Document ID: SEC-2018-1962-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2018-12-20T05:00Z

[Federal Register Volume 83, Number 244 (Thursday, December 20, 2018)]
[Notices]
[Pages 65372-65376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27511]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84822; File No. SR-NASDAQ-2018-101]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Transaction Fees at Options 7, Section 2(1)

December 14, 2018.
    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 December 3, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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

    The Exchange proposes to amend the Exchange's transaction fees at 
Options 7, Section 2(1), which governs the pricing for Nasdaq 
participants using The Nasdaq Options Market (``NOM''), Nasdaq's 
facility for executing and routing standardized equity and index 
options. The proposed changes are described further below.
    The text of the proposed rule change is available on the Exchange's 
website at http://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 and 
discussed any comments it received on the proposed rule change. The 
text of these

[[Page 65373]]

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 the proposed rule change is to amend NOM pricing at 
Options 7, Section 2(1) to modify the Rebates to Add Liquidity in Penny 
Pilot Options for Customers,\3\ Professionals,\4\ and NOM Market 
Makers.\5\ Each change is discussed below.
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    \3\ The term ``Customer'' or (``C'') 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)).
    \4\ The term ``Professional'' or (``P'') 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.
    \5\ The term ``NOM Market Maker'' or (``M'') 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.
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Customer and Professional Rebate To Add Liquidity in Penny Pilot 
Options
    Today, the Exchange offers Customer and Professional Rebates to Add 
Liquidity in Penny Pilot Options. These rebates are structured as a six 
tier program ranging from $0.20 to $0.48 per contract, with increasing 
volume requirements for each tier. Participants that qualify for the 
$0.48 per contract Tier 6 rebate are also eligible for a supplemental 
rebate, provided they meet the requisite qualifications in note ``c'' 
of Section 2(1). In particular, paragraphs (1), (2), and (3) of note 
``c'' provide three additional incentives of $0.02, $0.05, and $0.05 
per contract, respectively, each with corresponding qualifications to 
achieve the rebate, as follows: ``Participants that: (1) Add Customer, 
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity 
in Penny Pilot Options and/or Non- Penny Pilot Options of 1.15% or more 
of total industry customer equity and ETF option ADV contracts per day 
in a month will receive an additional $0.02 per contract Penny Pilot 
Options Customer and/or Professional Rebate to Add Liquidity for each 
transaction which adds liquidity in Penny Pilot Options in that month; 
or (2) add Customer, Professional, Firm, Non-NOM Market Maker and/or 
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of 1.30% or more of total industry customer equity and ETF 
option ADV contracts per day in a month will receive an additional 
$0.05 per contract Penny Pilot Options Customer and/or Professional 
Rebate to Add Liquidity for each transaction which adds liquidity in 
Penny Pilot Options in that month; or (3) (a) add Customer, 
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options above 0.80% of 
total industry customer equity and ETF option ADV contracts per day in 
a month, (b) add Customer, Professional, Firm, Non-NOM Market Maker 
and/or Broker-Dealer liquidity in Non-Penny Pilot Options above 0.15% 
of total industry customer equity and ETF option ADV contracts per day 
in a month, and (c) execute greater than 0.04% of Consolidated Volume 
(``CV'') via Market-on-Close/Limit-on-Close (``MOC/LOC'') volume within 
The Nasdaq Stock Market Closing Cross within a month will receive an 
additional $0.05 per contract Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity for each transaction which adds 
liquidity in Penny Pilot Options in a month. Consolidated Volume shall 
mean the total consolidated volume reported to all consolidated 
transaction reporting plans by all exchanges and trade reporting 
facilities during a month in equity securities, excluding executed 
orders with a size of less than one round lot. For purposes of 
calculating Consolidated Volume and the extent of an equity member's 
trading activity, expressed as a percentage of or ratio to Consolidated 
Volume, the date of the annual reconstitution of the Russell 
Investments Indexes shall be excluded from both total Consolidated 
Volume and the member's trading activity.''
    The Exchange now proposes to amend the criteria in paragraph (3)(b) 
to decrease the percentage of total industry customer equity and ETF 
option ADV contracts per day in a month from 0.15% to 0.12%. As 
proposed, Participants will receive an additional $0.05 per contract 
rebate if they add Customer, Professional, Firm, Non-NOM Market Maker 
and/or Broker-Dealer liquidity in Non-Penny Pilot Options above 0.12% 
of total industry customer equity and ETF option ADV contracts per day 
in a month, and also meet the other qualifications in paragraphs (3)(a) 
and (3)(c). The Exchange believes that this will offer Participants an 
increased opportunity to qualify for the additional paragraph (3) 
incentive and receive the $0.05 per contract rebate, in addition to the 
$0.48 per contract Tier 6 rebate, by amending one of the qualifications 
to require less volume. The Exchange is not amending any other criteria 
in note ``c'' other than the proposed change in paragraph (3)(b). 
Participants that qualify for Tier 6 and the supplemental rebate in 
paragraph (3) will continue to receive a total rebate of $0.53 per 
contract.
NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
    Today, the Exchange offers NOM Market Maker Rebates to Add 
Liquidity in Penny Pilot Options. These rebates are structured as a six 
tier program as follows:

------------------------------------------------------------------------
                                                         Rebate to add
  Monthly volume                                           liquidity
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Tier 1...........  Participant adds NOM Market Maker  $0.20.
                    liquidity in Penny Pilot Options
                    and/or Non-Penny Pilot Options
                    of up to 0.10% of total industry
                    customer equity and ETF option
                    average daily volume (``ADV'')
                    contracts per day in a month.
Tier 2...........  Participant adds NOM Market Maker  $0.25.
                    liquidity in Penny Pilot Options
                    and/or Non-Penny Pilot Options
                    above 0.10% to 0.25% of total
                    industry customer equity and ETF
                    option ADV contracts per day in
                    a month.
Tier 3...........  Participant adds NOM Market Maker  $0.30 or $0.40 in
                    liquidity in Penny Pilot Options   the following
                    and/or Non-Penny Pilot Options     symbols AAPL,
                    above 0.25% to 0.60% of total      QQQ, IWM, SPY and
                    industry customer equity and ETF   VXX.
                    option ADV contracts per day in
                    a month.

[[Page 65374]]

 
Tier 4...........  Participant adds NOM Market Maker  $0.32 or $0.40 in
                    liquidity in Penny Pilot Options   the following
                    and/or Non-Penny Pilot Options     symbols AAPL,
                    of above 0.60% to 0.90% of total   QQQ, IWM, VXX and
                    industry customer equity and ETF   SPY.
                    option ADV contracts per day in
                    a month.
Tier 5...........  Participant adds NOM Market Maker  $0.40.
                    liquidity in Penny Pilot Options
                    and/or Non-Penny Pilot Options
                    of above 0.30% of total industry
                    customer equity and ETF option
                    ADV contracts per day in a month
                    and qualifies for the Tier 6
                    Customer and/or Professional
                    Rebate to Add Liquidity in Penny
                    Pilot Options.
Tier 6...........  Participant (1) adds NOM Market    $0.48.
                    Maker liquidity in Penny Pilot
                    Options and/or Non-Penny Pilot
                    Options above 0.95% of total
                    industry customer equity and ETF
                    option ADV contracts per day in
                    a month, (2) executes Total
                    Volume of 250,000 or more
                    contracts per day in a month, of
                    which 30,000 or more contracts
                    per day in a month must be
                    removing liquidity, and (3) adds
                    Firm, Broker-Dealer and Non-NOM
                    Market Maker liquidity in Non-
                    Penny Pilot Options of 10,000 or
                    more contracts per day in a
                    month.
------------------------------------------------------------------------
* ``Total Volume'' shall be defined as Customer, Professional, Firm,
  Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in
  Penny Pilot Options and/or Non-Penny Pilot Options which either adds
  or removes liquidity on NOM.

    The Exchange first proposes to amend the criteria in Tier 2 to 
decrease the percentage of total industry customer equity and ETF 
option ADV contract per day in a month from 0.25% to 0.20%, and make a 
corresponding change in Tier 3 to decrease the percentage from 0.25% to 
0.20%. As proposed, Participants will receive a $0.25 per contract Tier 
2 rebate for adding NOM Market Maker liquidity in Penny Pilot Options 
and/or Non-Penny Pilot Options above 0.10% to 0.20% of total industry 
customer equity and ETF option ADV contracts per day in a month. In 
addition, Participants will receive a $0.30 per contract (or $0.40 per 
contract in the symbols AAPL, QQQ, IWM, SPY and VXX) Tier 3 rebate for 
adding NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.20% to 0.60% of total industry customer 
equity and ETF option ADV contracts per day in a month.
    The Exchange also proposes to create an alternative way for 
Participants to earn the Tier 6 rebate. Specifically, Participants will 
also be eligible to receive the $0.48 per contract Tier 6 rebate for: 
(1) adding NOM Market Maker liquidity in Penny Pilot Options and/or 
Non-Penny Pilot Options above 1.50% of total industry customer equity 
and ETF option ADV contracts per day in a month, and (2) executing 
Total Volume of 250,000 or more contracts per day in a month, of which 
15,000 or more contracts per day in a month must be removing liquidity. 
The Exchange also proposes to make related clean-up changes by 
renumbering the existing three-prong method to qualify for Tier 6 as 
paragraph (a) and the proposed alternative method as paragraph (b).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) 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, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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Customer and Professional Rebate To Add Liquidity in Penny Pilot 
Options
    The Exchange believes that its proposal to amend note ``c'' at 
paragraph (3)(b) to decrease the percentage of total industry customer 
equity and ETF option ADV contracts per day in a month from 0.15% to 
0.12% to qualify for the additional $0.05 per contract incentive in 
paragraph (3) is reasonable. As discussed above, the Exchange believes 
that this will offer Participants an increased opportunity to qualify 
for the paragraph (3) incentive and receive a $0.05 per contract rebate 
by amending one of the qualifications to require less volume. The 
Exchange also believes that this incentive will continue to encourage 
Participants to add more liquidity on NOM to earn a higher Tier 8 
rebate in addition to the incentives in note ``c.'' Participants that 
qualify for this incentive would be paid the Tier 8 rebate of $0.48 per 
contract plus the additional note ``c,'' paragraph (3) rebate of $0.05 
per contract for a total rebate of $0.53 per contract.
    The Exchange's proposal to amend note ``c'' at paragraph (3)(b) is 
equitable and not unfairly discriminatory because all similarly 
situated Participants are equally capable of qualifying for the 
paragraph (3) incentive, and the same rebates will be paid to all 
qualifying Participants. Further, the Exchange believes that it is 
equitable and not unfairly discriminatory to offer this rebate to NOM 
Participants that transact as Customers or Professionals, and not to 
other market participants. Customer liquidity offers unique benefits to 
the market by providing more trading opportunities, which attracts 
specialists and market makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants. The Exchange believes that encouraging 
Participants to add Professional liquidity is similarly beneficial, as 
the rebates may cause market participants to select NOM as a venue to 
send Professional order flow, which benefits all market participants by 
attracting valuable liquidity to the market and thereby enhancing the 
trading quality and efficiency of all.
NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
    The Exchange believes that its proposal to amend the NOM Market 
Maker Rebate to Add Liquidity in Penny Pilot Options by modifying the 
criteria in Tier 2 to decrease the percentage of total industry 
customer equity and ETF option ADV contract per day in a month from 
0.25% to 0.20%, and making a corresponding change in Tier 3 to decrease 
the percentage from 0.25% to 0.20% is reasonable. The Exchange believes 
that the amended qualifications will provide an increased opportunity 
for Participants to qualify for the rebates in Tiers 2 and 3 by 
amending the corresponding criteria to require less volume. The 
Exchange also believes that this incentive will continue to encourage 
Participants to add more liquidity on NOM to earn the Tier 2 and Tier 3 
rebates.
    The Exchange believes that its proposal to create an additional 
opportunity for Participants to earn the Tier 6 NOM Market Maker Rebate 
to

[[Page 65375]]

Add Liquidity in Penny Pilot Options is reasonable because it will 
encourage Participants to send additional order flow to NOM to earn a 
higher rebate, which will benefit all market participants by providing 
opportunities for increased order interaction. As proposed, in addition 
to the current method to qualify for the $0.48 per contract Tier 6 
rebate,\8\ Participants will also be eligible to receive the Tier 6 
rebate for: (1) Adding NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options above 1.50% of total industry 
customer equity and ETF option ADV contracts per day in a month, and 
(2) executing Total Volume of 250,000 or more contracts per day in a 
month, of which 15,000 or more contracts per day in a month must be 
removing liquidity. The proposed alternative is similar to the existing 
method for achieving the same $0.48 per contract Tier 6 rebate except 
the proposed will have two components as opposed to three for the 
existing.\9\
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    \8\ Today, a Participant is eligible to receive the Tier 6 
rebate for (1) adding NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options above 0.95% of total industry 
customer equity and ETF option ADV contracts per day in a month, (2) 
executing Total Volume of 250,000 or more contracts per day in a 
month, of which 30,000 or more contracts per day in a month must be 
removing liquidity, and (3) adding Firm, Broker-Dealer and Non-NOM 
Market Maker liquidity in Non-Penny Pilot Options of 10,000 or more 
contracts per day in a month.
    \9\ Specifically, the proposed alternative will not have a 
requirement similar to the third prong of the existing criteria 
(i.e., add Firm, Broker-Dealer and Non-NOM Market Maker liquidity in 
Non-Penny Pilot Options of 10,000 or more contracts per day in a 
month).
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    The Exchange believes that the proposed first prong (i.e., add NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 1.50% of total industry customer equity and ETF option 
ADV contracts per day in a month) is reasonable because the Exchange 
already offers rebates based on percentages of total industry customer 
equity and ETF option ADV contracts, including within the first prong 
of the existing Tier 6 rebate qualifications as described above. While 
the first prong of the current Tier 6 qualifications also has a 
comparable percentage threshold (0.95%) that is lower than the 1.50% 
threshold in the proposed alternative to achieve the same $0.48 per 
contract rebate, the proposed alternative has fewer components than the 
existing method as described above, which offsets the higher percentage 
threshold.
    Furthermore, the proposed second prong (i.e., execute Total Volume 
of 250,000 or more contracts per day in a month, of which 15,000 or 
more contracts per day in a month must be removing liquidity) is 
reasonable because it is comparable to the second prong of the existing 
method (i.e., execute Total Volume of 250,000 or more contracts per day 
in a month, of which 30,000 or more contracts per day in a month must 
be removing liquidity). As is true of the existing qualifications, the 
proposed criteria will attract both liquidity providers and removers to 
NOM, thereby providing opportunities for increased order interaction 
from additional order flow.
    The Exchange's proposed changes to Tiers 2, 3, and 6 of the NOM 
Market Maker Rebate to Add Liquidity in Penny Pilot Options as 
described above are equitable and not unfairly discriminatory because 
all eligible Participants that qualify for these incentives will 
uniformly receive the rebate. Further, the Exchange believes that it is 
equitable and not unfairly discriminatory to offer this rebate to NOM 
Participants that transact as NOM Market Makers because unlike other 
market participants, NOM Market Makers add value through continuous 
quoting and the commitment of capital.\10\ Because NOM Market Makers 
have these obligations to the market and regulatory requirements that 
normally do not apply to other market participants, the Exchange 
believes that offering these rebates to only NOM Market Makers is 
equitable and not unfairly discriminatory in light of their 
obligations. Finally, encouraging NOM Market Makers to add greater 
liquidity benefits all market participants in the quality of order 
interaction.
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    \10\ 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.
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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. All of the proposed changes to 
the Customer, Professional, and NOM Market Maker Rebates to Add 
Liquidity in Penny Pilot Options are designed to attract additional 
order flow to NOM, which strengthens NOM's competitive position. 
Greater liquidity benefits all market participants by providing more 
trading opportunities and attracting greater participation by market 
makers. An increase in the activity of these market participants in 
turn facilitates tighter spreads.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor competing venues if they deem fee 
levels at a particular venue to be excessive, or rebate opportunities 
available at other venues to be more favorable. In such an environment, 
the Exchange must continually adjust its fees and rebates to remain 
competitive. Because competitors are free to modify their own fees and 
rebates in response, the Exchange believes that the degree to which 
pricing changes in this market may impose any burden on competition is 
extremely limited.

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\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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.

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-2018-101 on the subject line.

[[Page 65376]]

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2018-101. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2018-101 and should be submitted 
on or before January 10, 2019.

    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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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27511 Filed 12-19-18; 8:45 am]
 BILLING CODE 8011-01-P