Amendments data . . . to be made available to other CBOE TPHs and/or use such
Today, a Participant will not be investors and at what cost.’’ 16 functionalities themselves.19
Further, ‘‘[n]o one disputes that The Exchange’s proposal to amend
entitled to receive any other revenue
competition for order flow is ‘fierce.’ the requirements for MARS System
from the Exchange for the use of its
. . . As the SEC explained, ‘[i]n the U.S. Eligibility to further permit, in the
System, specifically with respect to
national market system, buyers and alternative, for a Participant to be
orders routed to NOM. The Exchange
sellers of securities, and the broker- eligible if the Participant’s System
believes that the MARS Payment will
dealers that act as their order-routing causes NOM to be the one of the top
subsidize the costs of NOM Participants agents, have a wide range of choices of three default destination exchanges for
in providing the routing services. The where to route orders for execution’; orders that establish a new NBBO on
Exchange proposes to make clear that [and] ‘no exchange can afford to take its NOM’s Order Book is equitable and not
Participant will not be entitled to market share percentages for granted’ unfairly discriminatory because these
receive any other revenue for the use of because ‘no exchange possesses a requirements will uniformly apply to all
its System from the Exchange. The monopoly, regulatory or otherwise, in Participants desiring to qualify for
Exchange believes this new rule text the execution of order flow from broker MARS.
provides clarity. The Exchange also dealers’. . .. ’’ 17 Although the court and
proposes to add a missing period into Amendments to MARS Eligible
the SEC were discussing the cash
the rule text. Contracts
equities markets, the Exchange believes
2. Statutory Basis that these views apply with equal force The Exchange’s proposal to add a new
to the options markets. Tier 4 with an ADV of 20,000 contracts
The Exchange believes that its and pay a MARS Payment of $0.15 per
proposal is consistent with Section 6(b) Amendment to MARS System Eligibility contract and designate all remaining
of the Act,11 in general, and furthers the The Exchange’s proposal to amend pricing as Penny Pilot Options
objectives of Sections 6(b)(4) and 6(b)(5) the requirements for MARS System transactions pricing and adopt new
of the Act,12 in particular, in that it Eligibility to continue to permit in the pricing for Non-Penny Pilot Options
provides for the equitable allocation of alternative for a Participant to be volume is reasonable because the
reasonable dues, fees and other charges eligible if the Participant’s System amendments will attract higher volumes
among Participants and issuers and causes NOM to be the one of the top of electronic equity and ETF options
other persons using any facility or three default destination exchanges for volume to the Exchange, which will
system which the Exchange operates or orders that establish a new NBBO on benefit all NOM Participants by offering
controls, and is not designed to permit NOM’s Order Book is reasonable greater price discovery, increased
unfair discrimination between because the amendment will continue to transparency, and an increased
customers, issuers, brokers, or dealers. incentivize NOM Participants to quote opportunity to trade on the Exchange.
The Commission and the courts have at the NBBO on NOM to qualify for The expanded MARS Payments should
repeatedly expressed their preference MARS. The Exchange believes that enhance the competitiveness of the
for competition over regulatory requiring NOM Participants to maintain Exchange, particularly with respect to
intervention in determining prices, their Systems according to the various those exchanges that offer their own
products, and services in the securities requirements set forth by the Exchange front-end order entry system or one they
markets. In Regulation NMS, while in order to qualify for MARS is subsidize in some manner. The
adopting a series of steps to improve the reasonable because the Exchange seeks amendment to add Tier 4 will
current market model, the Commission to encourage market participants to send incentivize NOM Participants to achieve
highlighted the importance of market higher volumes of orders to NOM, an even higher Penny Pilot Options
forces in determining prices and SRO which will contribute to the Exchange’s rebate, provided the NOM Participant is
revenues and, also, recognized that depth of book as well as to the top of eligible for MARS. Further, the tier
current regulation of the market system book liquidity. MARS is designed to structure will allow NOM Participants
‘‘has been remarkably successful in enhance the competitiveness of the to price their services at a level that will
promoting market competition in its Exchange, particularly with respect to enable them to attract order flow from
broader forms that are most important to those exchanges that offer their own market participants who would
investors and listed companies.’’ 13 front-end order entry system or one they otherwise utilize an existing front-end
Likewise, in NetCoalition v. Securities subsidize in some manner.18 The order entry mechanism offered by the
and Exchange Commission 14 Exchange also notes that the Chicago Exchange’s competitors instead of
(‘‘NetCoalition’’) the D.C. Circuit upheld Board of Options Exchange, Inc. incurring the cost in time and money to
the Commission’s use of a market-based (‘‘CBOE’’) currently offers a similar develop their own internal systems to be
approach in evaluating the fairness of Order Routing Subsidy (‘‘ORS’’), which, able to deliver orders directly to the
market data fees against a challenge similar to the current proposal, allows Exchange’s System.
claiming that Congress mandated a cost- CBOE Participants to enter into subsidy The Exchange’s proposal to add a new
based approach.15 As the court arrangements with CBOE Trading Tier 4 with an ADV of 20,000 contracts
emphasized, the Commission ‘‘intended Permit Holders (‘‘TPHs’’) that provide and pay a MARS Payment of $0.15 per
in Regulation NMS that ‘market forces, certain order routing functionalities to contract and designate all remaining
rather than regulatory requirements’ pricing as Penny Pilot Options
play a role in determining the market 16 Id.at 537. transactions pricing and adopt new
17 Id.at 539 (quoting Securities Exchange Act pricing for Non-Penny Pilot Options
mstockstill on DSK3G9T082PROD with NOTICES
Release No. 59039 (December 2, 2008), 73 FR
11 15 U.S.C. 78f(b).
74770, 74782–83 (December 9, 2008) (SR– volume is equitable and not unfairly
12 15 U.S.C. 78f(b)(4) and (5). NYSEArca-2006–21)).
13 Securities Exchange Act Release No. 51808 19 See CBOE’s Fees Schedule. CBOE’s program
18 See, e.g., supra note 10; Securities Exchange
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) Act Release No. 34–54121 (July 10, 2006), 71 FR permits both CBOE Participants and CBOE non-
(‘‘Regulation NMS Adopting Release’’). 40566 (July 17, 2006) (SR–ISE–2006–31) (describing Participants to be eligible for a rebate. CBOE
14 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
PrecISE, which is a front-end, order entry Participants are eligible to receive exchange
2010). application for trading options utilized by transaction fees on transactions that earn a non-
15 See NetCoalition, at 534–535. International Securities Exchange LLC). CBOE Participant a subsidy payment.
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![79540 Federal Register / Vol. 81, No. 219 / Monday, November 14, 2016 / Notices
Commission shall institute proceedings For the Commission, by the Division of the most significant aspects of such
to determine whether the proposed rule Trading and Markets, pursuant to delegated statements.
should be approved or disapproved. authority.23
Brent J. Fields, A. Self-Regulatory Organization’s
IV. Solicitation of Comments Secretary.
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Interested persons are invited to [FR Doc. 2016–27235 Filed 11–10–16; 8:45 am]
Change
submit written data, views, and BILLING CODE 8011–01–P
arguments concerning the foregoing, 1. Purpose
including whether the proposed rule The Exchange is proposing to make a
change is consistent with the Act. SECURITIES AND EXCHANGE number of non-controversial changes
Comments may be submitted by any of COMMISSION and technical corrections to its rules.
the following methods: Specifically, these changes are all to
[Release No. 34–79253; File No. SR– correct typographical errors and delete
Electronic Comments ISEGemini–2016–13] obsolete rule text.3 The changes are
• Use the Commission’s Internet Self-Regulatory Organizations; ISE
described in more detail below.
comment form (http://www.sec.gov/ Gemini, LLC; Notice of Filing and 1. No Bid Options/Limit Price
rules/sro.shtml); or Immediate Effectiveness of Proposed Rule 713(b), which deals with priority
• Send an email to rule-comments@ Rule Change To Make a Number of of orders, provides that if the lowest
sec.gov. Please include File Number SR– Non-Controversial and Technical offer for any options contract is $0.05
NASDAQ–2016–149 on the subject line. Changes then no member shall enter a market
Paper Comments order to sell that series, and any such
November 7, 2016.
market order shall be considered a limit
• Send paper comments in triplicate Pursuant to Section 19(b)(1) of the order to sell at a price of $0.05. This
to Brent J. Fields, Secretary, Securities Securities Exchange Act of 1934 provision is intended to prevent
and Exchange Commission, 100 F Street (‘‘Act’’),1 and Rule 19b–4 thereunder,2 members from submitting market orders
NE., Washington, DC 20549–1090. notice is hereby given that on October to sell in no bid series, which could
26, 2016, ISE Gemini, LLC (‘‘ISE execute at a price of $0.00, and to
All submissions should refer to File Gemini’’ or ‘‘Exchange’’) filed with the instead convert those orders to limit
Number SR–NASDAQ–2016–149. This Securities and Exchange Commission orders with a limit price equal to the
file number should be included on the (‘‘SEC’’ or ‘‘Commission’’) the proposed minimum trading increment, i.e., $0.05
subject line if email is used. To help the rule change as described in Items I and for most option classes.4 A ‘‘no bid’’ or
Commission process and review your II below, which Items have been
comments more efficiently, please use ‘‘zero bid’’ series refers to an option
prepared by the Exchange. The
only one method. The Commission will where the bid price is $0.00. Series of
Commission is publishing this notice to
post all comments on the Commission’s options quoted no bid are usually deep
solicit comments on the proposed rule
Internet Web site (http://www.sec.gov/ out-of-the-money series that are
change from interested persons.
rules/sro.shtml). perceived as having little if any chance
I. Self-Regulatory Organization’s of expiring in-the-money. For options
Copies of the submission, all Statement of the Terms of Substance of that trade in regular nickel increments,
subsequent amendments, all written the Proposed Rule Change a best offer of $0.05 corresponds to a
statements with respect to the proposed best bid of $0.00, i.e. one minimum
rule change that are filed with the The Exchange proposes to make a
trading increment below the offer.
Commission, and all written number of non-controversial and
However, option series may be no bid
communications relating to the technical changes to its rules as
with other offer prices as well. For
proposed rule change between the described in more detail below.
example, an option class would be
Commission and any person, other than The text of the proposed rule change
considered no bid if it is quoted at $0.00
those that may be withheld from the is available on the Exchange’s Web site
(bid)–$0.15 (offer). In order to avoid
public in accordance with the at www.ise.com, at the principal office
having these orders execute at a price of
provisions of 5 U.S.C. 552, will be of the Exchange, and at the
$0.00, the Exchange proposes to clarify
available for Web site viewing and Commission’s Public Reference Room.
that Rule 713(b) applies to all option
printing in the Commission’s Public II. Self-Regulatory Organization’s classes that are quoted no bid, rather
Reference Room, 100 F Street NE., Statement of the Purpose of, and than just those option classes that have
Washington, DC 20549, on official Statutory Basis for, the Proposed Rule an offer of $0.05. Currently, options
business days between the hours of Change exchanges have in place a pilot (the
10:00 a.m. and 3:00 p.m. Copies of the ‘‘Penny Pilot’’) to quote and trade
filing also will be available for In its filing with the Commission, the
Exchange included statements options in one cent increments,
inspection and copying at the principal lowering the minimum trading
office of the Exchange. All comments concerning the purpose of and basis for
the proposed rule change and discussed increment from $0.05 in certain
received will be posted without change; symbols. The Exchange therefore
the Commission does not edit personal any comments it received on the
identifying information from proposed rule change. The text of these 3 See also Securities Exchange Act Release No.
mstockstill on DSK3G9T082PROD with NOTICES
submissions. You should submit only statements may be examined at the 73808 (December 10, 2014), 79 FR 74797 (December
information that you wish to make places specified in Item IV below. The 16, 2014) (SR–ISE–2014–54) (order approving the
available publicly. Exchange has prepared summaries, set same proposed rule changes to the International
forth in sections A, B, and C below, of Securities Exchange, LLC (‘‘ISE’’) rulebook).
All submissions should refer to File 4 Symbols not included in the Penny Pilot
Number SR–NASDAQ–2016–149 and generally trade in $0.05 increments if the options
23 17 CFR 200.30–3(a)(12). contract is trading at less than $3.00 per option, and
should be submitted on or before 1 15 U.S.C. 78s(b)(1). $0.10 increments if the options contract is trading
December 5, 2016. 2 17 CFR 240.19b–4. at $3.00 per option or higher. See Rule 710.
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Document Created: 2018-10-24 10:46:31
Document Modified: 2018-10-24 10:46:31
| 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 79536 |
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