Document ID: SEC-2013-1264-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2013-07-10T04:00Z

[Federal Register Volume 78, Number 132 (Wednesday, July 10, 2013)]
[Notices]
[Pages 41455-41460]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16530]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69929; File No. SR-NASDAQ-2013-091]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Penny Pilot Option Rebates To Add Liquidity

July 3, 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 June 27, 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 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 Customer,\3\ Professional \4\ and NOM Market Maker \5\ 
Rebates to Add Liquidity in Penny Pilot Options.\6\
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    \3\ 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)).
    \4\ 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.
    \5\ 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.
    \6\ 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. The Exchange recently filed a 
proposed rule change to extend the pilot through December 31, 2013. 
See SR-Phlx-2013-64, which is not yet published.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on July 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 amend the Customer, 
Professional and NOM Market Maker Penny Pilot Options Rebates to Add 
Liquidity and make other technical amendments to the Section 2(1) as 
described more fully below.
    Today, the Exchange offers an eight-tiered Rebate to Add Liquidity 
in Penny Pilot Options to Customers and Professionals as follows:

------------------------------------------------------------------------
                                                           Rebate to add
                                      Monthly volume         liquidity
------------------------------------------------------------------------
Tier 1.........................  Participant adds                  $0.25
                                  Customer 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                   0.40
                                  Customer 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                   0.43
                                  Customer 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                   0.45
                                  Customer 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.........................  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.

[[Page 41456]]

 
Tier 6.........................  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.........................  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.........................  Participant (1) has                0.48
                                  Total 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.
------------------------------------------------------------------------

    The Exchange is proposing to amend Tier 8 which currently pays a 
rebate of $0.48 per contract to a Participant that: (i) Has Total 
Volume \7\ of 325,000 or more contracts per day in a month; (ii) 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 (iii) 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 in a month. The Exchange is proposing 
to continue to pay a $0.48 per contract rebate for Tier 8 and amend the 
criteria to qualify for this rebate tier. The Exchange proposes to pay 
the Tier 8 rebate to a Participant that: (i) has Total Volume of 
325,000 or more contracts per day in a month (as is the case today); or 
(ii) has Total Volume of 200,000 or more contracts per day in a month 
of which 70,000 or more contracts per day in a month must be Customer 
and/or Professional liquidity; or (iii) 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 (as is the case 
today). The Exchange would eliminate the criteria whereby a Participant 
can achieve the Tier 8 rebate by adding 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. The 
Exchange believes that Participants will be incentivized to achieve a 
Tier 8 rebate as they are today and additional Participants may be able 
to qualify with the new criteria, which focuses on Customer and/or 
Professional liquidity.
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    \7\ Total Volume is defined as Customer, Professional, Firm, 
Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in 
Penny Pilot Options or Non-Penny Pilot Options which either adds or 
removes liquidity on NOM. See Chapter XV, Section 2(1) of the NOM 
Rules.
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    The Exchange is also proposing to make a technical amendment to the 
Penny Pilot Options Customer and Professional Rebates to Add Liquidity 
to clarify the text of these rebates. The Exchange today permits 
Participants to add Customer or Professional liquidity for Tiers 1 
through 7. Participants may add either Customer or Professional 
liquidity to qualify for these rebate tiers. The Exchange proposes to 
add the words ``/or'' to clarify that Customer and/or Professional 
liquidity may be added to Tiers 1 through 5. The Exchange also proposes 
to amend Tiers 6 and 7 in similar fashion to add``and/'' to specify 
Customer or Professional liquidity may be added. Similarly the Exchange 
proposes to add the word ``and/'' in note 2 of Section (2)(1) of 
Chapter XV which provides that ``[a] Participant that adds Firm, Non-
NOM Market Maker or Broker-Dealer liquidity in Penny Pilot Options or 
Non-Penny Pilot Options of 15,000 contracts per day or more in a given 
month will receive a Rebate to Add Liquidity in Penny Pilot Options of 
$0.20 per contract and will pay a Fee for Adding Liquidity in Non-Penny 
Pilot Options of $0.36 per contract.'' This would make clear that a 
Participant may add Penny and/or Non-Penny Pilot Options to qualify for 
the rebate. Finally, the Exchange proposes a similar amendment to note 
b in Section 2(1) Chapter XV which provides that ``[f]or purposes of 
Tiers 6, 7 and 8, ``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 Non-Penny Pilot Options which 
either adds or removes liquidity on NOM.'' The Exchange would add the 
words ``/or'' to make clear that Total Volume can consist of Penny 
Pilot Options or Non-Penny Pilot Options. The Exchange believes that 
these amendments will provide greater clarity to the pricing. The 
Exchange otherwise does not propose to amend Tiers 1 through 7 of the 
Customer and Professional Rebates to Add Liquidity in Penny Pilot 
Options.
    Today, the Exchange offers a four-tiered Rebate to Add Liquidity in 
Penny Pilot Options to NOM Market Makers as follows:

------------------------------------------------------------------------
                                                          Rebate to add
                                    Monthly volume          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 109,999
                                 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
                                 Market Maker            the following
                                 liquidity in Penny      symbols BAC,
                                 Pilot Options of        GLD, IWM, QQQ
                                 110,000 or more         and VXX or
                                 contracts per day in    $0.40 in SPY.
                                 a month.
------------------------------------------------------------------------

[[Page 41457]]

    The Exchange proposes to amend the Tier 2 NOM Market Maker Rebate 
to Add Liquidity in Penny Pilot Options which currently pays a $0.30 
per contract rebate to a Participant that adds NOM Market Maker 
liquidity in Penny Pilot Options of 40,000 to 109,999 contracts per day 
in a month to 40,000 to 69,999 contracts per day in a month to achieve 
the same rebate.
    The Exchange also proposes to amend the Tier 3 NOM Market Maker 
Rebate to Add Liquidity in Penny Pilot Options which currently pays a 
$0.37 per contract rebate to reduce that rebate to $0.32 per contract 
and amend the criteria to qualify for a Tier 3 rebate. Currently, a 
Participant and its affiliate under Common Ownership \8\ that qualify 
for Tier 8 of the Customer and Professional Rebate to Add Liquidity in 
Penny Pilot Options qualify for a Tier 3 NOM Market Maker Rebate to Add 
Liquidity in Penny Pilot Options. The Exchange is proposing to 
eliminate the current Tier 3 criteria and instead pay the new $0.32 per 
contract NOM Market Maker Rebate to Add Liquidity in Penny Pilot 
Options to Participants that add NOM Market Maker liquidity in Penny 
Pilot Options of 70,000 to 99,999 contracts per day in a month.
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    \8\ The term ``Common Ownership'' is defined in Chapter XV of 
the NOM Rules as Participants under 75% common ownership or control.
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    The Exchange also proposes to amend the Tier 4 NOM Market Maker 
Rebate to Add Liquidity in Penny Pilot Options which currently pays 
rebate of $0.28 \9\ or $0.38 per contract in the following symbols, 
Bank of America Corporation (``BAC''), SPDR Gold Shares (``GLD''), 
iShares Russell 2000 Index (``IWM''), PowerShares QQQ (``QQQ''), iPath 
S&P 500 VIX ST Futures ETN (``VXX''), or $0.40 per contract in SPDR S&P 
500 (``SPY'') if Participants add NOM Market Maker liquidity in Penny 
Pilot Options of 110,000 or more contracts per day in a month. The 
Exchange is proposing to increase the Tier 4 rebate of $0.28 per 
contract, which is paid on all qualifying Penny Pilot Options, 
excluding BAC, GLD, IWM, QQQ, VXX and SPY, to $0.32 per contract.\10\ 
In addition, the Exchange proposes to decrease the requisite number of 
contracts that a Participant must add in NOM Market Maker liquidity in 
Penny Pilot Options to achieve a Tier 4 rebate from 110,000 to 100,000 
or more contracts per day in a month.
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    \9\ The $0.28 per contract Tier 4 NOM Market Maker rebate would 
be paid on all qualifying Penny Pilot Options, excluding BAC, GLD, 
IWM, QQQ, VXX and SPY.
    \10\ The Exchange is not proposing to amend the $0.38 per 
contract rebate in BAC, GLD, IWM, QQQ or VXX or the $0.40 per 
contract rebate in SPY.
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    The Exchange is not proposing to amend the Tier 1 NOM Market Maker 
Rebate to Add Liquidity in Penny Pilot Options. The Exchange would also 
eliminate the text referencing Tiers 3 and 4 of the NOM Market Maker 
Rebate to Add Liquidity in Penny Pilot Options which provides that 
``[i]n the instance that a Participant qualifies for both a Tier 3 and 
a Tier 4 NOM Market Maker Penny Pilot Option rebate, the Exchange would 
pay the Participant the Tier 3 rebate unless the Participant is 
eligible for an increased rebate in one of the following symbols: BAC, 
GLD, IWM, QQQ, VXX and SPY, in which case the Tier 4 rebate would be 
applied.'' This language is no longer necessary because a Participant 
would not be able to qualify for both a Tier 3 and a Tier 4 rebate with 
the proposed changes.
    The Exchange believes that the amendment to the NOM Market Maker 
Rebate to Add Liquidity will continue to incentivize NOM Market Makers 
to post liquidity on the Exchange.
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\11\ in general, and with 
Section 6(b)(4) of the Act,\12\ in particular, in that they provide for 
the equitable allocation of reasonable dues, fees and other charges 
among Participants and issuers and other persons using any facility or 
system which NASDAQ operates or controls as described in detail below.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal to amend the Customer, Professional and NOM 
Market Maker Penny Pilot Options Rebates to Add Liquidity are 
reasonable because the Exchange will continue to offer competitive 
Customer, Professional and NOM Market Maker rebates in order to attract 
liquidity to the market to the benefit of all market participants. The 
Exchange believes that offering Customers and Professionals and NOM 
Market Makers the opportunity to earn higher rebates is reasonable 
because by incentivizing Participants to select the Exchange as a venue 
to post Customer and Professional liquidity will attract additional 
order flow to the benefit of all market participants and incentivizing 
NOM Market Makers to post liquidity will also benefit participants 
through increased order interaction.
    The Exchange believes that the amendments to the Penny Pilot 
Options Rebates to Add Liquidity are equitable and not unfairly 
discriminatory for various reasons. The Exchange believes that 
continuing to pay Customers and Professionals tiered Rebates to Add 
Liquidity in Penny Pilot Options, as proposed herein, is equitable and 
not unfairly discriminatory as compared to other market participants. 
Pursuant to this proposal, the Exchange would pay the highest Tier 1 
Rebates to Add Liquidity in Penny Pilot Options of $0.25 per contract 
to Customers, Professionals and NOM Market Makers for transacting one 
qualifying contract as compared to other market participants.\13\ The 
Exchange believes that 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 for the reasons which follow. 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. 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.\14\ A Professional could 
only otherwise presume the Tier 1 rebate would be achieved in a month 
when determining

[[Page 41458]]

price.\15\ Further, the Exchange initially established Professional 
pricing in order to ``. . . bring additional revenue to the Exchange.'' 
\16\ The Exchange noted in the Professional Filing that it believes ``. 
. . that the increased revenue from the proposal would assist the 
Exchange to recoup fixed costs.'' \17\ 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.\18\ 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.\19\ 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 \20\ 
because NOM Market Makers add value through continuous quoting \21\ and 
the commitment of capital.
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    \13\ Firms, Non-NOM Market Makers and Broker-Dealers receive a 
$0.10 per contract Penny Pilot Option Rebate to Add Liquidity. In 
addition, Participant that adds Firm, Non-NOM Market Maker or 
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny 
Pilot Options of 15,000 contracts per day or more in a given month 
will receive a Rebate to Add Liquidity in Penny Pilot Options of 
$0.20 per contract.
    \14\ 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.
    \15\ 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.
    \16\ 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.
    \17\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066).
    \18\ 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.
    \19\ 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.
    \20\ Firms, Non-NOM Market Makers and Broker-Dealers are paid a 
$0.10 per contract Rebate to Add Liquidity in Penny Pilot Options 
and have the opportunity to earn a higher Penny Pilot Options Rebate 
to Add Liquidity of $0.20 per contact if they transact 15,000 
contracts per day or more in a given month of Penny Pilot Options or 
Non-Penny Pilot Options liquidity.
    \21\ 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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    The Exchange's proposal to amend the Customer and Professional 
Rebates to Add Liquidity in Penny Pilot Options is reasonable because 
the Exchange is offering Participants meaningful incentives to increase 
their participation on NOM in terms of higher Penny Pilot Options 
Rebates to Add Liquidity. The Exchange's proposal to amend Tier 8 to 
eliminate the criteria which qualifies a Participant that adds Customer 
or Professional liquidity of 60,000 or more contracts per day in a 
month and NOM Marker Maker liquidity of 40,000 or more contracts per 
day in a month to a $0.48 per contract rebate and replace that criteria 
with new criteria that pays the same rebate if the Participant has 
Total Volume of 200,000 or more contracts per day in a month, of which 
70,000 or more contracts per day in a month must be Customer and/or 
Professional liquidity is reasonable because it should continue to 
incentivize Participants to add liquidity on NOM. The new criteria 
focuses on Total Volume which consists of 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 believes that offering 
Participants an option to transact a lower amount of Total Volume 
(200,000 contracts) as compared to the 325,000 contracts of Total 
Volume, which would also qualify a Participant for a Tier 8 rebate, and 
also requiring that 70,000 of that Total Volume be comprised of 
Customer and/or Professional liquidity further incentivizes 
Participants to add Customer and Professional liquidity to NOM. The 
criteria that is being eliminated required 60,000 or more contracts per 
day of Customer and/or Professional liquidity and 40,000 or more 
contracts of NOM Market Maker liquidity. The Exchange believes that it 
is reasonable to incentivize Participants to add a greater amount of 
Customer and/or Professional liquidity combined with other volume as a 
means to qualify for the Tier 8 rebate. This proposal only impacts one 
of the ways in which a Participant may qualify for the Tier 8 rebate. 
Participants that today do not qualify for the Tier 8 rebate may be 
able to qualify with the new criteria. In addition, other exchanges 
employ similar incentive programs.\22\
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    \22\ See CBOE Fees Schedule. CBOE offers each Trading Permit 
Holder (``TPH'') a credit for each public customer order transmitted 
by the TPH which is executed electronically in all multiply-listed 
option classes, excluding QCC trades and executions related to 
contracts that are routed to one or more exchanges in connection 
with the Options Order Protection and Locked/Crossed Market Plan, 
provided the TPH meets certain percentage thresholds in a month as 
described in the Volume Incentive Program. See also Phlx's Pricing 
Schedule at Section B which contains the Customer Rebate Program.
---------------------------------------------------------------------------

    The Exchange's proposal to amend Tier 8 to eliminate the criteria 
which qualifies a Participant that adds Customer or Professional 
liquidity of 60,000 or more contracts per day in a month and NOM Marker 
Maker liquidity of 40,000 or more contracts per day in a month to a 
$0.48 per contract rebate and replace that criteria with new criteria 
that pays the same rebate if the Participant has Total Volume of 
200,000 or more contracts per day in a month, of which 70,000 or more 
contracts per day in a month must be Customer and/or Professional 
liquidity is equitable and not unfairly discriminatory because this 
amendment will be applied to all market participants in a uniform 
matter. Any market participant is eligible to receive the rebate 
provided they transact a qualifying amount of Customer and Professional 
volume in Penny Pilot Options.
    The Exchange's proposal to amend the NOM Market Maker Rebates to 
Add Liquidity in Penny Pilot Options is reasonable because it should 
incentivize NOM Market Makers to post liquidity on NOM. NOM Market 
Makers are valuable market participants that provide liquidity in the 
marketplace and incur costs unlike other market participants. The 
Exchange believes that encouraging NOM Market Makers to be more 
aggressive when posting liquidity benefits all market participants 
through increased liquidity. The Exchange believes that the NOM Market 
Maker rebate proposal is equitable and not unfairly discriminatory 
because it does 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

[[Page 41459]]

compared to Customers and Professionals.\23\
---------------------------------------------------------------------------

    \23\ The Tier 1 NOM Market Maker Rebate to Add Liquidity in 
Penny Pilot Options is the same rebate as the proposed Tier 1 
Customer and Professional rebate in Penny Pilot Options.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the number of qualifying contracts 
in Tier 2 of the NOM Market Maker Penny Pilot Options Rebate to Add 
Liquidity from 40,000 to 109,999 contracts to 40,000 to 69,999 
contracts per day in a month is reasonable because today Participants 
that transact between 40,000 to 69,999 contracts of NOM Market Maker 
Penny Pilot Options would continue to qualify for Tier 2 and 
Participants that qualify from 70,000 to 109,999 contracts would 
qualify for the new proposed Tier 3 rebate of $0.32 per contract.
    The Exchange's proposal to amend the Tier 3 rebate, which currently 
requires a Participant and its affiliate under Common Ownership that 
qualify for Tier 8 of the Customer and Professional Rebate to Add 
Liquidity in Penny Pilot Options to receive a Tier 3 rebate of $0.37 
per contract, and replace it with new criteria which requires that a 
Participant add NOM Market Maker liquidity in Penny Pilot Options of 
70,000 to 99,999 contracts per day in a month to qualify for a new Tier 
3 rebate rate of $0.32 per contract is reasonable because it would 
increase the rebate paid to certain Participants who currently 
qualifying for a Tier 2 rebate. Also, those Participants and its 
affiliate under Common Ownership that qualify for a Tier 8 rebate would 
continue to receive the Customer and Professional Rebates to Add 
Liquidity in Penny Pilot Options rebate and may separately qualify for 
another NOM Market Maker Rebate to Add Liquidity in Penny Pilot 
Options. The Exchange is offering a different rebate incentive to 
remain competitive while continuing to encourage NOM Market Makers to 
aggressively post liquidity on NOM.
    The Exchange's proposal to amend Tier 4 to lower the number of NOM 
Market Maker Penny Pilot Options contract from 110,000 to 100,000 is 
reasonable because additional Participants may be able to qualify for a 
Tier 4 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options. 
The Exchange also believes that the proposal to pay an increased Tier 8 
rebate of $0.32 per contract as compared to $0.28 per contract for all 
symbols excluding BAC, GLD, IWM, QQQ, VXX \24\ and SPY \25\ is 
reasonable because the increased rebate should encourage other market 
participants to add NOM Marker Maker liquidity to obtain a higher 
rebate in certain symbols.
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    \24\ These symbols pay a $0.38 per contract rebate.
    \25\ SPY pays a $0.40 per contract rebate.
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    The Exchange believes offering 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 
NOM Market Makers may qualify for the NOM Market Maker rebate tiers and 
every NOM Market Maker is entitled to a rebate solely by adding one 
contract of NOM Market Maker liquidity on NOM. Also, as mentioned, the 
NOM Market Maker would receive the same rebate in Tier 1 as compared 
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 \26\ 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.
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    \26\ See note 21.
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    The Exchange believes that it is equitable and not unfairly 
discriminatory to amend the Tier 2, 3 and 4 rebate criteria to qualify 
for those rebates as well as the Tier 4 rebate rate for certain symbols 
because those amendments will apply uniformly to all participants. The 
Exchange believes that it is reasonable, equitable, and not unfairly 
discriminatory to adopt specific pricing for BAC, GLD, IWM, QQQ, VXX 
and SPY because pricing by symbol is a common practice on many U.S. 
options exchanges as a means to incentivize order flow to be sent to an 
exchange for execution in the most actively traded options classes, in 
this case actively traded Penny Pilot Options.\27\ The Exchange notes 
that BAC, GLD, IWM, QQQ, VXX and SPY are some of the most actively 
traded options in the U.S.
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    \27\ See Phlx's Pricing Schedule. See also the International 
Securities Exchange LLC's Fee Schedule. Both of these markets 
segment pricing by symbol.
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    The Exchange's proposal to add language throughout Section 2(1) of 
Chapter XV to clarify the rule text with respect to adding liquidity is 
reasonable, equitable and not unfairly discriminatory because the 
amendments provide clarity to the rule text. The Exchange's proposal to 
eliminate text related to qualifying for both Tier 3 and Tier 4 NOM 
Market Maker rebates is reasonable, equitable and not unfairly 
discriminatory because the text is no longer necessary because a 
Participant could no longer achieve both rebates in a given month.

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. While the Exchange's proposal results in a 
Professional receiving the same or a higher rebate as compared to a NOM 
Market Maker, in certain circumstances, the Exchange does not believe 
the proposed rebate tiers would result in any burden on competition as 
between market participants. The Exchange believes that offering 
Customers and Professionals the proposed tiered rebates creates 
competition among options exchanges because the Exchange believes that 
the rebates may cause market participants to select NOM as a venue to 
send Customer and Professional order flow. 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 \28\ 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.
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    \28\ See note 21.
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    The proposed amendments does 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 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

[[Page 41460]]

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.\29\ 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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    \29\ 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-2013-091 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-2013-091. 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-2013-091, and should 
be submitted on or before July 31, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16530 Filed 7-9-13; 8:45 am]
BILLING CODE 8011-01-P