Document ID: SEC-2016-0272-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2016-02-19T05:00Z

[Federal Register Volume 81, Number 33 (Friday, February 19, 2016)]
[Notices]
[Pages 8551-8557]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03390]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77127; File No. SR-NASDAQ-2016-015]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Options Pricing at Chapter XV, Section 2

February 12, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on February 1, 2016, The NASDAQ Stock Market LLC (``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 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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[[Page 8552]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter XV, entitled ``Options 
Pricing,'' at Section 2, which governs pricing for Exchange members 
using the NASDAQ Options Market (``NOM''), the Exchange's facility for 
executing and routing standardized equity and index options. The 
Exchange proposes to amend certain Penny Pilot and Non-Penny Pilot 
Options pricing as well as the Market Access and Routing Subsidy or 
``MARS.''
    The text of the proposed rule change is available on the Exchange's 
Web site 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 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 Exchange proposes certain amendments to the NOM transaction 
fees set forth at Chapter XV, Section 2 for executing and routing 
standardized equity and index options under the Penny and Non-Penny 
Pilot Options program as well as amendments to MARS. Each change will 
be described below.
Penny Pilot Options
    The Exchange proposes to amend the Penny Pilot Options Customer \3\ 
Rebate to Add Liquidity by offering an incentive to NOM Participants to 
add an even greater amount of liquidity to NOM. Specifically, the 
Exchange proposes to incentivize NOM Participants by offering the 
opportunity to earn an additional $0.03 per contract Penny Pilot 
Options Customer Rebate to Add Liquidity for each transaction which 
adds liquidity in Penny Pilot Options in that month, in addition to 
qualifying Penny Pilot Options Customer Rebate to Add Liquidity Tiers 
1-8,\4\ provided the NOM Participant qualifies for MARS Payment Tiers 
1, 2 or 3, which are proposed below.\5\ The Exchange proposes to add 
this incentive into new note ``d.'' NOM Participants that qualify for 
the current note ``c'' \6\ incentive will receive the greater of the 
note ``c'' \7\ or the note ``d'' incentive.
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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 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\ Today, the Exchange offers 8 tiered Penny Pilot Options 
Rebates to Add Liquidity to Customers based on various criteria with 
rebates ranging from $0.20 to $0.48 per contract. Participants may 
qualify for Customer and Professional Penny Pilot Options Rebates to 
Add Liquidity by adding a certain amount of liquidity as specified 
by each tier. Tiers 6 and 7 are calculated based on Total Volume. 
Total Volume is 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. See note ``b'' in Section 2(1) of Chapter 
XV. The Exchange utilizes data from The Options Clearing Corporation 
(``OCC'') to determine the total industry customer equity and ETF 
options ADV figure. OCC classifies equity and ETF options volume 
under the equity options category. Also, both customer and 
professional orders that are transacted on options exchanges clear 
in the customer range at OCC and therefore both customer and 
professional volume would be included in the total industry figure 
to calculate rebate tiers.
    \5\ The MARS Payment Tiers are proposed herein and described in 
more detail below.
    \6\ Note ``c'' at Chapter XV, Section 2(1) provides that 
Participants that 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 Rebate 
to Add Liquidity for each transaction which adds liquidity in Penny 
Pilot Options in that month. Participants that 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 Rebate to Add Liquidity for 
each transaction which adds liquidity in Penny Pilot Options in that 
month. Finally, Participants that (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 0.75% of total 
industry customer equity and ETF option ADV contracts per day in a 
month and (b) have added liquidity in all securities through one or 
more of its Nasdaq Market Center MPIDs that represent 1.10% or more 
of Consolidated Volume in a month will receive an additional $0.03 
per contract Penny Pilot Options Customer 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.
    \7\ Note ``c'' offers Participants the ability to earn a $0.02, 
$0.03 or $0.05 per contract rebate.
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Non-Penny Pilot Options
    The Exchange proposes to delete an offer to reduce a fee offered to 
Non-Customer Participants (Professional,\8\ Firm,\9\ Non-NOM Market 
Maker,\10\ NOM Market Maker \11\ and Broker-Dealer \12\) when they 
remove liquidity. Today, these Non-Customer Participants pay a Non-
Penny Pilot Options Fee for Removing Liquidity of $1.10 per contract. 
Note ``3'' offers Non-Customer Participants an opportunity to reduce 
the Non-Penny Pilot Options Fee for Removing Liquidity from $1.10 to 
$1.03 per contract, provided the Participant qualifies for Customer or 
Professional Penny Pilot Options Rebate to Add Liquidity Tiers 7 or 8 
in a month. The Exchange proposes to delete note ``3'' and no longer 
offer this fee reduction. The Exchange proposes to reserve note ``3.'' 
Today, Customers are assessed a lower Non-Penny Pilot Options Fee for 
Removing Liquidity of $0.85 per contract. Customers are not currently 
offered the fee reduction because they are assessed a lower fee ($0.85 
per contract as compared to $1.03 per contract). Despite the removal of 
the fee reduction, the Exchange believes that these fees will continue 
to attract market participants to NOM.
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    \8\ 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.
    \9\ The term ``Firm'' applies to any transaction that is 
identified by a Participant for clearing in the Firm range at The 
Options Clearing Corporation.
    \10\ The term ``Non-NOM Market Maker'' is a registered market 
maker on another options exchange that is not a NOM Market Maker. A 
Non-NOM Market Maker must append the proper Non-NOM Market Maker 
designation to orders routed to NOM.
    \11\ 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.
    \12\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
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    The Exchange currently assesses a NOM Market Maker Non-Penny Pilot 
Options Fee for Removing Liquidity of $1.10 per contract and offers 
Participants that qualify for Customer or

[[Page 8553]]

Professional Penny Pilot Options Rebate to Add Liquidity Tiers 2, 3, 4, 
5 or 6 in a month, the opportunity to lower the NOM Market Maker Non-
Penny Pilot Options Fee for Removing Liquidity to $1.08 per contract in 
that month. The Exchange proposes to continue to offer this incentive 
and expand the qualification for this incentive, described in note 
``4,'' to permit Participants that qualify for Customer or Professional 
Penny Pilot Options Rebate to Add Liquidity Tiers \13\ 2, 3, 4, 5, 6, 7 
or 8 in a month to receive the lower Non-Penny Pilot Options Fee for 
Removing Liquidity rate of $1.08 per contract in that month. Tiers 7 
and 8 are being added as qualifying tiers for this note ``4'' 
incentive. The Exchange believes that this incentive will encourage 
Participants to add liquidity to NOM.
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    \13\ The Customer and Professional Penny Pilot Options Customer 
and Professional Rebate to Add Liquidity Tiers 1-8 are described in 
Chapter XV, Section 2(1).
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MARS
    NOM offers a subsidy to NOM Participants that provide certain order 
routing functionalities to other NOM Participants and/or use such 
functionalities themselves. NOM Participants are subsidized for the 
costs they incur when providing routing services to route orders to 
NOM. Today, in order to qualify for MARS, a NOM Participant's routing 
system (hereinafter ``System'') would be required to meet certain 
criteria.\14\ Today, NOM pays NOM Participants that have System 
Eligibility and have routed at least 5,000 Eligible Contracts daily in 
a month, which were executed on NOM, a MARS Payment. Today, to qualify 
for a MARS Payment, eligible contracts may include Firm, Non-NOM Market 
Maker, Broker-Dealer, Joint Back Office or ``JBO'' \15\ or Professional 
equity option orders that add liquidity and are electronically 
delivered and executed (``Eligible Contracts''). Eligible Contracts do 
not include Mini-Options.\16\ Today, NOM Participants that have System 
Eligibility and have executed the requisite Eligible Contracts, in a 
month, will receive a MARS Payment of $0.10 per contract. Today, the 
MARS Payment will be paid only on executed Firm orders that add 
liquidity and which are routed to NOM through a participating NOM 
Participant's System. No payments are made with respect to orders that 
are routed to NOM, but not executed.\17\
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    \14\ Specifically the Participant's System would be required to: 
(1) Enable the electronic routing of orders to all of the U.S. 
options exchanges, including NOM; (2) provide current consolidated 
market data from the U.S. options exchanges; and (3) be capable of 
interfacing with NOM's API to access current NOM match engine 
functionality (``System Eligibility''). The NOM Participant's System 
would also need to cause NOM to be one of the top three default 
destination exchanges for individually executed marketable orders if 
NOM is at the national best bid or offer (``NBBO''), regardless of 
size or time, but allow any user to manually override NOM as the 
default destination on an order-by-order basis.
    \15\ The term ``Joint Back Office'' or ``JBO'' applies to any 
transaction that is identified by a Participant for clearing in the 
Firm range at OCC and is identified with an origin code as a JBO. A 
JBO will be priced the same as a Broker-Dealer as of September 1, 
2014. A JBO participant is a Participant that maintains a JBO 
arrangement with a clearing broker-dealer (``JBO Broker'') subject 
to the requirements of Regulation T Section 220.7 of the Federal 
Reserve System as further discussed in Chapter XIII, Section 5.
    \16\ Mini Options are described in Chapter XV, Section 2(4).
    \17\ A Participant will not be entitled to receive any other 
revenue for the use of its System specifically with respect to 
orders routed to NOM. The Exchange believes that the MARS Payment 
will subsidize the costs of NOM Participants in providing the 
routing services.
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    The Exchange proposes to amend the MARS Payment to replace the 
$0.10 per contract payment and the 5,000 requisite Eligible Contracts 
minimum with the following 3 tiered MARS Payment and Average Daily 
Volume requisites:

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                                           Average daily
                  Tiers                       volume       MARS  Payment
                                             (``ADV'')
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1.......................................           2,500           $0.07
2.......................................           5,000           $0.09
3.......................................          10,000           $0.11
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    Provided the NOM Participant executed the requisite number of 
Eligible Contracts ADV, the Exchange proposes to pay the applicable 
MARS Payment on all executed Eligible Contracts that add liquidity, 
which are routed to NOM through a participating NOM Participant's 
System. Today, the Exchange pays the MARS Payment only on executed Firm 
orders that add liquidity, which are routed to NOM through a 
participating NOM Participant's System. The Exchange believes that 
expanding the scope of orders eligible for a MARS Payment will attract 
higher volumes of electronic equity and ETF options volume to the 
Exchange from non-NOM Participants as well as NOM Participants with the 
proposed changes. The Exchange is not amending the other aspects of 
MARS.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\18\ in general, and with Section 6(b)(4) and 
6(b)(5) of the Act,\19\ 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 the Exchange operates or controls, and is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers. 
Attracting order flow to the Exchange benefits all Participants who 
have the opportunity to interact with this order flow.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Further, 
``[n]o one disputes that competition for order flow is `fierce.' . . . 
As the SEC explained, `[i]n the U.S. national market system, buyers and 
sellers of securities, and the broker-dealers that act as their order-
routing agents, have a wide range of choices of where to route orders 
for execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \20\ Although the court and the SEC were discussing 
the cash equities markets, the Exchange believes that these views apply 
with equal force to the options markets and this proposal is consistent 
with those views in that it is a price cut driven by competition.
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    \20\ Id. [sic] at 539 (quoting Securities Exchange [sic] Release 
No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-
NYSEArca-2006-21) at 73 FR at 74782-74783).
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Penny Pilot Options
    The Exchange's proposal to add a new note ``d'' to Chapter XV, 
Section 2(1),

[[Page 8554]]

regarding the Penny Pilot Options Customer Rebate to Add Liquidity, to 
offer NOM Participants an opportunity to earn an additional $0.03 per 
contract Penny Pilot Options Customer Rebate to Add Liquidity for each 
transaction which adds liquidity in Penny Pilot Options in that month, 
in addition to any qualifying Penny Pilot Options Customer Rebate to 
Add Liquidity Tiers 1-8,\21\ provided the NOM Participant qualifies for 
MARS Payment Tiers 1, 2 or 3,\22\ is reasonable because NOM 
Participants will be incentivized to send more order flow to NOM. The 
Exchange believes that requiring Participants to qualify for MARS 
Payment Tiers 1, 2 or 3 is reasonable because it is designed to attract 
higher volumes of electronic equity and ETF options volume to the 
Exchange. With this proposal, in order to qualify for a MARS Payment, 
NOM Participants must execute a requisite number of orders which add 
liquidity and are routed to NOM through a participating NOM 
Participant's System. The Exchange believes that it is reasonable to 
offer NOM Participants the greater of the current note ``c'' \23\ or 
new note ``d'' incentive because the NOM Participant would be able to 
receive the greater of the two rebates with this proposal. Today, 
Participants are entitled to certain incentives with note ``c'', 
provided they qualify for the Tier 8 Customer Rebate to Add Liquidity 
in Penny Pilot Options.\24\
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    \21\ See note 4 above.
    \22\ The proposed MARS Payment Tiers are described in the 
Purpose section of the rule change.
    \23\ See note 6 above.
    \24\ The Tier 8 Customer Rebate to Add Liquidity in Penny Pilot 
Options pays a $0.48 per contract rebate to Participant [sic] that 
add Customer, Professional, Firm, Non-NOM Market Maker and/or 
Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny 
Pilot Options above 0.75% or more of total industry customer equity 
and ETF option ADV contracts per day in a month or add (1) Customer 
and/or Professional liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 30,000 or more contracts per day in a month 
and (2) have certified for the Investor Support Program set forth in 
Rule 7014.
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    The Exchange's proposal to add a new note ``d'' to Chapter XV, 
Section 2(1), regarding the Penny Pilot Options Customer Rebate to Add 
Liquidity to offer NOM Participants an opportunity to earn an 
additional $0.03 per contract Penny Pilot Options Customer Rebate to 
Add Liquidity for each transaction which adds liquidity in Penny Pilot 
Options in that month, in addition to any qualifying Penny Pilot 
Options Customer Rebate to Add Liquidity Tiers 1-8, provided the NOM 
Participant qualifies for MARS Payment Tiers 1, 2 or 3, is equitable 
and not unfairly discriminatory because the Exchange would uniformly 
pay this newly proposed note ``d'' incentive to NOM Participants that 
executed the requisite MARS volume and qualified for a Customer Rebate 
to Add Liquidity tier in Penny Pilot Options. The Exchange believes it 
is equitable and not unfairly discriminatory to offer this additional 
note ``d'' incentive only to Customers, because Customer liquidity 
attracts other market participants. Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attract 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. Also, the Exchange believes that it is equitable 
and not unreasonably discriminatory to offer NOM Participants the 
greater of the current note ``c'' or new note ``d'' incentive because 
the Exchange would uniformly pay the greater of these two rebates to 
qualifying NOM Participants. The Exchange's proposal to require 
Participants to qualify for MARS Payment Tiers 1, 2 or 3 in order to 
receive the additional $0.03 per contract rebate in note ``d'' is 
equitable and not unfairly discriminatory because all Participants will 
be subject to this requirement to qualify for the note ``3'' [sic] 
added incentive on their Customer orders.
Non-Penny Pilot Options
    The Exchange's proposal to delete an offer to reduce a fee offered 
to Non-Customer Participants (Professional, Firm, Non-NOM Market Maker, 
NOM Market Maker and Broker-Dealer) in note ``3,'' which reduces the 
Non-Penny Pilot Options Fee for Removing Liquidity from $1.10 to $1.03 
per contract in that month, when they qualify for Customer or 
Professional Penny Pilot Options Rebate to Add Liquidity Tiers 7 or 8 
in a month is reasonable because these fees will continue to offset the 
Exchange's incentives to increase the Customer Non-Penny Pilot Options 
Rebate to Add Liquidity up to $1.00 per contract.\25\ All Participants, 
other than Customers, will continue to be assessed the same Non-Penny 
Pilot Options Fees for Removing Liquidity. Customers continue to be 
assessed the lowest Non-Penny Pilot Options Fee for Removing Liquidity 
of $0.85 per contract. The Exchange believes that despite the increase 
to the fee, market participants will continue to send order flow to 
NOM.
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    \25\ See Chapter XV, Section 2(1) at note ``1.'' A Participant 
that qualifies for Customer or Professional Penny Pilot Options 
Rebate to Add Liquidity Tiers 2, 3, 4, 5 or 6 in a month will 
receive an additional $0.10 per contract Non-Penny Pilot Options 
Rebate to Add Liquidity for each transaction which adds liquidity in 
Non-Penny Pilot Options in that month. A Participant that qualifies 
for Customer or Professional Penny Pilot Options Rebate to Add 
Liquidity Tiers 7 or 8 in a month will receive an additional $0.20 
per contract Non-Penny Pilot Options Rebate to Add Liquidity for 
each transaction which adds liquidity in Non-Penny Pilot Options in 
that month.
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    The Exchange's proposal to delete an offer to reduce a fee offered 
to Non-Customer Participants (Professional, Firm, Non-NOM Market Maker, 
NOM Market Maker and Broker-Dealer) in note ``3,'' which reduces the 
Non-Penny Pilot Options Fee for Removing Liquidity from $1.10 to $1.03 
per contract in that month, when they qualify for Customer or 
Professional Penny Pilot Options Rebate to Add Liquidity Tiers 7 or 8 
in a month is equitable and not unfairly discriminatory because no 
Participant would be eligible for the fee reduction. Today, Customers 
are not eligible for this fee reduction because they are assessed a 
lower Non-Penny Pilot Options Fee for Removing Liquidity of $0.85 per 
contract.
    The Exchange's proposal to extend the offer in note ``4'' to reduce 
the NOM Market Maker Non-Penny Pilot Options Fee for Removing Liquidity 
from $1.10 to $1.08 per contract, provided Participants qualify for 
Customer or Professional Penny Pilot Options Rebate to Add Liquidity 
Tiers 2-8, is reasonable because the Exchange believes that additional 
Participants would be able to qualify for the lower fee with the 
addition of Tiers 7 and 8 to the qualifying tiers.
    The Exchange's proposal to extend the offer in note ``4'' to reduce 
the NOM Market Maker Non-Penny Pilot Options Fee for Removing Liquidity 
from $1.10 to $1.08 per contract, provided Participants qualify for 
Customer or Professional Penny Pilot Options Rebate to Add Liquidity 
Tiers 2-8, is equitable and not unfairly discriminatory because the 
Exchange will continue to uniformly assess the lower fee to 
Participants that qualify for Customer or Professional Penny Pilot 
Options Rebate to Add Liquidity Tiers 2-8. The Exchange believes that 
it is equitable and not unfairly discriminatory to offer NOM Marker 
Makers the ability to reduce the Non-Penny Pilot Options Fee for 
Removing Liquidity, as compared to other market participants, because 
of the obligations borne by these NOM Market Makers.\26\ Encouraging 
NOM Market

[[Page 8555]]

Makers to add greater liquidity benefits all Participants in the 
quality of order interaction and enhanced execution quality.
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    \26\ 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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MARS
MARS Eligible Contracts
    The Exchange's proposal to replace the MARS Payment of $0.10 per 
contract and the 5,000 Eligible Contracts minimum with a 3 tiered MARS 
Payment and Average Daily Volume schedule is reasonable because all 
qualifying NOM Participants may continue to qualify for a MARS Payment 
and may obtain a MARS Payment for less volume executed on NOM and a 
higher rebate for a greater amount of volume executed on NOM. The 
Exchange believes that these amendments will attract higher volumes of 
electronic equity and ETF options volume to the Exchange, which will 
benefit all NOM Participants by offering greater price discovery, 
increased transparency, and an increased opportunity to trade on the 
Exchange. The expanded MARS Payments should enhance the competitiveness 
of the Exchange, particularly with respect to those exchanges that 
offer their own front-end order entry system or one they subsidize in 
some manner.
    The Exchange's proposal to replace the 5,000 Eligible Contracts 
with ADVs of either: 2,500, 5,000 or 10,000 Eligible Contracts is 
reasonable because a greater number of NOM Participants may be eligible 
for MARS Payments. The Exchange is offering NOM Participants with less 
than 5,000 Eligible Contracts to receive a MARS Payment with this 
proposal. Today, 5,000 Eligible Contracts entitles NOM Participants to 
a $0.10 per contract MARS Payment. The Exchange will continue to pay 
NOM Participants which execute 5,000 contracts a MARS Payment, but a 
lower MARS Payment of $0.09 per contract as compared to $0.10 per 
contract. While this is a lower MARS Payment as compared to today, 
those NOM Participants would receive no MARS Payment today if they fell 
short of the 5,000 Eligible Contracts minimum. With this proposal, 
those NOM Participants with at least 2,500 ADV of Eligible Contracts 
will be paid a $0.07 per contract MARS Payment.\27\ Finally, the 
Exchange proposes to pay NOM Participants that execute 10,000 Eligible 
Contracts a higher MARS Payment of $0.11 per contract. The Exchange is 
offering those Participants that desire to transact higher ADVs the 
opportunity to earn a higher MARS Payment than is offered today and is 
also paying NOM Participants with lower ADVs a MARS Payment with this 
proposal.
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    \27\ No MARS Payment is paid if volume is less than 2,500 ADV in 
a month.
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    The Exchange's proposal to replace the 5,000 Eligible Contracts 
with ADVs of either: 2,500, 5,000 or 10,000 Eligible Contracts is 
equitable and not unfairly discriminatory because the criteria for 
Eligible Contracts and ADVs will be uniformly applied to all qualifying 
NOM Participants.
    The Exchange believes that the 3 tiered Eligible Contracts is 
reasonable because the Exchange is only counting add liquidity from 
Firms, Non-NOM Market Makers, Broker-Dealers, JBOs and Professionals 
which are electronically delivered and executed. The Exchange is not 
counting remove liquidity and therefore the ADV levels reflect what the 
Exchange believes to be appropriate levels of commitment from NOM 
Participants to receive the subsidy. The Exchange's expansion of the 
levels of commitment to 3 tiers offers NOM Participants additional 
opportunities to receive a MARS Payment.
    The Exchange believes that the 3 tiered Eligible Contracts is 
equitable and not unfairly discriminatory because the Exchange will 
uniformly calculate the number of Eligible Contracts for all NOM 
Participants.
MARS Payment
    The Exchange's proposal to replace the $0.10 per contract MARS 
Payment with a 3 tiered MARS Payment based on Eligible Contract ADVs is 
reasonable because NOM Participants may receive a MARS Payment for 
lower volume or a higher MARS Payment for higher volume with this 
proposal. The Exchange is offering to pay a $0.07 per contract MARS 
Payment to NOM Participants that transact 2,500 ADV of Eligible 
Contracts. NOM Participants that were unable to achieve the 5,000 
Eligible Contract minimum may now be entitled to a MARS Payment with 
this lower ADV. Also, the 2,500 ADV is half of the current 5,000 
minimum and the MARS Payment is more than half of the $0.10 per 
contract MARS Payment offered today. The Exchange believes that this 
first tier will attract a greater number of NOM Participants. The 
Exchange is lowering the $0.10 per contract MARS Payment offered today 
to $0.09 per contract for the same volume offered today, 10,000 [sic] 
Eligible Contracts. While the Exchange is offering a slightly lower 
MARS Payment for the same number of Eligible Contracts required today 
to receive the current $0.10 per contract MARS Payment, it is also 
proposing to offer a higher rebate of $0.11 per contract for 10,000 ADV 
of Eligible Contracts. The Exchange believes the proposed 3 tiered MARS 
Payments is reasonable because the tier structure will allow NOM 
Participants to price their services at a level that will enable them 
to attract order flow from market participants who would otherwise 
utilize an existing front-end order entry mechanism offered by the 
Exchange's competitors instead of incurring the cost in time and money 
to develop their own internal systems to be able to deliver orders 
directly to the Exchange's System.
    The Exchange's proposal to replace the $0.10 per contract MARS 
Payment with a 3 tiered MARS Payment based on Eligible Contract ADVs is 
equitable and not unfairly discriminatory because the Exchange will 
uniformly pay all NOM Participants the rebates specified in the 
proposed 3 tiered MARS Payments provided the NOM Participant has 
executed the requisite number of Eligible Contracts. Moreover, the 
Exchange believes that the proposed MARS Payments offered by the 
Exchange are equitable and not unfairly discriminatory because any 
qualifying NOM Participant that offers market access and connectivity 
to the Exchange and/or utilizes such functionality themselves may earn 
the MARS Payment for all Eligible Contracts.
    The Exchange's proposal to pay the applicable MARS Payment on all 
executed Eligible Contracts that add liquidity, which are routed to NOM 
through a participating NOM Participant's System, as compared to only 
executed Firm orders, is reasonable because the Exchange is expanding 
the MARS Payment to all Eligible Contracts and this will attract higher 
volumes of electronic equity and ETF options volume to the Exchange 
from non-NOM Participants as well as NOM Participants. The Exchange 
believes that as a result of this proposed amendment, NOM Participants 
will be entitled to higher payments provided they transact the 
requisite number of Eligible Contracts.
    The Exchange's proposal to pay the applicable MARS Payment on all 
executed Eligible Contracts that add liquidity, which are routed to NOM 
through a participating NOM

[[Page 8556]]

Participant's System, as compared to only executed Firm orders, is 
equitable and not unfairly discriminatory because the Exchange will 
uniformly calculate the MARS Payment for all NOM Participants and 
uniformly pay the MARS Payment on all executed Eligible Contracts that 
add liquidity, which are routed to NOM through a participating NOM 
Participant's System.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to continue to pay the proposed MARS Payment to 
NOM Participants that have System Eligibility and have executed the 
Eligible Contracts, even when a different NOM Participant may be liable 
for transaction charges resulting from the execution of the orders upon 
which the subsidy might be paid. The Exchange notes that this sort of 
arrangement already exists on other options exchanges such as Phlx 
which pays a Qualified Contingent Cross (``QCC'') Rebate for floor 
transactions.\28\ Today, this arrangement on Phlx results in a 
situation where the floor broker is earning a rebate and one or more 
different Phlx members are potentially liable for the Exchange 
transaction charges applicable to QCC Orders. With the QCC rebates 
applicable to transactions executed on the trading floor, Phlx does not 
offer a front-end for order entry; unlike some of the competing 
exchanges, Phlx has argued that it is necessary from a competitive 
standpoint to offer this rebate to the executing floor broker on a QCC 
Order.\29\ Also, all qualifying NOM Participants would be uniformly 
paid the subsidy on all qualifying volume that was routed by them to 
the Exchange and executed.
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    \28\ See Phlx's Pricing Schedule. A Floor QCC Order must: (i) Be 
for at least 1,000 contracts, (ii) meet the six requirements of Rule 
1080(o)(3) which are modeled on the QCT Exemption, (iii) be executed 
at a price at or between the NBBO; and (iv) be rejected if a 
Customer order is resting on the Exchange book at the same price. In 
order to satisfy the 1,000-contract requirement, a Floor QCC Order 
must be for 1,000 contracts and could not be, for example, two 500-
contract orders or two 500-contract legs. See Phlx Rule 1064(e). See 
also Securities Exchange Act Release No. 64688 (June 16, 2011), 76 
FR 36606 (June 22, 2011) (SR-Phlx-2011-56).
    \29\ See also Securities Exchange Act Release No. 64688 (June 
16, 2011), 76 FR 36606 (June 22, 2011) (SR-Phlx-2011-56) (Order 
Granting Approval of Proposed Rule Change Establishing a Qualified 
Contingent Cross Order for Execution on the Floor of the Exchange).
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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. In terms of inter-market 
competition, the Exchange notes that it 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 to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed amendments to certain Penny Pilot 
and Non-Penny Pilot Options pricing as well as MARS do not impose an 
undue burden on inter-market competition because the Exchange's 
execution services are completely voluntary and subject to extensive 
competition.
Penny Pilot Options
    The Exchange's proposal to add a new note ``d'' to Chapter XV, 
Section 2(1), regarding the Penny Pilot Options Customer Rebate to Add 
Liquidity to offer NOM Participants an opportunity to earn an 
additional $0.03 per contract Penny Pilot Options Customer Rebate to 
Add Liquidity for each transaction which adds liquidity in Penny Pilot 
Options in that month, in addition to any qualifying Penny Pilot 
Options Customer Rebate to Add Liquidity Tiers 1-8, provided the NOM 
Participant qualifies for MARS Payment Tiers 1, 2 or 3, does not impose 
an undue burden on intra-market competition because the Exchange would 
uniformly pay this newly proposed note ``d'' incentive to NOM 
Participants that executed the requisite MARS volume and qualified for 
a Customer Rebate to Add Liquidity tier in Penny Pilot Options. The 
Exchange's proposal to only offer this additional note ``d'' incentive 
only to Customers does not impose an undue burden on intra-market 
competition because Customer liquidity attracts other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attract 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's proposal to require Participants to qualify for MARS 
Payment Tiers 1, 2 or 3 in order to receive the additional $0.03 per 
contract rebate in note ``d'' does not impose an undue burden on intra-
market competition because all Participants will be subject to this 
requirement to qualify for the note ``3'' [sic] added incentive on 
their Customer orders. The Exchange also believes that offering 
Participants the greater of the note ``c'' or note ``d'' incentives 
does not impose an undue burden on intra-market competition because 
Participants will uniformly receive the greater of these two rebates.
Non-Penny Pilot Options
    The Exchange's proposal to delete an offer to reduce a fee offered 
to Non-Customer Participants (Professional, Firm, Non-NOM Market Maker, 
NOM Market Maker and Broker-Dealer) in note ``3,'' which reduces the 
Non-Penny Pilot Options Fee for Removing Liquidity from $1.10 to $1.03 
per contract in that month, when they qualify for Customer or 
Professional Penny Pilot Options Rebate to Add Liquidity Tiers 7 or 8 
in a month does not impose an undue burden on intra-market competition 
because no Participant would be eligible for the fee reduction. Today, 
Customers are not eligible for this fee reduction because they are 
assessed a lower Non-Penny Pilot Options Fee for Removing Liquidity of 
$0.85 per contract.
    The Exchange's proposal to extend the offer in note ``4'' to reduce 
the NOM Market Maker Non-Penny Pilot Options Fee for Removing Liquidity 
from $1.10 to $1.08 per contract, provided Participants qualify for 
Customer or Professional Penny Pilot Options Rebate to Add Liquidity 
Tiers 2-8, does not impose an undue burden on intra-market competition 
because the Exchange will continue to uniformly assess the lower fee to 
Participants that qualify for Customer or Professional Penny Pilot 
Options Rebate to Add Liquidity Tiers 2-8. Offering NOM Marker Makers 
the ability to reduce the Non-Penny Pilot Options Fee for Removing 
Liquidity, as compared to other market participants does not impose an 
undue burden on intra-market competition because of the obligations 
borne by these NOM Market Makers.\30\
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    \30\ See note 26 above.

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[[Page 8557]]

MARS
MARS Eligible Contracts
    The Exchange's proposal to replace the 5,000 Eligible Contracts 
with ADVs of either: 2,500, 5,000 or 10,000 does not impose an undue 
burden on intra-market competition because the criteria for Eligible 
Contracts and ADVs will be uniformly applied to all qualifying NOM 
Participants. Also, only counting add liquidity from Firms, Non-NOM 
Market Makers, Broker-Dealers, JBOs and Professionals which are 
electronically delivered and executed does not impose an undue burden 
on intra-market competition because the Exchange will uniformly 
calculate the number of Eligible Contracts for all NOM Participants.
MARS Payment
    The Exchange's proposal to replace the $0.10 per contract MARS 
Payment with a 3 tiered MARS Payment based on Eligible Contract ADVs 
does not impose an undue burden on intra-market competition because the 
Exchange will uniformly pay all NOM Participants the proposed 3 tiered 
MARS Payments provided the NOM Participant has executed the requisite 
number of Eligible Contracts. Moreover, the Exchange believes that the 
proposed MARS Payments offered by the Exchange does not impose an undue 
burden on intra-market competition because any qualifying NOM 
Participant that offers market access and connectivity to the Exchange 
and/or utilizes such functionality themselves may earn the MARS Payment 
for all Eligible Contracts.
    The Exchange's proposal to pay the applicable MARS Payment on all 
executed Eligible Contracts that add liquidity, which are routed to NOM 
through a participating NOM Participant's System, does not impose an 
undue burden on intra-market competition because the Exchange will 
uniformly calculate the MARS Payment for all NOM Participants and 
uniformly pay the MARS Payment on all executed Eligible Contracts that 
add liquidity, which are routed to NOM through a participating NOM 
Participant's System.
    The Exchange believes that paying the proposed MARS Payment to 
qualifying NOM Participants that have System eligibility and have 
executed the Eligible Contracts does not create an undue burden on 
intra-market competition, even when a different NOM Participant, other 
than the NOM Participant receiving the subsidy, may be liable for 
transaction charges, because this sort of arrangement already exists on 
the Exchange and would be uniformly applied to all qualifying NOM 
Participants.

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.\31\
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    \31\ 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-2016-015 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2016-015. 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 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 Number SR-NASDAQ-2016-015, and should 
be submitted on or before March 11, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03390 Filed 2-18-16; 8:45 am]
 BILLING CODE 8011-01-P