Document ID: SEC-2013-0219-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2013-02-05T05:00Z

[Federal Register Volume 78, Number 24 (Tuesday, February 5, 2013)]
[Notices]
[Pages 8205-8207]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02479]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68761; File No SR-NASDAQ-2013-013]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Modify Chapter XV, Section 2 of the Rules Governing the NASDAQ 
Options Market, NASDAQ's Facility for Executing and Routing 
Standardized Equity and Index Options

January 29, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on January 22, 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

    The NASDAQ Stock Market LLC proposes to modify Chapter XV, Section 
2 of the rules governing the NASDAQ Options Market.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2(1) governing the rebates and fees assessed for option 
orders entered into NOM, by limiting the transactions to which 
``Customer'' fees and rebates apply and by adding a new ``Broker-
Dealer'' category. The Exchange will apply the new Broker-Dealer fees 
and rebates rather than Customer fees and rebates to transactions for 
the account of a broker or dealer that are currently assessed at 
Customer rates. Transactions that are subject to the new Broker-Dealer 
fee category will no longer be considered ``Customer'' transactions for 
any purpose in Chapter XV, including rebates.
    There is currently NOM pricing for five separate categories of 
market participants: Customer, Professional, Firm, Non-NOM Market Maker 
and NOM Market Maker. ``Customer'' pricing currently applies to any 
transaction that is identified for clearing in the Customer range at 
The Options Clearing Corporation (``OCC'') which is not for the account 
of a Professional.\3\ NOM now proposes to further limit the 
``Customer'' fee category so that it does not apply to transactions 
identified for clearing in the Customer range at OCC that are for the 
account of a broker or dealer. Going forward, these transactions for 
the account of a broker or dealer that are currently charged 
``Customer'' fees will be charged under the new ``Broker-Dealer'' fee 
category.
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    \3\ See Securities Exchange Act Release No. 64494 (May 13, 
2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066) 
(``Professional Filing''). In this filing, the Exchange addressed 
the perceived favorable pricing of Professionals who were assessed 
fees and paid rebates like a Customer prior to the filing. The 
Exchange noted in that filing that a Professional, unlike a retail 
Customer, has access to sophisticated trading systems that contain 
functionality not available to retail Customers.
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    The new Broker-Dealer category would be an addition to the existing 
fee categories. Broker-Dealer transactions will be any transactions 
that do not fall within any of the other categories.\4\ As discussed 
above, transactions currently identified for clearing in the Customer 
range at OCC for the account of a broker or dealer will fall within the 
new Broker-Dealer category. The Exchange proposes to charge 
transactions in the Broker-Dealer category the same fees charged for 
transactions currently in the Firm category, and to provide the same 
rebates offered with respect to transactions in the Firm category.
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    \4\ The other categories are Customer, Professional Firm, Non-
NOM Market Maker and NOM Market Maker.
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    Additionally, the Exchange currently pays NOM Participants a tiered 
Rebate to Add Liquidity in Penny Pilot Options based on the volume of 
Customer and Professional orders they execute on the Exchange. Orders 
for brokers and dealers that currently fall within the Customer pricing 
category and that will now fall within the Broker-Dealer pricing 
category will no longer be eligible for this rebate. However, Broker-
Dealer orders, just like Firm orders, will count toward Total Volume 
for purposes of calculating the Tier 5 Rebate to Add Liquidity in Penny 
Pilot Options.
    Section 2(2) is being amended to reflect that, like transactions in 
the Firm fee category, Broker-Dealer transactions will be assessed the 
Fee for Removing Liquidity during the Exchange's Opening Cross.
    Finally, the Exchange is eliminating Section 2(3), Closing Cross, 
as unnecessary. The Exchange no longer conducts a closing cross and the 
fees are no longer applicable to any transactions.
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\5\ in general, and with Section 
6(b)(4) of the Act,\6\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons

[[Page 8206]]

using any facility or system which NASDAQ operates or controls.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that assessing for Broker-Dealer transactions 
executed on the Exchange the same pricing assessed today for Firm 
transactions executed on the Exchange is reasonable because other 
options exchanges similarly assess the same transaction fees for 
Broker-Dealers and Firms. NASDAQ OMX BX, Inc., (``BX''), International 
Securities Exchange, LLC (``ISE'') and NYSE Arca, Inc. (``NYSE Arca'') 
also charge Broker-Dealer transactions at the same rates as Firm 
transactions.
    The Exchange believes that the proposed Broker-Dealer fees are 
reasonable, equitable and not unfairly discriminatory because it is the 
same pricing uniformly charged by the Exchange with respect to 
transactions in the Professional, Firm and Non-NOM Market Maker 
categories. Only Customer and NOM Market Maker transactions receive 
more favorable fees due to the special benefits they bring to the 
market. The Exchange believes that Customer order flow brings unique 
benefits to the market which benefits all market participants through 
increased liquidity. NOM Market Makers have obligations to the market 
and regulatory requirements\7\ which normally do not apply to other 
market participants. A NOM Market Maker has the obligation to make 
continuous markets, engage in a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and not make bids or offers or enter into transactions that are 
inconsistent with a course of dealings. The proposed differentiation as 
between Customers and NOM Market Makers and other market participants 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by Customers and NOM Market Makers, 
as well as the differing mix of orders entered.
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    \7\ 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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    The Exchange believes that the proposed Broker-Dealer Rebate to Add 
Liquidity in Penny Pilot Options is equitable and not unfairly 
discriminatory because it is the same rebate that is currently applied 
to Firms, which rebate is lower than that applicable to Customers, 
Professionals, Non-NOM Market Makers and NOM Market Makers because 
Customers, Professionals, Non-NOM Market Makers and NOM Market Makers 
provide benefits to the market which Firms and Broker-Dealers do not. 
Customers and Professionals provide liquidity which benefits the 
market. Non-NOM Market Makers and NOM Market Makers have obligations to 
the market place and regulatory burdens placed on them that other 
broker-dealers trading for their own account do not currently bear.
    The Exchange believes that the lack of a Broker-Dealer Rebate to 
Add Liquidity in Non-Penny Pilot Options is equitable and not unfairly 
discriminatory because Professionals, Firms, Non-NOM Market Makers and 
NOM Market Makers also do not receive any rebate. Only Customers will 
receive a rebate because Customer order flow brings liquidity to the 
market which in turn benefits all market participants. The provision of 
Customer flow is encouraged by the rebate for this reason.
    A Customer and Professional Rebate to Add Liquidity in Penny Pilot 
Options is currently paid to a Participant having Total Volume of 
130,000 or more contracts per day in a month (``Tier 5 Total Volume''). 
The Exchange believes that it is reasonable, equitable and not unfairly 
discriminatory to count Broker-Dealer orders that previously fell 
within the ``Customer'' category toward Tier 5 Total Volume because 
Firm orders as well as orders in all other fee categories uniformly 
count toward Tier 5 ``Total Volume''.
    Finally, the Exchange believes it is reasonable, equitable, and not 
unfairly discriminatory to remove outdated references to fees assessed 
on closing cross transactions because doing so will make the fee 
schedule more up to date and accurate.

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

    NASDAQ does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.
    While the Exchange's proposal would result in higher fees for 
Broker-Dealers than Customers, the Exchange does not believe the 
proposed fees would result in any intramarket burden on competition as 
between market participants. The Exchange believes that the proposed 
Broker-Dealer pricing does not misalign fees and rebates as between 
market participants. The Exchange proposes to assess certain fees and 
pay certain rebates to Broker-Dealers which pricing is consistent with 
fees and rebates currently assessed on other options exchanges today.
    The Exchange operates in a highly competitive market, comprised of 
eleven exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange described in the above proposal are influenced by these robust 
market forces and therefore must remain competitive with fees charged 
and rebates paid by other venues and therefore must continue to be 
reasonable and equitably allocated to those members that opt to direct 
orders to the Exchange rather than competing venues.

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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\8\ NASDAQ has 
designated this proposal as establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization on any person, 
whether or not the person is a member of the self-regulatory 
organization, which renders the proposed rule change effective upon 
filing.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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

[[Page 8207]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-013 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-2013-013. 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 NASDAQ's principal office. 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-2013-013, and should 
be submitted on or before February 26, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02479 Filed 2-4-13; 8:45 am]
BILLING CODE 8011-01-P