Document ID: SEC-2016-0146-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2016-01-27T05:00Z

[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4687-4689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01532]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76950; File No. SR-NASDAQ-2016-003]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Options Regulatory Fee

January 21, 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 January 8, 2016, 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 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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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 5, entitled ``NASDAQ Options Regulatory Fee,'' 
which governs pricing for Exchange Participants using the NASDAQ 
Options Market (``NOM''), the Exchange's facility for executing and 
routing standardized equity and index options. The Exchange proposes to 
increase the current Options Regulatory Fee.
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on February 1, 2016.
    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 to (1) increase the ORF from $0.0015 to 
$0.0019 as of February 1, 2016 to balance the Exchange's regulatory 
revenue against the anticipated costs; and (2) remove the requirement 
that the ORF may only be modified semi-annually.
Background
    The ORF is assessed to each Participant for all options 
transactions executed or cleared by the Participant that are cleared at 
The Options Clearing Corporation (``OCC'') in the Customer range (i.e., 
that clear in the Customer account of the Participant's clearing firm 
at OCC). The Exchange monitors the amount of revenue collected from the 
ORF to ensure that it, in combination with other regulatory fees and 
fines, does not exceed regulatory costs. The ORF is imposed upon all 
transactions executed by a Participant, even if such transactions do 
not take place on the Exchange.\3\ The ORF also includes options 
transactions that are not executed by a Participant but are ultimately 
cleared by a Participant.\4\ The ORF is not charged for Participant 
proprietary options transactions because Participants incur the costs 
of owning memberships and through their membership are charged 
transaction fees, dues and other fees that are not applicable to non-
members. The dues and fees paid by Participants go into the general 
funds of the Exchange, a portion of which is used to help pay the costs 
of regulation. The ORF is collected indirectly from Participants 
through their clearing firms by OCC on behalf of the Exchange.
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    \3\ The ORF applies to all ``C'' account origin code orders 
executed by a Participant on the Exchange.
    \4\ In the case where one Participant both executes a 
transaction and clears the transaction, the ORF is assessed to the 
Participant only once on the execution. In the case where one 
Participant executes a transaction and a different Participant 
clears the transaction, the ORF is assessed only to the Participant 
who executes the transaction and is not assessed to the Participant 
who clears the transaction. In the case where a non-member executes 
a transaction and a Participant clears the transaction, the ORF is 
assessed to the Participant who clears the transaction.
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    The ORF is designed to recover a portion of the costs to the 
Exchange of the supervision and regulation of its Participants, 
including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities. The Exchange believes that 
revenue generated from the ORF, when combined with all of the 
Exchange's other regulatory fees, will cover a material portion, but 
not all, of the Exchange's regulatory costs. The Exchange will continue 
to monitor the amount of revenue collected from the ORF to ensure that 
it, in combination with its other regulatory fees and fines, does not 
exceed regulatory costs. If the Exchange determines regulatory revenues 
exceed regulatory costs, the Exchange will adjust the ORF by submitting 
a fee change filing to the Commission.
ORF Adjustments
    The Exchange proposes to increase the ORF from $0.0015 to $0.0019 
as of February 1, 2016 in order to balance the Exchange's regulatory 
revenue against the anticipated costs. The Exchange regularly reviews 
its ORF to ensure that the ORF, in combination with its other 
regulatory fees and fines, does not exceed regulatory costs. The 
Exchange believes this adjustment will permit the Exchange to cover a 
material portion of its regulatory costs, while not exceeding 
regulatory costs.
Semi-Annual Changes to ORF
    Currently, the ORF specifies the Exchange may only increase or 
decrease the ORF semi-annually, and any such fee change will be 
effective on the first business day of February or August.\5\ The 
Exchange is proposing to eliminate this requirement because the 
Exchange believes it requires the flexibility to amend its ORF to meet 
its regulatory requirements and adjust its ORF to account for the 
regulatory revenue that it receives and the costs that it incurs, as 
needed. While the Exchange is eliminating the requirement to adjust 
only semi-annually, it will continue to submit a rule proposal with the 
Commission for each modification to the ORF and notify participants via 
an Options Trader Alert of any anticipated

[[Page 4688]]

change in the amount of the fee at least thirty (30) calendar days 
prior to the effective date. The Exchange believes that the prior 
notification to market participants will provide guidance on the timing 
of any changes to the ORF and ensure market participants are prepared 
to configure their systems to properly account for the ORF. The 
Exchange notified Participants of this ORF adjustment thirty (30) 
calendar days prior to the proposed operative date.
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    \5\ See NOM Rules at Chapter XV, Section 5.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act \7\ 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that increasing the ORF from $0.0015 to 
$0.0019 as of February 1, 2016 is reasonable because the Exchange's 
collection of ORF needs to be balanced against the amount of regulatory 
revenue collected by the Exchange. The Exchange believes that the 
proposed adjustments noted herein will serve to balance the Exchange's 
regulatory revenue against the anticipated regulatory costs.
    The Exchange believes that increasing the ORF from $0.0015 to 
$0.0019 as of February 1, 2016 is equitable and not unfairly 
discriminatory because this adjustment would be applicable to all 
members on all of their transactions that clear as Customer at OCC. In 
addition, the ORF seeks to recover the costs of supervising and 
regulating members, including performing routine surveillances, 
investigations, examinations, financial monitoring, and policy, 
rulemaking, interpretive, and enforcement activities.
    The ORF is not charged for member proprietary options transactions 
because members incur the costs of owning memberships and through their 
memberships are charged transaction fees, dues and other fees that are 
not applicable to non-members. Moreover, the Exchange believes the ORF 
ensures fairness by assessing higher fees to those members that require 
more Exchange regulatory services based on the amount of Customer 
options business they conduct.
    Regulating Customer trading activity is more labor intensive and 
requires greater expenditure of human and technical resources than 
regulating non-Customer trading activity. Surveillance, regulation and 
examination of non-Customer trading activity generally tends to be more 
automated and less labor intensive. As a result, the costs associated 
with administering the Customer component of the Exchange's overall 
regulatory program are anticipated to be higher than the costs 
associated with administering the non-Customer component of its 
regulatory program. The Exchange proposes assessing higher fees to 
those members that will require more Exchange regulatory services based 
on the amount of Customer options business they conduct.\8\ 
Additionally, the dues and fees paid by members go into the general 
funds of the Exchange, a portion of which is used to help pay the costs 
of regulation. The Exchange has in place a regulatory structure to 
surveil for, exam [sic] and monitor the marketplace for violations of 
Exchange Rules. The ORF assists the Exchange to fund the cost of this 
regulation of the marketplace.
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    \8\ The ORF is not charged for orders that clear in categories 
other than the Customer range at OCC (e.g., NOM Market Maker orders) 
because members incur the costs of memberships and through their 
memberships are charged transaction fees, dues and other fees that 
go into the general funds of the Exchange, a portion of which is 
used to help pay the costs of regulation.
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    The Exchange believes that the proposed rule change to remove the 
limit to amend the ORF only semi-annually, with advance notice, is 
reasonable because the Exchange will continue to provide market 
participants with thirty (30) days advance notice of amending its ORF. 
Also, the Exchange is required to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, does not exceed regulatory costs. Therefore, 
the Exchange believes it is reasonable to remove the semi-annual limit 
to amend its ORF in order to permit the Exchange to make amendments to 
its ORF as necessary to comply with the Exchange's obligations.
    The Exchange believes that the proposed rule change to remove the 
limit to amend the ORF only semi-annually, with advance notice, is 
equitable and not unfairly discriminatory because it will apply in the 
same manner to all members that are subject to the ORF. Also, all 
members will continue to receive advance notice of changes to the ORF.

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.
    The Exchange does not believe that increasing its ORF creates an 
undue burden on intra-market competition because the adjustment will 
apply to all members on all of their transactions that clear as 
Customer at OCC. The Exchange is obligated to ensure that the amount of 
regulatory revenue collected from the ORF, in combination with its 
other regulatory fees and fines, does not exceed regulatory costs. 
Additionally, the dues and fees paid by members go into the general 
funds of the Exchange, a portion of which is used to help pay the costs 
of regulation. The Exchange's members are subject to ORF on other 
options markets.\9\
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    \9\ The following options exchanges assess an ORF, [sic] Chicago 
Board Options Exchange, Incorporated (``CBOE''), C2 Options 
Exchange, Inc. (``C2''), the International Securities Exchange, LLC 
(``ISE''), NYSE Arca, Inc. (``NYSEArca'') and [sic] NYSE AMEX LLC 
(``NYSEAmex''), BATS Exchange, Inc. (``BATS'') and NASDAQ OMX PHLX 
LLC (``Phlx' [sic]'').
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    The Exchange does not believe that removing the limit to amend the 
ORF semi-annually, with advance notice, creates an undue burden on 
competition. The Exchange will continue to provide the same advance 
notice of changes to the ORF as it does today.

[[Page 4689]]

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.\10\
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    \10\ 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-2016-003 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2016-003. 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-2016-003 and should 
be submitted on or before February 17, 2016.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Brent J. Fields,
Secretary.
[FR Doc. 2016-01532 Filed 1-26-16; 8:45 am]
BILLING CODE 8011-01-P