[Federal Register Volume 79, Number 230 (Monday, December 1, 2014)]
[Notices]
[Pages 71146-71150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28172]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73676; File No. SR-NASDAQ-2014-105]


Self-Regulatory Organizations; The NASDAQ Stock Market, LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rebates in Penny Pilot Options

November 24, 2014.
    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 10, 2014, 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 NASDAQ. 
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

    NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2 governing pricing for NASDAQ members using the NASDAQ 
Options Market (``NOM''), NASDAQ's facility for executing and routing 
standardized equity and index options. Specifically, NOM proposes to 
amend certain Penny Pilot Options \3\ rebates currently applicable to 
Customers,\4\ Professionals \5\ and NOM Market Makers.\6\
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    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2014. 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); 60874 (October 
23, 2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-091) 
(notice of filing and immediate effectiveness expanding and 
extending Penny Pilot); 60965 (November 9, 2009), 74 FR 59292 
(November 17, 2009) (SR-NASDAQ-2009-097) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR-NASDAQ-
2010-013) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62029 (May 4, 2010), 75 FR 
25895 (May 10, 2010) (SR-NASDAQ-2010-053) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
65969 (December 15, 2011), 76 FR 79268 (December 21, 2011) (SR-
NASDAQ-2011-169) (notice of filing and immediate effectiveness 
extension and replacement of Penny Pilot); 67325 (June 29, 2012), 77 
FR 40127 (July 6, 2012) (SR-NASDAQ-2012-075) (notice of filing and 
immediate effectiveness and extension and replacement of Penny Pilot 
through December 31, 2012); 68519 (December 21, 2012), 78 FR 136 
(January 2, 2013) (SR-NASDAQ-2012-143) (notice of filing and 
immediate effectiveness and extension and replacement of Penny Pilot 
through June 30, 2013); 69787 (June 18, 2013), 78 FR 37858 (June 24, 
2013) (SR-NASDAQ-2013-082) (notice of filing and immediate 
effectiveness and extension and replacement of Penny Pilot through 
December 31, 2013); 71105 (December 17, 2013), 78 FR 77530 (December 
23, 2013) (SR-NASDAQ-2013-154) (notice of filing and immediate 
effectiveness and extension and replacement of Penny Pilot through 
June 30, 2014); and 79 FR 31151 (May 23, 2014), 79 FR 31151 (May 30, 
2014) (SR-NASDAQ-2014-056) ((notice of filing and immediate 
effectiveness and extension and replacement of Penny Pilot through 
December 31, 2014). See also NOM Rules, Chapter VI, Section 5.
    \4\ The term ``Customer'' applies to any transaction that is 
identified by a Participant for clearing in the Customer range at 
The Options Clearing Corporation (``OCC'') which is not for the 
account of broker or dealer or for the account of a ``Professional'' 
(as that term is defined in Chapter I, Section 1(a)(48)).
    \5\ The term ``Professional'' 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.
    \6\ The term ``NOM Market Maker'' means a Participant that has 
registered as a Market Maker on NOM pursuant to Chapter VII, Section 
2, and must also remain in good standing pursuant to Chapter VII, 
Section 4. In order to receive NOM Market Maker pricing in all 
securities, the Participant must be registered as a NOM Market Maker 
in at least one security.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.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.

[[Page 71147]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2(1) governing the rebates and fees assessed for option 
orders entered into NOM. The Exchange proposes to amend certain 
qualifications related to Customer and Professional Penny Pilot Options 
Rebates to Add Liquidity tiers to offer Participants a greater 
opportunity to earn Customer and Professional rebates. The Exchange 
also proposes to modify NOM Market Maker Penny Pilot Options Rebates to 
Add Liquidity to offer additional rebate opportunities. The Exchange 
believes that additional rebate opportunities will attract additional 
order flow to the Exchange to the benefit of all market participants.
Customer and Professional Rebates To Add Liquidity
    Today, the Exchange offers tiered Penny Pilot Options Rebates to 
Add Liquidity to Customers and Professionals based on various criteria 
with rebates ranging from $0.20 to $0.48 per contract. Participants may 
qualify for Customer and Professional Penny Pilot Options Rebates to 
Add Liquidity in Tiers 1-5 and Tier 8 by adding a certain amount of 
Customer and/or Professional liquidity in Penny Pilot Options or Non-
Penny Pilot Options as specified by each tier.\7\ The Exchange is 
proposing to amend these tiers and permit Participants to add Customer, 
Professional, Firm,\8\ Non-NOM Market Maker \9\ and/or Broker-Dealer 
\10\ liquidity in Penny Pilot Options and/or Non-Penny Pilot Options in 
order to qualify for the Customer and/or Professional Penny Pilot 
Options Rebates to Add Liquidity in Tiers 1-5 and Tier 8.
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    \7\ Tiers 6 and 7 are calculated based on Total Volume. Total 
Volume is defined as Customer, Professional, Firm, Broker-Dealer, 
Non-NOM Market Maker and NOM Market Maker volume in Penny Pilot 
Options and/or Non-Penny Pilot Options which either adds or removes 
liquidity on NOM. See note ``b'' in Section 2, Chapter XV. The 
Exchange utilizes data from OCC to determine the total industry 
customer equity and ETF options ADV figure. OCC classifies equity 
and ETF options volume under the equity options category. Also, both 
customer and professional orders that are transacted on options 
exchanges clear in the customer range at OCC and therefore both 
customer and professional volume would be included in the total 
industry figure to calculate rebate tiers. This is the case today 
for the Total Volume number that appear in Tiers 6 and 7 of the 
Customer and Professional rebate today, which includes Customer and 
Professional numbers in both the numerator and denominator of that 
percentage. These tiers will remain unchanged by this proposal.
    \8\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \9\ 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
    \10\ 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.
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    Tier 1 currently offers Participants that add Customer and/or 
Professional 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 a $0.20 per 
contract rebate. The Exchange is proposing to amend Tier 1 to provide 
that Participants that add Customer, 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 would continue to receive a $0.20 per contract rebate.
    Tier 2 currently offers Participants that add Customer and/or 
Professional 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 a $0.25 per contract rebate. 
The Exchange is proposing to amend Tier 2 to provide that Participants 
that add Customer, Professional, Firm, Non-NOM Market Maker and/or 
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.10% to 0.20% of total industry customer equity and ETF 
option ADV contracts per day in a month would continue to receive a 
$0.25 per contract rebate.
    Tier 3 currently offers Participants that add Customer and/or 
Professional 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 a $0.42 per contract rebate. 
The Exchange is proposing to amend Tier 3 to provide that Participants 
that add Customer, Professional, Firm, Non-NOM Market Maker and/or 
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.20% to 0.30% of total industry customer equity and ETF 
option ADV contracts per day in a month would continue to receive a 
$0.42 per contract rebate.
    Tier 4 currently offers Participants that add Customer and/or 
Professional 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 a $0.43 per contract rebate. 
The Exchange is proposing to amend Tier 4 to provide that Participants 
that add Customer, Professional, Firm, Non-NOM Market Maker and/or 
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.30% to 0.40% of total industry customer equity and ETF 
option ADV contracts per day in a month would continue to receive a 
$0.43 per contract rebate.
    Tier 5 currently offers Participants that add Customer and/or 
Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.40% of total industry customer equity and ETF option 
ADV contracts per day in a month, or Participants that add (1) Customer 
and/or Professional liquidity in Penny Pilot Options and/or Non-Penny 
Pilot Options of 25,000 or more contracts per day in a month, (2) the 
Participant has certified for the Investor Support Program set forth in 
Rule 7014, and (3) the Participant executed at least one order on 
NASDAQ's equity market a $0.45 per contract rebate. The Exchange is 
proposing to amend Tier 5 to provide that Participants that add 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 
0.40% 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 25,000 or more contracts per day in a month, (2) the 
Participant has certified for the Investor Support Program set forth in 
Rule 7014, and (3) the Participant executed at least one order on 
NASDAQ's equity market would continue to receive a $0.45 per contract 
rebate.
    Tier 8 currently offers Participants that add Customer and/or 
Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of 0.75% or more of national customer volume in multiply-listed 
equity and ETF options classes in a month a $0.48 per contract Customer 
rebate and a $0.47 per contract Professional rebate. The Exchange is 
proposing to amend Tier 8 to provide that Participants that add 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer

[[Page 71148]]

liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 
0.75% or more of national customer volume in multiply-listed equity and 
ETF options classes in a month would continue to receive a $0.48 per 
contract Customer rebate and a $0.47 per contract Professional rebate.
    With respect to Tier 8, today, Participants that add Customer and/
or Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of 1.25% or more of national customer volume in multiply-listed 
equity and ETF options classes in a month will receive an additional 
$0.02 per contract Penny Pilot Options Tier 8 Customer Rebate to Add 
Liquidity for each transaction which adds liquidity in Penny Pilot 
Options in that month. The Exchange also proposes to amend this 
incentive by also permitting Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity to qualify for the incentive. The amended rule text 
would provide, ``Participants that add Customer, Professional, Firm, 
Non-NOM Market Maker, and/or Broker-Dealer liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options of 1.25% or more of national 
customer volume in multiply-listed equity and ETF options classes in a 
month will receive an additional $0.02 per contract Penny Pilot Options 
Customer Rebate to Add Liquidity for each transaction which adds 
liquidity in Penny Pilot Options in that month.''
NOM Market Maker Rebates To Add Liquidity
    Today, the Exchange pays NOM Market Maker Penny Pilot Options 
Rebates to Add Liquidity based on various criteria in six tiers with 
rebates which range from $0.20 to $0.42 per contract as noted below.

------------------------------------------------------------------------
                                                         Rebate to add
  Monthly  volume                                          liquidity
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Tier 1.............  Participant adds NOM Market       $0.20
                      Maker 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 NOM Market       $0.25
                      Maker liquidity in Penny Pilot
                      Options and/or Non-Penny Pilot
                      Options above 0.10% to 0.25% of
                      total industry customer equity
                      and ETF option ADV contracts
                      per day in a month.
Tier 3.............  Participant adds NOM Market       $0.30 or $0.40 in
                      Maker liquidity in Penny Pilot    the following
                      Options and/or Non-Penny Pilot    symbols QQQ, SPY
                      Options above 0.25% to 0.60% of   and VXX.
                      total industry customer equity
                      and ETF option ADV contracts
                      per day in a month.
Tier 4.............  Participant adds NOM Market       $0.32 or $0.40 in
                      Maker liquidity in Penny Pilot    the following
                      Options and/or Non-Penny Pilot    symbols QQQ, VXX
                      Options of above 0.60% to 0.90%   and SPY.
                      of total industry customer
                      equity and ETF option ADV
                      contracts per day in a month.
Tier 5.............  Participant adds NOM Market       $0.40
                      Maker liquidity in Penny Pilot
                      Options and/or Non-Penny Pilot
                      Options of above 0.30% of total
                      industry customer equity and
                      ETF option ADV contracts per
                      day in a month and qualifies
                      for the Tier 7 or Tier 8
                      Customer and/or Professional
                      Rebate to Add Liquidity in
                      Penny Pilot Options.
Tier 6.............  Participant adds NOM Market       $0.42
                      Maker 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 and qualifies
                      for the Tier 7 or Tier 8
                      Customer and/or Professional
                      Rebate to Add Liquidity in
                      Penny Pilot Options or
                      Participant adds NOM Market
                      Maker liquidity in Penny Pilot
                      Options and/or Non-Penny Pilot
                      Options above 0.90% of total
                      industry customer equity and
                      ETF option ADV contracts per
                      day in a month.
------------------------------------------------------------------------

    Today, the Tier 3 NOM Market Maker Penny Pilot Options Rebate to 
Add Liquidity pays a $0.30 per contract rebate, except in QQQ, SPY and 
VXX which pay a $0.40 per contract rebate to Participants that add NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.25% to 0.60% of total industry customer equity and ETF 
option ADV contracts per day in a month. The Exchange proposes to add 
AAPL to the list of symbols that are eligible for the Tier 3 rebate of 
$0.40 per contract. Today, the Exchange pays a Tier 3 NOM Market Maker 
Penny Pilot Options Rebate to Add Liquidity of $0.30 per contract in 
AAPL. Today, the Tier 4 NOM Market Maker Penny Pilot Options Rebate to 
Add Liquidity pays a $0.32 per contract rebate, except in QQQ, SPY and 
VXX which pay a $0.40 per contract rebate to Participants that add NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of above 0.60% to 0.90% of total industry customer equity and 
ETF option ADV contracts per day in a month. The Exchange proposes to 
add AAPL to the list of symbols that are eligible for the Tier 4 rebate 
of $0.40 per contract. Today, the Exchange pays a Tier 4 NOM Market 
Maker Penny Pilot Options Rebate to Add Liquidity of $0.32 per contract 
in AAPL. The Exchange believes that paying a higher rebate for AAPL 
transactions will encourage a greater number of transactions in AAPL.
    Today, the Tier 6 NOM Market Maker Penny Pilot Option Rebate to Add 
Liquidity pay a $0.42 per contract rebate to Participants that add NOM 
Market Maker 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 and qualifies for the Tier 7 or Tier 8 
Customer and/or Professional Rebate to Add Liquidity in Penny Pilot 
Options or Participant adds NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options above 0.90% of total industry 
customer equity and ETF option ADV contracts per day in a month. The 
Exchange is proposing to amend the Tier 6 NOM Market Maker Penny Pilot 
Options Rebate to Add Liquidity to also provide that a Participant that 
adds Customer, Professional, Firm, Non-NOM Market Maker, and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options 
of 1.40% or more of national customer volume in multiply-listed equity 
and ETF options classes in a month may also qualify for the Tier 6 
rebate of $0.42 per contract. This would provide Participants another 
method to qualify for the rebate.
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\11\ in general, and with 
Section 6(b)(4) of the Act,\12\ in particular, in that they provide

[[Page 71149]]

for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which NASDAQ operates or controls as described in detail below.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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Customer and Professional Rebates To Add Liquidity
    The Exchange's proposal to amend the Customer and Professional 
Penny Pilot Options Rebates to Add Liquidity Tiers 1-5 and Tier 8 to 
provide that Participants may qualify for those rebates by adding not 
only Customer and Professional liquidity in Penny and/or Non-Penny 
Pilot Options, as specified in each tier, but also Firm, Non-NOM Market 
Maker and Broker-Dealer liquidity in Penny and/or Non-Penny Pilot 
Options is reasonable because the Exchange believes that the addition 
of the various types of market participant liquidity will allow 
additional Participants to qualify for these rebate tiers, who may not 
qualify today, or receive higher rebates. The Exchange believes that 
offering additional types of liquidity to qualify for the Customer and 
Professional Penny Pilot Options Rebates to Add Liquidity will 
incentivize Participants to send a greater amount of order flow to NOM.
    The Exchange's proposal to amend the Customer and Professional 
Penny Pilot Options Rebates to Add Liquidity Tiers 1-5 and Tier 8 to 
provide that Participants may qualify for those rebates by adding not 
only Customer and Professional liquidity in Penny and/or Non-Penny 
Pilot Options, as specified in each tier, but also Firm, Non-NOM Market 
Maker and Broker-Dealer liquidity in Penny and/or Non-Penny Pilot 
Options is equitable and not unfairly discriminatory because the 
Exchange is permitting all types of market participant liquidity in 
Tiers 1-5 and Tier 8 of its Customer and Professional Penny Pilot 
Options rebate tiers as a means to qualify for these rebates. Further, 
all Participants may qualify to be eligible for these rebates, provided 
they transact the requisite amount of liquidity. Customer liquidity 
offers unique benefits to the market which benefits all market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts market makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
The Exchange believes that encouraging Participants to add Professional 
liquidity creates competition among options exchanges because the 
Exchange believes that the rebates may cause market participants to 
select NOM as a venue to send Professional order flow.
    The Exchange believes that with respect to Tier 8, permitting 
Participants to add Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity, in addition to Customer and Professional liquidity, to 
qualify for the additional $0.02 per contract Tier 8 incentive is 
reasonable because the Exchange believes the opportunity to calculate 
the qualification for the incentive by adding other types of market 
participant liquidity will allow additional market participants to 
qualify for the incentive. Additionally, permitting other qualifying 
volume to count towards meeting the Tier 8 incentive will incentivize 
Participants to send a greater amount of order flow to NOM.
    The Exchange believes that with respect to Tier 8, permitting 
Participants to add Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity, in addition to Customer and Professional liquidity, to 
qualify for the additional $0.02 per contract Tier 8 incentive is 
equitable and not unfairly discriminatory because all Participants are 
eligible for the Tier 8 incentive, provided they transact the requisite 
volume.
NOM Market Maker Penny Pilot Options Rebates To Add Liquidity
    The Exchange's proposal to amend the NOM Market Maker Penny Pilot 
Options Rebate to Add Liquidity Tiers 3 and 4 to increase the AAPL 
rebate from $0.30 to $0.40 per contract in Tier 3 and from $0.32 to 
$0.40 per contract in Tier 4 is reasonable because the proposal seeks 
to encourage Participants to transact a greater amount of AAPL 
liquidity in order to receive the higher rebate of $0.40 per contract. 
The Exchange believes that offering Participants NOM Market Makers the 
ability to obtain higher rebates is reasonable because it will 
encourage additional order interaction.
    The Exchange's proposal to amend the NOM Market Maker Penny Pilot 
Options Rebate to Add Liquidity Tiers 3 and 4 to increase the AAPL 
rebate from $0.30 to $0.40 per contract in Tier 3 and from $0.32 to 
$0.40 per contract in Tier 4 is equitable and not unfairly 
discriminatory because all NOM Market Makers may qualify for the Tier 3 
and Tier 4 NOM Market Maker Penny Pilot Options Rebate to Add 
Liquidity.
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to adopt different pricing for AAPL, as 
compared to other options, because pricing by symbol is a common 
practice on many U.S. options exchanges as a means to incentivize order 
flow to be sent to an exchange for execution in the most actively 
traded options classes, in this case actively traded Penny Pilot 
Options.\13\ The Exchange notes that AAPL is one of the most actively 
traded options in the U.S. The Exchange believes that this pricing will 
incentivize members to transact options on AAPL on NOM in order to 
obtain the higher $0.40 per contract rebate.
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    \13\ See NASDAQ OMX PHLX LLC's Pricing Schedule. See also the 
International Securities Exchange LLC's Fee Schedule. Both of these 
markets segment pricing by symbol.
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    The Exchange's proposal to amend the Tier 6 NOM Market Maker Penny 
Pilot Options Rebate to Add Liquidity to offer an additional method 
\14\ to qualify for the $0.42 per contract rebate is reasonable because 
additional Participants may qualify for the Tier 6 rebate if they are 
able to transact the requisite volume specified in the additional 
proposed qualification to add any type of market participant liquidity. 
The Exchange also believes that this amendment to the Tier 6 NOM Market 
Maker Penny Pilot Options Rebate to Add Liquidity will incentivize 
Participants to send a greater amount of order flow to NOM.
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    \14\ Today, a Participant may qualify for the NOM Market Maker 
Tier 6 Rebate to Add Liquidity in Penny Pilot Options by adding NOM 
Market Maker 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 and qualifying for the Tier 7 or 
Tier 8 Customer and/or Professional Rebate to Add Liquidity in Penny 
Pilot Options or adding NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options above 0.90% of total industry 
customer equity and ETF option ADV contracts per day in a month. The 
Exchange is amending Tier 6 to permit a Participant to qualify for 
the $0.42 per contract rebate by adding Customer, Professional, 
Firm, Non-NOM Market Maker, and/or Broker-Dealer liquidity in Penny 
Pilot Options and/or Non- Penny Pilot Options of 1.40% or more of 
national customer volume in multiply-listed equity and ETF options 
classes in a month
---------------------------------------------------------------------------

    The Exchange's proposal to amend the Tier 6 NOM Market Maker Penny 
Pilot Options Rebate to Add Liquidity to offer an additional method to 
qualify for the $0.42 per contract is equitable and not unfairly 
discriminatory because all Participants may qualify for the Tier 6 
rebate provided they transact the requisite amount of liquidity.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

[[Page 71150]]

    The Exchange believes that amending Tiers 1-5 and Tier 8 of the 
Customer and Professional Penny Pilot Options Rebates to Add Liquidity, 
as well as the Tier 8 incentive of $0.02 per contract to permit 
Participants to add all types of market participant liquidity does not 
create an undue burden on competition, rather the proposal will 
incentivize market participants to send additional order flow to the 
Exchange. Customer liquidity offers unique benefits to the market which 
benefits all market participants. Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attracts market makers. An increase in the activity of these market 
participants in turn facilitates tighter spreads, which may cause an 
additional corresponding increase in order flow from other market 
participants. The Exchange believes that encouraging Participants to 
add Professional liquidity creates competition among options exchanges 
because the Exchange believes that the rebates may cause market 
participants to select NOM as a venue to send Professional order flow.
    The Exchange's proposal to amend the Tier 3 and 4 NOM Market Maker 
Penny Pilot Options Rebates to Add Liquidity to pay a higher rebate for 
AAPL of $0.40 per contract, similar to SPY, QQQ and VXX, does not 
create an undue burden on competition because all NOM Market Makers may 
qualify for the Tier 3 or 4 NOM Market Maker Penny Pilot Options Rebate 
to Add Liquidity. The Exchange's proposal to offer another means to 
qualify for the Tier 6 NOM Market Maker Penny Pilot Options Rebate to 
Add Liquidity does not create an undue burden on competition, rather 
the proposal will incentivize market participants to send additional 
order flow to the Exchange.
    The Exchange believes the differing outcomes, rebates and fees 
created by the Exchange's proposed pricing incentives contribute to the 
overall health of the market place to the benefit of all Participants 
that willing choose to transact options on NOM. For the reasons 
specified herein, the Exchange does not believe this proposal creates 
an undue burden on competition. The Exchange operates in a highly 
competitive market comprised of twelve U.S. options exchanges in which 
many sophisticated and knowledgeable market participants can readily 
and do send order flow to competing exchanges if they deem fee levels 
or rebate incentives at a particular exchange to be excessive or 
inadequate. These market forces support the Exchange belief that the 
proposed rebate structure and tiers proposed herein are competitive 
with rebates and tiers in place on other exchanges. The Exchange 
believes that this competitive marketplace continues to impact the 
rebates present on the Exchange today and substantially influences the 
proposals set forth above.

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\ 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 necessary or appropriate in the public interest, 
for the protection of investors, or 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1c6e697079317f7371717972686f5c6f797f327b736a"><span class="__cf_email__" data-cfemail="3042455c551d535f5d5d555e4443704355531e575f46">[email protected]</span></a>. Please include 
File Number SR-NASDAQ-2014-105 on the subject line.

Paper Comments

    <bullet> 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-2014-105. 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-2014-105, and should 
be submitted on or before December 22, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28172 Filed 11-28-14; 8:45 am]
BILLING CODE 8011-01-P


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