Document ID: SEC-2016-1326-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2016-07-29T04:00Z

[Federal Register Volume 81, Number 146 (Friday, July 29, 2016)]
[Notices]
[Pages 50029-50034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17909]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78406; File No. SR-NASDAQ-2016-100]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ Options Market LLC Pricing at Chapter XV

July 25, 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 July 12, 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 modify the NASDAQ Options Market LLC's 
(``NOM'') pricing at Chapter XV, Sections 2(1) and 2(6) to: (i) Amend

[[Page 50030]]

Customer \3\ and Professional \4\ Penny Pilot Options \5\ Rebate to Add 
Liquidity tiers; (ii) amend the Customer and Professional Penny Pilot 
Options Fee for Removing Liquidity; and (iii) amend the Market Access 
and Routing Subsidy or ``MARS.''
---------------------------------------------------------------------------

    \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 which is not for the 
account of broker or dealer or for the account of a 
``Professional.'' See Chapter XV.
    \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 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.
---------------------------------------------------------------------------

    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
    The Exchange proposes three NOM pricing amendments at Chapter XV as 
described below in greater detail.
Pricing Change Number 1: Chapter XV, Section 2(1)--Customer and 
Professional Penny Pilot Options Rebate To Add Liquidity
    The Exchange proposes to amend the Customer and Professional Penny 
Pilot Options Rebate to Add Liquidity tiers. Specifically, the Exchange 
proposes to amend the current qualifications related to the Tier 8 
Customer and Professional Penny Pilot Options rebate. The proposed new 
Tier 8 qualifications should continue to attract Customer and 
Professional order flow to NOM. This order flow benefits other market 
participants through order interaction.
    Today, the Exchange pays Customer and Professional Penny Pilot 
Options Rebates to Add Liquidity as follows:

------------------------------------------------------------------------
                                                           Rebate to add
                                      Monthly volume      liquidity  ($)
------------------------------------------------------------------------
Tier 1.........................  Participant adds                   0.20
                                  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.
Tier 2.........................  Participant adds                   0.25
                                  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.
Tier 3.........................  Participant adds                   0.42
                                  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.
Tier 4.........................  Participant adds                   0.43
                                  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.
Tier 5.........................  Participant adds                   0.45
                                  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% to
                                  0.75% of total
                                  industry customer
                                  equity and ETF option
                                  ADV contracts per day
                                  in a month.
Tier 6 b.......................  Participant has Total              0.45
                                  Volume of 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 b.......................  Participant has Total              0.47
                                  Volume of 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                 c 0.48
                                  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 Participant
                                  adds: (1) Customer and/
                                  or Professional
                                  liquidity in Penny
                                  Pilot Options and/or
                                  Non-Penny Pilot
                                  Options of 30,000 or
                                  more 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).
------------------------------------------------------------------------

    Today, the Exchange pays a $0.48 per contract rebate \6\ to 
Participants that add

[[Page 50031]]

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 Participant adds: (1) Customer and/or 
Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of 30,000 or more 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.\7\ The Exchange is proposing to 
continue to pay a $0.48 per contract rebate provided, NOM Participant 
adds 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 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,\8\ 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.
---------------------------------------------------------------------------

    \6\ Note ``c,'' which is applicable to the Tier 8 rebate, 
provides additional rebates to Participants that execute certain 
volume on NOM. 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 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 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 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 means 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. This note ``c'' is not 
being amended with this proposal.
    \7\ NOM Participants that have System Eligibility and have 
executed the requisite number of Eligible Contracts in a month are 
paid MARS rebates based on average daily volume in a month. See 
Chapter XV, Section 2(6).
    \8\ For reference, in May 2016, 0.25% of total industry customer 
equity and ETF option ADV equated to approximately 28,000 contracts.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the current qualification from 
30,000 or more contracts per day in a month to 0.25% or more of total 
industry customer equity and ETF option ADV contracts provides 
Participants the ability to qualify for this tier in lower industry ADV 
months because the percentage would be tied to the industry volume and 
not represent a fixed number. If the industry volume were to increase 
in a given month, the Participant will have greater opportunity to 
execute a higher number of contracts because the entire industry has 
more volume available to execute.
    For example in May 2016, 0.25% of total industry customer equity 
and ETF option ADV contracts represented approximately 28,000 contracts 
as compared to the requisite 30,000 contracts which Tier 8 currently 
requires. Because volume was lower in the month of May 2016, market 
participants would have been better able to continue to meet the Tier 8 
requirement with a percentage tied to volume as compared to a fixed 
number of contracts.
    The Exchange also proposes to amend note ``d,'' which applies to 
the Customer and Professional Penny Pilot Options Rebate to Add 
Liquidity tiers. Currently, note ``d'' provides that NOM Participants 
that qualify for MARS Payment Tiers \9\ 1, 2 or 3 will receive an 
additional $0.05 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,\10\ in which case the Participants would 
receive the appropriate note ``c'' rebate they qualified for in that 
month.
---------------------------------------------------------------------------

    \9\ MARS Payments are currently based on a 3 tier rebate based 
on average daily volume (``ADV''). The Exchange pays a MARS Payment 
of $0.07 for ADV of 2,500 Eligible Contracts. The Exchange pays a 
MARS Payment of $0.09 for ADV of 5,000 Eligible Contracts. Finally, 
the Exchange pays a MARS Payment of $0.11 for AVD of 10,000 Eligible 
Contracts. The MARS Payment is paid on all executed Eligible 
Contracts that add liquidity, which are routed to NOM through a 
participating NOM Participant's System and meet the requisite 
Eligible Contracts ADV. See Chapter XV, Section 2(6).
    \10\ The note ``c'' incentive in Chapter XV, Section 2 provides 
that 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. NOM Participants that 
qualify for a note ``c'' incentive receive the greater of the note 
``c'' or note ``d'' incentive.
---------------------------------------------------------------------------

    The Exchange proposes to amend note ``d'' of Chapter XV, Section 
2(1) to lower the additional rebate on Penny Pilot Options Customer 
and/or Professional Rebates to Add Liquidity from $0.05 to $0.03 per 
contract. The Exchange believes that despite lowering the additional 
incentive from $0.05 to $0.03 per contract, the note ``d'' incentive 
will continue to incentivize NOM Participants to participate in MARS 
and send qualifying order flow to the Exchange. The $0.03 per contract 
incentive would continue to attract Penny Pilot Option liquidity to 
NOM. All market participants benefit from the increased order 
interaction when more order flow is available on NOM.
Pricing Change Number 2: Chapter XV, Section 2(6)--MARS Pricing
    The Exchange currently offers a Market Access and Routing Subsidy 
or ``MARS'' to qualifying NOM Participants in Chapter XV, Section 2(6). 
NOM Participants that have System Eligibility \11\ and have executed 
the

[[Page 50032]]

requisite number of Eligible Contracts in a month are paid rebates 
based on average daily volume (``ADV'') in a month. Today, MARS 
Payments are currently based on a 3 tier rebate based on ADV. The 
Exchange pays a MARS Payment of $0.07 for ADV of 2,500 Eligible 
Contracts. The Exchange pays a MARS Payment of $0.09 for ADV of 5,000 
Eligible Contracts. Finally, the Exchange pays a MARS Payment of $0.11 
for ADV of 10,000 Eligible Contracts. The MARS Payment is paid on all 
executed Eligible Contracts that add liquidity, which are routed to NOM 
through a participating NOM Participant's System and meet the requisite 
Eligible Contracts ADV.
---------------------------------------------------------------------------

    \11\ To qualify for MARS, the Participant's routing system 
(``System'') would be 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. Further, the 
Participant's System would also need to cause NOM to be the one of 
the top three default destination exchanges for individually 
executed marketable orders if NOM is at the national best bid or 
offer (``NBBO''), regardless of size or time, but allow any user to 
manually override NOM as a default destination on an order-by-order 
basis. Any NOM Participant would be permitted to avail itself of 
this arrangement, provided that its order routing functionality 
incorporates the features described above and satisfies NOM that it 
appears to be robust and reliable. The Participant remains solely 
responsible for implementing and operating its System. See Chapter 
XV, Section 2(6).
---------------------------------------------------------------------------

    The Exchange proposes to provide an additional incentive to the 
MARS Payment in Chapter XV, Section 2(6) by offering NOM Participants 
that qualify for Customer or Professional Penny Pilot Options Rebate to 
Add Liquidity Tier 8 \12\ an additional $0.09 per contract rebate 
applicable to MARS Payment tiers. This $0.09 rebate would be in 
addition to any MARS Payment Tier \13\ on MARS Eligible Contracts that 
the NOM Participant qualifies for in a given month. This incentive is 
intended to encourage NOM Participants to continue to send more order 
flow to the Exchange in either Penny Pilot or Non-Penny Pilot Options 
to qualify for the Customer and Professional Penny Pilot Options Tier 8 
rebate to earn the additional MARS Payment. All market participants 
benefit from the increased order interaction when more order flow is 
available on NOM.
---------------------------------------------------------------------------

    \12\ With the proposal herein, to be eligible for Tier 8, a 
Participant is required to add Customer, Professional, Firm, Non-NOM 
Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options 
and/or Non-Penny Pilot Options above 0.75% 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.
    \13\ See note 9 above.
---------------------------------------------------------------------------

Pricing Change Number 3: Chapter XV, Section 2(1)--Penny Pilot Options 
Fee for Removing Liquidity
    The Exchange is proposing to amend note ``4,'' which is currently 
reserved, to lower the Customer and Professional Penny Pilot Options 
Fees for Removing Liquidity from $0.50 \14\ to $0.48 per contract, 
excluding SPY,\15\ for NOM Participants that qualify for MARS Payment 
Tiers 1, 2 or 3.
---------------------------------------------------------------------------

    \14\ Currently, the Customer and Professional Penny Pilot 
Options Fees for Removing Liquidity are $0.50 per contract.
    \15\ Note ``3'' of the Pricing Schedule offers Customers and 
Professionals that remove liquidity in SPY Options a lower Customer 
and Professional Penny Pilot Options Fees for Removing Liquidity of 
$0.47 per contract.
---------------------------------------------------------------------------

    The Exchange believes that offering NOM Participants the 
opportunity to lower the Customer and Professional Penny Pilot Options 
Fees for Removing Liquidity by qualifying for MARS Payment Tiers 1, 2 
or 3 and transacting MARS Eligible Contracts,\16\ will incentivize NOM 
Participants to send more MARS Eligible Contracts to NOM. All market 
participants benefit from the increased order interaction when more 
order flow is available on NOM.
---------------------------------------------------------------------------

    \16\ MARS Eligible Contracts include electronic Firm, Non-NOM 
Market Maker, Broker-Dealer or Joint Back Office orders that add 
liquidity, excluding Mini Options. See Chapter XV, Section 2(6).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 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.'' \19\
---------------------------------------------------------------------------

    \19\ 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 
\20\ (``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.\21\ 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.'' \22\
---------------------------------------------------------------------------

    \20\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \21\ See NetCoalition, at 534-535.
    \22\ 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'. . . .'' \23\ 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.
---------------------------------------------------------------------------

    \23\ 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)).
---------------------------------------------------------------------------

Pricing Change Number 1: Chapter XV, Section 2(1)--Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity
    The Exchange's proposal to amend the current qualifications related 
to the Tier 8 Customer and Professional Penny Pilot Options Rebate to 
Add Liquidity is reasonable because the rebate 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. 
Amending the current qualification from 30,000 or more contracts per 
day in a month to 0.25% or more of total industry customer equity and 
ETF option ADV contracts provides Participants the ability to qualify 
for this tier in months with lower industry ADV because the required 
number of contracts would be directly correlated to industry volume. 
With this proposal, members that consistently send order flow to the 
Exchange may continue to qualify for

[[Page 50033]]

Tier 8 rebates. The Exchange's proposal to amend the current 
qualification from 30,000 or more contracts per day in a month to 0.25% 
or more of total industry customer equity and ETF option ADV contracts 
provides Participants the ability to qualify for this tier in lower 
industry ADV months because the percentage would be tied to the 
industry volume and not represent a fixed number. If the industry 
volume were to increase in a given month the Participant will have 
greater opportunity to execute a higher number of contracts because the 
entire industry has more volume available to execute. The Exchange 
notes that utilizing a percentage as compared to a fixed number is not 
novel. Today, NOM Customer and Professional Penny Pilot Options Tiers 1 
through 5 utilize a percentage of total industry customer equity and 
ETF option ADV contracts per day in a month.\24\
---------------------------------------------------------------------------

    \24\ See Chapter XV, Section 2(1).
---------------------------------------------------------------------------

    The Exchange's proposal to amend the current qualifications related 
to the Tier 8 Customer and Professional Penny Pilot Options Rebate to 
Add Liquidity is equitable and not unfairly discriminatory because all 
Participants are eligible to earn rebates. These rebates would be 
uniformly paid to all qualifying Participants.
    The Exchange's proposal to amend note ``d,'' which applies to any 
Customer and Professional Penny Pilot Options Rebates to Add Liquidity 
tier, to lower the per contract Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity incentive from $0.05 to $0.03 per 
contract is reasonable as discussed hereafter. Despite lowering the 
incentive, the reduced rebate would continue to attract Penny Pilot 
Options liquidity to NOM and also would continue to incentivize market 
participants to participate in MARS. All market participants benefit 
from the increased order interaction when more order flow is available 
on NOM.
    The Exchange's proposal to amend note ``d,'' which applies to the 
additional Customer and Professional Penny Pilot Options Rebate to Add 
Liquidity tiers, to lower the additional per contract Penny Pilot 
Options Customer and/or Professional Rebate to Add Liquidity incentive 
from $0.05 to $0.03 per contract, is equitable and not unfairly 
discriminatory because all Participants are eligible to earn rebates 
and the rebates would be uniformly paid to all qualifying Participants. 
In addition, any Participant may qualify for MARS provided they have 
the requisite System Eligibility.
Pricing Change Number 2: Chapter XV, Section 2(6)--MARS Pricing
    The Exchange's proposal to amend the MARS Payment to offer NOM 
Participants that qualify for Customer or Professional Penny Pilot 
Options Rebate to Add Liquidity Tier 8 an additional $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 is reasonable 
because it will encourage NOM Participants to continue to send more 
order flow to the Exchange in either Penny Pilot or Non-Penny Pilot 
Options to qualify for the higher MARS Payment. All market participants 
benefit from the increased order interaction when more order flow is 
available on NOM.
    The Exchange's proposal to amend the MARS Payment to offer NOM 
Participants that qualify for Customer or Professional Penny Pilot 
Options Rebate to Add Liquidity Tier 8 an additional $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 is equitable and not 
unfairly discriminatory because any Participant may qualify for MARS 
provided they have the requisite System Eligibility. The Exchange will 
also uniformly pay MARS rebates to qualifying Participants on all MARS 
Eligible Contracts.
Pricing Change Number 3: Chapter XV, Section 2(1)--Penny Pilot Options 
Fee for Removing Liquidity
    The Exchange's proposal to amend note ``4'' to lower the Customer 
and Professional Penny Pilot Options Fees for Removing Liquidity from 
$0.50 to $0.48 per contract, excluding SPY, provided NOM Participants 
qualify for MARS Payment Tiers 1, 2 or 3 is reasonable for the reasons 
which follow. NOM Participants will be encouraged to send additional 
electronic MARS Eligible Contracts \25\ to NOM to obtain the fee 
reduction. This should in turn incentivize NOM Participants to send 
more order flow to NOM. All market participants benefit from the 
increased order interaction when more order flow is available on NOM. 
Excluding SPY from the note ``4'' discount is reasonable because SPY 
options are among the most highly liquid options. Today, the Exchange 
prices SPY differently from other Multiply-Listed Options.\26\ Other 
options exchanges price differently by options symbol.\27\
---------------------------------------------------------------------------

    \25\ See note 16 above.
    \26\ See current note ``3'' at Chapter XV, Section 2(1).
    \27\ See NASDAQ PHLX LLC's (``Phlx'') Pricing Schedule at 
Section I which contains pricing for options overlying SPY that is 
different from other Multiply Listed Options pricing in Section II 
of that Pricing Schedule.
---------------------------------------------------------------------------

    The Exchange's proposal to amend note ``4'' to lower the Customer 
and Professional Penny Pilot Options Fees for Removing Liquidity from 
$0.50 to $0.48 per contract, excluding SPY, provided NOM Participants 
qualify for MARS Payment Tiers 1, 2 or 3 is equitable and not unfairly 
discriminatory because all Participants may qualify for MARS provided 
they have the requisite System Eligibility. The Exchange will also 
uniformly assess the discounted Customer and Professional Penny Pilot 
Options Fees for Removing Liquidity to qualifying Participants. 
Excluding SPY from the note ``4'' discount is equitable and not 
unfairly discriminatory because the Exchange pays discounts today for 
SPY options transactions. Today, note ``3'' of Chapter XV, Section 2(1) 
assesses Customers and Professionals that remove liquidity in SPY 
Options a $0.47 per contract discounted Customer and Professional Penny 
Pilot Options Fees for Removing Liquidity. Both notes ``3'' and ``4'' 
of Chapter XV, Section 2(1) are paid uniformly to all qualifying 
Participants.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    The proposed fee changes are competitive and do not impose a burden

[[Page 50034]]

on inter-market competition. Today, other venues offer rebate programs, 
discounted fees and incentives for maintain routing systems.\28\ 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.
---------------------------------------------------------------------------

    \28\ See Phlx's Pricing Schedule at Section B (Customer Rebate 
Program) and Section IV, Part E (MARS). Also, the International 
Securities Exchange LLC (``ISE'') offers a lower Market Maker Taker 
Fee for Select Symbols of $0.44 per contract for Market Makers with 
total affiliated Priority Customer Complex ADV of 150,000 or more 
contracts. See ISE's Fee Schedule.
---------------------------------------------------------------------------

Pricing Change Number 1: Chapter XV, Section 2(1)--Customer and 
Professional Penny Pilot Options Rebate To Add Liquidity
    The Exchange's proposal to amend the current qualifications related 
to the Tier 8 Customer and Professional Penny Pilot Options Rebate to 
Add Liquidity does not impose 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's proposal to amend note ``d,'' which applies to the 
Customer and Professional Penny Pilot Options Rebate to Add Liquidity 
tiers, to lower the additional amount of the per contract Penny Pilot 
Options Customer and/or Professional Rebate to Add Liquidity from $0.05 
to $0.03 per contract does not impose 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. 
In addition, any Participant may qualify for MARS provided they have 
the requisite System Eligibility.
Pricing Change Number 2: Chapter XV, Section 2(6)--MARS Pricing
    The Exchange's proposal to amend the MARS Payment to offer NOM 
Participants that qualify for Customer or Professional Penny Pilot 
Options Rebate to Add Liquidity Tier 8 an additional $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, does not impose an 
undue burden on intra-market competition because any Participant may 
qualify for MARS provided they have the requisite System Eligibility. 
The Exchange will also uniformly pay MARS Payments to qualifying 
Participants on all Eligible Contracts.
Pricing Change Number 3: Chapter XV, Section 2(1)--Penny Pilot Options 
Fee for Removing Liquidity
    The Exchange's proposal to amend note ``4'' to lower the Customer 
and Professional Penny Pilot Options Fees for Removing Liquidity from 
$0.50 to $0.48 per contract, excluding SPY, provided NOM Participants 
qualify for MARS Payment Tiers 1, 2 or 3 does not impose an undue 
burden on intra-market competition because all Participants may qualify 
for MARS provided they have the requisite System Eligibility. The 
Exchange will also uniformly assess the discounted Customer and 
Professional Penny Pilot Options Fees for Removing Liquidity to 
qualifying Participants. Excluding SPY does not impose an undue burden 
on intra-market competition because today, the Exchange offers a 
discount for SPY options, which discounts are uniformly paid to all 
Participants. Today, other options exchanges price differently by 
options symbol.\29\
---------------------------------------------------------------------------

    \29\ See note 27.
---------------------------------------------------------------------------

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.\30\
---------------------------------------------------------------------------

    \30\ 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 Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2016-100 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-2016-100. 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 such 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 referto File Number SR-NASDAQ-2016-100, and should 
be submitted on or before August 19, 2016.
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17909 Filed 7-28-16; 8:45 am]
 BILLING CODE 8011-01-P