[Federal Register Volume 76, Number 162 (Monday, August 22, 2011)]
[Notices]
[Pages 52369-52371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-21319]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65138; File No. SR-NASDAQ-2011-112]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Customer Rebates in Penny Pilot Options

August 15, 2011.
    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 August 5, 2011, 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 modify Exchange Rule 7050 governing 
pricing for NASDAQ members using the NASDAQ Options Market (``NOM''), 
NASDAQ's facility for executing and routing standardized equity and 
index options. Specifically, NOM proposes to modify pricing for the 
Penny Pilot \3\ Options (``Penny Options'') with respect to the 
Customer Rebate to Add Liquidity.
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    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2010. 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); and 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). 
See also Exchange Rule Chapter VI, Section 5.
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    The text of the proposed rule change is set forth below. Proposed 
new text is in italics and deleted text is in [brackets].
* * * * *

7050. NASDAQ Options Market

    The following charges shall apply to the use of the order 
execution and routing services of the NASDAQ Options Market for all 
securities.
    (1) Fees for Execution of Contracts on the NASDAQ Options Market

                                                Fees and Rebates
                                             [per executed contract]
----------------------------------------------------------------------------------------------------------------
                                                                                  Non-NOM market    NOM market
                                     Customer     Profes- sional       Firm            maker           maker
----------------------------------------------------------------------------------------------------------------
Penny Pilot Options:
    Rebate to Add Liquidity.....   [diam] [$0.36           $0.29           $0.10           $0.25           $0.30
                                               ]
    Fee for Removing Liquidity..           $0.45           $0.45           $0.45           $0.45           $0.45
NDX and MNX:
    Rebate to Add Liquidity.....           $0.10           $0.10           $0.10           $0.10           $0.20
    Fee for Removing Liquidity..           $0.50           $0.50           $0.50           $0.50           $0.40
All Other Options:
    Fee for Adding Liquidity....           $0.00           $0.20           $0.45           $0.45           $0.30
    Fee for Removing Liquidity..           $0.45           $0.45           $0.45           $0.45           $0.45
Rebate to Add Liquidity.........           $0.20           $0.00           $0.00           $0.00           $0.00
----------------------------------------------------------------------------------------------------------------

    [diam] The Customer Rebate to Add Liquidity in Penny Pilot 
Options will be paid as follows:

------------------------------------------------------------------------
                                                          Rebate to add
                                       Monthly volume       liquidity
------------------------------------------------------------------------
Tier 1............................            0-499,999            $0.26
Tier 2............................      500,000-799,999            $0.32
Tier 3............................    800,000-1,199,999            $0.36
Tier 4............................     1,200,000 and up            $0.38
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[[Page 52370]]

     (2)-(4) No Change
    * These fees are applicable to orders routed to ISE that are 
subject to Rebates and Fees for Adding and Removing Liquidity in 
Select Symbols. See ISE's Schedule of Fees for the complete list of 
symbols that are subject to these fees.
    ** These fees are applicable to orders routed to PHLX that are 
subject to Rebates and Fees for Adding and Removing Liquidity in 
Select Symbols. See PHLX's Fee Schedule for the complete list of 
symbols that are subject to these fees.
* * * * *
    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 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
    NASDAQ is proposing to modify Rule 7050 governing the rebates and 
fees assessed for option orders entered into NOM. Specifically, NASDAQ 
is proposing to modify pricing for the Customer Rebate to Add Liquidity 
in Penny Options to create monthly volume tiers. The Exchange believes 
the monthly volume thresholds will incentivize firms that route 
Customer orders to the Exchange to increase Customer order flow to the 
Exchange.
    The Exchange currently pays a Customer Rebate to Add Liquidity of 
$0.36 per executed contract to members providing liquidity through NOM 
in Penny Options. The Exchange proposes to amend this rebate so that 
Customers will receive a Rebate to Add Liquidity based on their total 
number of Customer contracts that add liquidity in Penny Options in a 
given month. The Exchange proposes to pay a Customer Rebate to Add 
Liquidity in Penny Options based on four volume tiers as follows:

------------------------------------------------------------------------
                                                          Rebate to add
                                       Monthly volume       liquidity
------------------------------------------------------------------------
Tier 1............................            0-499,999            $0.26
Tier 2............................      500,000-799,999            $0.32
Tier 3............................    800,000-1,199,999            $0.36
Tier 4............................     1,200,000 and up            $0.38
------------------------------------------------------------------------

    By way of example, the Exchange would pay a Rebate to Add Liquidity 
of $0.36 per contract to a NOM Participant that executed 900,000 
Customer contracts that added liquidity in Penny Options in a given 
month. If the NOM Participant executed 1,500,000 Customer contracts 
that added liquidity in Penny Options in a given month, the Exchange 
would pay a Rebate to Add Liquidity of $0.38 per contract.
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\4\ in general, and with Section 
6(b)(4) of the Act,\5\ 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.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed monthly tier structure for 
Customer Rebates to Add Liquidity in Penny Options is equitable, 
reasonable and not unfairly discriminatory because by incentivizing 
broker-dealers acting as agent for Customer orders to select the 
Exchange as a venue to post Customer orders will attract Customer order 
flow and benefit all market participants. While the Exchange is 
lowering the current Rebate to Add Liquidity for Customers in tiers 1 
and 2, the Exchange believes that broker-dealers acting as agent for 
Customer orders will in fact be incentivized to bring additional order 
flow to the Exchange and obtain higher rebates.
    Furthermore, the Exchange believes that the proposed Customer 
monthly volume tier Rebates to Add Liquidity are equitable and not 
unfairly discriminatory because the Rebates to Add Liquidity are higher 
in tier levels 2, 3 and 4 for Customers as compared to all other market 
participants. With respect to tier level 1, the Exchange is proposing 
to pay a Customer a lower Rebate to Add Liquidity as compared to a 
Professional and NOM Market Maker. The Exchange believes that this 
proposal is equitable because the Customer has the opportunity to earn 
higher rebates with the tier structure as compared to a Professional, 
who will only receive a $0.29 per contract Rebate to Add Liquidity, and 
a NOM Market Maker, who will only receive a $0.30 per contract Rebate 
to Add Liquidity. Additionally, with respect to NOM Market Makers, the 
proposed fee structure is equitable because market makers have 
obligations to the market and regulatory requirements,\6\ which 
normally do not apply to other market participants. Customers receive a 
higher Rebate to Add Liquidity for all tiers as compared to a Firm and 
Non-NOM Market Maker.\7\
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    \6\ 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.
    \7\ A Firm receives a $0.10 per contract Rebate to Add Liquidity 
and a Non-NOM Market maker receives a $0.25 per contract Rebate to 
Add Liquidity.
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    The Exchange believes the proposed monthly tier structure for 
Customer Rebates to Add Liquidity in Penny Options is also reasonable 
because the amount of the rebate is similar to a tiered rebate offered 
by NYSE Arca, Inc. (``NYSE Arca''). NYSE Arca pays a per contract rate 
on all posted liquidity in Customer Penny Pilot Issues by aggregating 
total contracts executed that added liquidity in Penny Pilot Issues in 
a given month.\8\
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    \8\ See NYSE Arca's Fee Schedule.

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[[Page 52371]]

    The Exchange believes that the proposed monthly tier structure for 
Customer Rebates to Add Liquidity in Penny Options is equitable and not 
unfairly discriminatory because the Exchange would uniformly pay a 
Rebate to Add Liquidity to Customers executing Penny Options based on 
the monthly tiers proposed herein.
    The Exchange operates in a highly competitive market comprised of 
nine U.S. options exchanges in which sophisticated and knowledgeable 
market participants can readily send order flow to competing exchanges 
if they deem fee levels at a particular exchange to be excessive. The 
Exchange believes that the proposed rebate structure and tiers are 
competitive and similar to other rebates and tiers in place on other 
exchanges. The Exchange believes that this competitive marketplace 
impacts the rebates present on the Exchange today and substantially 
influences the proposals set forth above.

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.

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 \9\ and paragraph (f)(2) of Rule 19b-4 \10\ 
thereunder. 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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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 e-mail to [email protected]. Please include 
File Number SR-NASDAQ-2011-112 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-2011-112. This 
file number should be included on the subject line if e-mail 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 a.m. and 3 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 No. SR-NASDAQ-
2011-112 and should be submitted on or before September 12, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-21319 Filed 8-19-11; 8:45 am]
BILLING CODE 8011-01-P