Document ID: SEC-2012-0640-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2012-04-20T04:00Z

[Federal Register Volume 77, Number 77 (Friday, April 20, 2012)]
[Notices]
[Pages 23788-23791]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9529]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66817; File No. SR-NASDAQ-2012-050]

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

April 16, 2012.
    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 11, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange

[[Page 23789]]

Commission (``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.
---------------------------------------------------------------------------

    \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 NASDAQ Stock Market LLC proposes to modify Chapter XV, 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.
    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 rule filing is to recoup costs that the 
Exchange incurs for routing and executing Customer, Firm, Market Maker 
and Professional orders in equity and index options to the BATS 
Exchange, Inc. (``BATS''). The Exchange's Routing Fees are located at 
Chapter XV, Section 2, entitled ``NASDAQ Options Market-Fees and 
Rebates,'' and are as follows:

----------------------------------------------------------------------------------------------------------------
                    Exchange                         Customer          Firm             MM         Professional
----------------------------------------------------------------------------------------------------------------
BATS............................................           $0.55           $0.55           $0.55           $0.55
BOX.............................................            0.11            0.55            0.55            0.11
CBOE............................................            0.11            0.55            0.55            0.31
CBOE orders greater than 99 contracts in NDX,               0.29            0.55            0.55            0.31
 MNX ETFs, ETNs & HOLDRs........................
C2..............................................            0.55            0.55            0.55            0.55
ISE.............................................            0.11            0.55            0.55            0.29
ISE Select Symbols *............................            0.31            0.55            0.55            0.39
NYSE Arca Penny Pilot...........................            0.55            0.55            0.55            0.55
NYSE Arca Non Penny Pilot.......................            0.11            0.55            0.55            0.11
NYSE AMEX.......................................            0.11            0.55            0.55            0.31
PHLX (for all options other than PHLX Select                0.11            0.55            0.55            0.31
 Symbols).......................................
PHLX Select Symbols **..........................            0.50            0.55            0.55            0.51
----------------------------------------------------------------------------------------------------------------
* These fees are applicable to orders routed to ISE that are subject to Rebates and Fees for Adding and Removing
  Liquidity in Select Symbols. See ISE's Schedule of Fees for the complete list of symbols that are subject to
  these fees.
** These fees are applicable to orders routed to PHLX that are subject to Rebates and Fees for Adding and
  Removing Liquidity in Select Symbols. See PHLX's Pricing Schedule for the complete list of symbols that are
  subject to these fees.

    The Exchange is proposing to amend the current BATS Routing Fees by 
renaming those fees as ``BATS Penny.'' \3\ The Exchange is not 
proposing to amend the current rate of $0.55 per contract for 
Customers, Firms, Market Makers, and Professionals but proposes to 
apply those fees solely to Penny options routed to BATS.
---------------------------------------------------------------------------

    \3\ BATS defines Penny options as those issues that are quoted 
pursuant to BATS Rule 21.5, Interpretation and Policy .01.
---------------------------------------------------------------------------

    The Exchange proposes to create new Routing Fees to BATS for non-
Penny options. BATS recently adopted a $0.75 per contract non-Penny fee 
for customers that remove liquidity from the BATS Options order book 
and a $0.80 per contract non-Penny fee for professionals, firms and 
market makers that remove liquidity from the BATS Options order 
book.\4\ The Exchange is proposing to adopt BATS non-Penny Routing Fees 
to account for the new BATS fees to remove liquidity and other routing 
costs incurred by the Exchange when routing to BATS, as follows:
---------------------------------------------------------------------------

    \4\ See SR-BATS-2012-015.

----------------------------------------------------------------------------------------------------------------
                    Exchange                         Customer          Firm             MM         Professional
----------------------------------------------------------------------------------------------------------------
BATS non-Penny..................................           $0.86           $0.91           $0.91           $0.91
----------------------------------------------------------------------------------------------------------------

    NASDAQ Options Services LLC (``NOS''), a member of the Exchange, is 
the Exchange's exclusive order router. Each time NOS routes to away 
markets NOS is charged a $0.06 clearing fee and, in the case of certain 
exchanges, a transaction fee is also charged in certain symbols, which 
are passed through to the Exchange. The Exchange currently recoups 
clearing and transaction charges incurred by the Exchange when 
Customer, Firm, Market Maker and Professional orders are routed to an 
away market. 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, the 
Exchange's exclusive order router; the Exchange's membership fees at 
away markets; and technical costs associated with routing.\5\
---------------------------------------------------------------------------

    \5\ In addition to membership fees and transaction fees, the 
Exchange also incurs an Options Regulatory Fee when routing to an 
away market that assesses that fee.
---------------------------------------------------------------------------

    The Exchange is adopting BATS non-Penny Routing Fees to account for 
the BATS remove fees of $0.75 per contract for customer orders and 
$0.80 per contract for professional, firm and market maker orders, the 
$0.06 clearing

[[Page 23790]]

cost and another $0.05 per contract associated with administrative and 
technical costs associated with operating NOS.
    As with all fees, the Exchange may adjust these Routing Fees in 
response to competitive conditions by filing a new proposed rule 
change.
2. Statutory Basis
    NASDAQ NASDAQ [sic] believes that the proposed rule changes are 
consistent with the provisions of Section 6 of the Act,\6\ in general, 
and with Section 6(b)(4) of the Act,\7\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed amendment to the current 
BATS Routing Fees to rename those fees as ``BATS Penny'' and apply 
those fees to Penny options routed to BATS and adopt separate Routing 
Fees for non-Penny options routed to BATS is reasonable because the two 
separate categories take into account the different fees to remove 
liquidity assessed by BATS for non-Penny versus Penny options. The 
Exchange seeks to recoup costs incurred when routing orders to BATS on 
behalf of its members.
    The Exchange believes that the proposed amendment to the current 
BATS Routing Fees to rename those fees as ``BATS Penny'' and apply 
those fees to Penny options routed to BATS and adopt separate Routing 
Fees for non-Penny options routed to BATS is equitable and not unfairly 
discriminatory because the Exchange will uniformly apply the BATS Penny 
as well as BATS non-Penny Routing Fees to its members based on the type 
of options orders routed to BATS.\8\
---------------------------------------------------------------------------

    \8\ See note 3.
---------------------------------------------------------------------------

    The proposed BATS non-Penny Routing Fees are reasonable because 
they seek to recoup costs that are incurred by the Exchange when 
routing Customer, Firm, Market Maker and Professional orders to BATS on 
behalf of members. Each destination market's transaction charge varies 
and there is a standard clearing charge for each transaction incurred 
by the Exchange along with other administrative and technical costs 
that are incurred by the Exchange. The Exchange believes that the 
proposed Routing Fees would enable the Exchange to recover the remove 
fees assessed by BATS for non-Penny options, plus clearing and other 
administrative and technical fees for the execution of such orders when 
routed to BATS. The Exchange also believes that the proposed BATS non-
Penny Routing Fees are equitable and not unfairly discriminatory 
because they would be uniformly applied to all non-Penny orders that 
are routed to BATS.
    With respect to the Firm and Market Maker Routing Fees, the 
Exchange initially proposed to assess fixed Routing Fees of $0.55 per 
contract applicable to all away markets.\9\ The Exchange noted in that 
rule change that pricing on the various options exchanges varies 
significantly from exchange to exchange for non-Customer orders. 
Accordingly, the Exchange proposed a $0.55 per contract side Routing 
Fee in order to capture the majority of the transaction and clearing 
fees for Firm and Market Maker orders, while making the Exchange's 
Routing Fees easier to calculate and predict for members whose 
proprietary orders are routed away. In addition, fixed Routing Fees are 
easier to comprehend by the members whose orders are routed away. 
Further, predicting, calculating and charging back ``pass-through'' 
fees is an unduly burdensome, expensive and complicated task for 
members whose orders are routed away. The Exchange noted that fixed 
Routing Fees for Firm and Market Maker orders should ease the burden, 
expense and complexity of this task. Furthermore, fixed fees are easier 
to manage and maintain for the Exchange, ensuring accurate billing and 
accounting. The Exchange believes its proposal to increase the BATS 
non-Penny Customer Routing Fee from $0.55 per contract to $0.86 per 
contract and the Professional, Firm and Market Maker Routing Fees from 
$0.55 per contract to $0.91 per contract is reasonable because the fees 
proposed by BATS are not within the range of fees assessed by other 
exchanges since the recent increase in the BATS fee to remove liquidity 
from $0.44 per contract to $0.75 per contract for customer non-Penny 
options and from $0.44 per contract to $0.80 for professionals, firms 
and market makers. The Exchange believes it is reasonable to recoup the 
BATS remove fees plus the clearing and other costs to recoup Routing 
Fees. The Exchange believes that the increase to the Firm and Market 
Maker non-Penny BATS Routing Fees are equitable and not unfairly 
discriminatory because, as previously mentioned, those fees would be 
similarly calculated for Customers, Firms, Market Makers and 
Professionals.\10\ Additionally, the non-Penny BATS Routing Fees would 
be uniformly assessed for all non-Penny orders routed to BATS.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 61666 (March 5, 
2010), 75 FR 12318 (March 15, 2010) (SR-NASDAQ-2010-027).
    \10\ The Exchange's proposed non-Penny BATS Routing Fees are 
calculated similarly for all participants by adding the fee to 
remove liquidity assessed by BATS for the particular market 
participant plus a fee of $.11 per contract which represents 
clearing and other costs noted herein.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

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.\11\ 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2012-050 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 23791]]

100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2012-050. 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 
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-2012-050 and should 
be submitted on or before May 11, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
---------------------------------------------------------------------------

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

[FR Doc. 2012-9529 Filed 4-19-12; 8:45 am]
BILLING CODE 8011-01-P