Document ID: SEC-2009-1039-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; the NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Modifying Fees for Members Using the NASDAQ Options Market
Posted Date: 2009-07-27T04:00Z

[Federal Register: July 27, 2009 (Volume 74, Number 142)]
[Notices]               
[Page 37067-37069]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy09-86]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60352; File No. SR-NASDAQ-2009-059]

 
Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Modifying Fees for Members Using the NASDAQ Options Market

July 21, 2009.
    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 July 1, 2009, The NASDAQ Stock Market LLC (``NASDAQ'') 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. Pursuant to Section 19(b)(3)(A)(ii) 
of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ a proposed rule 
change to modify pricing for NASDAQ members using the NASDAQ Options 
Market (``NOM''), Nasdaq's facility for the trading of standardized 
equity and index options [sic]. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to modify pricing for NASDAQ members using the 
Nasdaq Market Center. This proposed rule change, which is effective 
upon filing, will become operative on July 1, 2009. The text of the 
proposed rule change is available at http://
nasdaqomx.cchwallstreet.com/, at NASDAQ's principal office, 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, NASDAQ 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. NASDAQ has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 37068]]

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

1. Purpose
    Nasdaq is modifying NASDQ Rule 7050, the fee schedule for NOM, in 
several ways. First, Nasdaq is making changes that apply to orders with 
an account type of ``Customer.'' Specifically, Nasdaq is ending its 
pricing program to eliminate the fee for the execution of options 
orders with an account type of ``Customer'' that take liquidity \5\ in 
certain Penny Pilot options. In April, Nasdaq expanded the application 
of that rule to all options that are included in the Options Penny 
Pilot Program. Nasdaq continued to monitor the trading of options on 
these equities to ensure that the proposal is operating in a fashion 
that promotes the interests of investors. Nasdaq has concluded that the 
reduction of fees is no longer attracting new order flow to NOM and, 
therefore, Nasdaq is establishing a fee of $0.20 per executed contract 
for Customer orders in Penny Pilot options.
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    \5\ An order that ``takes'' or ``removes'' liquidity is one that 
is entered into NOM and that executes against an order resting on 
the NOM book.
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    Second, Nasdaq is also changing the fee structure for ``Customer'' 
orders in options not included in the Options Penny Pilot Program. 
Currently, Nasdaq charges no execution fees for members providing 
liquidity through the NASDAQ Options Market with an account type 
``Customer.'' Nasdaq also offers a credit of $0.20 per executed 
contract to members entering orders in options with an account type 
``Customer'' that execute and remove liquidity entered by another 
member in options that are not included in the Options Penny Pilot 
Program. Nasdaq is proposing to eliminate the payment of this credit 
when an order with an account type of Customer executes against another 
order with an account type of Customer. Nasdaq determined that the 
previous rule resulted in disproportionate payment for Customer orders 
relative to order volume growth.
    Third, Nasdaq is modifying NASDAQ Rule 7050 to lower from $0.45 to 
$0.20 the fees applicable to orders from Firms that remove liquidity in 
non-Penny Pilot stocks. Nasdaq believes that lowering this fee will 
attract more order flow to NOM and improve its overall competitiveness.
    Nasdaq believes that the proposed fees are competitive, fair and 
reasonable, and non-discriminatory in that they apply equally to all 
similarly situated members and customers. As with all fees, Nasdaq may 
adjust these proposed fees in response to competitive conditions by 
filing a new proposed rule change.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(5) of the Act,\7\ in particular, in that the proposal is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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    NASDAQ also believes that the proposed rule change is consistent 
with Section 6(b)(4) of the Act,\8\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which NASDAQ operates or controls. The proposed change 
identifies a class of person subject to transaction execution fees 
based on the role of that class in bringing order flow to NASDAQ. With 
respect to options markets, the Commission has found comparable pricing 
distinctions to be consistent with the Act. For example, in SR-ISE-
2006-26,\9\ the Commission approved a fee schedule under which orders 
of professional customers were charged higher fees than orders of non-
professional customers. A Firm rate that is lower than other 
participant rates is not uncommon. In fact, ISE charges the same 
differential rate that NASDAQ is proposing: $0.20 per contract for 
Proprietary Firm executions and $0.45 per contract for non-ISE-Market 
Makers.\10\
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    \8\ 15 U.S.C. 78f(b)(4).
    \9\ Securities Exchange Act Release No. 59287 (January 23, 
2009), 74 FR 5694 (January 30, 2009) (SR-ISE-2006-26).
    \10\ See http://www.ise.com/assets//documents//optionsExchange//
legal/fee/fee_schedule.
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    NASDAQ also believes it is equitable to rebate customer executions 
in non-penny pilot options when the customer removes liquidity, unless 
the customer removes liquidity from a resting customer order. In that 
case, neither side of the trade is charged a fee or given a rebate. In 
other words, customer-to-customer transactions will be free to both 
sides of the trade (as is the case on most options markets) and 
therefore in NASDAQ's view it is not justifiable to pay an additional 
rebate. NASDAQ understands that on exchanges that engage in payment-
for-order-flow and that have less transparent fee schedules, customer 
orders that interact with other customer orders do not receive payment 
whereas customer orders that interact with a market maker do receive 
payment for order flow.
    The impact of the changes upon the net fees paid by a particular 
market participant will depend upon a number of variables, including 
its monthly volume, the order types it uses, and the prices of its 
quotes and orders (i.e., its propensity to add or remove liquidity and 
to set the best bid and offer), and the extent to which it acts as an 
agent for retail customers. NASDAQ notes that it operates in a highly 
competitive market in which market participants can readily direct 
order flow to competing venues if they deem fee levels at a particular 
venue to be excessive. NASDAQ is modifying fees to remain competitive 
with those charged by other venues and therefore strongly believes that 
its fees are reasonable and equitably allocated to those members that 
opt to direct orders to NASDAQ rather than competing venues.

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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor 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\ and subparagraph (f)(2) of Rule 19b-4 
thereunder.\12\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public

[[Page 37069]]

interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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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. In addition, the Commission seeks 
comment generally on whether the proposed assessment of transaction 
fees is consistent with the Act, in particular whether the proposal 
provides for an equitable allocation of reasonable dues, fees, and 
other charges among its members and issuers and other persons using its 
facilities under Section 6(b)(4) of the Act or whether the proposal 
permits unfair discrimination between customers, issuers, brokers, or 
dealers under Section 6(b)(5) of the Act. Specifically:
    1. The Exchange has determined that the previous $0.20 rebate for a 
Customer account for removing liquidity resulted in disproportionate 
payment for Customer orders relative to order volume growth. Do 
commenters believe that eliminating the rebate to Customers removing 
liquidity in non-Penny Pilot options when that Customer trades against 
a Customer order, while retaining the rebate to Customers that trade 
against a Firm or Market Maker order is consistent with the Act, 
including whether it is an equitable allocation of fees under Section 
6(b)(4) and not unfairly discriminatory under Section 6(b)(5)? Why or 
why not?
    2. The Commission notes that the fee schedules of some options 
exchanges provide for different levels of transaction fees for 
different categories of market participants. Generally, if there is a 
distinction between transaction fees for market makers and other non-
customers (e.g. broker-dealers, firms), the market maker transaction 
fee is less than the non-customer fee. However, the Exchange notes that 
one exchange charges away market makers more than non-customer 
orders.\13\ The Exchange proposes to charge Market Makers $0.45 per 
contract to remove orders in non-Penny Pilot options and to charge 
Firms $0.20 per contract to remove such orders. Is this fee 
differential consistent with the Act, including whether it is an 
equitable allocation of fees under Section 6(b)(4) and not unfairly 
discriminatory under Section 6(b)(5)? Why or why not?
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    \13\ See supra note 10 and accompanying text.
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    3. In non-Penny Pilot options, the Exchange proposes to lower the 
fees charged to firms that remove liquidity from $0.45 to $0.20. The 
Exchange, however, maintains the fee of $0.45 for sending orders via 
the Options Intermarket Linkage that execute on NOM. Is creating a 
differential in this manner consistent with the Act, including whether 
it is an equitable allocation of fees under Section 6(b)(4) and not 
unfairly discriminatory under Section 6(b)(5)? Why or why not?
    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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2009-059 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-2009-059. 
This file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such 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 No. SR-NASDAQ-2009-059 and should be 
submitted on or before August 17, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17819 Filed 7-24-09; 8:45 am]

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