[Federal Register Volume 82, Number 156 (Tuesday, August 15, 2017)]
[Notices]
[Pages 38749-38752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17169]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81361; File No. SR-NASDAQ-2017-080]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Transaction Fees

August 9, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 1, 2017, 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

[[Page 38750]]

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 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes two NOM pricing amendments at Chapter XV, 
Section 2(1), as described below in greater detail.
Customer and Professional Rebate to Add Liquidity
    The Exchange proposes to amend an existing method for earning a 
rebate for adding liquidity for both Customers \3\ and Professionals 
\4\ in Penny Pilot \5\ and Non-Penny Pilot Options. For Customers and 
Professionals transacting in Penny Pilot Options, the Exchange 
currently pays a volume-based tiered Rebate to Add Liquidity, as set 
forth in Chapter XV, Section 2(1) of NOM Rules. That rebate consists of 
8 tiers, ranging from $0.20 per contract to $0.48 per contract, with 
the volume requirements increasing with each tier. Thus, a NOM 
Participant would qualify for a rebate of $0.20 per contract in Tier 1 
for Customers and Professionals if it added Customer, Professional, 
Firm,\6\ Non-NOM Market Maker \7\ and/or Broker-Dealer \8\ 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. In comparison, a Participant 
would qualify for a rebate of $0.48 in Tier 8 for Customers and 
Professionals if it added Customer, 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 if the 
Participant adds: (1) Customer and/or Professional liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options of 0.20% 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.\9\
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    \3\ 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 (``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)).
    \4\ 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.
    \5\ The Penny Pilot was established in March 2008. See 
Securities Exchange Act Release No. 57579 (March 28, 2008), 73 FR 
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and 
immediate effectiveness establishing Penny Pilot). Since that date, 
the Penny Pilot has been expanded and is currently extended through 
December 31, 2016 or the date of permanent approval, if earlier. See 
Securities Exchange Act Release No. 78037 (June 10, 2016), 81 FR 
39299 (June 16, 2016) (SR-NASDAQ-2016-052).
    \6\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \7\ 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.
    \8\ 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.
    \9\ MARS refers to the Market Access and Routing Subsidy, which 
is set forth in Chapter XV, Section 6. The MARS payment currently 
comprises of four volume-based tiers, and is paid to NOM 
Participants that route eligible contracts to NOM through a 
participating NOM Participant's routing system. The MARS payment is 
paid on all executed eligible contracts that add liquidity. See NOM 
Rules at Chapter XV, Section 6.
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    Currently, Customers and Professionals transacting in Non-Penny 
Pilot Options on NOM receive a $0.80 per contract Rebate to Add 
Liquidity, as set forth in Chapter XV, Section 2(1) of NOM Rules. In 
addition, footnote ``1'' in Chapter XV, Section 2(1) provides that a 
Participant that qualifies for a Customer or Professional Penny Pilot 
Options Rebate to Add Liquidity in Tiers 2, 3, 4, 5 or 6 in a month 
will receive an additional $0.10 per contract Non-Penny Pilot Options 
Rebate to Add Liquidity for each transaction which adds liquidity in 
Non-Penny Options in that month. A Participant that qualifies for 
Customer or Professional Penny Pilot Options Rebate to Add Liquidity in 
Tiers 7 or 8 in a month will receive an additional $0.20 per contract 
Non-Penny Pilot Options Rebate to Add Liquidity for each transaction 
which adds liquidity in Non-Penny Pilot Options in that month.
    In addition, note ``e'' in Chapter XV, Section 2(1) provides that a 
Participant may receive a $0.53 per contract Rebate to Add Liquidity in 
Penny Pilot Options as Customer or Professional, and a $1.00 per 
contract Rebate to Add Liquidity in Non-Penny Pilot Options as a 
Customer or Profession, if that NOM Participant transacts on the NASDAQ 
Stock Market through one or more of its Nasdaq Market Center MPIDs in 
the same month, and such transactions in all securities on the NASDAQ 
Stock Market that month through all of its Nasdaq Market Center MPIDs 
represent 3.00% or more of Consolidated Volume.\10\ Participants that 
qualify for this rebate would not be eligible for any other rebates in 
Tiers 1 through 8 or other rebate incentives on NOM for Customer and 
Professional order flow in Chapter XV, Section 2(1) of NOM Rules.\11\
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    \10\ Consolidated Volume would be determined as set forth in 
Nasdaq Rule 7018(a).
    \11\ In calculating total volume, the Exchange would add the NOM 
Participant's total volume transacted on the NASDAQ Stock Market in 
a given month across its Nasdaq Market Center MPIDs, and will divide 
this number by the total industry Consolidated Volume.
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    Lastly, note ``f'' in Chapter XV, Section 2(1) provides that a 
Participant may receive a $0.55 per contract Rebate to Add Liquidity in 
Penny Pilot Options as Customer or Professional, and a $1.05 per 
contract Rebate to Add Liquidity in

[[Page 38751]]

Non-Penny Pilot Options as Customer or Professional, if that NOM 
Participant (a) adds Customer, Professional, Firm, Non-NOM Market Maker 
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny 
Pilot Options above 1.45% of total industry customer equity and ETF 
option ADV contracts per day in a month (``NOM Volume Threshold''), (b) 
executes greater than 0.04% of Consolidated Volume (``CV'') via Market-
on-Close/Limit-on-Close (``MOC/LOC'') \12\ volume within the NASDAQ 
Stock Market Closing Cross within a month, and (c) adds greater than 
1.5 million shares per day of non-displayed volume within the NASDAQ 
Stock Market within a month. Participants that qualify for this rebate 
would not be eligible for any other rebates in Tiers 1 through 8 or 
other rebate incentives on NOM for Customer and Professional order flow 
in Chapter XV, Section 2(1).
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    \12\ MOC/LOC, as set forth in NASDAQ Rule 4754, represents the 
volume in the NASDAQ Stock Market Closing Cross that allows market 
participants to contribute order flow that will result in executions 
at the official closing price for the day in the NASDAQ listed 
security. A ``MOC Order'' is an order type entered without a price 
that may be executed only during the NASDAQ Closing Cross, which 
refers to the equity closing cross. A ``LOC Order'' is an order type 
entered with a price that may be executed only in the NASDAQ Closing 
Cross.
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    The Exchange now proposes to amend the current qualifications for 
earning the Rebate to Add Liquidity in note ``f'' by lowering the NOM 
Volume Threshold. Specifically, the Exchange is proposing to continue 
to pay a $0.55 per contract Rebate to Add Liquidity in Penny Pilot 
Options as Customer or Professional, and a $1.05 per contract Rebate to 
Add Liquidity in Non-Penny Pilot Options as Customer or Professional, 
if that NOM Participant (a) adds Customer, Professional, Firm, Non-NOM 
Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options above 1.20% of total industry customer 
equity and ETF option ADV contracts per day in a month, (b) executes 
greater than 0.04% of CV via MOC/LOC volume within the NASDAQ Stock 
Market Closing Cross within a month, and (c) adds greater than 1.5 
million shares per day of non-displayed volume within the NASDAQ Stock 
Market within a month.\13\
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    \13\ Participants that meet the new qualifications for the note 
``f'' incentive would continue to be ineligible for any other 
rebates in Tiers 1 through 8 or other rebate incentives on NOM for 
Customer and Professional order flow in Chapter XV, Section 2(1).
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    The Exchange's proposal to lower the NOM Volume Threshold from 
above 1.45% of total industry customer equity and ETF option ADV 
contracts per day in a month to above 1.20% should provide Participants 
the ability to qualify for this incentive by executing less contracts 
which represent industry volume in a given month. The Exchange believes 
that this amendment should incentivize Participants to transact more 
volume to qualify for the rebate in footnote ``f'' since one of the 
qualifiers requires a lower percentage of total industry customer 
equity and ETF option ADV contracts per day in a month as compared to 
the current percentage.
NOM Market Maker Non-Penny Pilot Options Fee for Adding Liquidity
    The Exchange proposes to offer Participants that send NOM Market 
Maker \14\ order flow an opportunity to lower their Fee for Adding 
Liquidity in Non-Penny Pilot Options, as set forth in Chapter XV, 
Section 2(1). In particular, the Exchange proposes to offer 
Participants the opportunity to reduce the NOM Market Maker Non-Penny 
Pilot Options Fee for Adding Liquidity from $0.35 to $0.00 per 
contract, provided the Participant adds NOM Market Maker liquidity in 
Non-Penny Pilot Options of 7,500 or more ADV contracts per day in a 
month.
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    \14\ The term ``NOM Market Maker'' or (``M'') is 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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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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Customer and Professional Rebate to Add Liquidity
    The Exchange's proposal to lower the NOM Volume Threshold is 
reasonable because the rebates in footnote ``f'' should continue to 
attract Customer and Professional order flow to NOM. The additional 
Customer and Professional order flow to NOM benefits other market 
participants by providing additional liquidity with which to interact. 
Customer liquidity offers unique benefits to the market by providing 
more trading opportunities, which attracts market makers. An increase 
in the activity of market makers in turn facilitates tighter spreads, 
which may cause an additional corresponding increase in order flow from 
other market participants. Furthermore, the Exchange believes that 
encouraging Participants to add Professional liquidity creates 
competition among options exchanges because the amended note ``f'' 
rebates may cause market participants to select NOM as a venue to send 
Professional order flow. Amending the existing NOM Volume Threshold 
affords more Participants the ability to qualify for the note ``f'' 
rebates because it requires less volume as a result of the proposed 
lower percentage of industry volume. With this proposal, Participants 
that consistently send order flow to the Exchange may continue to 
qualify for the rebates in note ``f'' and other Participants may send 
additional order flow to qualify for the note ``f'' rebates with the 
lower requirement.
    The Exchange's proposal to lower the NOM Volume Threshold is 
equitable and not unfairly discriminatory because all Participants are 
eligible to earn rebates. These rebates would be paid uniformly to all 
qualifying Participants.
NOM Market Maker Non-Penny Pilot Options Fee for Adding Liquidity
    The proposed change to offer Participants that send NOM Market 
Maker order flow the opportunity to reduce the NOM Market Maker Non-
Penny Pilot Options Fee for Adding Liquidity from $0.35 to $0.00 per 
contract, provided the Participant adds NOM Market Maker liquidity in 
Non-Penny Pilot Options of 7,500 or more ADV contracts per day in a 
month is reasonable because the Exchange seeks to encourage 
Participants to add NOM Market Maker liquidity in Non-Penny Options to 
obtain the discount. The Exchange believes that its proposal will 
incentivize Participants to select NOM as a venue and in turn benefit 
other market participants with the opportunity to interact with such 
liquidity.
    Furthermore, the Exchange believes that its proposal to reduce the 
NOM Market Maker fee as described above is equitable and not unfairly 
discriminatory because NOM Market Makers, unlike other market 
participants, add value through continuous quoting \17\ and the

[[Page 38752]]

commitment of capital. In addition, encouraging NOM Market Makers to 
add greater liquidity benefits all Participants in the quality of order 
interaction. The Exchange believes it is equitable and not unfairly 
discriminatory to offer only NOM Market Makers the opportunity to earn 
the discounted fee described above because of the obligations borne by 
these market participants, as noted herein.
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    \17\ Pursuant to Chapter VII (Market Participants), Section 5 
(Obligations of Market Makers), in registering as a market maker, an 
Options Participant commits himself to various obligations. 
Transactions of a Market Maker in its market making capacity must 
constitute a course of dealings reasonably calculated to contribute 
to the maintenance of a fair and orderly market, and Market Makers 
should not make bids or offers or enter into transactions that are 
inconsistent with such course of dealings. Further, all Market 
Makers are designated as specialists on NOM for all purposes under 
the Act or rules thereunder. See Chapter VII, Section 5.
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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. The Exchange believes that the proposed pricing changes are 
competitive and does not impose a burden on inter-market competition. 
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.
    As it relates to the proposed fee change to lower the NOM Volume 
Threshold, the Exchange does not believe that its proposal imposes an 
undue burden on intra-market competition because all Participants are 
eligible to earn rebates and these rebates would be uniformly paid to 
all qualifying Participants. The Exchange also does not believe that 
its proposal to offer Participants an opportunity to reduce the NOM 
Market Maker Non-Penny Pilot Options Fee for Adding Liquidity from 
$0.35 to $0.00 if they meet the volume-based standard described above 
imposes an undue burden on intra-market competition because NOM Market 
Makers, unlike other market participants, add value through continuous 
quoting \18\ and the commitment of capital.
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    \18\ See note 17 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.\19\
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    \19\ 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 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

    <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#1b696e777e36787476767e756f685b687e78357c746d"><span class="__cf_email__" data-cfemail="80f2f5ece5ade3efedede5eef4f3c0f3e5e3aee7eff6">[email protected]</span></a>. Please include 
File Number SR-NASDAQ-2017-080 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-2017-080. 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-2017-080, and should 
be submitted on or before September 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17169 Filed 8-14-17; 8:45 am]
 BILLING CODE 8011-01-P


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