Document ID: SEC-2014-2057-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2014-12-09T05:00Z

[Federal Register Volume 79, Number 236 (Tuesday, December 9, 2014)]
[Notices]
[Pages 73130-73132]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28773]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73732; File No. SR-NASDAQ-2014-114]

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

December 3, 2014.
    Pursuant to Section 19(b)(1) of the Securities Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 20, 2014, 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 the definition of Common Ownership \3\ in 
Chapter XV, entitled ``Options Pricing,'' at Section 2 governing 
pricing for NASDAQ members using the NASDAQ Options Market (``NOM''), 
NASDAQ's facility for executing and routing standardized equity and 
index options. Specifically, the Exchange proposes to extend the 
application of Common Ownership to all Chapter XV, Section 2 pricing 
which requires a certain volume threshold or percentage of volume to 
obtain certain options pricing.
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    \3\ The term ``Common Ownership'' shall mean Participants under 
75% common ownership or control. See NOM Rules at Chapter XV.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on December 1, 
2014.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2 governing the rebates and fees assessed for option orders 
entered into NOM. The Exchange proposes to extend the application of 
Common Ownership to all Chapter XV, Section 2 pricing which requires a 
certain volume threshold or percentage of volume to obtain certain 
options pricing. Today, NOM Participants are permitted to aggregate 
affiliate activity to obtain certain pricing as specified in Chapter 
XV, Section 2, provided the NOM Participants are affiliated because 
they are under 75% common ownership or control with each other 
(``Common Ownership''). Today, the Exchange offers NOM Participants 
under Common Ownership the ability to obtain certain Customer \4\ and 
Professional \5\ Penny

[[Page 73131]]

Pilot Options \6\ Rebates to Add Liquidity in Tiers 5, 6, 7 and 8.\7\
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    \4\ 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)).
    \5\ 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.
    \6\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2014. See 
Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and 
immediate effectiveness establishing Penny Pilot); 60874 (October 
23, 2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-091) 
(notice of filing and immediate effectiveness expanding and 
extending Penny Pilot); 60965 (November 9, 2009), 74 FR 59292 
(November 17, 2009) (SR-NASDAQ-2009-097) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR-NASDAQ-
2010-013) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62029 (May 4, 2010), 75 FR 
25895 (May 10, 2010) (SR-NASDAQ-2010-053) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
65969 (December 15, 2011), 76 FR 79268 (December 21, 2011) (SR-
NASDAQ-2011-169) (notice of filing and immediate effectiveness 
extension and replacement of Penny Pilot); 67325 (June 29, 2012), 77 
FR 40127 (July 6, 2012) (SR-NASDAQ-2012-075) (notice of filing and 
immediate effectiveness and extension and replacement of Penny Pilot 
through December 31, 2012); 68519 (December 21, 2012), 78 FR 136 
(January 2, 2013) (SR-NASDAQ-2012-143) (notice of filing and 
immediate effectiveness and extension and replacement of Penny Pilot 
through June 30, 2013); 69787 (June 18, 2013), 78 FR 37858 (June 24, 
2013) (SR-NASDAQ-2013-082) (notice of filing and immediate 
effectiveness and extension and replacement of Penny Pilot through 
December 31, 2013); 71105 (December 17, 2013), 78 FR 77530 (December 
23, 2013) (SR-NASDAQ-2013-154) (notice of filing and immediate 
effectiveness and extension and replacement of Penny Pilot through 
June 30, 2014); and 79 FR 31151 (May 23, 2014), 79 FR 31151 (May 30, 
2014) (SR-NASDAQ-2014-056) ((notice of filing and immediate 
effectiveness and extension and replacement of Penny Pilot through 
December 31, 2014). See also NOM Rules, Chapter VI, Section 5.
    \7\ For purposes of Tiers 5, 6, 7 and 8, the Exchange will allow 
NOM Participants under Common Ownership to aggregate their volume to 
qualify for the rebate.
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    The Exchange proposes to extend Common Ownership to apply to all 
pricing in Chapter XV, Section 2, which would include all Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity Tiers (1 
through 8) as well as NOM Market Maker \8\ Penny Pilot Options Rebate 
to Add Liquidity Tiers (1 through 6). It would also include any other 
future pricing in Chapter XV, Section 2 that specifies a certain volume 
threshold or volume percentage to obtain certain pricing (fees or 
rebates). The Exchange believes that permitting NOM Participants to 
aggregate pricing with affiliated NOM Participants for all pricing that 
requires a certain volume threshold or volume percentage will enable 
NOM Participants to obtain higher rebates.
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    \8\ The term ``NOM Market Maker'' means 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.
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    The Exchange proposes to amend the rule text of Chapter XV by 
adding the following sentence to the defined term, Common Ownership: 
``Common Ownership shall apply to all pricing in Chapter XV, Section 2 
for which a volume threshold or volume percentage is required to obtain 
the pricing.'' The Exchange proposes to remove all other references to 
Common Ownership currently within the rule text of Chapter XV, Section 
2(1).
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\9\ in general, and with Section 
6(b)(4) of the Act,\10\ in particular, in that they provide 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 as described in detail below.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the rule change avoids disparate treatment of 
members that have divided their various business activities between 
separate corporate entities as compared to members that operate those 
business activities within a single corporate entity. By way of 
example, subject to appropriate information barriers, many firms that 
are members of the Exchange operate both a market making desk and a 
public customer business within the same corporate entity. In contrast, 
other members may be part of a corporate structure that separates those 
business lines into different corporate affiliates, either for 
business, compliance or historical reasons, and those affiliates are 
not also considered wholly owned affiliates. Those corporate 
affiliates, in turn, are required to maintain separate memberships with 
the Exchange. Absent the proposed change, such corporate affiliates 
that cannot be considered wholly owned but are under common control 
would not receive the same treatment as members who are considered 
wholly owned affiliates. Accordingly, the Exchange believes that its 
proposed policy is fair and equitable, and not unreasonably 
discriminatory in permitting both wholly owned and common control. In 
addition to ensuring fair and equal treatment of its members, the 
Exchange does not want to create incentives for its members to 
restructure their business operations or compliance functions simply 
due to the Exchange's pricing structure.
    Today the Exchange offers rebates to NOM Participants under Common 
Ownership by permitting these members to aggregate volume as between 
affiliated NOM Participants. The Exchange would continue to permit NOM 
Participants to aggregate volume as they do today for the Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity Tiers 5, 
through 8, but would also permit members to aggregate volume with 
respect to Customer and Professional Penny Pilot Options Rebate to Add 
Liquidity Tiers 1 through 4 and all NOM Market Maker Penny Pilot 
Options Rebate to Add Liquidity Tiers. The Exchange believes it is 
reasonable to permit aggregation for all volume threshold and volume 
percentage pricing in Chapter XV, Section 2 and not limit such 
aggregation to certain Tiers as it will provide NOM Participants a 
greater opportunity to earn rebates. The Exchange also believes that it 
is equitable and not unfairly discriminatory to permit aggregation for 
all volume threshold and volume percentage pricing in Chapter XV, 
Section 2 because it is offering all NOM Participants the opportunity 
to aggregate volume.

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. The Exchange offers 
NOM Participants the opportunity to aggregate affiliated volume today 
and this proposal would provide additional opportunities to aggregate 
volume to obtain rebates. The Exchange does not believe this proposal 
creates an undue burden on competition as all NOM Participants have the 
ability to aggregate in this manner today.
    The Exchange believes the differing outcomes, rebates and fees 
created by the Exchange's proposed pricing incentives contribute to the 
overall health of the market place to the benefit of all Participants 
that willingly choose to transact options on NOM. For the reasons 
specified herein, the Exchange does not believe this proposal creates 
an undue burden on competition. The Exchange operates in a highly 
competitive market comprised of twelve U.S. options exchanges in which 
many sophisticated and knowledgeable market participants can readily 
and do send order flow to competing exchanges if they deem fee levels 
or rebate incentives at a particular exchange to be excessive or 
inadequate. These market forces support the Exchange's belief that the 
proposed rebate structure and Tiers

[[Page 73132]]

proposed herein are competitive with rebates and Tiers in place on 
other exchanges. The Exchange believes that this competitive 
marketplace continues to impact the rebates present on the Exchange 
today and substantially influences the proposals set forth above.

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.\11\ 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 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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    \11\ 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-2014-114 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-2014-114. 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-2014-114, and should 
be submitted on or before December 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28773 Filed 12-8-14; 8:45 am]
BILLING CODE 8011-01-P