83 FR 40803 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing at Chapter XV, Section 2 Entitled “Nasdaq Options Market-Fees and Rebates”

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 159 (August 16, 2018)

[Federal Register Volume 83, Number 159 (Thursday, August 16, 2018)]
[Notices]
[Pages 40803-40805]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-17635]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83824; File No. SR-NASDAQ-2018-063]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Pricing at Chapter XV, Section 2 Entitled ``Nasdaq 
Options Market--Fees and Rebates''

August 10, 2018.
    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 July 31, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's pricing at Chapter 
XV, Section 2 entitled ``Nasdaq Options Market--Fees and Rebates,'' 
which governs pricing for Nasdaq Participants using The Nasdaq Options 
Market LLC (``NOM''), Nasdaq's facility for executing and routing 
standardized equity and index options. The Exchange proposes to amend 
an incentive offered today related to its subsidy program, the Market 
Access and Routing Subsidy or ``MARS.''
    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on August 1, 
2018.
    The text of the proposed rule change is available on the Exchange's 
website 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 Exchange's pricing at Chapter XV, Section 
2 entitled ``Nasdaq Options Market--Fees and Rebates.'' Specifically, 
the Exchange proposes to amend an incentive in note ``d'' offered to 
NOM Participants that qualify for any MARS Payment Tier in Chapter XV, 
Section 2(6) related to the MARS subsidy program. MARS pays a subsidy 
to NOM Participants that provide certain order routing functionalities 
to other NOM Participants and/or use such functionalities 
themselves.\3\
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    \3\ 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 the proposed 
amendment to 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. The order routing 
functionalities permit NOM Participants 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.
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Background on MARS
    Today, to qualify for MARS, a NOM Participant's routing system 
(hereinafter ``System'') is required to meet certain criteria.\4\
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    \4\ 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 Participant's System would also need to cause NOM 
to be one of the top three default destination exchanges for (a) 
individually executed marketable orders if NOM is at the national 
best bid or offer (``NBBO''), regardless of size or time, or (b) 
orders that establish a new NBBO on NOM's Order Book, but allow any 
user to manually override NOM as a default destination on an order-
by-order basis. Any NOM Participant is permitted to avail itself of 
this arrangement, provided that its order routing functionality 
incorporates the features described herein and the Participant 
satisfies NOM that it appears to be robust and reliable. 
Participants remain solely responsible for implementing and 
operating its System.
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    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.\5\ Today, NOM Participants that have System Eligibility and have 
executed the requisite number of Eligible Contracts in a month will be 
paid the following rebates: \6\
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    \5\ 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.
    \6\ The specified MARS Payments are 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 payments are made with respect 
to orders that are routed to NOM, but not executed. Also, a 
Participant is not entitled to receive any other revenue from the 
Exchange for the use of its System specifically with respect to 
orders routed to NOM.

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                                                                   Average Daily
                              Tiers                                   Volume       MARS  payment   MARS  payment
                                                                     (``ADV'')        (penny)       (non-penny)
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1...............................................................           2,000           $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
5...............................................................          45,000            0.17            0.60
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[[Page 40804]]

    NOM Participants that qualify for Customer \7\ and Professional \8\ 
Penny Pilot Options Rebate to Add Liquidity Tier 6 will receive an 
extra $0.09 per contract rebate in addition to any MARS Payment tier on 
MARS Eligible Contracts the NOM Participant qualifies for in a given 
month.
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    \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. See Chapter XV.
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Incentive
    Today, the Exchange pays certain Customer and Professional Penny 
Pilot Options Rebates to Add Liquidity. These rebates are structured as 
a 6 tier rebate program ranging from $0.20 to $0.48 per contract, with 
increasing volume requirements for each tier. In addition to the 
Customer and Professional Penny Pilot Options Rebates to Add Liquidity, 
the NOM Participant may also qualify for an additional rebate provided 
the NOM Participant qualifies for any MARS Payment Tier for each 
transaction which adds liquidity in Penny Pilot Options in that month. 
Further, the Exchange pays an additional $0.04 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 Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity Tiers 1-6.\9\ Also, today, NOM 
Participants that qualify for a note ``c'' incentive receive the 
greater of the note ``c'' or note ``d'' incentive.\10\
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    \9\ See Chapter XV, Section 2(1), note ``d.''
    \10\ The note ``c'' incentive can be found at Chapter XV, 
Section 2(1) and provides additional incentives to NOM Participants 
that qualify for the Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity Tier 6 in addition to meeting 
certain criteria specified in note ``c''.
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    The Exchange now proposes to amend note ``d'' to increase the 
additional $0.04 per contract Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity currently offered to NOM 
Participants that qualify for any MARS Payment Tier in addition to 
qualifying for Customer and/or Professional Rebate to Add Liquidity 
Tier 1 to $0.05 per contract for each transaction which adds liquidity 
in Penny Pilot Options in that month. For those NOM Participants that 
qualify for Customer and/or Professional Rebate to Add Liquidity Tiers 
2-6, the Exchange will continue to provide the additional $0.04 per 
contract rebate for each transaction that adds liquidity in Penny Pilot 
Options in that month, provided the NOM Participant also qualifies for 
any MARS Payment Tier.
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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes it is reasonable to amend note ``d'' in 
Chapter XV, Section 2(1) to increase the additional $0.04 per contract 
rebate for NOM Participants qualifying for Penny Pilot Options Customer 
and/or Professional Rebate to Add Liquidity Tier 1 in addition to 
qualifying for any MARS Payment tier to $0.05 per contract for each 
transaction that adds liquidity in Penny Pilot Options for that month. 
The proposed amendment should continue to encourage NOM Participants to 
qualify for the Penny Pilot Options Customer and/or Professional Rebate 
to Add Liquidity Tier 1 in addition to any MARS Payment tier, thereby 
executing a greater amount of order flow on NOM to the benefit of all 
market participants who may interact with the order flow. Furthermore, 
the proposed changes will allow the Exchange to remain competitive with 
other options exchanges that offer similar incentives.\13\
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    \13\ See MIAX PEARL Fee Schedule, Section 1(a). MIAX PEARL 
offers priority customers and non-priority customers a $0.25 per 
contract maker rebate in tier 1 for adding liquidity in penny 
classes. See Cboe BZX Options Exchange (``BZX'') Fee Schedule. BZX 
offers customers and professionals a base rebate of $0.25 per 
contract for adding liquidity in penny pilot options. Under NOM's 
proposal, NOM Participants would similarly have the opportunity to 
earn up a $0.25 per contract Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity in Tier 1 (i.e., the $0.20 per 
contract Tier 1 rebate plus the additional $0.05 note ``d'' 
incentive), provided they meet the requisite qualifications.
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    Further, the Exchange's proposal to amend the note ``d'' incentive 
as described above is equitable and not unfairly discriminatory. All 
NOM Participants are eligible to qualify for a MARS Payment, provided 
they have System Eligibility, and all NOM Participants may be eligible 
for the Penny Pilot Options Customer and/or Professional Rebate to Add 
Liquidity Tier 1 provided they execute qualifying volume. All NOM 
Participants are eligible to qualify for the note ``d'' incentive 
provided the requisite requirements are met. The Exchange would 
uniformly pay the additional note ``d'' incentive to all qualifying 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. The Exchange's proposal to 
amend the note ``d'' incentive as described above does not impose an 
undue burden on competition. 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 are eligible to qualify for the 
note ``d'' incentive provided the requisite requirements are met. The 
Exchange would uniformly pay the additional note ``d'' incentive to all 
qualifying NOM Participants. Furthermore, 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. The Exchange's proposal reflects 
this competitive environment as it will allow the Exchange remain 
competitive with other options exchanges that offer similar incentives, 
as discussed above.\14\
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    \14\ See note 13 above.
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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.\15\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may

[[Page 40805]]

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2018-063 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2018-063. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2018-063, and should be submitted 
on or before September 6, 2018.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-17635 Filed 8-15-18; 8:45 am]
BILLING CODE 8011-01-P