[Federal Register Volume 80, Number 51 (Tuesday, March 17, 2015)]
[Notices]
[Pages 13943-13946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-06018]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74475; File No. SR-NASDAQ-2015-019]


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

March 11, 2015.
    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 February 27, 2015, 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, entitled ``Options Pricing,'' 
at Section 2 governing pricing for NASDAQ members using the NASDAQ 
Options Market (``NOM''),\3\ NASDAQ's facility for executing and 
routing standardized equity and index options. Specifically, NOM 
proposes to amend certain Fees for Removing Liquidity.
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    \3\ NOM is a facility of NASDAQ. References in this proposal to 
Chapter and Series refer to NOM rules, unless otherwise indicated.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on March 2, 
2015.
    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 proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2(1) governing the fees assessed for option orders entered 
into NOM. Specifically, the Exchange proposes to increase the 
Professional,\4\ Firm,\5\ NOM Market Maker,\6\ Non-NOM Market Maker,\7\ 
and Broker-Dealer \8\ Penny Pilot Options \9\ Fees for Removing 
Liquidity.

[[Page 13944]]

No change is proposed to Customer \10\ Penny Pilot Options Fees for 
Removing Liquidity.
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    \4\ 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. The Exchange initially established 
Professional pricing in order to ``. . . bring additional revenue to 
the Exchange.'' See Securities Exchange Act Release No. 64494 (May 
13, 2011), 76 FR 29014 (May 19, 2011) (SR-NASDAQ-2011-066). 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; and noted that a Professional, unlike 
a retail Customer, has access to sophisticated trading systems that 
contain functionality not available to retail Customers.
    \5\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation (``OCC'').
    \6\ 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. See Chapter XV. ``Participant'' means a 
firm, or organization that is registered with the Exchange pursuant 
to Chapter II of these Rules for purposes of participating in 
options trading on NOM as a ``Nasdaq Options Order Entry Firm'' or 
``Nasdaq Options Market Maker''. See Chapter I, Section (a)(40).
    \7\ The term ``Non-NOM Market Maker'' is a registered market 
maker on another options exchange that is not a NOM Market Maker. A 
Non-NOM Market Maker must append the proper Non-NOM Market Maker 
designation to orders routed to NOM.
    \8\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \9\ The Penny Pilot was established in March 2008 and was last 
extended in 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); and 73686 (November 25, 2014), 79 FR 71477 (December 2, 
2014) (SR-NASDAQ-2014-115) (notice of filing and immediate 
effectiveness extending the Penny Pilot through June 30, 2015). All 
Penny Pilot Options listed on the Exchange can be found at http://www.nasdaqtrader.com/Micro.aspx?id=phlx.
    \10\ The term ``Customer'' applies to any transaction that is 
identified by a Participant for clearing in the Customer range at 
the OCC 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)).
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Section 2 NASDAQ Options Market--Fees and Rebates
Penny Pilot Fees for Removing Liquidity
    The Exchange proposes to amend the Fees for Removing Liquidity in 
Penny Pilot Options in Chapter IV, Section 2(1) as follows:





                        (1) Fees for Execution of Contracts on the NASDAQ Options Market
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                                                      Fees and rebates (per executed contract)
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                                                                             Non-NOM
                                     Customer   Professional      Firm        market    NOM  market    Broker-
                                                                              maker         maker       dealer
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Penny Pilot Options:
    Fee for Removing Liquidity...        $0.48     $0.50 \d\    $0.50 \d\    $0.50 \d\    $0.50 \d\    $0.50 \d\
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    Today, Professionals, Firms, Non-NOM Market Makers, NOM Market 
Makers, and Broker-Dealers are assessed a $0.49 per contract Fee for 
Removing Liquidity in a Penny Pilot Option.\11\
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    \11\ In addition, note d states that Participants that qualify 
for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 
(the highest rebate tiers) in a given month will be assessed a 
Professional, Firm, Non-NOM Market Maker, NOM Market Maker, or 
Broker-Dealer Fee for Removing Liquidity in Penny Pilot Options of 
$0.48 per contract and a Customer Fee for Removing Liquidity in 
Penny Pilot Options of $0.47 per contract. See Chapter XV, Section 
2(1).
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    The Exchange proposes to increase the Penny Pilot Fee for Removing 
Liquidity for Professionals, Firms, Non-NOM Market Makers, NOM Market 
Makers, and Broker-Dealers by a penny, from $0.49 to $0.50 per 
contract.\12\ The Exchange is increasing the Fees for Removing 
Liquidity in Penny Pilot Options so that it will be able to continue to 
offer rebates to Customers, Professionals, Firms, Non-NOM Market 
Makers, NOM Market Makers, and Broker-Dealers to attract liquidity and 
encourage order interaction on NOM.\13\ The Exchange will still allow 
participants that qualify for Customer or Professional Rebate to Add 
Liquidity Tiers 7 or 8 in a given month to be assessed a Professional, 
Firm, Non-NOM Market Maker, NOM Market Maker, or Broker-Dealer Fee for 
Removing Liquidity in Penny Pilot Options of $0.48 per contract.
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    \12\ Customers will continue to be assessed a Penny Pilot Option 
Fee for Removing Liquidity of $0.48 per contract.
    \13\ The Customer and Professional Rebate to Add Liquidity in 
Penny Pilot Options is earned pursuant to eight Monthly Volume 
Tiers. The NOM Market Maker Rebate to Add Liquidity in Penny Pilot 
Options is earned pursuant to six different Monthly Volume Tiers. 
The concept of ``Common Ownership'' (Participants under 75% common 
ownership or control) applies to pricing in Chapter XV, Section 2 
for which a volume threshold or volume percentage is required to 
obtain the pricing. See Chapter XV, Section 2(1).
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2. Statutory Basis
    NASDAQ believes that the proposed fee changes are consistent with 
the provisions of Section 6 of the Act,\14\ in general, and with 
Section 6(b)(4) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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Penny Pilot Fees for Removing Liquidity
    The Exchange's proposal to increase the Professional, Firm, Non-NOM 
Market Maker, NOM Market Maker, and Broker-Dealer Fees for Removing 
Liquidity in Penny Pilot Options from $0.49 to $0.50 per contract is 
reasonable because the increase will afford the Exchange the 
opportunity to offer additional and increased rebates to these Exchange 
participants, which should benefit all market participants through 
increased liquidity and order interaction. The Exchange believes that 
rebates incentivize Participants to select the Exchange as a venue to 
post liquidity and attract additional order flow to the benefit of all 
market participants. Incentivizing Participants to post liquidity will 
also benefit Participants through increased order interaction. 
Increased liquidity, and in particular Customer liquidity (as noted, 
the fee for removing Customer liquidity continues to be lower than for 
removing other liquidity) provides more trading opportunities, which 
attracts other Participants, including NOM Market Makers.\16\ An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Moreover, in constructing the Exchange's fee and rebate program, the 
Exchange aims to remain competitive with other venues so that it is a 
superior choice for market participants when posting orders. The 
Exchange believes that the fee resulting from the proposed increase is 
still less than the rates assessed by other options for certain Penny 
Pilot Options.\17\
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    \16\ For obligations of Market Makers, see Chapter VII, Section 
5. For Market Maker quotations (e.g. firm quotes, continuous 
quotes), see Chapter VII, Section 6.
    \17\ See, for example, the Miami International Securities 
Exchange LLC (``MIAX'') Fee Schedule. Specifically, orders executed 
for the account of non-MIAX market makers will be assessed $0.55 per 
contract in options overlying EEM, GLD, IWM, QQQ, and SPY.
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    The Exchange believes that it is equitable and not unfairly 
discriminatory to increase Fees for Removing Liquidity in Penny Pilot 
Options for Professionals, Firms, Non-NOM Market Makers, NOM Market 
Makers, and Broker-Dealers because all market participants, other than 
Customers, will continue to be assessed a uniform fee. As explained 
herein, order flow brings unique benefits to the market through 
increased liquidity which benefits all NOM Participants.\18\
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    \18\ See supra note 16 regarding continuous quoting and the 
commitment of capital by NOM Market Makers.
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    Further, the Exchange believes it is reasonable, equitable and not 
unfairly discriminatory to offer Participants that qualify for Customer 
or Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month 
to be assessed a Professional, Firm, Non-NOM Market Maker, NOM Market 
Maker, or Broker-Dealer Fee for Removing Liquidity in Penny Pilot 
Options of $0.48 per contract instead of the proposed $0.50 per 
contract. The increase in the differential from $0.01 to $0.02 is 
reasonable, equitable and not unfairly discriminatory because it is 
consistent with differentials at competing options

[[Page 13945]]

exchanges. For example, NASDAQ OMX PHLX (``PHLX'') provides that any 
member or member organization under Common Ownership with another 
member or member organization that qualifies for Customer Rebate Tiers 
2, 3, 4 or 5 in Section B of the Pricing Schedule will be assessed 
$0.60 per contract, a reduction of $0.10 from the standard rate of 
$0.70 assessed Professional, Firm and Broker-Dealer.\19\
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    \19\ See PHLX's Pricing Schedule.
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    The Exchange, and its facility NOM, operates in a highly 
competitive market, comprised of twelve 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, as described in the 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.
    The proposed fees are designed to ensure a fair and reasonable use 
of Exchange resources by allowing the Exchange to recoup costs while 
continuing to attract liquidity and offer connectivity at competitive 
rates to Exchange members and member organizations.
    By offering competitive pricing, the Exchange desires to 
incentivize members and member organizations, through the Exchange's 
rebate and fee structure, to select NOM as a venue for bringing 
liquidity to the Exchange and trading. Such competitive, differentiated 
pricing exists today on other options exchanges. The Exchange's goal is 
creating and increasing incentives to attract orders that will, in 
turn, benefit all market participants through increased liquidity.

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.
    In the Exchange's fee schedule for Removing Liquidity in Penny 
Pilot Options, Customers have had to pay the lowest fee, and this 
continues to be reflected in the pricing schedule. The Exchange does 
not believe the proposed differential would result in any burden on 
competition as between Participants. The Exchange believes that 
continuing to assess Customers the current fee while increasing the fee 
for other Participants creates competition among options exchanges 
because the Exchange believes that this may cause market participants 
to select NOM as a venue to send Customer and other order flow. The 
Exchange believes that incentivizing Participants to post liquidity on 
NOM benefits NOM Participants through increased order interaction.
    The Exchange's proposal to increase the Professional, Firm, Non-NOM 
Market Maker, NOM Market Maker, and Broker-Dealer Fees for Removing 
Liquidity in Penny Pilot Options does not misalign the current fees on 
NOM. As noted, Customers were assessed less than other participants 
before the proposal, and will continue to be assessed less under the 
new fee. The Exchange believes that other market participants benefit 
from incentivizing order flow as explained herein. As noted, Customers 
continue to pay a lower Fee for Removing Liquidity in Penny Pilot 
Options, which is currently the case for most fees on NOM that are 
either not assessed to a Customer or where a Customer is assessed the 
lowest fee because of the liquidity such order flow brings to the 
Exchange. Also, NOM Market Makers have obligations \20\ to the market 
which are not borne by other market participants and therefore the 
Exchange believes that NOM Market Makers are entitled to a lower fee.
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    \20\ See supra note 16.
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    For the reasons specified herein, the Exchange does not believe 
this proposal will result in any burden on competition. The Exchange 
operates in a highly competitive market comprised of twelve U.S. 
options exchanges in which sophisticated and knowledgeable market 
participants can readily send order flow to competing exchanges if they 
deem fee levels or rebate incentives at a particular exchange to be 
excessive or inadequate. The Exchange believes that this competitive 
marketplace impacts the fees and 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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\21\ the Exchange 
has designated this proposal as establishing or changing a due, fee, or 
other charge imposed 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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    \21\ 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 [email protected]. Please include 
File Number SR-NASDAQ-2015-019 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2015-019. 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

[[Page 13946]]

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-2015-019 and should 
be submitted on or before April 7, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Brent J. Fields,
Secretary.
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    \22\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-06018 Filed 3-16-15; 8:45 am]
 BILLING CODE 8011-01-P