Document ID: SEC-2010-1135-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-07-27T04:00Z

[Federal Register: July 27, 2010 (Volume 75, Number 143)]
[Notices]               
[Page 44037-44040]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy10-143]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62543; File No. SR-NASDAQ-2010-075]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by The NASDAQ Stock Market LLC 
Relating to Fees for Execution of Contracts on the NASDAQ Options 
Market

July 21, 2010.
    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 June 30, 2010, 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 Exchange Rule 7050 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: (i) Modify pricing for 
both Penny Pilot\3\ Options and All Other Options with respect to the 
fees for adding \4\ and removing liquidity \5\ as well as the rebates 
for adding and removing liquidity; (ii) eliminate the rebates for 
adding and fees for removing liquidity in options overlying Standard 
and Poor's Depositary Receipts/SPDRs (``SPY''),\6\ PowerShares QQQ 
Trust (``QQQQ'')[supreg] and Ishares Russell 2000 (``IWM''); (iii) 
eliminate the fee for an order that executes against another order 
entered by the same firm; and (iv) allow a rebate for Customer orders 
which execute against other customer orders.
---------------------------------------------------------------------------

    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2010. See 
Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and 
immediate effectiveness establishing Penny Pilot); 60874 (October 
23, 2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-091) 
(notice of filing and immediate effectiveness expanding and 
extending Penny Pilot); 60965 (November 9, 2009), 74 FR 59292 
(November 17, 2009) (SR-NASDAQ-2009-097) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR-NASDAQ-
2010-013) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); and 62029 (May 4, 2010), 75 FR 
25895 (May 10, 2010) (SR-NASDAQ-2010-053) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot). 
See also Exchange Rule Chapter VI, Section 5.
    \4\ An order that adds liquidity is one that is entered into NOM 
and rests on the NOM book.
    \5\ An order that removes liquidity is one that is entered into 
NOM and that executes against an order resting on the NOM book.
    \6\ SPY options are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 500 
Index.
---------------------------------------------------------------------------

    While changes pursuant to this proposal are effective upon filing, 
the Exchange has designated these changes to be operative for 
transactions on July 1, 2010.
    The text of the proposed rule change is set forth below. Proposed 
new text is in italic and deleted text is in [brackets].

7050. NASDAQ Options Market

The following charges shall apply to the use of the order execution and 
routing services of the NASDAQ Options Market for all securities.

(1) Fees for Execution of Contracts on the NASDAQ Options Market

                                                Fees and Rebates
                                             (per executed contract)
----------------------------------------------------------------------------------------------------------------
                                                                                  Non-NOM market    NOM market
                                                     Customer          Firm            maker           maker
----------------------------------------------------------------------------------------------------------------
Penny Pilot Options:
    Rebate to Add Liquidity.....................       $0.[25]32       $0.[25]10           $0.25       $0.[25]30
    Fee for Removing Liquidity..................       $0.[35]40           $0.45           $0.45           $0.45
[IWM, QQQQ, SPY]
    [Rebate to Add Liquidity]...................         [$0.30]         [$0.30]         [$0.30]         [$0.30]
    [Fee for Removing Liquidity]................         [$0.35]         [$0.45]         [$0.45]         [$0.45]
NDX and MNX
    Rebate to Add Liquidity.....................           $0.10           $0.10           $0.10           $0.20
    Fee for Removing Liquidity..................           $0.50           $0.50           $0.50           $0.40
All Other Options:
    Fee for Adding Liquidity....................     [Free]$0.00       $0.[30]45       $0.[30]45           $0.30
    Fee for Removing Liquidity..................        [-]$0.40        $0.4[0]5           $0.45           $0.45
    Rebate [for] to [Removing] Add Liquidity[*].           $0.20        [-]$0.00        [-]$0.00        $0.00[-]
----------------------------------------------------------------------------------------------------------------

[Transactions in which the same participant is the buyer and the seller 
shall be charged a net fee of $0.10 per executed contract.]

[*No rebate will be paid when a customer order executes against another 
customer order.]
* * * * *
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqomx.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

[[Page 44038]]

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
    NASDAQ is proposing to modify Rule 7050 governing the fees assessed 
for options orders entered into NOM. Specifically, NASDAQ is proposing 
to modify pricing for both Penny Pilot Options and All Other Options 
with respect to the fees for adding and removing liquidity as well as 
the rebates for adding liquidity. These amendments to the fees are part 
of the Exchange's continued effort to attract and enhance participation 
in NOM. By amending its fees, NASDAQ seeks to encourage industry market 
makers to participate as registered market makers on NOM in order to 
attract additional liquidity.
    Currently, NASDAQ distinguishes between options that are included 
in the Penny Pilot and those that are not.
    Penny Options--Adding Liquidity: The Exchange currently pays a 
rebate of $0.25 per executed contract to members providing liquidity 
through NOM in options included in the Penny Pilot and in the capacity 
of ``Customer'', ``firm'', ``NOM Market Maker'' \7\ or ``Non-NOM Market 
Maker'' \8\. The Exchange proposes to amend these fees as follows: 
Customers would be rebated $0.32 per contract instead of $0.25 per 
contract; a firm would be rebated $0.10 per contract instead of $0.25 
per contract; and a NOM Market Maker would be rebated $0.30 per 
contract instead of $0.25 per contract.\9\
---------------------------------------------------------------------------

    \7\ A NOM Market Maker must be registered as such pursuant to 
Chapter VII, Section 2 of Exchange rules, and must remain in good 
standing pursuant to Chapter VII, Section 2. In order to receive NOM 
Market Maker pricing in all securities, the firm must be registered 
as a NOM Market Maker in at least one security.
    \8\ A Non-NOM Market Maker is a registered market maker on 
another options market that appends the market maker designation to 
orders executed on NOM.
    \9\ A Non-NOM Market Maker would continue to be rebated $0.25 
per contract.
---------------------------------------------------------------------------

    Penny Options--Removing Liquidity: The Exchange assesses a fee to 
members removing liquidity through NOM in options included in the Penny 
Pilot and charges a fee of $0.35 per executed contract to Customers for 
removing such liquidity and a fee of $0.45 per executed contract to 
members in the capacity of firm, NOM Market Maker and Non-NOM Market 
Maker for removing liquidity. The Exchange proposes to amend these fees 
as follows: Customers would be assessed $0.40 per contract instead of 
$0.35 per contract.\10\
---------------------------------------------------------------------------

    \10\ A firm, NOM Market Maker and Non-NOM Market Maker would 
continue to be assessed $0.45 per contract.
---------------------------------------------------------------------------

    Non-Penny Options--Adding Liquidity: The Exchange assesses a fee of 
$0.30 per executed contract to members providing liquidity through NOM 
in options not included in the Penny Pilot (under the category of All 
Other Options) in the capacity of firm, NOM Market Maker and Non-NOM 
Market Maker. The Exchange currently assesses no execution fees for 
members adding liquidity through NOM, in All Other Options, with an 
account type Customer, and will continue to assess no fee. The Exchange 
proposes to amend these fees for adding liquidity as follows: a firm 
would be assessed $0.45 per contract instead of $0.30 per contract; and 
a Non-NOM Market Maker would be assessed a fee of $0.45 per contract 
instead of $0.30 per contract.\11\
---------------------------------------------------------------------------

    \11\ The fees currently assessed on NOM Market Makers for adding 
liquidity in Non-Penny Options (All Other Options) will remain the 
same.
---------------------------------------------------------------------------

    Non-Penny Options--Removing Liquidity: The Exchange assesses fees 
to members removing liquidity through NOM in All Other Options and 
charges a fee of $0.40 per executed contract to members removing 
liquidity in the capacity of firm and a fee of $0.45 per executed 
contract to members removing liquidity in the capacity of NOM Market 
Maker and Non-NOM Market Maker. The Exchange currently assesses no 
execution fees for members removing liquidity through NOM, in All Other 
Options, with an account type Customer. The Exchange proposes to amend 
these fees for removing liquidity as follows: a Customer would be 
assessed $0.40 per contract instead of $0.00 and a firm would be 
assessed a fee of $0.45 per contract instead of $0.40.\12\
---------------------------------------------------------------------------

    \12\ The fees currently assessed on NOM Market Makers and Non-
NOM Market Makers for removing liquidity in Non-Penny Options (All 
Other Options) will remain the same.
---------------------------------------------------------------------------

    Non-Penny Options--Rebates: The Exchange currently provides a 
rebate for removing liquidity through NOM in Non-Penny Options (All 
Other Options) of $0.20 per executed contract to members acting in the 
capacity of Customer. The Exchange proposes to pay a rebate to add 
liquidity through NOM in All Other Options of $0.20 per executed 
contract to members acting in the capacity of Customer and eliminate 
the rebate for removing liquidity.\13\
---------------------------------------------------------------------------

    \13\ The Exchange currently does not provide firms, NOM Market 
Makers and Non-NOM Market Makers rebates in Non-Penny options (All 
Other Options) and is not proposing any changes at this time for 
these members.
---------------------------------------------------------------------------

    Elimination of IWM, QQQQ and SPY: The Exchange currently pays a 
rebate of $0.30 per executed contract to all members for adding 
liquidity in options overlying IWM, QQQQ and SPY. The Exchange also 
currently assesses a fee of $0.35 per executed contract to members 
removing liquidity through NOM in options overlying IWM, QQQQ and SPY 
in the capacity of Customer and a fee of $0.45 per executed contract to 
all members removing liquidity in the capacity of firm, NOM Market 
Maker and Non-NOM Market Maker.
    The Exchange proposes to eliminate the rebate for adding liquidity 
and the fee for removing liquidity in options overlying IWM, QQQQ and 
SPY. Members would be assessed the rates currently applicable to Penny 
Pilot Options going forward. The Exchange no longer believes that these 
rebates and fees are necessary incentives to promote order flow in 
these symbols.
    Elimination of Fees: The Exchange currently assesses a net fee of 
$0.10 per executed contract when a member order executes against an 
order entered by the same firm. In other words, a transaction in which 
the same participant is both the buyer and the seller is currently 
assessed a net fee of $0.10 per contract. The Exchange is proposing to 
eliminate this fee as the Exchange believes that this fee is no longer 
necessary. The fee was initially enacted to change the distinction 
between orders that interact with other members' orders and those that 
interact with orders from the same firm. At this time, the Exchange 
believes that this distinction is no longer necessary to compete for 
order flow.
    Similarly, the Exchange proposes to eliminate the text which states 
that ``No rebate will be paid when a customer order executes against 
another customer order.'' The Exchange believes that this distinction 
is no longer necessary and that the elimination of this language will 
afford Customers additional rebates and create additional incentives to 
enhance participation in NOM.
    While changes pursuant to this proposal are effective upon filing, 
the Exchange has designated these changes to be operative for 
transactions on July 1, 2010.
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\14\ in general, and with 
Section 6(b)(4) of the Act,\15\ in particular, in that it provides

[[Page 44039]]

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. The Exchange believes the 
proposed amendments to the fees and rebates for adding and removing 
liquidity are equitable and reasonable because they are within the 
range of fees assessed by other exchanges employing similar pricing 
schemes and that the proposed fees apply fairly to all similarly 
situated participants on NOM for reasons discussed in greater detail 
below.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    With respect to the proposed rebates for adding liquidity in Penny 
Options, the Exchange believes that its proposal to increase the 
current rebate of $0.25 per contract to $0.32 per contract for 
customers is both reasonable and equitable because the rebate is 
consistent with other rebates being paid in certain symbols at NYSE 
Arca, Inc. (``NYSE Arca'').\16\ Moreover, the Exchange is seeking to 
provide the appropriate incentives to broker-dealers acting as agent 
for customer orders to select the Exchange as a venue to post customer 
limit orders. The Exchange also proposes to increase the current rebate 
of $0.25 per contract to $0.30 per contract for NOM Market Makers. The 
Exchange believes that this increase is equitable and reasonable 
because the proposed increase is within the range of similar fees 
assessed by other exchanges, such as the price differential for market 
makers and other broker-dealer on other exchanges. Specifically, the 
rate differential between NOM Market Makers and Non-NOM Market Makers 
is currently similar to pricing distinctions employed at, the 
International Securities Exchange, Inc. (``ISE''),\17\ which assesses a 
Non-ISE Market Maker \18\ $0.45 per contract for trading in equity 
options, while an ISE Market Maker at the lowest tier (highest rate) is 
assessed $0.18 per contract.\19\ Finally, the Exchange has decreased 
the rebate from $0.25 per contract to $0.10 per contract for Firms. As 
with the other proposed changes, the Exchange believes that this 
proposal is reasonable because it is within the range of fees assessed 
at other exchanges and the proposed price differential is similar to 
other price differentials on other exchanges. For example, a Firm 
Proprietary order at ISE is assessed a maker fee of $0.10 per contract 
while a Market Maker Plus receives a $0.10 per contract rebate in ISE's 
select symbols.\20\ In addition to the fair price differential, the 
Exchange believes its proposed fee changes are just and equitable 
because market makers have obligations to the market place and 
regulatory burdens placed on them that other broker-dealers trading for 
their own account do not currently endure.
---------------------------------------------------------------------------

    \16\ See NYSE Arca's Fee Schedule.
    \17\ See ISE's Schedule of Fees.
    \18\ A Non-ISE Market Maker means a market maker as defined in 
Section 3(a)(38) of the Act registered in the same options class on 
another options exchange. See ISE's Schedule of Fees.
    \19\ See ISE's Schedule of Fees.
    \20\ See ISE's Schedule of Fees.
---------------------------------------------------------------------------

    The Exchange has also amended its fees for removing liquidity in 
Penny Options. The Exchange increased the fee for removing liquidity 
that is assessed to broker-dealers for customer orders from $0.35 per 
contract to $0.40 per contract. The Exchange believes that this 
amendment is reasonable and equitable because it is still less than the 
fee of $0.45 per contract that is currently assessed on Firms, NOM 
Market Makers and Non-NOM Market Makers and $0.05 less than the fees 
for removing liquidity at NYSEArca in Penny Options.\21\
---------------------------------------------------------------------------

    \21\ See NYSE Arca's Fee Schedule.
---------------------------------------------------------------------------

    The Exchange has also proposed to amend its fees in non-Penny 
Options (All Other Options). Specifically, the Exchange has increased 
its fees for adding liquidity for both Firms and Non-NOM Market Makers 
from $0.30 per contract to $0.45 per contract. The Exchange believes 
that these fees are reasonable because they are within the range of 
fees assessed in the industry. Further, the Exchange believes that it 
is equitable because the price differential exists currently on ISE. At 
ISE, a Non-ISE Market Maker (FARMM) is assessed a $0.20 per contract 
make fee in the select symbols, while a Market Maker is assessed $0.10 
per contract.\22\ As mentioned previously, there are also existing 
price differentials on ISE as between an ISE Market Maker and a Non-ISE 
Market Maker. As discussed, market makers have certain obligations to 
the market and regulatory requirements, which normally do not apply to 
Firms and Broker Dealers.\23\
---------------------------------------------------------------------------

    \22\ See ISE's Schedule of Fees.
    \23\ See Exchange Rules Section VII, Market Participants, 
Sections 5, Obligations of Market Makers, and Section 6, Market 
Maker Quotations.
---------------------------------------------------------------------------

    Additionally, the Exchange is proposing to assess to a customer a 
$0.40 per contract fee for removing liquidity. Currently, customer 
orders do not pay for removing liquidity. The Exchange believes that 
this fee proposal is reasonable because it is within the range of rates 
being assessed to other market participants and to broker-dealers for 
executing customer order in Penny Options at other exchanges. The 
Exchange also believes that this fee proposal is equitable because it 
is $0.05 per contract less the fees being assessed on Firms, NOM Market 
Makers and Non-NOM Market Makers. The Exchange also proposes to 
increase the fee for removing liquidity that is being assessed on Firms 
from $0.40 per contract to $0.45 per contract. The Exchange believes 
that this proposal is both reasonable and equitable because it is the 
exact fee currently being assessed on NOM Market Makers and Non-NOM 
Market Makers. Keeping rates reasonable for customer orders is 
necessary to provide incentives for customer order flow in a mature, 
highly competitive market place. Finally, the Exchange is amending All 
Other Options to convert its rebate for removing liquidity to a rebate 
for adding liquidity. The Exchange proposes to pay a rebate to customer 
orders for adding liquidity of $.20. The Exchange was previously paying 
customer orders that removed liquidity $.20. The Exchange believes that 
this proposal is reasonable because customers are still receiving a 
rebate, but for adding versus removing liquidity. Also, the Exchange 
believes that the proposal is equitable because broker-dealers acting 
as agent for customer orders will be eligible to receive rebates 
similar to rebates found on other exchange for certain symbols. Also, 
the rebate serves to incentivize increased customer order flow to be 
sent to the Exchange for the benefit of all market participants.
    The Exchange also believes that its proposal to eliminate the 
rebate to add liquidity and fee for removing liquidity for options 
overlying IWM, QQQQ and SPY is both reasonable and equitable because 
the Exchange is proposing to remove these fees for all participants. 
The same applies to the Exchange proposal to eliminate the $0.10 net 
fee for executed contracts which applies to transactions in which the 
same participant is the buyer and the seller as it was rarely assessed.
    NASDAQ is one of eight options market in the national market system 
for standardized options. It is a mature, robust market that is highly 
competitive. Joining NASDAQ and electing to trade options is entirely 
voluntary. Under these circumstances, NASDAQ's fees must be 
competitive, fair and just in order for NASDAQ to attract order flow, 
execute orders, and grow as a market. NASDAQ thus believes that its 
fees are equitable, fair and reasonable and consistent with the 
Exchange Act.

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

[[Page 44040]]

necessary or appropriate in furtherance of the purposes of the Act.

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 \24\ and paragraph (f)(2) of Rule 19b-4 \25\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate 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.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \25\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-075 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2010-075. This 
file number should be included on the subject line if e-mail 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 a.m. and 3 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-2010-075 and should be submitted on or before August 17, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-18404 Filed 7-26-10; 8:45 am]
BILLING CODE 8010-01-P