Document ID: SEC-2012-0948-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2012-06-14T04:00Z

[Federal Register Volume 77, Number 115 (Thursday, June 14, 2012)]
[Notices]
[Pages 35732-35735]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14573]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67171; File No. SR-NASDAQ-2012-068]

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

June 8, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 30, 2012, 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 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

    The NASDAQ Stock Market LLC proposes to modify pricing for NASDAQ 
members using the NASDAQ Options Market (``NOM''), NASDAQ's facility 
for executing and routing standardized equity and index options. 
Specifically, NASDAQ proposes to amend Chapter XV, Section 2 entitled 
``NASDAQ Options Market--Fees and Rebates'' to adopt rebates and fees 
relating to options on the Nasdaq 100 Index traded under the symbol NDX 
(``NDX'').
    While the changes proposed herein are effective upon filing, the 
Exchange has designated these changes to be operative on June 1, 2012.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaq.cchwallstreet.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    NASDAQ proposes to amend Chapter XV, Section 2 to adopt rebates and 
fees relating to NDX options. NASDAQ currently assesses the same 
rebates and fees for NDX and options on the one-tenth value of the 
Nasdaq 100 Index traded under the symbol MNX (``MNX'') as follows:

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                                                                                  Non-NOM market    NOM market
                                     Customer      Professional        Firm            maker           maker
----------------------------------------------------------------------------------------------------------------
NDX and MNX:
    Rebate to Add Liquidity.....           $0.10           $0.10           $0.10           $0.10           $0.20
    Fee for Removing Liquidity..            0.50            0.50            0.50            0.50            0.40
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    The Exchange proposes to assess the following Rebate to Remove 
Liquidity, Rebates to Add Liquidity,\3\ Fees to Add Liquidity and Fees 
for Removing Liquidity \4\ for transactions in NDX:
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    \3\ An order that adds liquidity is one that is entered into NOM 
and rests on the NOM book.
    \4\ An order that removes liquidity is one that is entered into 
NOM and that executes against an order resting on the NOM book.

[[Page 35733]]

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                                                                                  Non-NOM market    NOM market
                                     Customer      Professional        Firm            maker           maker
----------------------------------------------------------------------------------------------------------------
NDX:
    Rebate to Remove Liquidity..           $0.40           $0.00           $0.00           $0.00           $0.00
    Rebate to Add Liquidity.....             \1\            0.00            0.00            0.00             \1\
    Fee to Add Liquidity........             \1\            0.70            0.70            0.70             \1\
    Fee for Removing Liquidity..            0.00            0.70            0.70            0.70            0.70
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\1\ A Customer and NOM Market Maker will either receive a Rebate to Add Liquidity of $0.20 per contract when
  trading against a Professional, Firm, NOM Market Maker or Non-NOM Market Maker or will pay a Fee to Add
  Liquidity of $0.65 per contract when trading against a Customer.

    A Customer or a NOM Market Maker \5\ would therefore be entitled to 
receive a Rebate to Add Liquidity or would pay a Fee to Add Liquidity 
depending on the contra-party to the transaction. The Exchange also 
proposes to amend Chapter XV, Section 2 to remove the term ``NDX and'' 
in NDX and MNX title of the rebates and fees currently in the Rule.
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    \5\ NOM Market Makers must be registered as such pursuant to 
Chapter VII, Section 2 of the Nasdaq Options Rules, and must also 
remain in good standing pursuant to Chapter VII, Section 4.
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2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(4) of the Act,\7\ in particular, in that they provide 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.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to adopt separate fees and 
rebates for transactions in NDX is reasonable because the Exchange has 
previously distinguished other index products.\8\ The Exchange is 
proposing to assess certain participants higher Fees to Add and Remove 
Liquidity for NDX and pay a higher Customer Rebate to Remove Liquidity 
($0.40 per contract). The Exchange believes that its success at 
attracting Customer order flow benefits all market participants by 
improving the quality of order interaction and executions at the 
Exchange. Additionally, these proposed fees and rebates for NDX are 
also similar to complex order fees currently in place at the 
International Securities Exchange, LLC (``ISE'').\9\
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    \8\ See Chapter XV, Section 2(1) fees. The Exchange currently 
assesses different fees and rebates for other indexes such as HGX, 
SOX and OSX. Also, the Exchange assesses different fees for Penny 
Pilot transactions and non-Penny Pilot transactions. In addition, 
some market participants, such as market makers, have obligations 
pursuant to Exchange rules which the Exchange recognizes in its 
pricing.
    \9\ See ISE's Fee Schedule. ISE recently adopted fees for 
complex orders in two of the most actively-traded index option 
products, the NASDAQ 100 Index option (``NDX'') and the Russell 2000 
Index option (``RUT''). Specifically, ISE charges ISE market maker 
orders, firm proprietary orders and Customer (Professional Orders) 
$0.25 per contract for providing liquidity on the complex order book 
in NDX and RUT and $0.70 per contract for taking liquidity from the 
complex order book in NDX and RUT. Non-ISE Market Makers are charged 
$0.25 per contract for providing liquidity and $0.75 per contract 
for taking liquidity from the complex order book in NDX and RUT. 
Priority Customer orders are not charged a fee for trading in the 
complex order book in NDX and RUT and receive a rebate of $0.50 per 
contract when those orders trade with non-Priority Customer orders 
in the complex order book in NDX and RUT. In comparison, NOM has 
proposed to adopt a similar fee structure, although not related to 
complex orders as is the case at ISE, with respect to paying a 
rebate and assessing a fee depending on the contra-party to the 
transaction and whether the participant is adding or removing 
liquidity. In addition, the proposed NOM Fees for Removing Liquidity 
are similar to those adopted by ISE.
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    The Exchange believes that its proposal to adopt separate fees and 
rebates for transactions in NDX is equitable and not unfairly 
discriminatory because Customers will receive a $0.40 per contract 
Rebate to Remove Liquidity, which in turn will attract Customer order 
flow to the Exchange to the benefit of all market participants through 
increased liquidity. Further, the Exchange also believes it is 
reasonable, equitable and not unfairly discriminatory to only offer 
rebates for removing liquidity to Customers and not other market 
participants as an incentive to attract Customer order flow in NDX to 
the Exchange. It is an important Exchange function to provide an 
opportunity to all market participants to trade against Customer 
orders.
    The Exchange's proposal to pay a $0.20 per contract Rebate to Add 
Liquidity to Customers and NOM Market Makers when trading against a 
Professional, Firm, NOM Market Maker or Non-NOM Market Maker,\10\ and 
assess a Fee to Add Liquidity of $0.65 per contract when trading 
against a Customer is reasonable because the Exchange believes that 
providing Customers and Market Makers with the opportunity to either 
earn a rebate or pay a lower fee should incentivize these critical 
market participants to post liquidity on NOM. While the Customer and 
NOM Market Maker are unaware at the time they enter a transaction 
whether they would earn a rebate or pay a lower fee, the Exchange 
believes that the possibility of earning a $0.20 per contract Rebate to 
Add Liquidity when trading against a non-Customer (Professional, Firm, 
NOM Market Maker or Non-NOM Market Maker) or the opportunity to pay a 
lower fee, as compared to other market participants,\11\ when trading 
against a Customer should incentivize both Customers and Market Makers 
to add liquidity. Increased liquidity benefits all market participants.
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    \10\ Non-NOM Market Makers are registered market makers on 
another options market that append the market maker designation to 
orders routed to NOM.
    \11\ Professionals, Firms and Non-NOM Market Makers are assessed 
a $0.70 per contract Fee to Add Liquidity.
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    The Exchange's proposal to pay a $0.20 per contract Rebate to Add 
Liquidity to Customers and NOM Market Makers when trading against a 
Professional, Firm, NOM Market Maker or Non-NOM Market Maker, and 
assess a Fee to Add Liquidity of $0.65 per contract when trading 
against a Customer is equitable and not unfairly discriminatory because 
Customers and NOM Market Makers differ from other market participants. 
Customer order flow benefits all market participants by improving 
liquidity, the quality of order interaction and executions at the 
Exchange. NOM Market Makers have obligations to the market and 
regulatory requirements,\12\ which normally do not apply to other 
market participants. A NOM Market Maker has the obligation to make 
continuous markets, engage in course of dealings reasonably calculated 
to contribute to the maintenance of a fair and orderly market, and not 
make bids or offers or enter into transactions

[[Page 35734]]

that are inconsistent with course of dealings. The proposed 
differentiation as between Customers and NOM Market Makers and other 
market participants recognizes the differing contributions made to the 
liquidity and trading environment on the Exchange by Customers and NOM 
Market Makers, as well as the differing mix of orders entered. Further, 
as noted herein, the Customer and NOM Market Maker are unaware at the 
time the order is entered whether they would receive the $0.20 per 
contract Rebate to Add Liquidity or pay the $0.65 per contract Fee to 
Add Liquidity because they are aware of the identity of the contra-
party, which would determine whether they receive a rebate or pay a 
fee. The Exchange believes that the Customer and NOM Market Maker 
rebate or fee pricing structure is equitable and not unfairly 
discriminatory because the Rebate to Add Liquidity, which is only being 
offered to Customers and NOM Market Makers, would reward these 
participants for posting liquidity that interacts with a non-Customer 
order (Professionals, Firms, NOM Market Makers and Non-NOM Market 
Makers). Also, the Customer and NOM Market Maker Fees to Add Liquidity 
($0.65 per contract), when trading with a Customer, are equitable and 
not unfairly discriminatory because the fees are lower as compared to 
other market participants.\13\ The $0.65 per contract Customer and NOM 
Market Maker Fee to Add Liquidity seeks to recoup the $0.22 license fee 
\14\ and fund the $0.40 Customer Rebate to Remove Liquidity, which 
attracts liquidity to the Exchange and benefits all participants. The 
Exchange believes the combination of fees and rebates for Customers and 
NOM Market Makers to add liquidity will incentivize these participants 
to add liquidity in NDX and will also serve to fund the $0.22 license 
fee.
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    \12\ 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.
    \13\ Professionals, Firms and Non-NOM Market Makers are assessed 
a $0.70 per Contract Fee to Add Liquidity.
    \14\ NOM is assessed a license fee of $0.22 per contract to list 
NDX.
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    The Exchange's proposal to assess Professionals, Firms, and Non-NOM 
Market Makers a $0.70 per contract Fee to Add Liquidity is reasonable 
because the higher fees would enable the Exchange to reward Customers 
that remove liquidity with rebates. The advantage of increased Customer 
order flow benefits all market participants. The Exchange's proposal to 
assess Professionals, Firms, and Non-NOM Market Makers a $0.70 per 
contract Fee to Add Liquidity is equitable and not unfairly 
discriminatory because all other market participants (Professionals, 
Firms, and Non-NOM Market Makers), other than Customers and NOM Market 
Makers which are distinguished above, would be assessed the same Fee to 
Add Liquidity. Also, the Exchange believes it is reasonable, equitable 
and not unfairly discriminatory to not offer a Rebate to Add Liquidity 
to Professionals, Firms and Non-NOM Market Makers because these 
participants do not bring the unique benefits that Customer order flow 
provides the market nor do these participants have the obligations that 
were described herein for NOM Market Makers.
    The Exchange's proposal to assess all market participants except 
Customers a $0.70 per contract Fee for Removing Liquidity is equitable 
and not unfairly discriminatory because Professionals, Firms, NOM 
Market Makers and Non-NOM Market Makers would be assessed the same Fee 
for Removing Liquidity. Also, the Exchange believes the $0.70 per 
contract Fees for Removing Liquidity are reasonable because the 
Exchange currently pays a license fee \15\ to list NDX on NOM and is 
seeking to recoup that fee and to pay the proposed $0.20 per contract 
Rebate to Add Liquidity to Customers and NOM Market Makers in NDX. In 
addition, the Exchange believes that these remove fees are within the 
range of fees for removing liquidity assessed by other exchanges.\16\
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    \15\ Id.
    \16\ See BATS Exchange, Inc.'s Fee Schedule. Professional, Firm 
and Market Maker orders are assessed a fee of $0.80 per contract to 
remove liquidity from the BATS Options order book. Customer orders 
are assessed a fee of $0.75 per contract to remove liquidity from 
the BATS Options order book. BATS also offers liquidity rebates for 
all other securities of $0.70 per contract for a Professional, Firm 
or Market Maker order that adds liquidity to the BATS Options order 
book and $0.75 per contract for a Customer order that adds liquidity 
to the BATS Options order book. The Exchange is proposing to assess 
Professional, Firms and Non-NOM Market Makers $0.70 per contract 
fees to add and remove liquidity, but no rebates and assess 
Customers and NOM Market Makers $0.65 per contact when trading 
against a Customer or a $0.20 per contract rebate when trading 
against a Professional, Firm, NOM Market Maker or Non-NOM Market 
Maker.
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    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which sophisticated and knowledgeable 
market participants can and do send order flow to competing exchanges 
if they deem fee levels at a particular exchange to be excessive. The 
Exchange believes that the proposed fee and rebate scheme is 
competitive and similar to other fees and rebates in place on other 
exchanges. The Exchange believes that this competitive marketplace 
materially impacts the fees and rebates present on the Exchange today 
and substantially influences the proposal set forth above.

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

    NASDAQ does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. To the contrary, 
NASDAQ has designed its fees and rebates to compete effectively for the 
execution and routing of options contracts and to reduce the overall 
cost to investors of options trading. The Exchange believes that the 
proposed fee/rebate pricing structure would attract liquidity to and 
benefit order interaction at the Exchange to the benefit of all market 
participants.\17\
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    \17\ See June 7, 2012 Email from Jonathan Cayne, Associate 
General Counsel, The Nasdaq OMX Group, Inc. to Stephanie Mumford, 
Special Counsel, Division of Trading and Markets, Securities and 
Exchange Commission.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\18\ 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.
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    \18\ 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-2012-068 on the subject line.

[[Page 35735]]

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-2012-068. 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-2012-068 and should 
be submitted on or before July 5, 2012.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14573 Filed 6-13-12; 8:45 am]
BILLING CODE 8011-01-P