Document ID: SEC-2014-0314-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2014-02-20T05:00Z

[Federal Register Volume 79, Number 34 (Thursday, February 20, 2014)]
[Notices]
[Pages 9781-9783]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03667]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71553; File No. SR-NASDAQ-2014-016]

Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to NASDAQ Options NOM Market Maker Rebates

February 14, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 3, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by NASDAQ. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2 governing pricing for NASDAQ members using the NASDAQ 
Options Market (``NOM''), NASDAQ's facility for executing and routing 
standardized equity and index options. Specifically, NOM proposes to 
amend the NOM Market Maker Rebate to Add Liquidity in Penny Pilot 
Options.\3\
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    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through June 30, 2014. 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); 
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); 
69787 (June 18, 2013), 78 FR 37858 (June 24, 2013) (SR-NASDAQ-2013-
082); 71105 (December 17, 2013), 78 FR 77530 (December 23, 2013) 
(SR-NASDAQ-2013-154). See also NOM Rules, Chapter VI, Section 5.
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    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

[[Page 9782]]

Section 2(1) governing the rebates and fees assessed for option orders 
entered into NOM. Specifically, the Exchange proposes to amend the NOM 
Market Maker Penny Pilot Options Rebate to Add Liquidity tiers. Today, 
the Exchange offers a five-tiered Rebate to Add Liquidity in Penny 
Pilot Options as noted below:

------------------------------------------------------------------------
                                                       Rebate to add
  Monthly volume                                         liquidity
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Tier 1............  Participant adds NOM Market   $0.25.
                     Maker liquidity in Penny
                     Pilot Options and/or Non-
                     Penny Pilot Options of up
                     to 29,999 contracts per day
                     in a month.
Tier 2............  Participant adds NOM Market   $0.30.
                     Maker liquidity in Penny
                     Pilot Options and/or Non-
                     Penny Pilot Options of
                     30,000 to 59,999 contracts
                     per day in a month.
Tier 3............  Participant adds NOM Market   $0.32.
                     Maker liquidity in Penny
                     Pilot Options and/or Non-
                     Penny Pilot Options of
                     60,000 to 79,999 contracts
                     per day in a month.
Tier 4............  Participant adds NOM Market   $0.32 or $0.38 in the
                     Maker liquidity in Penny      following symbols
                     Pilot Options and/or Non-     BAC, GLD, IWM, QQQ
                     Penny Pilot Options of        and VXX or $0.40 in
                     80,000 or more contracts      SPY.
                     per day in a month.
Tier 5............  Participant adds NOM Market   $0.40.
                     Maker liquidity in Penny
                     Pilot Options and/or Non-
                     Penny Pilot Options of
                     40,000 or more contracts
                     per day in a month and
                     qualifies for the Tier 7 or
                     Tier 8 Customer and/or
                     Professional Rebate to Add
                     Liquidity in Penny Pilot
                     Options.
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    The Exchange is proposing to amend the qualifications for NOM 
Market Maker Penny Pilot rebate Tiers 3 and 4 by lowering the quantity 
of contracts per day in a month that Participants must add to obtain 
the rebate. Specifically, the Tier 3 rebate tier would be lowered from 
adding NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 60,000 to 79,999 contracts per day in month to 
adding 60,000 to 69,999 contracts per day in a month. The Tier 4 rebate 
tier would be lowered from adding NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options of 80,000 or more 
contracts per day in a month to adding 70,000 or more contracts per day 
in a month. The Exchange anticipates that this amendment would provide 
an opportunity for Participants to qualify for higher rebate tiers for 
their NOM Market Maker liquidity.
2. Statutory Basis
    NASDAQ believes that its proposal to amend its Pricing Schedule is 
consistent with Section 6(b) of the Act \4\ in general, and furthers 
the objectives of Section 6(b)(4) and (b)(5) of the Act \5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange's proposal to amend NOM Market Maker Rebate to Add 
Liquidity in Penny Pilot Options Tiers 3 and 4 volume requirements is 
reasonable because the Exchange is providing Participants with an 
opportunity to earn higher rebates in certain symbols. Today, a 
Participant that transacts 70,000 contracts per day in a month of NOM 
Market Maker liquidity in either Penny Pilot Options or Non-Penny Pilot 
Options would qualify for a Tier 3 rebate of $0.32 per contract. With 
this proposal, a Participant that transacts 70,000 contracts per day in 
a month of NOM Market Maker liquidity in either Penny Pilot Options or 
Non-Penny Pilot Options would qualify for a Tier 4 rebate of $0.32 per 
contractor $0.38 per contract in certain symbols.\6\ With this 
proposal, a Participant that transacts 70,000 contracts per day in a 
month of NOM Market Maker liquidity in either Penny Pilot Options or 
Non-Penny Pilot Options would earn a Tier 3 rebate. Incentivizing 
Participants to select the Exchange as a venue to post NOM Market Maker 
liquidity will benefit market participants through increased order 
interaction and additional liquidity.
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    \6\ Participants that qualify for a Tier 4 NOM Market Maker 
Rebate to Add Liquidity in Penny Pilot Options earn a rebate of 
$0.38 in the following symbols: BAC, GLD, IWM, QQQ and VXX and $0.40 
for transacting SPY options. All other symbols qualify for a $0.32 
rebate.
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    The Exchange's proposal to amend NOM Market Maker Rebate to Add 
Liquidity in Penny Pilot Options Tiers 3 and 4 volume requirements is 
equitable and not unfairly discriminatory because this amendment will 
be applied to all Participants in a uniform manner. In addition, 
Participants should continue to qualify for the rebates that they 
currently receive and may earn increased rebates by qualifying for a 
higher volume tier and transacting certain symbols,\7\ as a result of 
lowering the volume requirements in Tiers 3 and 4.
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    \7\ See note 6.
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    The proposal does not misalign the current rebate structure. NOM 
Market Makers are valuable market participants that provide liquidity 
in the marketplace and incur costs unlike other market participants. 
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 \8\ and the commitment of capital. NOM 
Market Makers provide a critical liquidity function across thousands of 
individual option puts and option calls, a function no other market 
participants are obligated to perform. The Exchange believes that 
encouraging NOM Market Makers to be more aggressive when posting 
liquidity benefits all market participants through increased liquidity 
and execution quality. The Exchange believes that continuing to offer 
NOM Market Makers the opportunity to receive higher rebates as compared 
to Firms, Non-NOM Market Makers and Broker-Dealers is equitable and not 
unfairly discriminatory because all Participants may qualify for the 
NOM Market Maker rebate tiers and every Participant is entitled to a 
rebate solely by adding one contract of NOM Market Maker liquidity on 
NOM. Also, NOM

[[Page 9783]]

Market Makers would receive the same rebate in Tier 1 as compared to 
Customers and Professionals and a higher rebate in all other tiers as 
compared to a Firm, Non-NOM Market Maker or Broker-Dealer because of 
the obligations \9\ borne by NOM Market Makers as compared to other 
market participants. Encouraging NOM Market Makers to add greater 
liquidity benefits all Participants in the quality of order interaction 
and enhanced execution quality.
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    \8\ 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.
    \9\ See note 8.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act. The Exchange believes that incentivizing 
NOM Market Makers to post liquidity on NOM benefits market participants 
through increased order interaction. Also, NOM Market Makers have 
obligations \10\ to the market which are not borne by other market 
participants and therefore the Exchange believes that NOM Market Makers 
are entitled to such higher rebates.
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    \10\ See note 8.
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    The proposed amendments do not misalign the current rebate 
structure because NOM Market Makers will continue to earn higher 
rebates as compared to Firms, Non-NOM Market Makers and Broker-Dealers 
and will earn the same or lower rebates as compared to Customers and 
Professionals. The Exchange believes the differing outcomes, rebates 
and fees created by the Exchange's proposed pricing incentives 
contributes to the overall health of the market place for the benefit 
of all Participants that willingly choose to transact options on NOM. 
In addition, NOM Market Makers will have the opportunity to earn even 
higher rebates. 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 
twelve 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's 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.\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.
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    \11\ 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 SR-NASDAQ-2014-016 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-2014-016. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2014-016, and should 
be submitted on or before March 13, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03667 Filed 2-19-14; 8:45 am]
BILLING CODE 8011-01-P