[Federal Register Volume 82, Number 156 (Tuesday, August 15, 2017)]
[Notices]
[Pages 38752-38755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17168]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81360; File No. SR-NASDAQ-2017-079]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Market Access and Routing Subsidy Program

August 9, 2017.
    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 1, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

---------------------------------------------------------------------------

[[Page 38753]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction fees at 
Chapter XV, Section 2 entitled ``NASDAQ Options Market--Fees and 
Rebates,'' which governs pricing for Nasdaq Participants using the 
NASDAQ Options Market (``NOM''), Nasdaq's facility for executing and 
routing standardized equity and index options. The Exchange proposes to 
amend its subsidy program, the Market Access and Routing Subsidy or 
``MARS,'' for NOM Participants that provide certain order routing 
functionalities \3\ to other NOM Participants and/or use such 
functionalities themselves.
---------------------------------------------------------------------------

    \3\ The order routing functionalities permit a NOM Participant 
to provide access and connectivity to other Participants as well as 
utilize such access for themselves. The Exchange notes that one NOM 
Participant is eligible for payments under MARS, while another NOM 
Participant might potentially be liable for transaction charges 
associated with the execution of the order, because those orders 
were delivered to the Exchange through a NOM Participant's 
connection to the Exchange and that Participant qualified for the 
MARS Payment.
---------------------------------------------------------------------------

    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its MARS subsidy program, which pays 
a subsidy to NOM Participants that provide certain order routing 
functionalities to other NOM Participants and/or use such 
functionalities themselves. Generally, under MARS, the Exchange pays 
participating NOM Participants to subsidize their costs of providing 
routing services to route orders to NOM. At this time, the Exchange 
proposes to amend Chapter XV, Section 2(6) to expand the MARS Payment 
tiers as described further below.
    Today, NOM Participants that have System Eligibility \4\ and have 
routed the requisite number of Eligible Contracts daily in a month 
(``Average Daily Volume''), which were executed on NOM, are entitled to 
a MARS Payment. For the purpose of qualifying for the MARS Payment, 
Eligible Contracts may include Firm,\5\ Non-NOM Market Maker,\6\ 
Broker-Dealer,\7\ or Joint Back Office or ``JBO'' \8\ equity option 
orders that add liquidity and are electronically delivered and 
executed.\9\
---------------------------------------------------------------------------

    \4\ To qualify for MARS, the Participant's routing system 
(``System'') is 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 one of the 
top three default destination exchanges for (a) individually 
executed marketable orders if NOM is at the national best bid or 
offer (``NBBO''), regardless of size or time or (b) orders that 
establish a new NBBO on NOM's Order Book, 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. See Chapter 
XV, Section 2(6).
    \5\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \6\ 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.
    \7\ 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.
    \8\ The term ``Joint Back Office'' or ``JBO'' applies to any 
transaction that is identified by a Participant for clearing in the 
Firm range at OCC and is identified with an origin code as a JBO. A 
JBO will be priced the same as a Broker-Dealer as of September 1, 
2014. A JBO participant is a Participant that maintains a JBO 
arrangement with a clearing broker-dealer (``JBO Broker'') subject 
to the requirements of Regulation T Section 220.7 of the Federal 
Reserve System as further discussed in Chapter XIII, Section 5.
    \9\ Eligible Contracts do not include Mini Option orders. Mini 
Options are further specified in Chapter XV, Section 2(4).
---------------------------------------------------------------------------

    The Exchange currently pays the following MARS Payments according 
to Average Daily Volume (``ADV'') \10\ submitted on NOM:
---------------------------------------------------------------------------

    \10\ Average Daily Volume is all Eligible Contracts daily in a 
month aggregating Penny and Non-Penny Pilot Options.

----------------------------------------------------------------------------------------------------------------
                                                           Average daily       MARS Payment       MARS Payment
                         Tiers                           volume  (``ADV'')       (penny)          (non-penny)
----------------------------------------------------------------------------------------------------------------
1......................................................              2,500              $0.07              $0.15
2......................................................              5,000               0.09               0.20
3......................................................             10,000               0.11               0.30
4......................................................             20,000               0.15               0.50
----------------------------------------------------------------------------------------------------------------

    Also, NOM Participants that qualify for Customer and Professional 
Penny Pilot Options Rebate to Add Liquidity Tier 8 in Chapter XV, 
Section 2(1) will receive $0.09 per contract in addition to any MARS 
Payment tier on MARS Eligible Contracts the NOM Participant qualifies 
for in a given month. The specified MARS Payment will be paid on all 
executed Eligible Contracts that add liquidity, which are routed to NOM 
through a participating NOM Participant's System and meet the requisite 
Eligible Contracts ADV. No payments will be made with respect to orders 
that are routed to NOM, but not executed.\11\
---------------------------------------------------------------------------

    \11\ A Participant will not be entitled to receive any other 
revenue for the use of its System specifically with respect to 
orders routed to NOM. The Exchange believes that MARS Payment will 
subsidize the costs of NOM Participants in providing the routing 
services.
---------------------------------------------------------------------------

    The Exchange proposes to add a new Tier 5 with an ADV of 45,000 
contracts and pay a MARS Payment of (i) $0.17 per contract for Penny 
Pilot Options transactions that qualify for the MARS Payment tier 
program and (ii) $0.60 per contract for Non-Penny Pilot Options 
transactions that qualify for the MARS Payment tier program. The 
Exchange would continue to pay an additional $0.09 per contract in 
addition to any MARS Payment tier on MARS Eligible Contracts in a given 
month, provided

[[Page 38754]]

the NOM Participant qualified for the Customer and Professional Penny 
Pilot Options Rebate to Add Liquidity Tier 8 in Chapter XV, Section 
2(1). The Exchange believes that as proposed, MARS will continue to 
attract higher volumes of electronic equity and ETF options volume to 
the Exchange from non-NOM Participants as well as NOM Participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange's proposal to add a new Tier 5 with an ADV of 45,000 
contracts and pay the MARS Payment in the amounts described above is 
reasonable because the amendments will attract higher volumes of 
electronic equity and ETF options volume to the Exchange, which will 
benefit all NOM Participants by offering greater price discovery, 
increased transparency, and an increased opportunity to trade on the 
Exchange. The expanded MARS Payments should enhance the competitiveness 
of the Exchange, particularly with respect to those exchanges that 
offer their own front-end order entry system or one they subsidize in 
some manner. The amendment to add Tier 5 will incentivize NOM 
Participants to achieve an even higher Penny Pilot Options Rebate, 
provided the NOM Participant is eligible for MARS. Further, the tier 
structure will allow NOM Participants to price their services at a 
level that will enable them to attract order flow from market 
participants who would otherwise utilize an existing front-end order 
entry mechanism offered by the Exchange's competitors instead of 
incurring the cost in time and money to develop their own internal 
systems to be able to deliver orders directly to the Exchange's System.
    The Exchange's proposal to add a new Tier 5 and pay the MARS 
Payment in the amounts described above is equitable and not unfairly 
discriminatory because the Exchange will uniformly pay all NOM 
Participants the rebates specified in the proposed MARS Payment tiers 
provided the NOM Participant has executed the requisite number of 
Eligible Contracts. Moreover, the Exchange believes that the proposed 
MARS Payments offered by the Exchange are equitable and not unfairly 
discriminatory because any qualifying NOM Participant that offers 
market access and connectivity to the Exchange and/or utilize such 
functionality themselves may earn the MARS Payments for all Eligible 
Contracts.

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. In terms of inter-market 
competition, the Exchange notes that it 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 changes in this 
market may impose any burden on competition is extremely limited.
    In sum, if the fee changes proposed herein are unattractive to 
market participants, it is likely that the Exchange will lose market 
share as a result. Accordingly, the Exchange does not believe that the 
proposed changes will impair the ability of members or competing order 
execution venues to maintain their competitive standing in the 
financial markets.
    Further, the Exchange's proposal does not impose an undue burden on 
intra-market competition because the Exchange will uniformly pay all 
NOM Participants the rebates specified in the proposed MARS Payment 
tiers provided the NOM Participant has executed the requisite number of 
Eligible Contracts. Moreover, any qualifying NOM Participant that 
offers market access and connectivity to the Exchange and/or utilizes 
such functionality themselves may earn the proposed MARS Payment for 
all Eligible Contracts.

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.\14\
---------------------------------------------------------------------------

    \14\ 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-2017-079 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-2017-079. 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 38755]]

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-2017-079, and should 
be submitted on or before September 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17168 Filed 8-14-17; 8:45 am]
 BILLING CODE 8011-01-P