Document ID: SEC-2013-2115-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2013-12-12T05:00Z

[Federal Register Volume 78, Number 239 (Thursday, December 12, 2013)]
[Notices]
[Pages 75657-75659]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29607]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71008; File No. SR-NASDAQ-2013-146]

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

December 6, 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 November 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, Section 2, entitled ``NASDAQ 
Options Market--Fees and Rebates,'' which governs pricing for NASDAQ 
members using the NASDAQ Options Market (``NOM''), NASDAQ's facility 
for executing and routing standardized equity and index options, to 
amend Routing Fees.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on December 2, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend the Routing Fees in Section 
2(3) of Chapter XV in order to recoup costs the Exchange incurs for 
routing and executing certain orders in equity options to away markets. 
Today, the Exchange assesses a Non-Customer a $0.95 per contract 
Routing Fee to any options exchange. The Customer Routing Fee for 
option orders routed to NASDAQ OMX PHLX LLC (``PHLX'') is a $0.05 per 
contract Fixed Fee in addition to the actual transaction fee assessed. 
The Customer Routing Fee for option orders routed to NASDAQ OMX BX, 
Inc. (``BX Options'') is $0.00 per contract. The Customer Routing Fee 
for option orders routed to all other options exchanges \3\ (excluding 
PHLX and BX Options) is a fixed fee of $0.15 per contract (``Fixed 
Fee'') in addition to the actual transaction fee assessed. If the away 
market pays a rebate, the Routing Fee is $0.00 per contract.\4\
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    \3\ Including BATS Exchange, Inc. (``BATS''), BOX Options 
Exchange LLC (``BOX''), the Chicago Board Options Exchange, 
Incorporated (``CBOE''), C2 Options Exchange, Incorporated (``C2''), 
International Securities Exchange, LLC (``ISE''), the Miami 
International Securities Exchange, LLC (``MIAX''), NYSE Arca, Inc. 
(``NYSE Arca''), NYSE MKT LLC (``NYSE Amex'') and Topaz Exchange, 
LLC (``Gemini'').
    \4\ For all Routing Fees, the transaction fee will continue to 
be based on the away market's actual transaction fee or rebate for 
particular market participants and in the case that there is no 
transaction fee or rebate assessed by the away market, the fixed 
fee.
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    The Exchange proposes to increase the Customer Routing Fixed Fee of 
$0.15 per contract when an option order is routed to all other 
exchanges to $0.20 per contract. With respect to the fixed costs, the 
Exchange incurs a fee when it utilizes Nasdaq Options Services LLC 
(``NOS''), a member of the Exchange and the Exchange's exclusive order 
router.\5\ Each time NOS routes an order to an away market, NOS is 
charged a clearing fee \6\ and, in the case of certain exchanges, a 
transaction fee is also charged in certain symbols, which fees are 
passed through to the Exchange. The Exchange currently recoups clearing 
and transaction charges incurred by the Exchange as well as certain 
other costs incurred by the Exchange when routing to away markets, such 
as administrative and technical costs associated with operating NOS, 
membership fees at

[[Page 75658]]

away markets, Options Regulatory Fees (``ORFs'') and technical costs 
associated with routing options. The Exchange assesses the actual away 
market fee at the time that the order was entered into the Exchange's 
trading system. This transaction fee would be calculated on an order-
by-order basis since different away markets charge different amounts.
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    \5\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order 
Routing).
    \6\ The Options Clearing Corporation (``OCC'') assesses $0.01 
per contract side.
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    A new market entrant recently adopted an ORF.\7\ The Exchange 
proposes to increase its Fixed Fee from $0.15 to $0.20 per contract to 
recoup costs associated with increased costs.
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    \7\ Gemini adopted an ORF of $0.0010 per contract. See 
Securities Exchange Act Release No. 70200 (August 14, 2013), 78 FR 
51242 (August 20, 2013) (SR-Topaz-2013-01).
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2. Statutory Basis
    NASDAQ believes that its proposal to amend its Pricing Schedule is 
consistent with Section 6(b) of the Act \8\ in general, and furthers 
the objectives of Section 6(b)(4) and (b)(5) of the Act \9\ 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, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that the proposed Routing Fees are reasonable 
because they seek to recoup costs that are incurred by the Exchange 
when routing Customer, Firm, Market Maker and Professional orders to 
away markets on behalf of members. Each destination market's 
transaction charge varies and there is a cost incurred by the Exchange 
when routing orders to away markets. The costs to the Exchange include 
clearing costs, administrative and technical costs associated with 
operating NOS, membership fees at away markets, ORFs and technical 
costs associated with routing options. The Exchange believes that the 
proposed Routing Fees would enable the Exchange to recover the costs it 
incurs to route orders to away markets in addition to transaction fees 
assessed to market participants for the execution of Customer, Firm, 
Market Maker and Professional orders by the away market. Specifically, 
new entrants have added costs associated with routing.\10\ The Exchange 
believes that it is reasonable to recoup these costs borne by the 
Exchange on each transaction. The $0.20 per contract Customer Routing 
Fixed Fee, which is assessed when an option order is routed to all 
other exchanges, represents the overall cost to the Exchange for 
technical, administrative, clearing, regulatory, compliance and other 
costs, in addition to the transaction fee assessed by the away market.
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    \10\ See note 8 [sic].
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    In addition, the Exchange believes that it is equitable and not 
unfairly discriminatory to assess a $0.20 per contract Customer Routing 
Fixed Fee when an option order is routed to all other exchanges because 
this fee would be assessed uniformly on all market participants in 
addition to the actual transaction fees on all orders routed to non-
NASDAQ OMX markets.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess a fixed cost of $0.05 per contract to route 
orders to PHLX and no cost to route to BX Options because the cost, in 
terms of actual cash outlays, to the Exchange to route to those markets 
is lower. For example, costs related to routing to PHLX and BX Options 
are lower as compared to other away markets because NOS is utilized by 
all three exchanges to route orders.\11\ NOS and the three NASDAQ OMX 
options (PHLX, BX Options and NOM) markets have a common data center 
and staff that are responsible for the day-to-day operations of NOS. 
Because the three exchanges are in a common data center, Routing Fees 
are reduced because costly expenses related to, for example, 
telecommunication lines to obtain connectivity are avoided when routing 
orders in this instance. The costs related to connectivity to route 
orders to other NASDAQ OMX exchanges are de minimis. When routing 
orders to non-NASDAQ OMX exchanges, the Exchange incurs costly 
connectivity charges related to telecommunication lines and other 
related costs. The Exchange believes it is reasonable, equitable and 
not unfairly discriminatory to pass along savings realized by 
leveraging NASDAQ OMX's infrastructure and scale to market participants 
when those orders are routed to PHLX and BX Options. Orders are routed 
to away markets in accordance with Exchange rules based on price.\12\ 
Market participants may submit orders to the Exchange as ineligible for 
routing or ``DNR'' to avoid incurring the Routing Fees proposed 
herein.\13\
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    \11\ See Chapter VI, Section 11 of the NASDAQ and BX Options 
Rules and PHLX Rule 1080(m)(iii)(A).
    \12\ See NASDAQ Rules at Chapter XII (Options Order Protection 
and Locked and Crossed Market Rules).
    \13\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order 
Routing).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ 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. The Exchange believes that the rule change 
would allow the Exchange to recoup its costs when routing orders 
designated as available for routing by the market participant. NOM 
Participants may choose to mark the order as ineligible for routing to 
avoid incurring these fees.\14\ Today, other options exchanges also 
assess similar fees to recoup costs incurred when routing orders to 
away markets.
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    \14\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order 
Routing).
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    With respect to continuing to route orders to PHLX and BX Options 
at a lower cost as compared to other away markets, the Exchange does 
not believe that the proposed amendments to increase those fees, while 
maintaining the same fee differential imposes a burden because all 
market participants would be assessed the same fees depending on the 
away market. Also, the Exchange is proposing to recoup costs incurred 
only when members request the Exchange route their orders to an away 
market. The Exchange is passing along savings realized by leveraging 
NASDAQ OMX's infrastructure and scale to market participants when those 
orders are routed to Phlx and BX Options and is providing those saving 
to all market participants. Finally, the Exchange routes orders to away 
markets where the Exchange's disseminated bid or offer is inferior to 
the national best bid (best offer) price and based on price first.\15\
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    \15\ See NASDAQ Rules at Chapter XII (Options Order Protection 
and Locked and Crossed Market Rules).
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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.\16\ 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

[[Page 75659]]

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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    \16\ 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-2013-146 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-2013-146. 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-2013-146 and should 
be submitted on or before January 2, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29607 Filed 12-11-13; 8:45 am]
BILLING CODE 8011-01-P