Document ID: SEC-2013-0917-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2013-05-16T04:00Z

[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28912-28917]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11636]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69559; File No. SR-NASDAQ-2013-074]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Penny Pilot Options and Non-Penny Pilot Options

May 10, 2013.
    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 April 30, 2013, 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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[[Page 28913]]

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 certain Penny Pilot Options \3\ Rebates to Add Liquidity and Non-
Penny Pilot Fees for Adding Liquidity applicable to Firms,\4\ Non-NOM 
Market Makers \5\ and Broker Dealers.\6\
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    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through June 30, 2013. 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); 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); 65969 (December 15, 2011), 76 
FR 79268 (December 21, 2011) (SR-NASDAQ-2011-169) (notice of filing 
and immediate effectiveness extension and replacement of Penny 
Pilot); 67325 (June 29, 2012), 77 FR 40127 (July 6, 2012) (SR-
NASDAQ-2012-075) (notice of filing and immediate effectiveness and 
extension and replacement of Penny Pilot through December 31, 2012); 
and 68519 (December 21, 2012), 78 FR 136 (January 2, 2013) (SR-
NASDAQ-2012-143) (notice of filing and immediate effectiveness and 
extension and replacement of Penny Pilot through June 30, 2013). See 
also NOM Rules, Chapter VI, Section 5.
    \4\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \5\ The term ``Non-NOM Market Maker'' or (``O'') is a registered 
market maker on another options exchange that is not a NOM Market 
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market 
Maker designation to orders routed to NOM.
    \6\ The term ``Broker-Dealer'' or (``B'') applies to any 
transaction which is not subject to any of the other transaction 
fees applicable within a particular category.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on May 1, 
2013.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2(1) governing the rebates and fees assessed for option 
orders entered into NOM. The Exchange proposes to adopt certain tiered 
pricing for Firms, Non-NOM Market Makers and Broker-Dealers with 
respect to Penny Pilot Options Rebates to Add Liquidity and Non-Penny 
Pilot Options Fees for Adding Liquidity.
    Today, the Exchange offers tiered Penny Pilot Options Rebates to 
Add Liquidity to Customers,\7\ Professionals \8\ and NOM Market Makers 
\9\ and a $0.10 per contract Penny Pilot Options Rebate to Add 
Liquidity to Firms, Non-NOM Market Makers and Broker-Dealers. With 
respect to Customers and Professionals, the Exchange pays Penny Pilot 
Options Rebates to Add Liquidity based on various criteria with rebates 
ranging from $0.25 to $0.48 per contract as follows:
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    \7\ The term ``Customer'' 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)). The 
Customer and Professional Rebates to Add Liquidity range from [sic].
    \8\ The term ``Professional'' 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.
    \9\ The term ``NOM Market Maker'' is a Participant that has 
registered as a Market Maker on NOM pursuant to Chapter VII, Section 
2, and must also remain in good standing pursuant to Chapter VII, 
Section 4. In order to receive NOM Market Maker pricing in all 
securities, the Participant must be registered as a NOM Market Maker 
in at least one security.

------------------------------------------------------------------------
                                                        Rebate to add
                              Monthly volume              liquidity
------------------------------------------------------------------------
Tier 1...............  Participant adds Customer                   $0.25
                        and Professional liquidity
                        of up to 0.20% of total
                        industry customer equity
                        and ETF option average
                        daily volume (``ADV'')
                        contracts per day in a
                        month.
Tier 2...............  Participant adds Customer                    0.40
                        and Professional liquidity
                        of 0.21% to 0.30% of total
                        industry customer equity
                        and ETF option ADV
                        contracts per day in a
                        month.
Tier 3...............   Participant adds Customer                   0.43
                        and Professional liquidity
                        of 0.31% to 0.49% of total
                        industry customer equity
                        and ETF option ADV
                        contracts per day in a
                        month.
Tier 4...............  Participant adds Customer                    0.45
                        and Professional liquidity
                        of 0.5% or more of total
                        industry customer equity
                        and ETF option ADV
                        contracts per day in a
                        month.
Tier 5 \a\...........  Participant adds (1)                         0.42
                        Customer and Professional
                        liquidity of 25,000 or
                        more contracts per day in
                        a month, (2) the
                        Participant has certified
                        for the Investor Support
                        Program set forth in Rule
                        7014, and (3) the
                        Participant executed at
                        least one order on
                        NASDAQ's equity market.
Tier 6 \b,c\.........  Participant has Total                        0.45
                        Volume of 130,000 or more
                        contracts per day in a
                        month, of which 25,000 or
                        more contracts per day in
                        a month must be Customer
                        or Professional liquidity.
Tier 7 \b,c\.........  Participant has Total                        0.47
                        Volume of 175,000 or more
                        contracts per day in a
                        month, of which 50,000 or
                        more contracts per day in
                        a month must be Customer
                        or Professional liquidity.
Tier 8 \b,c\.........  Participant (1) Has Total                    0.48
                        Volume of 325,000 or more
                        contracts per day in a
                        month, or (2) adds
                        Customer or Professional
                        liquidity of 1.00% or more
                        of national customer
                        volume in multiply-listed
                        equity and ETF options
                        classes in a month or (3)
                        adds Customer or
                        Professional liquidity of
                        60,000 or more contracts
                        per day in a month and NOM
                        Market Maker liquidity of
                        40,000 or more contracts
                        per day per month.
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[[Page 28914]]

    With respect to NOM Market Makers, the Exchange pays Penny Pilot 
Options Rebates to Add Liquidity based on various criteria in four 
tiers with rebates which range from $0.25 to $0.38 per contract as 
follows:

------------------------------------------------------------------------
                       Monthly volume         Rebate to add liquidity
------------------------------------------------------------------------
Tier 1..........  Participant adds NOM     $0.25
                   Market Maker liquidity
                   in Penny Pilot Options
                   of up to 39,999
                   contracts per day in a
                   month.
Tier 2..........  Participant adds NOM     $0.30
                   Market Maker liquidity
                   in Penny Pilot Options
                   of 40,000 to 89,999
                   contracts per day in a
                   month.
Tier 3..........  Participant and its      $0.37
                   affiliate under Common
                   Ownership qualify for
                   Tier 8 of the Customer
                   and Professional
                   Rebate to Add
                   Liquidity in Penny
                   Pilot Options.
Tier 4..........  Participant adds NOM     $0.28 or $0.38 in the
                   Market Maker liquidity   following symbols BAC, GLD,
                   in Penny Pilot Options   IWM, QQQ and VXX or $0.40 in
                   of 110,000 or more       SPY
                   contracts per day in a
                   month.
------------------------------------------------------------------------

    The Exchange proposes to amend the Firm, Non-NOM Market Maker and 
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity to pay a 
Participant that adds 15,000 contracts per day or more of Firm, Non-NOM 
Market Maker or Broker-Dealer liquidity in Penny Pilot Options or Non-
Penny Pilot Options in a given month a Penny Pilot Options Rebate to 
Add Liquidity of $0.20 per contract. The Exchange believes that the 
proposed Penny Pilot Options Rebate to Add Liquidity will encourage 
Firms, Non-NOM Market Makers and Broker-Dealers to transact additional 
liquidity on NOM.
    The Exchange also proposes to amend the Non-Penny Pilot Options 
Fees for Adding Liquidity for a Firm, Non-NOM Market Maker and Broker-
Dealer. Today, a Customer does not pay a Non-Penny Pilot Options Fee 
for Adding Liquidity. Professionals, Firms, Non-NOM Market Makers and 
Broker-Dealers pay a $0.45 per contract Non-Penny Pilot Options Fee for 
Adding Liquidity and a NOM Market Maker pays a $0.35 per contract Non-
Penny Pilot Options Fee for Adding Liquidity. The Exchange proposes to 
decrease the Firm, Non-NOM Market Maker and Broker-Dealer Non-Penny 
Pilot Options Fees for Adding Liquidity from $0.45 to $0.36 per 
contract provided a Participant adds 15,000 contracts per day or more 
of Firm, Non-NOM Market Maker or Broker-Dealer liquidity in Penny Pilot 
Options or Non-Penny Pilot Options in a given month. The Exchange 
believes that the proposed reduced Non-Penny Pilot Options Fees for 
Adding Liquidity will encourage Firms, Non-NOM Market Makers and 
Broker-Dealers to provide additional liquidity on NOM.
    The Exchange proposes to add a new note 2 to describe the rebate 
and reduced fee as described herein to Chapter XV, Section 2(1).
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\10\ in general, and with 
Section 6(b)(4) of the Act,\11\ in particular, in that they provide 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 as described in detail below.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed Firm, Non-NOM Market Maker 
and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity are 
reasonable because a Firm, Non-NOM Market Maker and Broker-Dealer have 
the opportunity to obtain an increased rebate, similar to Customers, 
Professionals and NOM Market Makers today,\12\ by transacting 15,000 
contracts per day or more of Penny Pilot Options or Non-Penny Pilot 
Options liquidity in a given month.
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    \12\ Customers and Professionals Penny Pilot Option Rebates to 
Add Liquidity are based on various criteria with rebates ranging 
from $0.25 to $0.48 per contract. A NOM Market Maker is paid a Penny 
Pilot Options Rebate to Add Liquidity based on various criteria in 
four tiers with rebates which range from $0.25 to $0.38 per 
contract. See Chapter XV, Section 2(1).
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    The Exchange believes that the proposed Firm, Non-NOM Market Maker 
and Broker-Dealer Penny Pilot Options Rebates to Add Liquidity are 
equitable and not unfairly discriminatory because the Exchange would 
continue to offer Customers, Professionals and NOM Market Makers an 
opportunity to obtain higher rebates. The Exchange believes that 
continuing to pay Customers and Professionals tiered Rebates to Add 
Liquidity in Penny Pilot Options, as compared to other market 
participants, is equitable and not unfairly discriminatory because 
Customers are entitled to higher rebates because Customer order flow 
brings unique benefits to the market through increased liquidity which 
benefits all market participants. The Exchange believes that continuing 
to offer Professionals the same Penny Pilot Options Rebates to Add 
Liquidity as Customers is equitable and not unfairly discriminatory 
because the Exchange believes that offering Professionals the 
opportunity to earn the same rebates as Customers, as is the case 
today, and higher rebates as compared to Firms, Broker-Dealers and Non-
NOM Market Makers, and in some cases NOM Market Makers, is equitable 
and not unfairly discriminatory because the Exchange does not believe 
that the amount of the rebate offered by the Exchange has a material 
impact on a Participant's ability to execute orders in Penny Pilot 
Options. By offering Professionals, as well as Customers, higher 
rebates, the Exchange hopes to simply remain competitive with other 
venues so that it remains a choice for market participants when posting 
orders and the result may be additional Professional order flow for the 
Exchange, in addition to increased Customer order flow.
    In addition, a Participant may not be able to gauge the exact 
rebate tier it would qualify for until the end of the month because 
Professional volume would be commingled with Customer volume in 
calculating tier volume.\13\ A Professional could only otherwise 
presume the Tier 1 rebate would be achieved in a month when determining 
price.\14\ Further, the Exchange initially established Professional 
pricing in order to ``. . . bring additional revenue to the Exchange.'' 
\15\ The Exchange noted in

[[Page 28915]]

the Professional Filing that it believes ``. . . that the increased 
revenue from the proposal would assist the Exchange to recoup fixed 
costs.'' \16\ The Exchange also noted in that filing that it believes 
that establishing separate pricing for a Professional, which ranges 
between that of a customer and market maker, accomplishes this 
objective.\17\ The Exchange does not believe that providing 
Professionals with the opportunity to obtain higher rebates equivalent 
to that of a Customer creates a competitive environment where 
Professionals would be necessarily advantaged on NOM as compared to NOM 
Market Makers, Firms, Broker-Dealers or Non-NOM Market Makers. Also, a 
Professional is assessed the same fees as other market participants, 
except Customers and NOM Market Makers, as discussed herein.\18\ For 
these reasons, the Exchange believes that continuing to offer 
Professionals the same rebates as Customers is equitable and not 
unfairly discriminatory. Finally, the Exchange believes that NOM Market 
Makers should be offered the opportunity to earn higher rebates as 
compared to Non-NOM Market Makers, Firms and Broker Dealers because NOM 
Market Makers add value through continuous quoting \19\ and the 
commitment of capital. Firms, Non-NOM Market Makers and Broker-Dealers 
would continue to be offered the same Penny Pilot Options Rebate to Add 
Liquidity, as is the case today, except, similar to other market 
participants, Firms, Non-NOM Market Makers and Broker-Dealers would 
have the opportunity to earn a higher Penny Pilot Options Rebate to Add 
Liquidity if they transact 15,000 contract per day or more of Penny 
Pilot Options or Non-Penny Pilot Options liquidity in a given month. 
The volume requirement for Firms, Non-NOM Market Makers and Broker-
Dealers to qualify for the higher Penny Pilot Options Rebate to Add 
Liquidity is less than is required to earn a Tier 1 Customer or 
Professional Rebate to Add Liquidity in Penny Pilot Options or a Tier 1 
NOM Market Maker Rebate to Add Liquidity in Penny Pilot Option.\20\ The 
proposed Firm, Non-NOM Market Maker and Broker-Dealer Penny Pilot 
Options Rebate to Add Liquidity of $0.20 per contract is the same for 
these market participants and would be uniformly applied to all 
Participants that qualify for the increased rebate.
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    \13\ Customer and Professional volume is aggregated for purposes 
of determining which rebate tier a Participant qualifies for with 
respect to the Professional Rebate to Add Liquidity in Penny Pilot 
Options.
    \14\ A Professional would be unable to determine the exact 
rebate that would be paid on a transaction by transaction basis with 
certainty until the end of a given month when all Customer and 
Professional volume is aggregated for purposes of determining which 
tier the Participant qualified for in a given month.
    \15\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066) 
(``Professional Filing''). In this filing, the Exchange addressed 
the perceived favorable pricing of Professionals who were assessed 
fees and paid rebates like a Customer prior to the filing. The 
Exchange noted in that filing that a Professional, unlike a retail 
Customer, has access to sophisticated trading systems that contain 
functionality not available to retail Customers.
    \16\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
    \17\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066). The Exchange 
noted in this filing that it believes the role of the retail 
customer in the marketplace is distinct from that of the 
professional and the Exchange's fee proposal at that time accounted 
for this distinction by pricing each market participant according to 
their roles and obligations.
    \18\ The Fee for Removing Liquidity in Penny Pilot Options is 
$0.48 per contract for all market participants, except Customers and 
NOM Market Makers. Customers are assessed $0.45 per contract and NOM 
Market Makers would continue to be assessed $0.47 per contract.
    \19\ 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.
    \20\ The 15,000 contract threshold for Firms, Non-NOM Market 
Makers and Broker-Dealers to earn the Penny Pilot Options Rebate to 
Add Liquidity equates to approximately 0.12% of the industry 
customer equity and ETF volume.
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    The Exchange's proposal to decrease the Firm, Non-NOM Market Maker 
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity 
from $0.45 to $0.36 per contract if a Firm, Non-NOM Market Maker or 
Broker-Dealer transacts 15,000 contracts per day or more of Penny Pilot 
Options or Non-Penny Pilot Options liquidity in a given month is 
reasonable because a Firm, Non-NOM Market Maker and Broker-Dealer have 
the opportunity to lower their transaction fees by transacting 
additional liquidity on NOM.
    The Exchange's proposal to decrease the Firm, Non-NOM Market Maker 
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity 
from $0.45 to $0.36 per contract if a Firm, Non-NOM Market Maker or 
Broker-Dealer transacts 15,000 contracts per day or more of Penny Pilot 
Options or Non-Penny Pilot Options liquidity in a given month is 
equitable and not unfairly discriminatory because the Exchange would 
continue to assess Firms, Non-NOM Market Makers and Broker-Dealers the 
same Non-Penny Pilot Options Fees for Adding Liquidity, as is the case 
today, except, similar to other market participants, Firms, Non-NOM 
Market Makers and Broker-Dealers would have the opportunity to reduce 
Non-Penny Pilot Options Fees for Adding Liquidity if they transact 
15,000 contract per day or more of Penny Pilot Options or Non-Penny 
Pilot Options liquidity in a given month. Today, Customers are not 
assessed a Non-Penny Pilot Options Fee for Adding Liquidity because 
Customer order flow is unique and benefits all market participants. A 
NOM Market Maker would continue to be assessed lower fees as compared 
to Firms, Non-NOM Market Makers and Broker-Dealers in Non-Penny Pilot 
Fees for Adding Liquidity ($0.35 per contract for a NOM Market Maker as 
compared to other market participants), even with the proposed reduced 
fee of $0.36 per contract, because, as mentioned herein, NOM Market 
Makers add value through continuous quoting \21\ and the commitment of 
capital. The proposed reduced Firm, Non-NOM Market Maker and Broker-
Dealer Non-Penny Pilot Options Fee for Adding Liquidity of $0.26 per 
contract is the same for Firms, Non-NOM Market Makers and Broker-
Dealers, and would be uniformly applied to all Participants that 
qualify for the reduced fee.
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    \21\ See note 19.
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    The Exchange believes that not offering Professionals the same 
reduction in Non-Penny Pilot Options Fees for Adding Liquidity is 
reasonable because Professionals have the opportunity to earn 
significantly higher rebates for adding liquidity in Penny Pilot 
Options, as compared to Firms, Non-NOM Market Makers and Broker-
Dealers, which should continue to incentivize Professionals to add 
liquidity to the Exchange in Penny Pilot Options, which account for 
approximately 80% of the industry volume every month. The Exchange 
believes that the Penny Pilot Options Professional rebate tiers, which 
requires Professionals to add a certain amount of Penny Pilot Options 
liquidity per month and liquidity in either Penny Pilot Options or Non-
Penny Pilot Options for purposes of Tiers 6, 7 or 8,\22\ incentivizes 
Professionals to add Non-Penny Pilot Options liquidity on NOM. Further, 
Professionals average effective rate to add liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options has a high probability of being 
lower than the average effective rate for a Firm, Non-NOM Market Maker 
or Broker-Dealers to add liquidity in Penny Pilot Options or Non-Penny 
Pilot Options in any given month, despite the Exchange's decision to 
not offer a Professional the opportunity to reduce

[[Page 28916]]

Non-Penny Pilot Fees for Adding Liquidity in certain circumstances. By 
way of example, if a Professional and a Firm add liquidity volume, 
which volume is evenly split between Penny Pilot Options and Non-Penny 
Pilot Options and both achieve the maximum rebate opportunity 
available, the Professional's effective rate to add liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options would be an average 
effective rebate of $0.015 per contract, while the Firm's effective 
rate would be an average effective fee of $0.08 per contract. 
Otherwise, the Non-Penny Pilot Options Fees for Adding Liquidity are 
the same for all market participants, except Customers, when a Firm, 
Non-NOM Market Maker or Broker-Dealer does not otherwise qualify for 
the reduced fee. The Exchange believes that its proposal to reduce the 
Firm, Non-NOM Market Maker and Broker-Dealer Fees for Adding Liquidity 
in Non-Penny Pilot Options, only when a Firm, Non-NOM Market Maker or 
Broker-Dealer adds liquidity of 15,000 contracts per day or more of 
Penny Pilot Options or Non-Penny Pilot Options volume in a given month, 
is equitable and not unfairly discriminatory because of the potential a 
Professional has to achieve higher rebates in Penny Pilot Options, 
particularly when such volume is aggregated with Customer volume and, 
in certain cases, includes liquidity in either Penny Pilot Options or 
Non-Penny Pilot Options.
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    \22\ Tiers 6, 7 or 8 of the Professional Penny Pilot Options 
Rebate to Add Liquidity permits Participants to add Total Volume 
which is defined as Customer, Professional, Firm, Broker-Dealer, 
Non-NOM Market Maker and NOM Market Maker volume in Penny Pilot 
Options and Non-Penny Pilot Options which either adds or removes 
liquidity on NOM.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.
    Customers have traditionally been paid the highest rebates offered 
by options exchanges. The Exchange does not believe that providing 
Professionals with the opportunity to obtain higher rebates equivalent 
to that of a Customer creates an undue burden on competition where 
Professionals would be necessarily advantaged on NOM as compared to NOM 
Market Makers, Firms, Broker-Dealers or Non-NOM Market Makers because 
the Exchange does not believe that the amount of the rebate offered by 
the Exchange has a material impact on a Participant's ability to 
execute orders in Penny Pilot Options. The Exchange does not believe 
the proposed rebate tiers would result in any burden on competition as 
between market participants because the remaining market participants, 
Firms, Non-NOM Market Makers and Broker-Dealers would continue to earn 
uniform rebates today and have the opportunity to earn the same 
enhanced rebate. The Exchange believes that incentivizing Firms, Non-
NOM Market Makers and Broker-Dealers to transact a greater number of 
Penny Pilot Options or Non-Penny Pilot Options brings greater liquidity 
to the Exchange.
    The Exchange's proposal to decrease the Firm, Non-NOM Market Maker 
and Broker-Dealer Non-Penny Pilot Options Fees for Adding Liquidity, 
provided those Participants transacted 15,000 contracts per day or more 
of Penny Pilot Options or Non-Penny Pilot Options liquidity in a given 
month, does not misalign the current fees on NOM. These market 
participants would continue to pay uniform transaction fees as compared 
to other market participants. Customers would not pay such a fee, as is 
the case today because of the unique benefits attributed to Customer 
order flow, and NOM Market Makers would continue to be assessed a more 
favorable fee, despite the fee reduction offered to Firms, Non-NOM 
Market Makers and Broker-Dealers because NOM Market Makers have 
obligations \23\ to the market which are not borne by other market 
participants and therefore the Exchange believes that NOM Market Makers 
are entitled to a lower fee as compared to other market participants, 
except Customers.
---------------------------------------------------------------------------

    \23\ See note 19.
---------------------------------------------------------------------------

    With respect to the Non-Penny Pilot Options Fees for Adding 
Liquidity, the Exchange noted that Professionals have the opportunity 
to earn significantly higher Penny Pilot Options Rebates for Adding 
Liquidity as compared to Firms, Non-NOM Market Makers and Broker-
Dealers by qualifying for rebate tiers which aggregates Penny Pilot 
Options volume and Non-Penny Pilot Options volume, in certain 
circusmtances [sic],\24\ as well as volume from Customer executions. 
The Exchange believes that its proposal to reduce the Firm, Non-NOM 
Market Maker and Broker-Dealer Non-Penny Pilot Options Fees for Adding 
Liquidity only when a Firm, Non-NOM Market Maker or Broker-Dealer adds 
liquidity of 15,000 contracts per day or more of Penny Pilot Options or 
Non-Penny Pilot Options volume in a given month does not create an 
undue burden on competition given the opportunity for Professionals to 
qualify for higher Penny Pilot Options rebates.
---------------------------------------------------------------------------

    \24\ See note 22.
---------------------------------------------------------------------------

    The Exchange believes the differing outcomes, rebates and fees 
created by the Exchange's proposed pricing incentives contribute to the 
overall health of the market place for the benefit of all Participants 
that willing choose to transact options on NOM. For the reasons 
specified herein, the Exchange does not believe this proposal creates 
an undue burden on competition. The Exchange operates in a highly 
competitive market comprised of eleven U.S. options exchanges in which 
many sophisticated and knowledgeable market participants can readily 
and do send order flow to competing exchanges if they deem fee levels 
or rebate incentives at a particular exchange to be excessive or 
inadequate. These market forces support the Exchange belief that the 
proposed rebate structure and tiers proposed herein are competitive 
with rebates and tiers in place on other exchanges. The Exchange 
believes that this competitive marketplace continues to impact the 
rebates present on the Exchange today and substantially influences the 
proposals set forth above.

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.\25\ 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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    \25\ 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, 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

[[Page 28917]]

Number SR-NASDAQ-2013-074 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-2013-074. 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-2013-074, and should 
be submitted on or before June 6, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11636 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P