Document ID: SEC-2013-1724-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2013-10-03T04:00Z

[Federal Register Volume 78, Number 192 (Thursday, October 3, 2013)]
[Notices]
[Pages 61439-61441]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24241]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70560; File No. NASDAQ-2013-124]

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

September 30, 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 September 19, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to amend the manner in which the Exchange assesses 
SQF Port fees which are located in Chapter XV, entitled ``Options 
Pricing,'' which governs pricing for NASDAQ members using the NASDAQ 
Options Market (``NOM''), NASDAQ's facility for executing and routing 
standardized equity and index options.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on October 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.

[[Page 61440]]

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

 1. Purpose
    The Exchange proposes to amend the manner in which SQF Ports are 
assessed to NOM Participants. SQF ports are ports that receive inbound 
quotes at any time within that month. The SQF Port allows a NOM 
Participant to access information such as execution reports and other 
relevant data through a single feed. For example, this data would show 
which symbols are trading on NOM and the current state of an options 
symbol (i.e., open for trading, trading, halted or closed). Auction 
notifications and execution reports are also available. NOM Market 
Makers rely on data available through the SQF Port to provide them the 
necessary information to perform market making activities.
    Today, Chapter XV, Section 3 entitled ``NASDAQ Options Market--
Access Services'' states that the Exchange assesses a fee of $550 per 
port, per month, per mnemonic for the following port fees: Order Entry 
Ports,\3\ CTI Ports,\4\ OTTO Ports,\5\ ITTO Ports,\6\ BONO Ports,\7\ 
Order Entry DROP Ports,\8\ OTTO Drop Ports \9\ and SQF Ports. Each NOM 
Participant is assigned a Market Participant Identifier or ``mnemonic'' 
\10\ and in some cases, certain NOM Participants request multiple 
mnemonics for purposes of accounting for trading activity. These 
mnemonics identify users at a particular NOM Participant. Today, the 
Exchange bills its port fees based on the number of mnemonics 
configured for each port. By way of example, if a NOM Participant, ABC, 
requested 2 ports from the Exchange and further requested that each 
port be configured to be accessed by 4 mnemonics or in some cases 
account numbers,\11\ the NOM Participant would be billed for 8 ports at 
the rate of $550 per port for that month. All billing is captured at 
the Participant level. NOM Participants may choose to have multiple 
mnemonics or in some case multiple account numbers for the convenience 
of conducting their business, however only one mnemonic and one account 
number is required to conduct business on NOM.
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    \3\ The Order Entry Port Fee is a connectivity fee in connection 
with routing orders to the Exchange via an external order entry 
port. NOM Participants access the Exchange's network through order 
entry ports. A NOM Participant may have more than one order entry 
port.
    \4\ CTI offers real-time clearing trade updates. A real-time 
clearing trade update is a message that is sent to a member after an 
execution has occurred and contains trade details. The message 
containing the trade details is also simultaneously sent to The 
Options Clearing Corporation. The trade messages are routed to a 
member's connection containing certain information. The 
administrative and market event messages include, but are not 
limited to: System event messages to communicate operational-related 
events; options directory messages to relay basic option symbol and 
contract information for options traded on the Exchange; complex 
strategy messages to relay information for those strategies traded 
on the Exchange; trading action messages to inform market 
participants when a specific option or strategy is halted or 
released for trading on the Exchange; and an indicator which 
distinguishes electronic and non-electronically delivered orders.
    \5\ OTTO provides a method for subscribers to send orders and 
receive status updates on those orders. OTTO accepts limit orders 
from system subscribers, and if there is a matching order, the 
orders will execute. Non-matching orders are added to the limit 
order book, a database of available limit orders, where they are 
matched in price-time priority.
    \6\ ITTO is a data feed that provides quotation information for 
individual orders on the NOM book, last sale information for trades 
executed on NOM, and Order Imbalance Information as set forth in NOM 
Rules Chapter VI, Section 8. ITTO is the options equivalent of the 
NASDAQ TotalView/ITCH data feed that NASDAQ offers under NASDAQ Rule 
7023 with respect to equities traded on NASDAQ. As with TotalView, 
members use ITTO to ``build'' their view of the NOM book by adding 
individual orders that appear on the feed, and subtracting 
individual orders that are executed. See Chapter VI, Section 1 at 
subsection (a)(3)(A).
    \7\ BONO\SM\ is a data feed that provides the NOM Best Bid and 
Offer (``NOM NBBO'') and last sale information for trades executed 
on NOM. The NOM NBBO and last sale information are identical to the 
information that NOM sends to the Options Price Regulatory Authority 
(``OPRA'') and which OPRA disseminates via the consolidated data 
feed for options. BONO is the options equivalent of the NASDAQ Basic 
data feed offered for equities under NASDAQ Rule 7047. See Chapter 
VI, Section 1 at subsection (a)(3)(B).
    \8\ The DROP interface provides real time information regarding 
orders sent to NOM and executions that occurred on NOM. The DROP 
interface is not a trading interface and does not accept order 
messages.
    \9\ The OTTO DROP data feed provides real-time information 
regarding orders entered through OTTO and the execution of those 
orders. The OTTO DROP data feed is not a trading interface and does 
not accept order messages.
    \10\ A mnemonic is a unique identifier consisting of a four 
character alpha code.
    \11\ Account numbers are assigned by the Exchange and associated 
with particular NOM Participants.
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    The Exchange proposes to amend the manner in which it assesses the 
SQF Port Fee. The Exchange would continue to assess a $550 SQF Port Fee 
but would instead assess that fee on a per port, per month basis. In 
other words, the Exchange would bill simply based on the number of 
ports requested by the NOM Participant and would not consider the 
number of users, account numbers or mnemonics assigned to each SQF 
Port. In the above example, the Exchange would bill a total of 2 ports 
for that month. The Exchange is seeking to encourage NOM Market Makers 
to make markets on NOM.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\12\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that assessing a $550 SQF Port Fee per port, 
instead of per port, per mnemonic by month, is reasonable because the 
Exchange desires to incentivize more NOM Market Makers to engage in 
market marking activities on NOM. The Exchange believes that amending 
the methodology by which it assesses SQF Port fees will result in lower 
costs to NOM Market Makers because the Exchange would not assess fees 
by mnemonic or account number at a particular NOM Participant and this 
would allow NOM Participants to request the number of ports necessary 
for their market making business at a firm level regardless of factors. 
If a NOM Participant does not have more than one user per port 
(mnemonic) the NOM Participant would continue to be assessed the same 
SQF Port fee and would not be impacted by this proposal. In addition, 
current NOM Market Makers may realize a reduction of SQF Port costs.
    The Exchange believes that assessing a $550 SQF Port Fee per port, 
instead of per port, per mnemonic by month, is equitable and not 
unfairly discriminatory because unlike the Order Entry Port, CTI Port, 
OTTO Port, ITTO Port, BONO Port, Order Entry DROP Port and OTTO Drop 
Port, the SQF Port is utilized particularly by NOM Market Makers in 
connection with their market making activities. Unlike other NOM 
Participants, NOM Market Makers add value to the market through 
continuous quoting \14\ and a commitment of capital. The Exchange has 
traditionally assessed

[[Page 61441]]

NOM Market Makers lower transaction fees as compared to other NOM 
Participants because NOM Market Makers have obligations to make 
continuous markets, engage in a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and not make bids or offers or enter into transactions that are 
inconsistent with a course of dealings.\15\ Also, because of the volume 
of message traffic required to quote upwards of 300,000 individual puts 
and calls, NOM Market Makers that utilize SQF Ports require more 
technology infrastructure and more ports than NOM Participants that are 
not engaged in market making. In addition, as previously stated, if a 
NOM Market Maker has only one mnemonic or account number, per port, the 
proposal would not yield a cost savings as that NOM Participant is 
effectively assessed a per port rate today, however that NOM 
Participant would have the opportunity to obtain other SQF Ports at a 
lower cost than is offered today. The Exchange believes that it is 
equitable and not unfairly discriminatory to assess all NOM Market 
Makers on a firm level rather than by the number of users (mnemonic) on 
each port and allow Market Makers to segregate their business in a 
manner that is conducive to their business needs.
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    \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.
    \15\ See Chapter VII, Section 5.
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    The Exchange would continue to assess other port fees, other than 
the SQF Port, by the number of users (mnemonics) per port. This is the 
manner in which typically most data is billed. The Exchange is 
interested in billing NOM Market Makers at the firm level in order to 
provide them the means to lower costs and incentivize them to make 
markets on the Exchange which in turn benefits all other market 
participants through tighter markets and order interaction.

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's proposal seeks to provide 
NOM Market Makers a cost savings where a particular NOM Participant may 
have multiple mnemonics and account numbers associated with an SQF Port 
due to the manner in which they account for their trading activity and 
operate their technology. The Exchange does not believe that providing 
certain NOM Market Makers the opportunity to obtain quote information 
as a lower cost creates an undue burden on competition because NOM 
Market Makers have obligations to the market unlike other NOM 
Participants. Unlike other NOM Participants, NOM Market Makers add 
value to the market through continuous quoting \16\ and a commitment of 
capital. In addition, other market participants benefit from the 
tighter markets and order interaction which NOM Market Makers bring to 
NOM. The proposal would provide all NOM Market Makers with the 
opportunity to lower costs while also obtaining and utilizing the 
appropriate number of SQF Ports to conduct their business.
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    \16\ See supra note 14.
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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.\17\ 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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    \17\ 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 Number NASDAQ-2013-124 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 NASDAQ-2013-124. 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 NASDAQ-2013-124, and should be 
submitted on or before October 24, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24241 Filed 10-2-13; 8:45 am]
BILLING CODE 8011-01-P