[Federal Register Volume 84, Number 53 (Tuesday, March 19, 2019)]
[Notices]
[Pages 10161-10164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05087]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85303; File No. SR-NASDAQ-2019-011]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchanges Pricing Schedule at Options 7
March 13, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 28, 2019, 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 Exchanges Pricing Schedule at
Options
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7, 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.
While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on March 1, 2019.
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 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 to create an alternative way for Participants
to earn the Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny
Pilot Options. Today as set forth in Options 7, Section 2(1), the
Exchange offers NOM Market Maker 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 currently 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. As proposed, a Participant will also earn the Tier 3 rebate if
the Participant meets the following alternative qualifications: (1)
Transacts in all securities through one or more of its Nasdaq Market
Center MPIDs that represent 0.70% or more of Consolidated Volume
(``CV'') \3\ which adds liquidity in the same month on The Nasdaq Stock
Market,\4\ (2) transacts in Tape B securities \5\ through one or more
of its Nasdaq Market Center MPIDs that represent 0.18% or more of CV
which adds liquidity in the same month on The Nasdaq Stock Market, and
(3) executes greater than 0.01% of CV via Market-on-Close/Limit-on-
Close (``MOC/LOC'') \6\ volume within The Nasdaq Stock Market Closing
Cross in the same month. The Exchange also proposes to make related
clean-up changes by renumbering the existing method to qualify for Tier
3 as paragraph (a) and the proposed alternative as paragraph (b).
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\3\ 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.
\4\ In calculating total volume, the Exchange would add the
Participant's total volume transacted on The Nasdaq Stock Market in
a given month across its Nasdaq Market Center MPIDs which adds
liquidity, and will divide this number by the total industry
Consolidated Volume.
\5\ Tape B securities are securities that are listed on
exchanges other than The Nasdaq Stock Market or the New York Stock
Exchange.
\6\ 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. A ``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. A ``LOC Order'' is an order type
entered with a price that may be executed only in the Nasdaq Closing
Cross.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\8\ 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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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
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The alternative method to qualify for the Tier 3 NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options proposed above is
reasonable because it will create an additional opportunity for
Participants to earn the Tier 3 rebate by incentivizing Participants to
transact greater volume on The Nasdaq Stock Market in order to qualify
for the Tier 3 rebate on NOM. The Exchange notes that this proposal is
designed as a means to improve market quality by providing Participants
with an incentive to increase their provision of liquidity on the
Exchange's equity and options markets. Today, Participants that add 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 are paid a $0.30 per contract
(or $0.40 per contract in the symbols AAPL, QQQ, IWM, SPY and VXX) Tier
3 rebate. This proposal would provide participants with additional
opportunities to earn the same Tier 3 NOM Market Maker rebate, and will
encourage Participants to send order flow to both the options and
equity markets to receive the rebate.
Furthermore, the concept of linking incentive on NOM to activity on
The Nasdaq Stock Market exists today. The Exchange currently offers
rebates on NOM that relate to activity on The Nasdaq Stock Market.\9\
Similarly, The Nasdaq Stock Market offers credits that are based on
activity on NOM.\10\ As such, the Exchange believes that the volume
requirement to transact in all securities through one or more of the
Participant's Nasdaq Market Center MPIDs that represent 0.70% or more
of Consolidated Volume (``CV'') which adds liquidity in the same month
on The Nasdaq Stock Market is reasonable because the Exchange already
offers rebates based on similar volume requirements.\11\ Similarly, the
volume requirement to execute greater than 0.01% of CV via Market-on-
Close/Limit-on-Close (``MOC/LOC'') volume within The Nasdaq Stock
Market Closing Cross in the same month is reasonable because
[[Page 10163]]
the Exchange already offers rebates based on similar volume
requirements.\12\
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\9\ For example, one of the qualifications in the $0.48 per
contract Tier 6 Customer and Professional Rebate to Add Liquidity in
Penny Pilot Options requires that the Participant add 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. See Options 7, Section 2(1). Also, for example,
note ``e'' of the NOM Pricing Schedule provides that Participants
that transact in all securities through one or more of its Nasdaq
Market Center MPIDs that represent 3.00% or more of Consolidated
Volume in the same month on The Nasdaq Stock Market will receive a
$0.52 per contract rebate to add liquidity in Penny Pilot Options as
Customer or Professional and $1.00 per contract rebate to add
liquidity in Non-Penny Pilot Options as Customer or Professional.
See Options 7, Section 2(1).
\10\ For example, Nasdaq offers a credit of $0.0029 per share if
the member adds 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 ADV in the
customer clearing range for Equity and ETF option contracts per day
in a month on NOM. See Equity 7, Section 118(a)(1).
\11\ See note 9 above.
\12\ See note ``c'' of Options 7, Section 2(1), offering
Participants that qualify for the $0.48 per contract Tier 6 Customer
and Professional Rebate to Add Liquidity in Penny Pilot Options an
additional $0.05 per contract rebate if they meet the requisite
volume thresholds in clause (3) of note ``c,'' including executing
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; and note ``f'' of Options 7,
Section 2(1), offering Participants a $0.55 per contract Customer
and Professional Rebate to Add Liquidity in Penny Pilot Options if
they meet the requisite volume thresholds, including executing
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.
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The volume requirement to transact in Tape B securities through one
or more of the Participant's Nasdaq Market Center MPIDs that represent
0.18% or more of CV which adds liquidity in the same month on The
Nasdaq Stock Market is a new requirement, which must be met in addition
to the other two volume requirements proposed above. The Exchange
believes that the Tape B volume requirement is reasonable because
linking rebates on NOM to activity on The Nasdaq Stock Market in this
manner will encourage Participants to add liquidity on The Nasdaq Stock
Market, which will benefit all market participants by way of
interacting with that liquidity on the equity market. By encouraging
market participants to increase their participation on the equities
market by transacting in Tape B securities, the Exchange is rewarding
Participants with an opportunity to earn an additional options
incentive, provided all requirements are met. Overall, the Exchange
believes that the tiered NOM Market Maker Rebates to Add Liquidity in
Penny Pilot Options with the proposed Tier 3 alternative will continue
to reflect the progressively increasing rebate requirements that offer
incentives to earn the highest NOM Market Maker rebate by bringing the
most order flow to the Exchange.
The Exchange also believes that the proposed Tier 3 alternative is
equitable and not unfairly discriminatory because all eligible
Participants that qualify for these incentives will uniformly receive
the rebate. The Exchange believes that the proposed volume requirements
are proportionate to the amount of the Tier 3 rebate and equitably
reflect the purpose of the proposed Tier 3 alternative, which is to
incentivize Participants to transact greater volume on both the
Exchange's equity and options markets. In addition, the Exchange
believes that it is equitable and not unfairly discriminatory to offer
this rebate to NOM Participants that transact as NOM Market Makers and
also transact on The Nasdaq Stock Market. Any NOM Participant may trade
on The Nasdaq Stock Market because they are approved members.\13\
Furthermore, unlike other market participants, NOM Market Makers add
value through continuous quoting and the commitment of capital.\14\
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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\13\ Although a NOM Participant may incur additional labor and/
or costs to establish connectivity to The Nasdaq Stock Market, there
are no additional membership fees for NOM Participants that want to
transact on The Nasdaq Stock Market.
\14\ 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. The pricing changes proposed
above are generally designed to attract additional order flow to the
Exchange, which strengthens the Exchange'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.\15\
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\15\ 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-2019-011 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-2019-011. 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
[[Page 10164]]
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
such filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. 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-2019-011, and should be submitted on or before April 9, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05087 Filed 3-18-19; 8:45 am]
BILLING CODE 8011-01-P