[Federal Register Volume 83, Number 244 (Thursday, December 20, 2018)]
[Notices]
[Pages 65372-65376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27511]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84822; File No. SR-NASDAQ-2018-101]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Transaction Fees at Options 7, Section 2(1)
December 14, 2018.
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 December 3, 2018, 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.
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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 the Exchange's transaction fees at
Options 7, Section 2(1), which governs the pricing for Nasdaq
participants using The Nasdaq Options Market (``NOM''), Nasdaq's
facility for executing and routing standardized equity and index
options. The proposed changes are described further below.
The text of the proposed rule change is available on the Exchange's
website 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
[[Page 65373]]
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 purpose of the proposed rule change is to amend NOM pricing at
Options 7, Section 2(1) to modify the Rebates to Add Liquidity in Penny
Pilot Options for Customers,\3\ Professionals,\4\ and NOM Market
Makers.\5\ Each change is discussed below.
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\3\ 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)).
\4\ 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.
\5\ The term ``NOM Market Maker'' or (``M'') is a Participant
that has registered as a Market Maker on NOM pursuant to Chapter
VII, Section 2, and must also remain in good standing pursuant to
Chapter VII, Section 4. In order to receive NOM Market Maker pricing
in all securities, the Participant must be registered as a NOM
Market Maker in at least one security.
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Customer and Professional Rebate To Add Liquidity in Penny Pilot
Options
Today, the Exchange offers Customer and Professional Rebates to Add
Liquidity in Penny Pilot Options. These rebates are structured as a six
tier program ranging from $0.20 to $0.48 per contract, with increasing
volume requirements for each tier. Participants that qualify for the
$0.48 per contract Tier 6 rebate are also eligible for a supplemental
rebate, provided they meet the requisite qualifications in note ``c''
of Section 2(1). In particular, paragraphs (1), (2), and (3) of note
``c'' provide three additional incentives of $0.02, $0.05, and $0.05
per contract, respectively, each with corresponding qualifications to
achieve the rebate, as follows: ``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 within 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.''
The Exchange now proposes to amend the criteria in paragraph (3)(b)
to decrease the percentage of total industry customer equity and ETF
option ADV contracts per day in a month from 0.15% to 0.12%. As
proposed, Participants will receive an additional $0.05 per contract
rebate if they add Customer, Professional, Firm, Non-NOM Market Maker
and/or Broker-Dealer liquidity in Non-Penny Pilot Options above 0.12%
of total industry customer equity and ETF option ADV contracts per day
in a month, and also meet the other qualifications in paragraphs (3)(a)
and (3)(c). The Exchange believes that this will offer Participants an
increased opportunity to qualify for the additional paragraph (3)
incentive and receive the $0.05 per contract rebate, in addition to the
$0.48 per contract Tier 6 rebate, by amending one of the qualifications
to require less volume. The Exchange is not amending any other criteria
in note ``c'' other than the proposed change in paragraph (3)(b).
Participants that qualify for Tier 6 and the supplemental rebate in
paragraph (3) will continue to receive a total rebate of $0.53 per
contract.
NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
Today, the Exchange offers NOM Market Maker Rebates to Add
Liquidity in Penny Pilot Options. These rebates are structured as a six
tier program as follows:
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Rebate to add
Monthly volume liquidity
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Tier 1........... Participant adds NOM Market Maker $0.20.
liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options
of up to 0.10% of total industry
customer equity and ETF option
average daily volume (``ADV'')
contracts per day in a month.
Tier 2........... Participant adds NOM Market Maker $0.25.
liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options
above 0.10% to 0.25% of total
industry customer equity and ETF
option ADV contracts per day in
a month.
Tier 3........... Participant adds NOM Market Maker $0.30 or $0.40 in
liquidity in Penny Pilot Options the following
and/or Non-Penny Pilot Options symbols AAPL,
above 0.25% to 0.60% of total QQQ, IWM, SPY and
industry customer equity and ETF VXX.
option ADV contracts per day in
a month.
[[Page 65374]]
Tier 4........... Participant adds NOM Market Maker $0.32 or $0.40 in
liquidity in Penny Pilot Options the following
and/or Non-Penny Pilot Options symbols AAPL,
of above 0.60% to 0.90% of total QQQ, IWM, VXX and
industry customer equity and ETF SPY.
option ADV contracts per day in
a month.
Tier 5........... Participant adds NOM Market Maker $0.40.
liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options
of above 0.30% of total industry
customer equity and ETF option
ADV contracts per day in a month
and qualifies for the Tier 6
Customer and/or Professional
Rebate to Add Liquidity in Penny
Pilot Options.
Tier 6........... Participant (1) adds NOM Market $0.48.
Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot
Options above 0.95% of total
industry customer equity and ETF
option ADV contracts per day in
a month, (2) executes Total
Volume of 250,000 or more
contracts per day in a month, of
which 30,000 or more contracts
per day in a month must be
removing liquidity, and (3) adds
Firm, Broker-Dealer and Non-NOM
Market Maker liquidity in Non-
Penny Pilot Options of 10,000 or
more contracts per day in a
month.
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* ``Total Volume'' shall be defined as Customer, Professional, Firm,
Broker-Dealer, Non-NOM Market Maker and NOM Market Maker volume in
Penny Pilot Options and/or Non-Penny Pilot Options which either adds
or removes liquidity on NOM.
The Exchange first proposes to amend the criteria in Tier 2 to
decrease the percentage of total industry customer equity and ETF
option ADV contract per day in a month from 0.25% to 0.20%, and make a
corresponding change in Tier 3 to decrease the percentage from 0.25% to
0.20%. As proposed, Participants will receive a $0.25 per contract Tier
2 rebate for adding NOM Market Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options above 0.10% to 0.20% of total industry
customer equity and ETF option ADV contracts per day in a month. In
addition, Participants will receive a $0.30 per contract (or $0.40 per
contract in the symbols AAPL, QQQ, IWM, SPY and VXX) Tier 3 rebate for
adding NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.20% to 0.60% of total industry customer
equity and ETF option ADV contracts per day in a month.
The Exchange also proposes to create an alternative way for
Participants to earn the Tier 6 rebate. Specifically, Participants will
also be eligible to receive the $0.48 per contract Tier 6 rebate for:
(1) adding NOM Market Maker liquidity in Penny Pilot Options and/or
Non-Penny Pilot Options above 1.50% of total industry customer equity
and ETF option ADV contracts per day in a month, and (2) executing
Total Volume of 250,000 or more contracts per day in a month, of which
15,000 or more contracts per day in a month must be removing liquidity.
The Exchange also proposes to make related clean-up changes by
renumbering the existing three-prong method to qualify for Tier 6 as
paragraph (a) and the proposed alternative method as paragraph (b).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ 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.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
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Customer and Professional Rebate To Add Liquidity in Penny Pilot
Options
The Exchange believes that its proposal to amend note ``c'' at
paragraph (3)(b) to decrease the percentage of total industry customer
equity and ETF option ADV contracts per day in a month from 0.15% to
0.12% to qualify for the additional $0.05 per contract incentive in
paragraph (3) is reasonable. As discussed above, the Exchange believes
that this will offer Participants an increased opportunity to qualify
for the paragraph (3) incentive and receive a $0.05 per contract rebate
by amending one of the qualifications to require less volume. The
Exchange also believes that this incentive will continue to encourage
Participants to add more liquidity on NOM to earn a higher Tier 8
rebate in addition to the incentives in note ``c.'' Participants that
qualify for this incentive would be paid the Tier 8 rebate of $0.48 per
contract plus the additional note ``c,'' paragraph (3) rebate of $0.05
per contract for a total rebate of $0.53 per contract.
The Exchange's proposal to amend note ``c'' at paragraph (3)(b) is
equitable and not unfairly discriminatory because all similarly
situated Participants are equally capable of qualifying for the
paragraph (3) incentive, and the same rebates will be paid to all
qualifying Participants. Further, the Exchange believes that it is
equitable and not unfairly discriminatory to offer this rebate to NOM
Participants that transact as Customers or Professionals, and not to
other market participants. Customer liquidity offers unique benefits to
the market by providing more trading opportunities, which attracts
specialists and 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 Exchange believes that encouraging
Participants to add Professional liquidity is similarly beneficial, as
the rebates may cause market participants to select NOM as a venue to
send Professional order flow, which benefits all market participants by
attracting valuable liquidity to the market and thereby enhancing the
trading quality and efficiency of all.
NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
The Exchange believes that its proposal to amend the NOM Market
Maker Rebate to Add Liquidity in Penny Pilot Options by modifying the
criteria in Tier 2 to decrease the percentage of total industry
customer equity and ETF option ADV contract per day in a month from
0.25% to 0.20%, and making a corresponding change in Tier 3 to decrease
the percentage from 0.25% to 0.20% is reasonable. The Exchange believes
that the amended qualifications will provide an increased opportunity
for Participants to qualify for the rebates in Tiers 2 and 3 by
amending the corresponding criteria to require less volume. The
Exchange also believes that this incentive will continue to encourage
Participants to add more liquidity on NOM to earn the Tier 2 and Tier 3
rebates.
The Exchange believes that its proposal to create an additional
opportunity for Participants to earn the Tier 6 NOM Market Maker Rebate
to
[[Page 65375]]
Add Liquidity in Penny Pilot Options is reasonable because it will
encourage Participants to send additional order flow to NOM to earn a
higher rebate, which will benefit all market participants by providing
opportunities for increased order interaction. As proposed, in addition
to the current method to qualify for the $0.48 per contract Tier 6
rebate,\8\ Participants will also be eligible to receive the Tier 6
rebate for: (1) Adding NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options above 1.50% of total industry
customer equity and ETF option ADV contracts per day in a month, and
(2) executing Total Volume of 250,000 or more contracts per day in a
month, of which 15,000 or more contracts per day in a month must be
removing liquidity. The proposed alternative is similar to the existing
method for achieving the same $0.48 per contract Tier 6 rebate except
the proposed will have two components as opposed to three for the
existing.\9\
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\8\ Today, a Participant is eligible to receive the Tier 6
rebate for (1) adding NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options above 0.95% of total industry
customer equity and ETF option ADV contracts per day in a month, (2)
executing Total Volume of 250,000 or more contracts per day in a
month, of which 30,000 or more contracts per day in a month must be
removing liquidity, and (3) adding Firm, Broker-Dealer and Non-NOM
Market Maker liquidity in Non-Penny Pilot Options of 10,000 or more
contracts per day in a month.
\9\ Specifically, the proposed alternative will not have a
requirement similar to the third prong of the existing criteria
(i.e., add Firm, Broker-Dealer and Non-NOM Market Maker liquidity in
Non-Penny Pilot Options of 10,000 or more contracts per day in a
month).
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The Exchange believes that the proposed first prong (i.e., add NOM
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options above 1.50% of total industry customer equity and ETF option
ADV contracts per day in a month) is reasonable because the Exchange
already offers rebates based on percentages of total industry customer
equity and ETF option ADV contracts, including within the first prong
of the existing Tier 6 rebate qualifications as described above. While
the first prong of the current Tier 6 qualifications also has a
comparable percentage threshold (0.95%) that is lower than the 1.50%
threshold in the proposed alternative to achieve the same $0.48 per
contract rebate, the proposed alternative has fewer components than the
existing method as described above, which offsets the higher percentage
threshold.
Furthermore, the proposed second prong (i.e., execute Total Volume
of 250,000 or more contracts per day in a month, of which 15,000 or
more contracts per day in a month must be removing liquidity) is
reasonable because it is comparable to the second prong of the existing
method (i.e., execute Total Volume of 250,000 or more contracts per day
in a month, of which 30,000 or more contracts per day in a month must
be removing liquidity). As is true of the existing qualifications, the
proposed criteria will attract both liquidity providers and removers to
NOM, thereby providing opportunities for increased order interaction
from additional order flow.
The Exchange's proposed changes to Tiers 2, 3, and 6 of the NOM
Market Maker Rebate to Add Liquidity in Penny Pilot Options as
described above are equitable and not unfairly discriminatory because
all eligible Participants that qualify for these incentives will
uniformly receive the rebate. Further, the Exchange believes that it is
equitable and not unfairly discriminatory to offer this rebate to NOM
Participants that transact as NOM Market Makers because unlike other
market participants, NOM Market Makers add value through continuous
quoting and the commitment of capital.\10\ Because NOM Market Makers
have these obligations to the market and regulatory requirements that
normally do not apply to other market participants, the Exchange
believes that offering these rebates to only NOM Market Makers is
equitable and not unfairly discriminatory in light of their
obligations. Finally, encouraging NOM Market Makers to add greater
liquidity benefits all market participants in the quality of order
interaction.
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\10\ 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.
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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. All of the proposed changes to
the Customer, Professional, and NOM Market Maker Rebates to Add
Liquidity in Penny Pilot Options are designed to attract additional
order flow to NOM, which strengthens NOM's competitive position.
Greater liquidity benefits all market participants by providing more
trading opportunities and attracting greater participation by market
makers. An increase in the activity of these market participants in
turn facilitates tighter spreads.
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 and rebates to remain
competitive. Because competitors are free to modify their own fees and
rebates in response, the Exchange believes that the degree to which
pricing changes in this market may impose any burden on competition is
extremely limited.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\11\
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\11\ 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-2018-101 on the subject line.
[[Page 65376]]
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-2018-101. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2018-101 and should be submitted
on or before January 10, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27511 Filed 12-19-18; 8:45 am]
BILLING CODE 8011-01-P