Document ID: SEC-2014-0432-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2014-03-18T04:00Z

[Federal Register Volume 79, Number 52 (Tuesday, March 18, 2014)]
[Notices]
[Pages 15198-15201]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05857]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71697; File No. SR-NASDAQ-2014-021]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Routing Fees

March 12, 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 March 4, 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 its Customer Routing Fees.
    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. 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 purpose of this filing is to amend the Routing Fees in Chapter 
XV, Section 2(3) to recoup costs incurred by the Exchange to route 
orders to away markets.
    Today, the Exchange assesses a Non-Customer a $0.95 per contract 
Routing Fee to any options exchange. The Customer \3\ Routing Fee for 
option orders routed to NASDAQ OMX PHLX LLC (``PHLX'') is a $0.05 per 
contract Fixed Fee in addition to the actual transaction fee assessed. 
The Customer Routing Fee for option orders routed to NASDAQ OMX BX, 
Inc. (``BX Options'') is $0.00 per contract. The Customer Routing Fee 
for option orders routed to all other options exchanges \4\ (excluding

[[Page 15199]]

PHLX and BX Options) is a fixed fee of $0.20 per contract (``Fixed 
Fee'') in addition to the actual transaction fee assessed. If the away 
market pays a rebate, the Routing Fee is $0.00 per contract.
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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\ Including BATS Exchange, Inc. (``BATS''), BOX Options 
Exchange LLC (``BOX''), the Chicago Board Options Exchange, 
Incorporated (``CBOE''), C2 Options Exchange, Incorporated (``C2''), 
International Securities Exchange, LLC (``ISE''), the Miami 
International Securities Exchange, LLC (``MIAX''), NYSE Arca, Inc. 
(``NYSE Arca''), NYSE MKT LLC (``NYSE Amex'') and Topaz Exchange, 
LLC (``Gemini'').
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    With respect to the fixed costs, the Exchange incurs a fee when it 
utilizes Nasdaq Options Services LLC (``NOS''),\5\ a member of the 
Exchange and the Exchange's exclusive order router.\6\ Each time NOS 
routes an order to an away market, NOS is charged a clearing fee \7\ 
and, in the case of certain exchanges, a transaction fee is also 
charged in certain symbols, which fees are passed through to the 
Exchange. The Exchange currently recoups clearing and transaction 
charges incurred by the Exchange as well as certain other costs 
incurred by the Exchange when routing to away markets, such as 
administrative and technical costs associated with operating NOS, 
membership fees at away markets, Options Regulatory Fees (``ORFs''), 
staffing and technical costs associated with routing options. The 
Exchange assesses the actual away market fee at the time that the order 
was entered into the Exchange's trading system. This transaction fee is 
calculated on an order-by-order basis since different away markets 
charge different amounts.
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    \5\ The Exchange filed a proposed rule change to utilize Nasdaq 
Execution Services, LLC (``NES'') for outbound order routing. See 
Securities Exchange Act Release No. 71419 (January 28, 2014), 79 FR 
6253 (February 3, 2014) (SR-NASDAQ-2014-007). This filing has not 
yet been implemented. The Exchange intends to implement this filing 
in mid-March 2014.
    \6\ In May 2009, the Exchange adopted Rule 1080(m)(iii)(A) to 
establish NOS, a member of the Exchange, as the Exchange's exclusive 
order router. See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32). NOS is utilized 
by the Exchange's fully automated options trading system, PHLX 
XL[supreg].
    \7\ The Options Clearing Corporation (``OCC'') assesses $0.01 
per contract side.
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    The Exchange is proposing to assess market participants routing 
Customer orders to PHLX a $0.10 per contract Fixed Fee in addition to 
the actual transaction fee assessed. Today the Exchange assesses a 
$0.05 per contract Fixed Fee in addition to the actual transaction fee 
assessed with respect to Customer orders routed to PHLX. The Exchange 
would increase the Fixed Fee for Customer orders routed to PHLX from 
$0.05 to $0.10 per contract to recoup an additional portion of the 
costs incurred by the Exchange for routing these orders.
    Today the Exchange does not assess a fee with respect to Customer 
orders routed to BX Options. The Exchange noted in a previous rule 
change routing proposal that it would not assess a fee for Customer 
orders routed to BX Options because the Exchange retains the rebate 
that is paid by that market.\8\ In order words, the Exchange today does 
not assess a Routing Fee when routing Customer orders to BX Options 
because that exchange pays a rebate and instead of netting the customer 
rebate paid by BX Options against a fixed fee, the Exchange simply does 
not assess a fee. The Exchange is proposing to assess a $0.10 per 
contract Fixed Fee when routing Customer orders to BX Options in order 
to recoup a portion of the costs incurred by the Exchange for routing 
these orders. The Exchange does not assess the actual transaction fee 
assessed by BX Options, rather the Exchange only assesses the Fixed 
Fee, because the Exchange would continue to retain the rebate to offset 
the cost to route orders to BX Options. This is not the case for all 
orders routed to BX Options because not all Customer orders receive a 
rebate.\9\
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    \8\ See Securities Exchange Act Release No. 69391 (April 18, 
2013), 78 FR 24282 (April 24, 2013) (SR-NASDAQ-2013-064).
    \9\ BX Options pays a Customer Rebate to Remove Liquidity as 
follows: Customers are paid $0.32 per contract in All Other Penny 
Pilot Options (excluding BAC, IWM, QQQ, SPY and VXX) and $0.70 per 
contract in Non-Penny Pilot Options. See BX Options Rules at Chapter 
XV, Section 2(1).
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    Similarly, the Exchange is proposing to amend the Customer Routing 
Fee assessed when routing to all other options exchanges, if the away 
market pays a rebate, from a $0.00 to a $0.10 per contract Fixed Fee, 
in order to recoup an additional portion of the costs incurred by the 
Exchange for routing these orders. The Exchange does not assess the 
actual transaction fee assessed by the away market, rather the Exchange 
only assess the Fixed Fee, because the Exchange would continue to 
retain the rebate to offset the cost to route orders to these away 
markets. Today, the Exchange incurs certain costs when routing to away 
markets that pay rebates. The Exchange desires to recoup additional 
costs at this time.
2. Statutory Basis
    NASDAQ believes that its proposal to amend its fees is consistent 
with Section 6(b) of the Act \10\ in general, and furthers the 
objectives of Section 6(b)(4) and (b)(5) of the Act\11\ 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 or system which NASDAQ operates or controls, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that amending the Customer Routing Fee for 
orders routed to PHLX from a Fixed Fee of $0.05 to $0.10 per contract, 
in addition to the actual transaction fee, is reasonable because the 
Exchange desires to recoup an additional portion of the cost it incurs 
when routing Customer orders to PHLX. Today, the Exchange assesses 
orders routed to PHLX a lower Fixed Fee for routing Customer orders as 
compared to the Fixed Fee assessed to other options exchanges. The 
Exchange is proposing to increase the Fixed Fee to recoup additional 
costs that are incurred by the Exchange in connection with routing 
these orders on behalf of its members.
    The Exchange believes that amending the Customer Routing Fee for 
orders routed to BX Options from a Fixed Fee of $0.00 to $0.10 per 
contract is reasonable because the Exchange desires to recoup an 
additional portion of the cost it incurs when routing Customer orders 
to BX Options, similar to the amount of Fixed Fee it proposes to assess 
for orders routed to PHLX. The Exchange is proposing to assess a Fixed 
Fee to recoup additional costs that are incurred by the Exchange in 
connection with routing these orders on behalf of its members. While 
the Exchange would continue to retain any rebate paid by BX Options, 
the Exchange does not assess the actual transaction fee that is charged 
by BX Options for Customer orders.
    The Exchange believes that continuing to assess lower Fixed Fees to 
route Customer orders to PHLX and BX Options, as compared to other 
options exchanges, is reasonable as the Exchange is able to leverage 
certain infrastructure to offer those markets lower fees as explained 
further below. Similarly, the Exchange believes that amending the 
Customer Routing Fee to other away markets, other than PHLX and BX 
Options, in the instance the away market pays a rebate from a Fixed Fee 
of $0.00 to $0.10 per contract is reasonable because the Exchange 
desires to recoup an additional portion of the cost it incurs when 
routing orders to these away markets. While the Exchange would continue 
to retain any rebate paid by these away markets, the Exchange does not 
assess the actual transaction fee that is charged by the away market 
for Customer orders. The Fixed Fee for Customer orders is an 
approximation of the costs the Exchange will be charged for routing 
orders to away markets. As a general matter, the

[[Page 15200]]

Exchange believes that the proposed fees for Customer orders routed to 
markets which pay a rebate, such as BX Options and other away markets, 
would allow it to recoup and cover a portion of the costs of providing 
optional routing services for Customer orders because it better 
approximates the costs incurred by the Exchange for routing such 
orders. While each destination market's transaction charge varies and 
there is a cost incurred by the Exchange when routing orders to away 
markets, including, OCC clearing costs, administrative and technical 
costs associated with operating NOS, membership fees at away markets, 
ORFs and technical costs associated with routing options, the Exchange 
believes that the proposed Routing Fees will enable it to recover the 
costs it incurs to route Customer orders to away markets.
    The Exchange believes that amending the Customer Routing Fee for 
orders routed to PHLX from a Fixed Fee of $0.05 to $0.10 per contract, 
in addition to the actual transaction fee, is equitable and not 
unfairly discriminatory because the Exchange would assess the same 
Fixed Fee to all orders routed to PHLX in addition to the transaction 
fee assessed by that market. With respect to BX Options, the Exchange 
would uniformly assess a $0.10 per contract Fixed Fee for all orders 
routed to BX Options and would continue to uniformly not assess the 
actual transaction fee, as is the case today. The Exchange would 
uniformly assess a $0.10 per contract Fixed Fee to orders routed to 
NASDAQ OMX exchanges because the Exchange is passing along the saving 
realized by leveraging NASDAQ OMX's infrastructure and scale to market 
participants when those orders are routed to PHLX or BX Options and is 
providing those saving to all market participants. Furthermore, it is 
important to note that when orders are routed to an away market they 
are routed based on price first.\12\ The Exchange believes that it is 
equitable and not unfairly discriminatory to assess a fixed cost of 
$0.10 per contract to route orders to PHLX and BX Options because the 
cost, in terms of actual cash outlays, to the Exchange to route to 
those markets is lower. For example, costs related to routing to PHLX 
and BX Options are lower as compared to other away markets because NOS 
is utilized by all three exchanges to route orders.\13\ NOS and the 
three NASDAQ OMX options markets have a common data center and staff 
that are responsible for the day-to-day operations of NOS. Because the 
three exchanges are in a common data center, Routing Fees are reduced 
because costly expenses related to, for example, telecommunication 
lines to obtain connectivity are avoided when routing orders in this 
instance. The costs related to connectivity to route orders to other 
NASDAQ OMX exchanges are lower than the costs to route to a non-NASDAQ 
OMX exchange. When routing orders to non-NASDAQ OMX exchanges, the 
Exchange incurs costly connectivity charges related to 
telecommunication lines, membership and access fees, and other related 
costs when routing orders.
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    \12\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order 
Routing).
    \13\ See Chapter VI, Section 11 of the BX Options. See also PHLX 
Rule 1080(m)(iii)(A).
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    The Exchange believes that amending the Customer Routing Fee to 
other away markets, other than PHLX and BX Options, in the instance the 
away market pays a rebate from a Fixed Fee of $0.00 to $0.10 per 
contract is equitable and not unfairly discriminatory because the 
Exchange would assess a lower Routing Fee, as compared to away markets 
that do not pay a rebate, because the Exchange retains the rebate that 
is paid by that market. The Exchange would assess the same Fixed Fee 
when routing Customer orders to a NASDAQ OMX exchange that pays a 
rebate as it would to route an order to an away market (non-NASDAQ OMX 
exchange) that pays a rebate. These proposals would apply uniformly to 
all market participants when routing to an away market that pays a 
rebate, other than PHLX and BX Options. Market participants may submit 
orders to the Exchange as ineligible for routing or ``DNR'' to avoid 
Routing Fees.\14\ Also, orders are routed to an away market based on 
price first.\15\
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    \14\ See note 12.
    \15\ See note 12.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act. The Exchange does not believe that the 
proposal creates a burden on intra-market competition because the 
Exchange is applying the same Routing Fees to all market participants 
in the same manner dependent on the routing venue, with the exception 
of Customers. The Exchange will continue to assess separate Customer 
Routing Fees. Customers will continue to receive the lowest fees as 
compared to non-Customers when routing orders, as is the case today. 
Other options exchanges also assess lower Routing Fees for customer 
orders as compared to non-customer orders.\16\
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    \16\ BATS assesses lower customer routing fees as compared to 
non-customer routing fees per the away market. For example BATS 
assesses ISE customer routing fees of $0.30 per contract and an ISE 
non-customer routing fee of $0.57 per contract. See BATS BZX 
Exchange Fee Schedule.
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    The Exchange's proposal would allow the Exchange to continue to 
recoup its costs when routing Customer orders to PHLX or BX Options as 
well as away markets that pay a rebate when such orders are designated 
as available for routing by the market participant. The Exchange 
continues to pass along savings realized by leveraging NASDAQ OMX's 
infrastructure and scale to market participants when Customer orders 
are routed to PHLX and BX Options and is providing those savings to all 
market participants. Today, other options exchanges also assess fixed 
routing fees to recoup costs incurred by the exchange to route orders 
to away markets.\17\
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    \17\ See CBOE's Fees Schedule and ISE's Fee Schedule.
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    Market participants may submit orders to the Exchange as ineligible 
for routing or ``DNR'' to avoid Routing Fees.\18\ It is important to 
note that when orders are routed to an away market they are routed 
based on price first.\19\
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    \18\ See note 12.
    \19\ See note 12.
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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.\20\ 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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    \20\ 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,

[[Page 15201]]

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-2014-021 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-2014-021. 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-2014-021 and should 
be submitted on or before April 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2014-05857 Filed 3-17-14; 8:45 am]
BILLING CODE 8011-01-P