81 FR 81206 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Transaction Fees at Chapter XV, Section 2 Entitled “NASDAQ Options Market-Fees and Rebates”
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 222 (November 17, 2016)
Federal Register Volume 81, Issue 222 (November 17, 2016)
| Page Range | 81206-81209 | |
| FR Document | 2016-27598 |
[Federal Register Volume 81, Number 222 (Thursday, November 17, 2016)] [Notices] [Pages 81206-81209] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-27598] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79288; File No. SR-NASDAQ-2016-152] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Transaction Fees at Chapter XV, Section 2 Entitled ``NASDAQ Options Market--Fees and Rebates'' November 10, 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 November 1, 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 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 expand certain existing rebates related to the Market Access and Routing Subsidy or ``MARS,'' for NOM Participants that are eligible for MARS. 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 recently filed a proposal to its MARS subsidy program,\3\ which pays a subsidy to NOM Participants that provide certain order routing functionalities to other NOM Participants and/or use such functionalities themselves.\4\ Generally, under MARS, the Exchange pays participating NOM Participants to subsidize their costs of providing routing services to route orders to NOM. At this time, the Exchange proposes to amend two rebates at Chapter XV, Section 2(1) which pay NOM Participants an additional rebate provided the NOM Participant adds or removes liquidity on NOM as specified in more detail below. The Exchange believes that these incentives would continue to attract greater liquidity to NOM, to the benefit of all market participants. --------------------------------------------------------------------------- \3\ MARS is described in Chapter XV, Section 2(6). A NOM Participant must have System Eligibility to qualify for MARS. In order to be eligible the NOM Participant's routing system must qualify under the conditions specified in Chapter XV, Section 2(6), which were amended by SR-NASDAQ-2016-149. MARS Payments are made to 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. For the purpose of qualifying for the MARS Payment, Eligible Contracts may include Firm, Non-NOM Market Maker, Broker-Dealer, or Joint Back Office or ``JBO'' equity option orders that add liquidity and are electronically delivered and executed. Eligible Contracts do not include Mini Option orders. The specified MARS Payment will be 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. \4\ See SR-NASDAQ-2016-149 (not yet published). --------------------------------------------------------------------------- Amendment to Note ``d'' Today, note ``d'' in Chapter XV, Section 2(1) provides that NOM Participants that qualify for MARS Payment Tiers 1, 2 or 3 will receive an additional $0.03 per contract Penny Pilot \5\ Options Customer and/ or Professional Rebate to Add Liquidity for each transaction which adds liquidity in Penny Pilot Options in that month, in addition to qualifying Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity Tiers 1-8. NOM Participants that qualify for a note ``c'' incentive \6\ will receive the greater of the [[Page 81207]] note ``c'' or note ``d'' incentive. The Exchange pays Customers \7\ and Professionals \8\ a Penny Pilot Options Rebate to Add Liquidity on an 8 tiered rebate schedule as described below: \5\ The Penny Pilot was established in March 2008 and was last extended in 2016. See Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and immediate effectiveness establishing Penny Pilot); and 78037 (June 10, 2016), 81 FR 39299 (June 16, 2016) (SR- NASDAQ-2016-052) (notice of filing and immediate effectiveness extending the Penny Pilot through December 31, 2016). All Penny Pilot Options listed on the Exchange can be found at http://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2016-15. \6\ The note ``c'' incentive currently provides, ``Participants that: (1) add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non- Penny Pilot Options of 1.15% or more of total industry customer equity and ETF option ADV contracts per day in a month will receive an additional $0.02 per contract Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity for each transaction which adds liquidity in Penny Pilot Options in that month; or (2) add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 1.30% or more of total industry customer equity and ETF option ADV contracts per day in a month will receive an additional $0.05 per contract Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity for each transaction which adds liquidity in Penny Pilot Options in that month; or (3) (a) add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.80% of total industry customer equity and ETF option ADV contracts per day in a month, (b) add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Non-Penny Pilot Options above 0.15% of total industry customer equity and ETF option ADV contracts per day in a month, and (c) execute greater than 0.04% of Consolidated Volume (``CV'') via Market-on-Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ Stock Market Closing Cross within a month will receive an additional $0.05 per contract Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity for each transaction which adds liquidity in Penny Pilot Options in a month. Consolidated Volume shall mean the total consolidated volume reported to all consolidated transaction reporting plans by all exchanges and trade reporting facilities during a month in equity securities, excluding executed orders with a size of less than one round lot. For purposes of calculating Consolidated Volume and the extent of an equity member's trading activity, expressed as a percentage of or ratio to Consolidated Volume, the date of the annual reconstitution of the Russell Investments Indexes shall be excluded from both total Consolidated Volume and the member's trading activity.'' \7\ The term ``Customer'' or (``C'') applies to any transaction that is identified by a Participant for clearing in the Customer range at The Options Clearing Corporation which is not for the account of broker or dealer or for the account of a ``Professional.'' See Chapter XV. \8\ The term ``Professional'' or (``P'') means any person or entity that (i) is not a broker or dealer in securities, and (ii) places more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s) pursuant to Chapter I, Section 1(a)(48). All Professional orders shall be appropriately marked by Participants. --------------------------------------------------------------------------- *** The Customer and Professional Rebate to Add Liquidity in Penny Pilot Options will be paid as noted below. To determine the applicable percentage of total industry customer equity and ETF option average daily volume, unless otherwise stated, the Participant's Penny Pilot and Non-Penny Pilot Customer and/or Professional volume that adds liquidity will be included. ------------------------------------------------------------------------ Rebate to Monthly volume add liquidity ------------------------------------------------------------------------ Tier 1--................. Participant adds Customer, $0.20 Professional, Firm, Non-NOM Market Maker and/or Broker- Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of up to 0.10% of total industry customer equity and ETF option average daily volume (``ADV'') contracts per day in a month. Tier 2--................. Participant adds Customer, 0.25 Professional, Firm, Non-NOM Market Maker and/or Broker- Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.10% to 0.20% of total industry customer equity and ETF option ADV contracts per day in a month. Tier 3--................. Participant adds Customer, 0.42 Professional, Firm, Non-NOM Market Maker and/or Broker- Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.20% to 0.30% of total industry customer equity and ETF option ADV contracts per day in a month. Tier 4--................. Participant adds Customer, 0.43 Professional, Firm, Non-NOM Market Maker and/or Broker- Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.30% to 0.40% of total industry customer equity and ETF option ADV contracts per day in a month. Tier 5--................. Participant adds Customer, 0.45 Professional, Firm, Non-NOM Market Maker and/or Broker- Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.40% to 0.75% of total industry customer equity and ETF option ADV contracts per day in a month. Tier 6--................. Participant has Total Volume of 0.45 100,000 or more contracts per day in a month, of which 25,000 or more contracts per day in a month must be Customer and/or Professional liquidity in Penny Pilot Options. Tier 7--................. Participant has Total Volume of 0.47 150,000 or more contracts per day in a month, of which 50,000 or more contracts per day in a month must be Customer and/or Professional liquidity in Penny Pilot Options. Tier 8--................. Participant adds Customer, 0.48 Professional, Firm, Non-NOM Market Maker and/or Broker- Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 0.75% or more of total industry customer equity and ETF option ADV contracts per day in a month, or Participant adds: (1) Customer and/or Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 0.25% or more of total industry customer equity and ETF option ADV contracts per day in a month, and (2) has added liquidity in all securities through one or more of its Nasdaq Market Center MPIDs that represent 1.00% or more of Consolidated Volume in a month or qualifies for MARS (defined below). ------------------------------------------------------------------------ The Exchange proposes to amend note ``d,'' to provide that NOM Participants that qualify for MARS Payment Tiers 1, 2, 3 or 4 will receive an additional $0.03 per contract in addition to any Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity Tiers they may qualify for in that month, unless the Participant qualifies for a higher note ``c'' rebate, in which case the Participants would receive the appropriate note ``c'' rebate they qualified for in that month. The Exchange recently amended its MARS Payment Tiers to add a new tier 4 rebate.\9\ The MARS Payment tiers, which are effective, are as follows: --------------------------------------------------------------------------- \9\ SR-NASDAQ-2016-149 also bifurcated the MARS Payments to pay different rebates, per tier, for Penny and Non-Penny Pilot Options. --------------------------------------------------------------------------- MARS Payment NOM Participants that have System Eligibility and have executed the requisite number of Eligible Contracts in a month will be paid the following rebates: ---------------------------------------------------------------------------------------------------------------- Average daily MARS Payment MARS Payment Tiers volume (``ADV'') (penny) (non-penny) ---------------------------------------------------------------------------------------------------------------- 1...................................................... 2,500 * $0.07 * $0.15 2...................................................... 5,000 * 0.09 * 0.20 3...................................................... 10,000 * 0.11 * 0.30 4...................................................... 20,000 * 0.15 * 0.50 ---------------------------------------------------------------------------------------------------------------- The Exchange proposes to amend note ``d'' in Chapter XV, Section 2(1) to allow all tiers in the MARS Payment to qualify a NOM Participant for the additional $0.03 per contract incentive provided the NOM Participant qualifies for one of [[Page 81208]] the Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity tiers. The Exchange believes that this proposal will continue to attract Penny Pilot and Non-Penny Pilot Options liquidity to NOM. All market participants benefit from the increased order interaction when more order flow is available on NOM. Amendment to Note ``4'' Today, note ``4'' in Chapter XV, Section 2(1) provides that NOM Participants that qualify for MARS Payment Tiers 1, 2 or 3 will be assessed a Customer or Professional Penny Pilot Options Fee for Removing Liquidity of $0.48 per contract, excluding SPY.\10\ Today, Customers and Professionals are assessed a $0.50 per contract Fee for Removing Liquidity in Penny Pilot Options. This incentive permits NOM Participants removing Customer and Professional Penny Pilot Options to lower their fee. --------------------------------------------------------------------------- \10\ A Customer or Professional that removes liquidity in SPY Options will be assessed a fee of $0.48 per contract. --------------------------------------------------------------------------- The Exchange proposes to amend note ``4,'' to provide that NOM Participants that qualify for MARS Payment Tiers 1, 2, 3 or 4 will be assessed a Customer or Professional Penny Pilot Options Fee for Removing Liquidity of $0.48 per contract, excluding SPY. As described above, the Exchange recently amended its MARS Payment Tiers to add a new tier 4 rebate.\11\ The Exchange proposes to amend note ``4'' to permit all MARS Payment tiers to qualify a NOM Participant for this incentive. The Exchange believes this amendment will incentive NOM Participants to remove more liquidity in Penny Pilot Options. --------------------------------------------------------------------------- \11\ See note 4 above. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\12\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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. --------------------------------------------------------------------------- \12\ 15 U.S.C. 78f(b). \13\ 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.'' \14\ --------------------------------------------------------------------------- \14\ 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 \15\ (``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.\16\ 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.'' \17\ --------------------------------------------------------------------------- \15\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \16\ See NetCoalition, at 534-535. \17\ 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' . . . .'' \18\ 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. --------------------------------------------------------------------------- \18\ 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 Note ``d'' The Exchange's proposal to amend note ``d'' in Chapter XV, Section 2(1) to permit any MARS Payment tier to qualify a NOM Participant for an additional $0.03 per contract Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity for each transaction which adds liquidity in Penny Pilot Options in that month, in addition to qualifying for Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity Tiers 1-8 \19\ is reasonable for the reasons which follow. The amendment will encourage NOM Participants to qualify for both a MARS Payment tier and a Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity, thereby executing a greater amount of order flow on NOM to the benefit of all market participants who may interact with the order flow. --------------------------------------------------------------------------- \19\ If the Participant qualified for a higher note ``c'' rebate, the Participant would receive the appropriate note ``c'' rebate they qualified for in that month. --------------------------------------------------------------------------- The Exchange's proposal to amend note ``d'' in Chapter XV, Section 2(1) to permit any MARS Payment tier to qualify a NOM Participant for an additional $0.03 per contract Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity for each transaction which adds liquidity in Penny Pilot Options in that month, in addition to qualifying for Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity Tiers 1-8 \20\ is equitable and not unfairly discriminatory for the reasons which follow. All NOM Participants are eligible to qualify for a MARS Payment, provided they have System Eligibility and all NOM Participants may be eligible for a Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity provided they execute qualifying volume. All NOM Participants would therefore be eligible to qualify for the note ``d'' incentive if they meet the requirements. --------------------------------------------------------------------------- \20\ Id. --------------------------------------------------------------------------- Amendment to Note``4'' The Exchange's proposal to amend note ``4'' in Chapter XV, Section 2(1) to permit NOM Participants to qualify for any MARS Payment tier and be assessed a Customer or Professional Penny Pilot Options, Fee for Removing Liquidity of $0.48 per contract, excluding SPY,\21\ is reasonable because it will encourage NOM Participants to continue to remove Customer and Professional Penny Pilot Options liquidity to lower their fee. --------------------------------------------------------------------------- \21\ A Customer or Professional that removes liquidity in SPY Options will be assessed a fee of $0.48 per contract. --------------------------------------------------------------------------- The Exchange's proposal to amend note ``4'' in Chapter XV, Section 2(1) to permit NOM Participants to qualify for any MARS Payment tier and be assessed a Customer or Professional Penny Pilot Options, Fee for Removing Liquidity of $0.48 per contract, excluding SPY, is equitable and not unfairly discriminatory because all NOM Participants are eligible to qualify for a MARS Payment, provided they have System Eligibility. All NOM Participants would therefore be eligible to qualify for the note ``4'' incentive if they meet the requirements. [[Page 81209]] 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 Note ``d'' The Exchange's proposal to amend note ``d'' in Chapter XV, Section 2(1) to permit any MARS Payment tier to qualify a NOM Participant for an additional $0.03 per contract Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity for each transaction which adds liquidity in Penny Pilot Options in that month, in addition to qualifying for Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity Tiers 1-8 \22\ does not impose an undue burden on intra-market competition. All NOM Participants are eligible to qualify for a MARS Payment, provided they have System Eligibility and all NOM Participants may receive a Penny Pilot Options Customer and/or Professional Rebate to Add Liquidity provided they execute qualifying volume. All NOM Participants would therefore be eligible to qualify for the note ``d'' incentive if they meet the requirements. --------------------------------------------------------------------------- \22\ Id. --------------------------------------------------------------------------- Amendment to Note ``4'' The Exchange's proposal to amend note ``4'' in Chapter XV, Section 2(1) to permit NOM Participants to qualify for any MARS Payment tier and be assessed a Customer or Professional Penny Pilot Options, Fee for Removing Liquidity of $0.48 per contract, excluding SPY, does not impose an undue burden on intra-market competition because all NOM Participants are eligible to qualify for a MARS Payment, provided they have System Eligibility. All NOM Participants would therefore be eligible to qualify for the note ``4'' incentive if they meet the requirements. 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.\23\ --------------------------------------------------------------------------- \23\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic 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-2016-152 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-2016-152. 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-2016-152 and should be submitted on or before December 8, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-27598 Filed 11-16-16; 8:45 am] BILLING CODE 8011-01-P
![81206 Federal Register / Vol. 81, No. 222 / Thursday, November 17, 2016 / Notices
change that are filed with the I. Self-Regulatory Organization’s provide certain order routing
Commission, and all written Statement of the Terms of Substance of functionalities to other NOM
communications relating to the the Proposed Rule Change Participants and/or use such
proposed rule change between the The Exchange proposes to amend the functionalities themselves.4 Generally,
Commission and any person, other than transaction fees at Chapter XV, Section under MARS, the Exchange pays
those that may be withheld from the 2 entitled ‘‘NASDAQ Options Market— participating NOM Participants to
public in accordance with the subsidize their costs of providing
Fees and Rebates,’’ which governs
provisions of 5 U.S.C. 552, will be routing services to route orders to NOM.
pricing for Nasdaq Participants using
available for Web site viewing and At this time, the Exchange proposes to
the NASDAQ Options Market (‘‘NOM’’),
printing in the Commission’s Public amend two rebates at Chapter XV,
Nasdaq’s facility for executing and
Reference Room, 100 F Street NE., Section 2(1) which pay NOM
routing standardized equity and index
Washington, DC 20549 on official Participants an additional rebate
options. The Exchange proposes to
business days between the hours of provided the NOM Participant adds or
expand certain existing rebates related
10:00 a.m. and 3:00 p.m. Copies of such removes liquidity on NOM as specified
to the Market Access and Routing
filing also will be available for in more detail below. The Exchange
Subsidy or ‘‘MARS,’’ for NOM
inspection and copying at the principal believes that these incentives would
Participants that are eligible for MARS.
office of the Exchange. All comments continue to attract greater liquidity to
The text of the proposed rule change
received will be posted without change; NOM, to the benefit of all market
is available on the Exchange’s Web site
the Commission does not edit personal participants.
at http://nasdaq.cchwallstreet.com, at
identifying information from the principal office of the Exchange, and Amendment to Note ‘‘d’’
submissions. You should submit only at the Commission’s Public Reference
information that you wish to make Today, note ‘‘d’’ in Chapter XV,
Room. Section 2(1) provides that NOM
available publicly. All submissions
should refer to File Number SR–BX– II. Self-Regulatory Organization’s Participants that qualify for MARS
2016–059, and should be submitted on Statement of the Purpose of, and Payment Tiers 1, 2 or 3 will receive an
or before December 8, 2016. Statutory Basis for, the Proposed Rule additional $0.03 per contract Penny
Change Pilot 5 Options Customer and/or
For the Commission, by the Division of Professional Rebate to Add Liquidity for
Trading and Markets, pursuant to delegated In its filing with the Commission, the
authority.14
each transaction which adds liquidity in
Exchange included statements Penny Pilot Options in that month, in
Brent J. Fields, concerning the purpose of and basis for addition to qualifying Penny Pilot
Secretary. the proposed rule change and discussed Options Customer and/or Professional
[FR Doc. 2016–27591 Filed 11–16–16; 8:45 am] any comments it received on the Rebate to Add Liquidity Tiers 1–8. NOM
BILLING CODE 8011–01–P proposed rule change. The text of these Participants that qualify for a note ‘‘c’’
statements may be examined at the incentive 6 will receive the greater of the
places specified in Item IV below. The
SECURITIES AND EXCHANGE Exchange has prepared summaries, set 4 See SR–NASDAQ–2016–149 (not yet
COMMISSION forth in sections A, B, and C below, of published).
the most significant aspects of such 5 The Penny Pilot was established in March 2008
[Release No. 34–79288; File No. SR– statements. and was last extended in 2016. See Securities
NASDAQ–2016–152] Exchange Act Release Nos. 57579 (March 28, 2008),
A. Self-Regulatory Organization’s 73 FR 18587 (April 4, 2008) (SR–NASDAQ–2008–
Self-Regulatory Organizations; The Statement of the Purpose of, and 026) (notice of filing and immediate effectiveness
NASDAQ Stock Market LLC; Notice of Statutory Basis for, the Proposed Rule establishing Penny Pilot); and 78037 (June 10,
Filing and Immediate Effectiveness of 2016), 81 FR 39299 (June 16, 2016) (SR–NASDAQ–
Change 2016–052) (notice of filing and immediate
Proposed Rule Change To Amend the effectiveness extending the Penny Pilot through
Transaction Fees at Chapter XV, 1. Purpose December 31, 2016). All Penny Pilot Options listed
Section 2 Entitled ‘‘NASDAQ Options NOM recently filed a proposal to its on the Exchange can be found at http://
Market—Fees and Rebates’’ www.nasdaqtrader.com/
MARS subsidy program,3 which pays a MicroNews.aspx?id=OTA2016-15.
subsidy to NOM Participants that 6 The note ‘‘c’’ incentive currently provides,
November 10, 2016.
‘‘Participants that: (1) add Customer, Professional,
Pursuant to Section 19(b)(1) of the 3 MARS is described in Chapter XV, Section 2(6). Firm, Non-NOM Market Maker and/or Broker-
Securities Exchange Act of 1934 A NOM Participant must have System Eligibility to Dealer liquidity in Penny Pilot Options and/or Non-
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 qualify for MARS. In order to be eligible the NOM Penny Pilot Options of 1.15% or more of total
notice is hereby given that on November Participant’s routing system must qualify under the industry customer equity and ETF option ADV
conditions specified in Chapter XV, Section 2(6), contracts per day in a month will receive an
1, 2016, The NASDAQ Stock Market which were amended by SR–NASDAQ–2016–149. additional $0.02 per contract Penny Pilot Options
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed MARS Payments are made to NOM Participants that Customer and/or Professional Rebate to Add
with the Securities and Exchange have System Eligibility and have routed the Liquidity for each transaction which adds liquidity
Commission (‘‘SEC’’ or ‘‘Commission’’) requisite number of Eligible Contracts daily in a in Penny Pilot Options in that month; or (2) add
month (‘‘Average Daily Volume’’), which were Customer, Professional, Firm, Non-NOM Market
the proposed rule change as described executed on NOM. For the purpose of qualifying for Maker and/or Broker-Dealer liquidity in Penny Pilot
in Items I, II, and III, below, which Items the MARS Payment, Eligible Contracts may include Options and/or Non-Penny Pilot Options of 1.30%
asabaliauskas on DSK3SPTVN1PROD with NOTICES
have been prepared by the Exchange. Firm, Non-NOM Market Maker, Broker-Dealer, or or more of total industry customer equity and ETF
The Commission is publishing this Joint Back Office or ‘‘JBO’’ equity option orders that option ADV contracts per day in a month will
add liquidity and are electronically delivered and receive an additional $0.05 per contract Penny Pilot
notice to solicit comments on the executed. Eligible Contracts do not include Mini Options Customer and/or Professional Rebate to
proposed rule change from interested Option orders. The specified MARS Payment will Add Liquidity for each transaction which adds
persons. be paid on all executed Eligible Contracts that add liquidity in Penny Pilot Options in that month; or
liquidity, which are routed to NOM through a (3) (a) add Customer, Professional, Firm, Non-NOM
participating NOM Participant’s System and meet Market Maker and/or Broker-Dealer liquidity in
14 17 CFR 200.30–3(a)(12). the requisite Eligible Contracts ADV. No payment Penny Pilot Options and/or Non-Penny Pilot
1 15 U.S.C. 78s(b)(1). will be made with respect to orders that are routed Options above 0.80% of total industry customer
2 17 CFR 240.19b–4. to NOM, but not executed. equity and ETF option ADV contracts per day in a
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![81208 Federal Register / Vol. 81, No. 222 / Thursday, November 17, 2016 / Notices
the Penny Pilot Options Customer and/ current market model, the Commission reasonable for the reasons which follow.
or Professional Rebate to Add Liquidity highlighted the importance of market The amendment will encourage NOM
tiers. The Exchange believes that this forces in determining prices and SRO Participants to qualify for both a MARS
proposal will continue to attract Penny revenues and, also, recognized that Payment tier and a Penny Pilot Options
Pilot and Non-Penny Pilot Options current regulation of the market system Customer and/or Professional Rebate to
liquidity to NOM. All market ‘‘has been remarkably successful in Add Liquidity, thereby executing a
participants benefit from the increased promoting market competition in its greater amount of order flow on NOM to
order interaction when more order flow broader forms that are most important to the benefit of all market participants
is available on NOM. investors and listed companies.’’ 14 who may interact with the order flow.
Likewise, in NetCoalition v. Securities
Amendment to Note ‘‘4’’ and Exchange Commission 15 The Exchange’s proposal to amend
Today, note ‘‘4’’ in Chapter XV, (‘‘NetCoalition’’) the D.C. Circuit upheld note ‘‘d’’ in Chapter XV, Section 2(1) to
Section 2(1) provides that NOM the Commission’s use of a market-based permit any MARS Payment tier to
Participants that qualify for MARS approach in evaluating the fairness of qualify a NOM Participant for an
Payment Tiers 1, 2 or 3 will be assessed market data fees against a challenge additional $0.03 per contract Penny
a Customer or Professional Penny Pilot claiming that Congress mandated a cost- Pilot Options Customer and/or
Options Fee for Removing Liquidity of based approach.16 As the court Professional Rebate to Add Liquidity for
$0.48 per contract, excluding SPY.10 emphasized, the Commission ‘‘intended each transaction which adds liquidity in
Today, Customers and Professionals are in Regulation NMS that ‘market forces, Penny Pilot Options in that month, in
assessed a $0.50 per contract Fee for rather than regulatory requirements’ addition to qualifying for Penny Pilot
Removing Liquidity in Penny Pilot play a role in determining the market Options Customer and/or Professional
Options. This incentive permits NOM data . . . to be made available to Rebate to Add Liquidity Tiers 1–8 20 is
Participants removing Customer and investors and at what cost.’’ 17 equitable and not unfairly
Professional Penny Pilot Options to Further, ‘‘[n]o one disputes that discriminatory for the reasons which
lower their fee. competition for order flow is ‘fierce.’ follow. All NOM Participants are
The Exchange proposes to amend note . . . As the SEC explained, ‘[i]n the U.S. eligible to qualify for a MARS Payment,
‘‘4,’’ to provide that NOM Participants national market system, buyers and provided they have System Eligibility
that qualify for MARS Payment Tiers 1, sellers of securities, and the broker- and all NOM Participants may be
2, 3 or 4 will be assessed a Customer or dealers that act as their order-routing eligible for a Penny Pilot Options
Professional Penny Pilot Options Fee for agents, have a wide range of choices of Customer and/or Professional Rebate to
Removing Liquidity of $0.48 per where to route orders for execution’; Add Liquidity provided they execute
contract, excluding SPY. As described [and] ‘no exchange can afford to take its qualifying volume. All NOM
above, the Exchange recently amended market share percentages for granted’ Participants would therefore be eligible
its MARS Payment Tiers to add a new because ‘no exchange possesses a to qualify for the note ‘‘d’’ incentive if
tier 4 rebate.11 The Exchange proposes monopoly, regulatory or otherwise, in they meet the requirements.
to amend note ‘‘4’’ to permit all MARS the execution of order flow from broker
Payment tiers to qualify a NOM dealers’ . . . .’’ 18 Although the court Amendment to Note‘‘4’’
Participant for this incentive. The and the SEC were discussing the cash
Exchange believes this amendment will The Exchange’s proposal to amend
equities markets, the Exchange believes note ‘‘4’’ in Chapter XV, Section 2(1) to
incentive NOM Participants to remove that these views apply with equal force
more liquidity in Penny Pilot Options. permit NOM Participants to qualify for
to the options markets. any MARS Payment tier and be assessed
2. Statutory Basis Amendment to Note ‘‘d’’ a Customer or Professional Penny Pilot
The Exchange believes that its Options, Fee for Removing Liquidity of
The Exchange’s proposal to amend
proposal is consistent with Section 6(b) $0.48 per contract, excluding SPY,21 is
note ‘‘d’’ in Chapter XV, Section 2(1) to
of the Act,12 in general, and furthers the permit any MARS Payment tier to reasonable because it will encourage
objectives of Sections 6(b)(4) and 6(b)(5) qualify a NOM Participant for an NOM Participants to continue to remove
of the Act,13 in particular, in that it additional $0.03 per contract Penny Customer and Professional Penny Pilot
provides for the equitable allocation of Pilot Options Customer and/or Options liquidity to lower their fee.
reasonable dues, fees and other charges Professional Rebate to Add Liquidity for The Exchange’s proposal to amend
among Participants and issuers and note ‘‘4’’ in Chapter XV, Section 2(1) to
each transaction which adds liquidity in
other persons using any facility or permit NOM Participants to qualify for
Penny Pilot Options in that month, in
system which the Exchange operates or any MARS Payment tier and be assessed
addition to qualifying for Penny Pilot
controls, and is not designed to permit a Customer or Professional Penny Pilot
Options Customer and/or Professional
unfair discrimination between
Rebate to Add Liquidity Tiers 1–8 19 is Options, Fee for Removing Liquidity of
customers, issuers, brokers, or dealers.
The Commission and the courts have $0.48 per contract, excluding SPY, is
repeatedly expressed their preference
14 Securities Exchange Act Release No. 51808 equitable and not unfairly
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) discriminatory because all NOM
for competition over regulatory (‘‘Regulation NMS Adopting Release’’).
intervention in determining prices, 15 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
Participants are eligible to qualify for a
products, and services in the securities 2010). MARS Payment, provided they have
asabaliauskas on DSK3SPTVN1PROD with NOTICES
markets. In Regulation NMS, while 16 See NetCoalition, at 534–535. System Eligibility. All NOM
adopting a series of steps to improve the
17 Id. at 537. Participants would therefore be eligible
18 Id. at 539 (quoting Securities Exchange Act
to qualify for the note ‘‘4’’ incentive if
Release No. 59039 (December 2, 2008), 73 FR they meet the requirements.
10 A Customer or Professional that removes
74770, 74782–83 (December 9, 2008) (SR–
liquidity in SPY Options will be assessed a fee of NYSEArca–2006–21)).
$0.48 per contract. 19 If the Participant qualified for a higher note ‘‘c’’ 20 Id.
11 See note 4 above.
rebate, the Participant would receive the 21 A Customer or Professional that removes
12 15 U.S.C. 78f(b).
appropriate note ‘‘c’’ rebate they qualified for in liquidity in SPY Options will be assessed a fee of
13 15 U.S.C. 78f(b)(4) and (5). that month. $0.48 per contract.
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![Federal Register / Vol. 81, No. 222 / Thursday, November 17, 2016 / Notices 81209
B. Self-Regulatory Organization’s Amendment to Note ‘‘4’’ All submissions should refer to File
Statement on Burden on Competition The Exchange’s proposal to amend Number SR–NASDAQ–2016–152. This
note ‘‘4’’ in Chapter XV, Section 2(1) to file number should be included on the
The Exchange does not believe that subject line if email is used. To help the
the proposed rule change will impose permit NOM Participants to qualify for
any MARS Payment tier and be assessed Commission process and review your
any burden on competition not
a Customer or Professional Penny Pilot comments more efficiently, please use
necessary or appropriate in furtherance
Options, Fee for Removing Liquidity of only one method. The Commission will
of the purposes of the Act. In terms of
$0.48 per contract, excluding SPY, does post all comments on the Commission’s
inter-market competition, the Exchange
not impose an undue burden on intra- Internet Web site (http://www.sec.gov/
notes that it operates in a highly
competitive market in which market market competition because all NOM rules/sro.shtml).
participants can readily favor competing Participants are eligible to qualify for a Copies of the submission, all
venues if they deem fee levels at a MARS Payment, provided they have subsequent amendments, all written
particular venue to be excessive, or System Eligibility. All NOM statements with respect to the proposed
rebate opportunities available at other Participants would therefore be eligible rule change that are filed with the
venues to be more favorable. In such an to qualify for the note ‘‘4’’ incentive if Commission, and all written
environment, the Exchange must they meet the requirements.
communications relating to the
continually adjust its fees to remain C. Self-Regulatory Organization’s proposed rule change between the
competitive with other exchanges and Statement on Comments on the Commission and any person, other than
with alternative trading systems that Proposed Rule Change Received From those that may be withheld from the
have been exempted from compliance Members, Participants, or Others public in accordance with the
with the statutory standards applicable provisions of 5 U.S.C. 552, will be
to exchanges. Because competitors are No written comments were either
solicited or received. available for Web site viewing and
free to modify their own fees in printing in the Commission’s Public
response, and because market III. Date of Effectiveness of the Reference Room, 100 F Street NE.,
participants may readily adjust their Proposed Rule Change and Timing for Washington, DC 20549, on official
order routing practices, the Exchange Commission Action business days between the hours of
believes that the degree to which fee
The foregoing rule change has become 10:00 a.m. and 3:00 p.m. Copies of the
changes in this market may impose any
effective pursuant to Section filing also will be available for
burden on competition is extremely
19(b)(3)(A)(ii) of the Act.23 inspection and copying at the principal
limited. In sum, if the changes proposed
At any time within 60 days of the office of the Exchange. All comments
herein are unattractive to market
filing of the proposed rule change, the received will be posted without change;
participants, it is likely that the
Commission summarily may the Commission does not edit personal
Exchange will lose market share as a
temporarily suspend such rule change if identifying information from
result. Accordingly, the Exchange does
it appears to the Commission that such submissions. You should submit only
not believe that the proposed changes
action is: (i) Necessary or appropriate in information that you wish to make
will impair the ability of members or
the public interest; (ii) for the protection available publicly.
competing order execution venues to
of investors; or (iii) otherwise in
maintain their competitive standing in All submissions should refer to File
furtherance of the purposes of the Act.
the financial markets. Number SR–NASDAQ–2016–152 and
If the Commission takes such action, the
Amendment to Note ‘‘d’’ Commission shall institute proceedings should be submitted on or before
to determine whether the proposed rule December 8, 2016.
The Exchange’s proposal to amend should be approved or disapproved. For the Commission, by the Division of
note ‘‘d’’ in Chapter XV, Section 2(1) to Trading and Markets, pursuant to delegated
permit any MARS Payment tier to IV. Solicitation of Comments
authority.24
qualify a NOM Participant for an Interested persons are invited to Brent J. Fields,
additional $0.03 per contract Penny submit written data, views, and
Pilot Options Customer and/or Secretary.
arguments concerning the foregoing,
Professional Rebate to Add Liquidity for including whether the proposed rule [FR Doc. 2016–27598 Filed 11–16–16; 8:45 am]
each transaction which adds liquidity in change is consistent with the Act. BILLING CODE 8011–01–P
Penny Pilot Options in that month, in Comments may be submitted by any of
addition to qualifying for Penny Pilot the following methods:
Options Customer and/or Professional
Rebate to Add Liquidity Tiers 1–8 22 Electronic Comments
does not impose an undue burden on • Use the Commission’s Internet
intra-market competition. All NOM comment form (http://www.sec.gov/
Participants are eligible to qualify for a rules/sro.shtml); or
MARS Payment, provided they have • Send an email to rule-comments@
System Eligibility and all NOM sec.gov. Please include File Number SR–
Participants may receive a Penny Pilot NASDAQ–2016–152 on the subject line.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Options Customer and/or Professional
Rebate to Add Liquidity provided they Paper Comments
execute qualifying volume. All NOM • Send paper comments in triplicate
Participants would therefore be eligible to Brent J. Fields, Secretary, Securities
to qualify for the note ‘‘d’’ incentive if and Exchange Commission, 100 F Street
they meet the requirements. NE., Washington, DC 20549–1090.
22 Id. 23 15 U.S.C. 78s(b)(3)(A)(ii). 24 17 CFR 200.30–3(a)(12).
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Document Created: 2016-11-17 02:59:40
Document Modified: 2016-11-17 02:59:40
| 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 81206 |
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