[Federal Register Volume 81, Number 80 (Tuesday, April 26, 2016)]
[Notices]
[Pages 24668-24674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09597]



[[Page 24668]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77661; File No. SR-NASDAQ-2016-055]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Amend Options Pricing at Chapter XV, Section 2

April 20, 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 April 13, 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 2, which governs pricing for Exchange members 
using the NASDAQ Options Market (``NOM''), the Exchange's facility for 
executing and routing standardized equity and index options.\3\ The 
Exchange proposes to amend certain Penny Pilot Options \4\ and Non-
Penny Pilot Options pricing.
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    \3\ References in this proposal to Chapter and Series refer to 
NOM rules, unless otherwise indicated.
    \4\ The Penny Pilot was established in March 2008 and was last 
extended in 2015. 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 75283 (June 24, 2015), 80 FR 37347 (June 30, 2015) (SR-
NASDAQ-2015-063) (notice of filing and immediate effectiveness 
extending the Penny Pilot through June 30, 2016). All Penny Pilot 
Options listed on the Exchange can be found at http://www.nasdaqtrader.com/Micro.aspx?id=phlx.
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    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 certain amendments to the NOM transaction 
fees set forth at Chapter XV, Section 2, for executing and routing 
standardized equity and index Penny Pilot Options and Non-Penny Pilot 
Options. Specifically, the Exchange proposes to (a) Modify the Non-
Penny Pilot Options fees and rebates schedule (per executed contract) 
to make Customer \5\ and Professional \6\ Fee for Adding Liquidity, Fee 
for Removing Liquidity, and Rebate to Add Liquidity the same; (b) 
modify Tier 5 and Tier 8 that allow Customer and Professional to earn a 
Penny Pilot Options Rebate to Add Liquidity; (c) modify note ``c'' and 
note ``d'' to indicate that they have applicability to Customer and/or 
Professional and to increase the amount of additional rebate from $0.03 
to $0.05, and modify note ``c'' to indicate an alternative requirement 
for earning a rebate; and (d) modify which eligible contracts qualify 
for the Market Access and Routing Subsidy (``MARS'') payment. The 
proposed changes are discussed below.
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    \5\ The term ``Customer'' or (``C'') applies to any transaction 
that is identified by a Participant for clearing in the Customer 
range at The Options Clearing Corporation (``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)).
    \6\ The term ``Professional'' or (``P'') 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.
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    Today, the Exchange offers fees and rebates for Non-Penny Options 
to Customer, Professional, Firm,\7\ Non-NOM Market Maker,\8\ NOM Market 
Maker,\9\ and/or Broker-Dealer \10\; and also offers fees and rebates 
for Penny Pilot Options. The current fees and rebates in Non-Penny-
Pilot Options are as follows: the Fee for Adding Liquidity for Customer 
is N/A (not fee liable) and for Professional is $0.45; the Fee for 
Removing Liquidity for Customer is $0.85 and for Professional is $1.10; 
and the Rebate to Add Liquidity for Customer is $0.80 \11\ and for 
Professional is N/A (no rebate).
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    \7\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \8\ The term ``Non-NOM Market Maker'' or (``O'') 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.
    \9\ ``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. ``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).
    \10\ The term ``Broker-Dealer'' or (``B'') applies to any 
transaction which is not subject to any of the other transaction 
fees applicable within a particular category.
    \11\ Note ``1'', which is applicable to Rebate to Add Liquidity 
for Customer, states: \1\ A Participant that qualifies for Customer 
or Professional Penny Pilot Options Rebate to Add Liquidity Tiers 2, 
3, 4, 5 or 6 in a month will receive an additional $0.10 per 
contract Non-Penny Pilot Options Rebate to Add Liquidity for each 
transaction which adds liquidity in Non-Penny Pilot Options in that 
month. A Participant that qualifies for Customer or Professional 
Penny Pilot Options Rebate to Add Liquidity Tiers 7 or 8 in a month 
will receive an additional $0.20 per contract Non-Penny Pilot 
Options Rebate to Add Liquidity for each transaction which adds 
liquidity in Non-Penny Pilot Options in that month.
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    Today, the Exchange offers a Penny Pilot Options Rebate to Add 
Liquidity to Customers and Professionals that add liquidity per Tier 1 
through Tier 8. These rebates range from $0.20 for Tier 1 to $ 0.48 for 
Tier 8 per contract,\12\ and generally allow Participants \13\ to earn 
a greater rebate by bringing more liquidity to the Exchange as 
specified in Tier 1 to Tier 8. Today, Tier 5 rebates are offered where 
Participant adds Customer, Professional, Firm, Non-NOM Market Maker, 
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny 
Pilot Options above 0.40% to 0.75% of total industry customer equity 
and exchange traded fund (``ETF'') option average daily volume 
(``ADV'') contracts per day in a month. Or, in the alternative, 
Participant adds (1) Customer and/or Professional liquidity in Penny 
Pilot Options and/or

[[Page 24669]]

Non-Penny Pilot Options of 25,000 or more contracts per day in a month, 
(2) the Participant has certified for the Investor Support Program 
(``ISP'') set forth in NASDAQ Rule 7014, and (3) the Participant 
executed at least one order on NASDAQ's equity market. Today, Tier 8 
rebates are offered where Participant adds Customer, Professional, 
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options above 0.75% or more of 
total industry customer equity and ETF option ADV contracts per day in 
a month or Participant adds (1) Customer and/or Professional liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options of 30,000 or more 
contracts per day in a month and (2) the Participant has certified for 
the ISP set forth in NASDAQ Rule 7014. No change is proposed to the 
current Tier 5 and Tier 8 rebates; these Rebates to Add Liquidity 
remain at $0.45 and $0.48, respectively.\14\ Rather, as discussed 
below, the Exchange proposes to delete reference to the ISP, which is 
being deleted.\15\
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    \12\ See Chapter XV, Section 2(1).
    \13\ ``Participant'' (also known as ``NOM Participant'') 
includes Options Market Makers and Options Order Entry Firms that 
are registered to enter orders into the System.
    \14\ No change is proposed to the rebates offered by achieving 
liquidity requirements set by the other Tiers (1, 2, 3, 4, 6, 7). As 
such, other than to note that these tiers continue to offer 
progressively larger rebates, these tiers are not discussed in the 
proposal.
    \15\ See NASDAQ-2016-051 (filed as immediately effective 
proposal deleting ISP). For the proposal to initiate ISP, see also 
Securities Exchange Act Release No. 63270 (November 8, 2010), 75 FR 
69489 (November 12, 2010) (NASDAQ-2010-141) (notice of filing and 
immediate effectiveness).
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    Today, notes ``a'' through ``d'' apply to certain rebate Tiers. 
Note ``a'', which references ISP,\16\ is currently applicable to Tier 5 
and Tier 8; the Exchange proposes to delete note ``a'' as the ISP 
references are no longer needed. Note ``c'', which indicates what 
liquidity Participants need to bring to the Exchange in order to earn 
an additional rebate amount, is applicable to Tier 8; the Exchange 
proposes to modify note ``c'' to change the available liquidity-
enhancing ways to earn addition rebates. The Exchange proposes to make 
note ``d'' as amended, which discusses additional rebate opportunity 
through MARS liquidity, applicable to Professionals.\17\
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    \16\ Note ``a'' states: \a\ For purposes of Tiers 5 and 8, the 
Exchange will allow a NOM Participant to qualify for the rebate if a 
NASDAQ member has certified for the Investor Support Program and 
executed at least one order on NASDAQ's equity market.
    \17\ Note ``d'' will continue to be applicable to Customer 
Rebate to Add Liquidity in Penny Pilot Options.
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    Today, for the purpose of qualifying for MARS payment, eligible 
contracts may include Firm, Non-NOM Market Maker, Broker-Dealer, Joint 
Back Office or ``JBO'' or Professional equity option orders that add 
liquidity and are electronically delivered and executed. In light of 
the harmonization of Customer and Professional, described below, the 
Exchange is removing reference to Professional.

Change 1--Non-Penny Pilot Options: Customer and Professional, MARS 
Eligible Contracts

    The Exchange proposes to modify the Non-Penny Pilot Options fees 
and rebates schedule (per executed contract) to harmonize the Customer 
and Professional Fee for Adding Liquidity, Fee for Removing Liquidity, 
and Rebate to Add Liquidity. The Exchange proposes to harmonize or make 
the relevant fees and rebates for Customer and Professional the same: 
For Fee for Adding Liquidity Customer and Professional will each not 
pay anything (currently, Professional pays $0.45); for Fee for Removing 
Liquidity Customer and Professional will each pay $0.85 (currently, 
Professional pays $1.10); and for Rebate to Add Liquidity Customer and 
Professional will each pay [sic] $0.80 (currently, Professional is not 
subject to a rebate for Non-Penny Pilot Options). The Exchange believes 
that this incentivizes Customers and Professional to continue to 
transact Non-Penny Pilot Options on the Exchange.
    Following on the harmonization of Customer and Professional in fees 
and rebates, the Exchange proposes to delete Professional from the 
types of MARS contracts that qualify for MARS payment.\18\ This is 
because at this time Customer equity option orders are not included in 
the list of contracts that are eligible for MARS payment.\19\ Removal 
of Professional thus harmonizes the treatment of Customer and 
Professional vis a vis MARS.\20\
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    \18\ To qualify for MARS, the Participant's routing system 
(``System'') would be required to: (1) Enable the electronic routing 
of orders to all of the U.S. options exchanges, including NOM; (2) 
provide current consolidated market data from the U.S. options 
exchanges; and (3) be capable of interfacing with NOM's API to 
access current NOM match engine functionality. Further, the 
Participant's System would also need to cause NOM to be the one of 
the top three default destination exchanges for individually 
executed marketable orders if NOM is at the national best bid or 
offer (``NBBO''), regardless of size or time, but allow any user to 
manually override NOM as a default destination on an order-by-order 
basis. Any NOM Participant would be permitted to avail itself of 
this arrangement, provided that its order routing functionality 
incorporates the features described above and satisfies NOM that it 
appears to be robust and reliable. The Participant remains solely 
responsible for implementing and operating its System. Chapter XV, 
Section 2(6).
    \19\ See Chapter XV, Section 2(6).
    \20\ The Exchange notes that Customer and Professional fees and 
rebates applicable to Penny Pilot Options are already harmonized. 
The proposed change will treat Customer and Professional similarly 
for Penny Pilot Options as well as Non-Penny Pilot Options.
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Change 2--Penny Pilot Options: Modify Tier 5 and Tier 8

    The Exchange proposes to modify Tier 5 and Tier 8 that allow 
Customer and Professional to earn a Penny Pilot Options Rebate to Add 
Liquidity.
    The Exchange proposes to amend Tier 5 of the Rebate to Add 
Liquidity by deleting the second volume alternative for this Tier, 
which requires, among other things, that the Participant has certified 
for the ISP set forth in NASDAQ Rule 7014. The Exchange proposes to 
amend Tier 8 of the Penny Pilot Options Rebate to Add Liquidity by 
updating a volume alternative which also requires that Participant has 
certified for the ISP. In lieu of the ISP reference in Tier 8, the 
Exchange proposes to state that Participant may provide liquidity in 
all securities through one or more of its NASDAQ Market Center 
``MPIDs'' \21\ that represent 1.00% or more of Consolidated Volume \22\ 
in a month or qualifies [sic] for ``MARS''. MARS is the Market Access 
and Routing Subsidy, which offers rebates to certain NOM Participants 
that have routed the requisite number of contracts that were executed 
on NOM.\23\
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    \21\ ``MPID'' is the market participant identifier, which is a 
unique four-letter mnemonic assigned to each Participant in the 
Nasdaq Market Center. See NASDAQ Rule 4701(i).
    \22\ ``Consolidated volume'' means the total consolidated volume 
reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities, excluding executed orders 
with a size of less than one round lot.
    \23\ See Chapter XV, Section 2(6).
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    Commensurate with deletion in Tier 5 and Tier 8 of reference to 
ISP, the Exchange also proposes to delete applicable note ``a''. This 
note applies only to Tier 5 and Tier 8 and, similarly, refers to ISP. 
As such, note ``a'' is no longer needed and is being deleted.
    The Exchange believes that deleting reference to ISP in Tier 5 and 
Tier 8 Customer and Professional Penny Pilot Option Rebate to Add 
Liquidity and updating how one can qualify for rebates will continue to 
incentivize market participants to send order flow to NOM.

Change 3--Penny Pilot Options: Modify Note ``c'' and Note ``d''

    The Exchange proposes to modify note ``c'' and note ``d'' to 
indicate that they apply to Customer and Professional

[[Page 24670]]

and to increase the amount of additional rebate from $0.03 to $0.05. 
The Exchange also proposes to modify note ``c'' to indicate additional 
ways to earn additional rebate.
    The Exchange proposes language in note ``d'' to ensure that the 
Penny Pilot Options [sic] to Add Liquidity is for Professional as well 
as for Customer. Note ``d'' states, as proposed, that NOM Participants 
that qualify for MARS Payment Tiers 1, 2, or 3 will receive an 
additional $0.05 per contract Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity for each transaction which adds 
liquidity in Penny Pilot Options in that month, in addition to 
qualifying Penny Pilot Options Customer and/or Professional Rebate to 
Add Liquidity Tiers 1-8.\24\ To further incentivize Customers and 
Professionals to qualify for MARS Payment Tiers and to bring flow to 
the Exchange, in note ``d'' the Exchange proposes that for each 
transaction which adds liquidity in Penny Pilot Options in that month 
instead of receiving an additional $0.03 per contract one can receive 
an ``additional $0.05 per contract''; and that the Rebate to Add 
Liquidity is for ``Customer and/or Professional''.
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    \24\ Note ``d'' indicates that NOM Participants that qualify for 
a note ``c'' incentive will receive the greater of the note ``c'' or 
note ``d'' incentive.
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    Note ``c'' gives three different ways for Participants that add 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity in Penny Pilot Options and/or Non- Penny Pilot Options to 
receive additional Penny Pilot Options Customer and/or Professional 
Rebate to Add Liquidity. Subsection (1), (2), and (3) in note ``c'', as 
proposed, offers additional rebates that are $0.02, $0.05, and $0.05 
(changed from $0.03) per contract, respectively. To incentivize 
Customers and Professionals to qualify for bringing flow to the 
Exchange, in note ``c'' the Exchange proposes, similarly to the rebate 
and fees change, that each of the subsections is applicable to both 
``Customer and/or Professional''. To further incentivize bringing flow 
to the Exchange, the Exchange enhances the means in subsection (3) \25\ 
to earn additional rebates, and states Participants that: (a) Add 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 
0.80% of total industry customer equity and ETF option ADV contracts 
per day in a month, (b) add Customer, Professional, Firm, Non-NOM 
Market Maker and/or Broker-Dealer liquidity in Non-Penny Pilot Options 
above 0.15% of total industry customer equity and ETF option ADV 
contracts per day in a month, and (c) execute greater than 0.04% of 
Consolidated Volume (``CV'') \26\ via Market-on-Close/Limit-on-Close 
(``MOC/LOC'') \27\ volume within the NASDAQ Stock Market Closing Cross 
in a month will receive an additional $0.05 per contract Penny Pilot 
Options Customer and/or Professional Rebate to Add Liquidity for each 
transaction which adds liquidity in Penny Pilot Options in a month. The 
Exchange believes that this proposed change, which includes a new 
methodology to earn rebates through CV via MOC/LOC, will incentivize 
bringing additional flow to the Exchange.
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    \25\ Current subsection (3) requires that a Participant: (a) 
[sic] 0.75% of total industry customer equity and ETF option ADV 
contracts per day in a month and (b) has added liquidity in all 
securities through one or more of its Nasdaq Market Center MPIDs 
that represent 1.10% or more of Consolidated Volume in a month.
    \26\ Consolidated Volume means the total consolidated volume 
reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities during a month in equity 
securities, excluding executed orders with a size of less than one 
round lot. See Chapter XV, Section 2(1), note ``c''.
    \27\ MOC/LOC, as set forth in NASDAQ Rule 4754, represents the 
volume in the NASDAQ Stock Market Closing Cross that allows market 
participants to contribute order flow that will result in executions 
at the official closing price for the day in the NASDAQ listed 
security. An ``MOC Order'' is an order type entered without a price 
that may be executed only during the NASDAQ Closing Cross, which 
refers to the equity closing cross. An ``LOC Order'' is an order 
type entered with a price that may be executed only in the NASDAQ 
Closing Cross.
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    As proposed, in Chapter XV, Section 2, fees and rebates in Non-
Penny Pilot Options (per executed contract), including Customer and 
Professional; and MARS Eligible Contracts, will read as follows:

                                                                    Fees and Rebates
                                                                 [Per executed contract]
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                                                                                                          Non-NOM market    NOM market
                                                             Customer      Professional        Firm            maker           maker       Broker-dealer
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Non-Penny Pilot Options:
    Fee for Adding Liquidity............................             N/A             N/A           $0.45           $0.45           $0.35           $0.45
    Fee for Removing Liquidity..........................            0.85            0.85            1.10            1.10        \4\ 1.10            1.10
    Rebate to Add Liquidity.............................        \1\ 0.80        \1\ 0.80             N/A             N/A             N/A             N/A
MARS Eligible Contracts
                                                         -----------------------------------------------------------------------------------------------
MARS Payment would be made to NOM Participants that have System Eligibility and have routed the requisite number of Eligible Contracts daily in a month,
 which were executed on NOM. For the purpose of qualifying for the MARS Payment, Eligible Contracts may include Firm, Non-NOM Market Maker, Broker-
 Dealer, or Joint Back Office or ``JBO'' equity option orders that add liquidity and are electronically delivered and executed. Eligible Contracts do
 not include Mini Option orders.........................................................................................................................
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    As proposed, in Chapter XV, Section 2 Tier 5 and Tier 8 in the 
Rebate to Add Liquidity will read as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                                   Rebate to add
              Monthly                                           Volume                               liquidity
----------------------------------------------------------------------------------------------------------------
Tier 5.............................  Participant adds Customer, Professional, Firm, Non-NOM                $0.45
                                      Market Maker and/or Broker-Dealer liquidity in Penny Pilot
                                      Options and/or Non-Penny Pilot Options above 0.40% to
                                      0.75% of total industry customer equity and ETF option ADV
                                      contracts per day in a month.

[[Page 24671]]

 
Tier 8.............................  Participant adds Customer, Professional, Firm, Non-NOM            \c\ $0.48
                                      Market Maker and/or Broker-Dealer liquidity in Penny Pilot
                                      Options and/or Non-Penny Pilot Options above 0.75% or more
                                      of total industry customer equity and ETF option ADV
                                      contracts per day in a month, or Participant adds: (1)
                                      Customer and/or Professional liquidity in Penny Pilot
                                      Options and/or Non-Penny Pilot Options of 30,000 or more
                                      contracts per day in a month, and (2) has added liquidity
                                      in all securities through one or more of its Nasdaq Market
                                      Center MPIDs that represent 1.00% or more of Consolidated
                                      Volume in a month or qualifies for MARS (defined below).
----------------------------------------------------------------------------------------------------------------

    As proposed, in Chapter XV, Section 2 note ``c'' and note ``d'' 
will read as follows:

    \c\ Participants that: (1) Add Customer, Professional, Firm, 
Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot 
Options and/or Non- Penny Pilot Options of 1.15% or more of total 
industry customer equity and ETF option ADV contracts per day in a 
month will receive an additional $0.02 per contract Penny Pilot 
Options Customer and/or Professional Rebate to Add Liquidity for 
each transaction which adds liquidity in Penny Pilot Options in that 
month; or (2) add Customer, Professional, Firm, Non-NOM Market Maker 
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 1.30% or more of total industry customer 
equity and ETF option ADV contracts per day in a month will receive 
an additional $0.05 per contract Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity for each transaction which adds 
liquidity in Penny Pilot Options in that month; or (3) (a) add 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.80% of total industry customer equity and ETF option 
ADV contracts per day in a month, (b) add Customer, Professional, 
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Non-
Penny Pilot Options above 0.15% of total industry customer equity 
and ETF option ADV contracts per day in a month, and (c) execute 
greater than 0.04% of Consolidated Volume (``CV'') via Market-on-
Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ Stock 
Market Closing Cross in a month will receive an additional $0.05 per 
contract Penny Pilot Options Customer and/or Professional Rebate to 
Add Liquidity for each transaction which adds liquidity in Penny 
Pilot Options in a month. Consolidated Volume shall mean the total 
consolidated volume reported to all consolidated transaction 
reporting plans by all exchanges and trade reporting facilities 
during a month in equity securities, excluding executed orders with 
a size of less than one round lot. For purposes of calculating 
Consolidated Volume and the extent of an equity member's trading 
activity, expressed as a percentage of or ratio to Consolidated 
Volume, the date of the annual reconstitution of the Russell 
Investments Indexes shall be excluded from both total Consolidated 
Volume and the member's trading activity.
    \d\ NOM Participants that qualify for MARS Payment Tiers 1, 2 or 
3 will receive an additional $0.05 per contract Penny Pilot Options 
Customer and/or Professional Rebate to Add Liquidity for each 
transaction which adds liquidity in Penny Pilot Options in that 
month, in addition to qualifying Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity Tiers 1-8. NOM Participants 
that qualify for a note ``c'' incentive will receive the greater of 
the note ``c'' or note ``d'' incentive.

    In terms of housekeeping changes, the Exchange is correcting a 
typographical error in Non-Penny Options fees and rebates by adding 
``N/A'' to make it even clearer that Broker-Dealer does not get a 
Rebate to Add Liquidity (in fact, this section of Rebate to Add 
Liquidity does not currently indicate any rebate to Broker-Dealer).
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act,\28\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the 
Act,\29\ 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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    \28\ 15 U.S.C. 78f(b).
    \29\ 15 U.S.C. 78f(b)(4), (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \30\ Likewise, in 
NetCoalition v. Securities and Exchange Commission \31\ 
(``NetCoalition'') the DC Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\32\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \33\
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    \30\ Securities Exchange Act Release No. 51808 at 37499 
(``Regulation NMS Adopting Release'' at Securities Exchange [sic] 
Release No. 34-51808 (June 29, 2005), 70 FR 37496 (File No. S7-10-
04)).
    \31\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \32\ See id. at 534-535.
    \33\ See id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers' . . . .'' \34\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \34\ Id. at 539 (quoting Securities Exchange Commission at [sic] 
Release No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) 
(SR-NYSEArca-2006-21) at 73 FR at 74782-74783).
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    The Exchange believes that the proposed change is reasonable, 
equitable and not unfairly discriminatory for the following reasons.

Change 1--Non-Penny Pilot Options: Customer and Professional, MARS 
Eligible Contracts

    In Change 1, the Exchange proposes to modify the Non-Penny Pilot 
Options fees and rebates schedule (per executed contract) to harmonize 
Customer and Professional Fee for Adding Liquidity, Fee for Removing 
Liquidity, and Rebate to Add Liquidity. In particular, the Exchange 
proposes to harmonize or make the relevant fees and rebates for 
Customer and Professional the same for Fee for Adding Liquidity, Fee 
for Removing Liquidity, and Rebate to Add Liquidity. The Exchange 
believes that

[[Page 24672]]

this incentivizes Customers and Professional to continue to transact 
Non-Penny Pilot Options on the Exchange.
    Similar to the harmonization of Customer and Professional in fees 
and rebates, the Exchange proposes to delete Professional from the 
types of MARS contracts that quality for MARS payment. This is because 
at this time Customer equity option orders are not included in the list 
of contracts that are eligible for MARS payment.\35\ Removal of 
Professional thus harmonizes the treatment of Customer and Professional 
vis a vis MARS.
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    \35\ See Chapter XV, Section 2(6).
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    The proposed rule change is reasonable because it continues to 
encourage market participant behavior through the fees and rebates 
system, which is an accepted methodology among options exchanges.\36\ 
It is reasonable to encourage Customer and Professional by putting them 
in the same fees and rebates position, as discussed above, in regards 
to Non-Penny Pilot Options.\37\ It is also reasonable to carry the 
Customer and Professional harmonization through to the MARS 
eligibility, so that Customer and Professional are treated the same.
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    \36\ See, e.g., fee and rebate schedules of other options 
exchanges, including, but not limited to, NYSE ARCA (``ARCA'') 
https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf, and BATS BZX OPTIONS (``BATS'') 
http://www.batsoptions.com/support/fee_schedule/bzx/. See also 
NASDAQ BX Options Market (``BX Options''), NASDAQ PHLX LLC 
(``Phlx''), and Chicago Board Options Exchange (``CBOE'').
    \37\ The Exchange notes that Customer and Professional fees and 
rebates applicable to Penny Pilot Options are already harmonized. 
The proposed change will treat Customer and Professional similarly 
for Penny Pilot Options as well as Non-Penny Pilot Options.
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    The Exchange believes it is equitable and not unfairly 
discriminatory to make the noted harmonization changes regarding 
Customer and Professional, who bring liquidity to the Exchange. Such 
liquidity attracts other market participants. Customer and Professional 
liquidity benefits all market participants by providing more trading 
opportunities, which attract Market Makers.\38\ 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. Also, the Exchange believes that 
it is equitable and not unfairly discriminatory to make MARS 
eligibility the same for Customer and Professional. The Exchange 
believes that the proposed change is equitable and not unfairly 
discriminatory because it will be applied uniformly to all Customers 
and Professionals. The proposed fees and rebates and MARS change 
enhances the competitiveness of the Exchange by continuing to 
incentivize bringing flow to the Exchange.
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    \38\ Market Makers on the Exchange are valuable market 
participants that provide liquidity in the marketplace. They also 
have obligations to the market and regulatory requirements, which 
normally do not apply to other market participants.
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Change 2--Penny Pilot Options: Modify Tier 5 and Tier 8

    In Change 2, the Exchange's proposal to delete reference to a 
program that is being deleted, ISP, in Tiers 5 and 8 of the Rebate to 
Add Liquidity and to substitute Consolidated Volume or MARS volume in 
Tier 8, and to delete note ``a'' that refers to ISP, is reasonable 
because NOM Participants will continue to be incentivized to send more 
order flow to NOM. The Exchange believes that deletion or substitution 
of reference to ISP is reasonable because the ISP program is being 
deleted and the reference to ISP in the Payment Schedule as discussed 
is no longer valid.
    The proposed deletion of the ISP reference is reasonable because 
the program is being retired.\39\ Substituting ISP reference in Tier 8 
with reference to Consolidated Volume or MARS volume is reasonable 
because it is designed to attract volume to the Exchange. With this 
proposal, in order to qualify for the highest Tier 8 rebate ($0.48), a 
NOM Participant must have added Customer, Professional, Firm, Non-NOM 
Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options above 0.75% or more of total industry 
customer equity and ETF option ADV contracts per day in a month; or, in 
the alternative, Participant must have added: (1) Customer and/or 
Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of 30,000 or more contracts per day in a month, and (2) must 
have, as proposed, either added liquidity in all securities through one 
or more Nasdaq Market Center MPIDs that represent 1.00% or more of 
Consolidated Volume in a month, or must qualify for MARS. This brings 
liquidity to the Exchange. The proposed rule change is reasonable 
because it continues to encourage market participant behavior through 
the fees and rebates system, which is an accepted methodology among 
options exchanges.\40\ The Tiers and the proposed change to Tier 8 
continue to reflect the progressively increasing rebate requirements 
that offer incentives to earn the highest Rebate to Add Liquidity by 
bringing the most order flow to the Exchange.
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    \39\ See NASDAQ-2016-051 (filed as immediately effective 
proposal deleting ISP).
    \40\ See, e.g., fee and rebate schedules of other options 
exchanges, including, but not limited to, NYSE ARCA (``ARCA'') 
https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf, and BATS BZX OPTIONS (``BATS'') 
http://www.batsoptions.com/support/fee_schedule/bzx/. See also 
NASDAQ BX Options Market (``BX Options''), NASDAQ PHLX LLC 
(``Phlx''), and Chicago Board Options Exchange (``CBOE'').
---------------------------------------------------------------------------

    The Exchange believes it is equitable and not unfairly 
discriminatory to continue to offer rebate Tiers, and in particular 
proposed Tier 8, in order to incentivize Professionals and Customers to 
bring liquidity to the Exchange. Such liquidity, and in particular 
Customer liquidity, attracts other market participants. Customer 
liquidity benefits all market participants by providing more trading 
opportunities, which attract Market Makers. 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. Also, the Exchange believes that it is equitable 
and not unfairly discriminatory to offer Tier 8 incentives to certain 
NOM Participants because the ability to earn Tier 8 rebates, as well as 
the requirements to earn such rebates, would apply uniformly to 
qualifying NOM Participants. By attracting flow to the Exchange, the 
proposed Tier 8 liquidity goals enhance the competitiveness of the 
Exchange.

Change 3--Penny Pilot Options: Modify Note ``c'' and Note ``d''

    In Change 3, the Exchange proposes to modify note ``c'' and note 
``d'' to indicate that they have applicability to Customer and/or 
Professional and to increase the amount of additional rebate from $0.03 
to $0.05. The Exchange also proposes to modify note ``c'' to indicate 
enhanced ways to earn additional rebate.
    It is reasonable to incentivize Participants to bring flow to the 
Exchange. To further incentivize Participants on NOM to bring flow to 
the Exchange, in note ``d'' the Exchange proposes that if the 
Participants qualify for MARS Payment Tiers 1, 2, or 3 and to [sic] 
bring flow to the Exchange, then such Participants will receive an 
additional $0.05 per contract (now $0.03) Penny Pilot Options Customer 
and/or Professional Rebate to Add Liquidity (in addition to qualifying 
Penny Pilot Options Customer [sic] Rebate to Add Liquidity Tiers 1-8). 
To incentivize qualifying for additional rebate by bringing flow to the 
Exchange,

[[Page 24673]]

in note ``c'' the Exchange reasonably proposes, similarly to the rebate 
and fee change, that each of the subsections is applicable to both 
``Customer and/or Professional''. To further incentivize bringing flow 
to the Exchange, the Exchange enhances the means in subsection (3) of 
note ``c'' to earn additional rebates and states that Participants can 
receive an additional $0.05 per contract Penny Pilot Options Customer 
and/or Professional Rebate to Add Liquidity through: (a) Add Customer, 
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options above 0.80% of 
total industry customer equity and ETF option ADV contracts per day in 
a month, (b) add Customer, Professional, Firm, Non-NOM Market Maker 
and/or Broker-Dealer liquidity in Non-Penny Pilot Options above 0.15% 
of total industry customer equity and ETF option ADV contracts per day 
in a month, and (c) execute greater than 0.04% of CV via MOC/LOC volume 
within the NASDAQ Stock Market Closing Cross in a month. It is 
reasonable for the Exchange to further incentivize bringing flow to the 
Exchange by proposing a new methodology to earn option rebates through 
CV via MOC/LOC within the NASDAQ Stock Market Closing Cross.
    The proposed rule change is reasonable because it continues to 
encourage market participant behavior through the fees and rebates 
system, which is an accepted methodology among options exchanges. It is 
reasonable to incentivize bringing flow to the Exchange by offering 
additional or enhanced ways to bring liquidity to the Exchange and earn 
payment for it. It is also reasonable to make sure that Customer and 
Professional are harmonized and treated the same.
    The Exchange believes it is equitable and not unfairly 
discriminatory to make the changes to note ``c'' and note ``d'' because 
they will be applied uniformly across all similarly situated 
Participants, while promoting bringing liquidity to the Exchange.
    Such liquidity attracts other market participants. Customer and 
Professional liquidity benefits all market participants by providing 
more trading opportunities, which attract Market Makers. 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. The proposed changes enhance the 
competitiveness of the Exchange by continuing to incentivize bringing 
flow to the Exchange.
    The Exchange desires to continue to incentivize members and member 
organizations, through the Exchange's rebate and fee structure, to 
select the Exchange as a venue for bringing liquidity and trading by 
offering competitive pricing. Such competitive, differentiated pricing 
exists today on other options exchanges. The Exchange's goal is 
creating and increasing incentives to attract orders to the Exchange 
that will, in turn, benefit all market participants through increased 
liquidity at the Exchange.

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.
    The Exchange 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 and rebate changes in this market may impose any burden on 
competition is extremely limited. In this instance, the proposed 
changes regarding the Non-Penny Pilot Options fees and rebates, Tiers 5 
and 8, notes ``c'' and ``d'', and MARS eligibility do not impose a 
burden on competition because the Exchange's execution services are 
completely voluntary and subject to extensive competition both from 
other exchanges and from off-exchange venues.
    The proposed changes reflect this competition and the Exchange's 
desire to offer better fees and rebates in return for market-improving 
liquidity, which is ultimately limited by the Exchange's need to cover 
costs and make a profit. Thus, the Exchange must carefully adjust its 
fees and rebates with the understanding that if the proposed changes 
are unattractive to market participants, it is likely that the Exchange 
will lose market share to other exchanges and off-exchange venues as a 
result.
    The Exchange is proposing changes regarding the Non-Penny Pilot 
Options fees and rebates, Tiers 5 and 8, notes ``c'' and ``d'', and 
MARS eligibility. The Exchange believes that such proposed changes will 
support liquidity on the Exchange and are procompetitive, since any 
other market is free to provide similar, if not better, fees and 
rebates should they choose to do so. For these reasons, the Exchange 
does not believe that the proposed changes will impair the ability of 
its own members or competing order execution venues to maintain their 
competitive standing in the financial markets.

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.\41\
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    \41\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2016-055 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.


[[Page 24674]]


All submissions should refer to File Number SR-NASDAQ-2016-055. 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-2016-055 and 
should be submitted on or before May 17, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-09597 Filed 4-25-16; 8:45 am]
BILLING CODE 8011-01-P