Document ID: SEC-2019-0294-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-03-19T04:00Z

[Federal Register Volume 84, Number 53 (Tuesday, March 19, 2019)]
[Notices]
[Pages 10161-10164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05087]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85303; File No. SR-NASDAQ-2019-011]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchanges Pricing Schedule at Options 7

March 13, 2019.
    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 February 28, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchanges Pricing Schedule at 
Options

[[Page 10162]]

7, which governs the pricing for Nasdaq participants using The Nasdaq 
Options Market (``NOM''), Nasdaq's facility for executing and routing 
standardized equity and index options.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on March 1, 2019.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to create an alternative way for Participants 
to earn the Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny 
Pilot Options. Today as set forth in Options 7, Section 2(1), the 
Exchange offers NOM Market Maker Rebates to Add Liquidity in Penny 
Pilot Options. These rebates are structured as a six tier program 
ranging from $0.20 to $0.48 per contract, with increasing volume 
requirements for each tier. Participants currently receive a $0.30 per 
contract (or $0.40 per contract in the symbols AAPL, QQQ, IWM, SPY and 
VXX) Tier 3 rebate for adding NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options above 0.20% to 0.60% of total 
industry customer equity and ETF option ADV contracts per day in a 
month. As proposed, a Participant will also earn the Tier 3 rebate if 
the Participant meets the following alternative qualifications: (1) 
Transacts in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent 0.70% or more of Consolidated Volume 
(``CV'') \3\ which adds liquidity in the same month on The Nasdaq Stock 
Market,\4\ (2) transacts in Tape B securities \5\ through one or more 
of its Nasdaq Market Center MPIDs that represent 0.18% or more of CV 
which adds liquidity in the same month on The Nasdaq Stock Market, and 
(3) executes greater than 0.01% of CV via Market-on-Close/Limit-on-
Close (``MOC/LOC'') \6\ volume within The Nasdaq Stock Market Closing 
Cross in the same month. The Exchange also proposes to make related 
clean-up changes by renumbering the existing method to qualify for Tier 
3 as paragraph (a) and the proposed alternative as paragraph (b).
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    \3\ 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.
    \4\ In calculating total volume, the Exchange would add the 
Participant's total volume transacted on The Nasdaq Stock Market in 
a given month across its Nasdaq Market Center MPIDs which adds 
liquidity, and will divide this number by the total industry 
Consolidated Volume.
    \5\ Tape B securities are securities that are listed on 
exchanges other than The Nasdaq Stock Market or the New York Stock 
Exchange.
    \6\ 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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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The alternative method to qualify for the Tier 3 NOM Market Maker 
Rebate to Add Liquidity in Penny Pilot Options proposed above is 
reasonable because it will create an additional opportunity for 
Participants to earn the Tier 3 rebate by incentivizing Participants to 
transact greater volume on The Nasdaq Stock Market in order to qualify 
for the Tier 3 rebate on NOM. The Exchange notes that this proposal is 
designed as a means to improve market quality by providing Participants 
with an incentive to increase their provision of liquidity on the 
Exchange's equity and options markets. Today, Participants that add NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.20% to 0.60% of total industry customer equity and ETF 
option ADV contracts per day in a month are paid a $0.30 per contract 
(or $0.40 per contract in the symbols AAPL, QQQ, IWM, SPY and VXX) Tier 
3 rebate. This proposal would provide participants with additional 
opportunities to earn the same Tier 3 NOM Market Maker rebate, and will 
encourage Participants to send order flow to both the options and 
equity markets to receive the rebate.
    Furthermore, the concept of linking incentive on NOM to activity on 
The Nasdaq Stock Market exists today. The Exchange currently offers 
rebates on NOM that relate to activity on The Nasdaq Stock Market.\9\ 
Similarly, The Nasdaq Stock Market offers credits that are based on 
activity on NOM.\10\ As such, the Exchange believes that the volume 
requirement to transact in all securities through one or more of the 
Participant's Nasdaq Market Center MPIDs that represent 0.70% or more 
of Consolidated Volume (``CV'') which adds liquidity in the same month 
on The Nasdaq Stock Market is reasonable because the Exchange already 
offers rebates based on similar volume requirements.\11\ Similarly, the 
volume requirement to execute greater than 0.01% of CV via Market-on-
Close/Limit-on-Close (``MOC/LOC'') volume within The Nasdaq Stock 
Market Closing Cross in the same month is reasonable because

[[Page 10163]]

the Exchange already offers rebates based on similar volume 
requirements.\12\
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    \9\ For example, one of the qualifications in the $0.48 per 
contract Tier 6 Customer and Professional Rebate to Add Liquidity in 
Penny Pilot Options requires that the Participant add 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. See Options 7, Section 2(1). Also, for example, 
note ``e'' of the NOM Pricing Schedule provides that Participants 
that transact in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent 3.00% or more of Consolidated 
Volume in the same month on The Nasdaq Stock Market will receive a 
$0.52 per contract rebate to add liquidity in Penny Pilot Options as 
Customer or Professional and $1.00 per contract rebate to add 
liquidity in Non-Penny Pilot Options as Customer or Professional. 
See Options 7, Section 2(1).
    \10\ For example, Nasdaq offers a credit of $0.0029 per share if 
the member adds Customer, Professional, Firm, Non-NOM Market Maker 
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non- 
Penny Pilot Options of 1.15% or more of total industry ADV in the 
customer clearing range for Equity and ETF option contracts per day 
in a month on NOM. See Equity 7, Section 118(a)(1).
    \11\ See note 9 above.
    \12\ See note ``c'' of Options 7, Section 2(1), offering 
Participants that qualify for the $0.48 per contract Tier 6 Customer 
and Professional Rebate to Add Liquidity in Penny Pilot Options an 
additional $0.05 per contract rebate if they meet the requisite 
volume thresholds in clause (3) of note ``c,'' including executing 
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; and note ``f'' of Options 7, 
Section 2(1), offering Participants a $0.55 per contract Customer 
and Professional Rebate to Add Liquidity in Penny Pilot Options if 
they meet the requisite volume thresholds, including executing 
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.
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    The volume requirement to transact in Tape B securities through one 
or more of the Participant's Nasdaq Market Center MPIDs that represent 
0.18% or more of CV which adds liquidity in the same month on The 
Nasdaq Stock Market is a new requirement, which must be met in addition 
to the other two volume requirements proposed above. The Exchange 
believes that the Tape B volume requirement is reasonable because 
linking rebates on NOM to activity on The Nasdaq Stock Market in this 
manner will encourage Participants to add liquidity on The Nasdaq Stock 
Market, which will benefit all market participants by way of 
interacting with that liquidity on the equity market. By encouraging 
market participants to increase their participation on the equities 
market by transacting in Tape B securities, the Exchange is rewarding 
Participants with an opportunity to earn an additional options 
incentive, provided all requirements are met. Overall, the Exchange 
believes that the tiered NOM Market Maker Rebates to Add Liquidity in 
Penny Pilot Options with the proposed Tier 3 alternative will continue 
to reflect the progressively increasing rebate requirements that offer 
incentives to earn the highest NOM Market Maker rebate by bringing the 
most order flow to the Exchange.
    The Exchange also believes that the proposed Tier 3 alternative is 
equitable and not unfairly discriminatory because all eligible 
Participants that qualify for these incentives will uniformly receive 
the rebate. The Exchange believes that the proposed volume requirements 
are proportionate to the amount of the Tier 3 rebate and equitably 
reflect the purpose of the proposed Tier 3 alternative, which is to 
incentivize Participants to transact greater volume on both the 
Exchange's equity and options markets. In addition, the Exchange 
believes that it is equitable and not unfairly discriminatory to offer 
this rebate to NOM Participants that transact as NOM Market Makers and 
also transact on The Nasdaq Stock Market. Any NOM Participant may trade 
on The Nasdaq Stock Market because they are approved members.\13\ 
Furthermore, unlike other market participants, NOM Market Makers add 
value through continuous quoting and the commitment of capital.\14\ 
Because NOM Market Makers have these obligations to the market and 
regulatory requirements that normally do not apply to other market 
participants, the Exchange believes that offering these rebates to only 
NOM Market Makers is equitable and not unfairly discriminatory in light 
of their obligations. Finally, encouraging NOM Market Makers to add 
greater liquidity benefits all market participants in the quality of 
order interaction.
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    \13\ Although a NOM Participant may incur additional labor and/
or costs to establish connectivity to The Nasdaq Stock Market, there 
are no additional membership fees for NOM Participants that want to 
transact on The Nasdaq Stock Market.
    \14\ 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. The pricing changes proposed 
above are generally designed to attract additional order flow to the 
Exchange, which strengthens the Exchange's competitive position. 
Greater liquidity benefits all market participants by providing more 
trading opportunities and attracting greater participation by market 
makers. An increase in the activity of these market participants in 
turn facilitates tighter spreads.
    The Exchange 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 and rebates to remain 
competitive. Because competitors are free to modify their own fees and 
rebates in response, the Exchange believes that the degree to which 
pricing changes in this market may impose any burden on competition is 
extremely limited.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\15\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may 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-2019-011 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2019-011. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent

[[Page 10164]]

amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
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. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2019-011, and should be submitted on or before April 9, 2019.

    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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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05087 Filed 3-18-19; 8:45 am]
BILLING CODE 8011-01-P