[Federal Register Volume 84, Number 77 (Monday, April 22, 2019)]
[Notices]
[Pages 16730-16736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07988]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85662; File No. SR-NASDAQ-2019-029]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Pricing Schedule in Options 7, Section 2
April 16, 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 April 10, 2019, 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 the Exchange's Pricing Schedule in
Options 7, Section 2, 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 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.
[[Page 16731]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes a number of changes to NOM pricing in Options
7, Section 2. Each change is discussed below.
The Exchange initially filed the proposed pricing changes on April
1, 2019 (SR-NASDAQ-2019-025). On April 10, 2019, the Exchange withdrew
that filing and submitted this filing.
Customer and Professional Fee for Removing Liquidity in Penny Pilot
Options
The Exchange currently charges Participants a Penny Pilot Options
Fee for Removing Customer \3\ or Professional \4\ Liquidity that is
$0.50 per contract, excluding SPY. For Participants that remove
Customer or Professional liquidity in SPY, this fee is reduced to $0.49
per contract.\5\ The Exchange also offers a reduced $0.48 per contract
Customer or Professional Penny Pilot Options Fee for Removing Liquidity
for Participants that qualify for any MARS \6\ Payment Tier in Section
(6). SPY is excluded from this discount because Participants are
already offered the $0.49 per contract discounted fee for SPY.
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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\ See Options 7, Section 2(1), note 3. Firms, Non-NOM Market
Makers, NOM Market Makers and Broker-Dealers are assessed a $0.50
per contract Penny Pilot Options Fee for Removing Liquidity in SPY,
similar to other Penny Pilot Options.
\6\ ``MARS'' is the Market Access and Routing Subsidy program,
which offers rebates to Participants that have System Eligibility
and have executed the requisite number of Eligible Contracts in a
month. See Options 7, Section 2(6).
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The Exchange now proposes to eliminate both discounts, and instead
charge a flat fee of $0.48 per contract (reduced from $0.50 per
contract) for each Customer or Professional transaction which removes
liquidity in Penny Pilot Options, including SPY. The Exchange is making
this change to simplify the operation of the Penny Pilot Options Fee to
Remove Customer and Professional Liquidity.
Customer and Professional Rebate To Add Liquidity in Penny Pilot
Options
The Exchange proposes a number of changes to the Customer and
Professional Rebates to Add Liquidity in Penny Pilot Options set forth
in Section 2(1). First, the Exchange is proposing to increase certain
volume thresholds in the Tier 5 and Tier 6 Customer and Professional
Rebates to Add Liquidity in Penny Pilot Options. Today, the Exchange
offers the following Customer and Professional Rebates to Add Liquidity
in Penny Pilot Options, which are structured as a six tier program with
increasing volume requirements for each tier:
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Rebate to add
Monthly volume liquidity
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Tier 1........... Participant adds Customer, $0.20
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer 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 Customer, 0.25
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer 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.
Tier 3........... Participant adds Customer, 0.42
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.20% to
0.30% of total industry customer
equity and ETF option ADV contracts
per day in a month.
Tier 4........... Participant adds Customer, 0.43
Professional, Firm, Non-NOM Market
Maker and/or Broker-Dealer liquidity
in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.30% to
0.40% of total industry customer
equity and ETF option ADV contracts
per day in a month.
Tier 5........... Participant adds Customer, 0.45
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 ETF option ADV contracts
per day in a month.
Tier 6........... Participant adds Customer, 0.48
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 0.20% or more of total
industry customer equity and ETF
option ADV 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.
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The Exchange first proposes to amend the criteria in Tier 5 to
increase the percentage of total industry customer equity and ETF
option ADV contracts per day in a month from 0.75% to 0.80%, and to
make a corresponding change in Tier 6 to increase the percentage from
0.75% to 0.80%. As proposed, Participants will receive a $0.45 per
contract Tier 5 rebate for adding Customer, Professional, Firm,\7\ Non-
NOM Market Maker \8\ and/or Broker-Dealer \9\ liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options above 0.40% to 0.80% of total
industry customer equity and ETF option ADV contracts per day in a
month. In addition, Participants will receive a $0.48 per contract Tier
6 rebate for adding 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% or more of total industry customer equity and
ETF option ADV contracts per day in a month.\10\
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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\ 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.
\10\ The alternative method to earn the $0.48 per contract Tier
6 rebate described above is not being amended under this proposal.
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Further, the Exchange proposes to decrease the Customer and
Professional Rebate to Add Liquidity in Penny Pilot Options set forth
in note ``e'' of Section 2(1). Today, this rebate is $0.52 per contract
if the Participant transacts in all securities through one or more of
its Nasdaq Market Center MPIDs that represent 3.00% or more of
Consolidated Volume \11\ in the same month on The Nasdaq Stock Market.
Participants that qualify for this rebate would not be eligible for any
other
[[Page 16732]]
Customer and Professional rebates in Tiers 1-6 or other rebate
incentives on NOM for Customer and Professional order flow in Options
7, Section 2(1). The Exchange now proposes to reduce this Customer and
Professional Rebate to Add Liquidity in Penny Pilot Options from $0.52
to $0.50 per contract.
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\11\ Consolidated Volume would be determined as set forth in
Equity 7, Section 118(a). In calculating total volume, the Exchange
will add the Participant's total volume transacted on The Nasdaq
Stock Market in a given month across its Nasdaq Market Center MPIDs,
and will divide this number by the total industry Consolidated
Volume.
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MARS Pricing
The Exchange currently offers a Market Access and Routing Subsidy
or ``MARS'' to qualifying Participants in Options 7, Section 2(6).
Participants that have System Eligibility \12\ and have executed the
requisite number of Eligible Contracts \13\ daily in a month (``Average
Daily Volume'') are entitled to a MARS Payment. The Exchange currently
pays the following MARS Payments according to Average Daily Volume
(``ADV'') submitted on NOM:
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\12\ 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 (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.
\13\ 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.
------------------------------------------------------------------------
Average daily MARS payment MARS payment
Tiers volume (``ADV'') (penny) (non-penny)
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1..................... 2,000........... $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
5..................... 45,000.......... 0.17 0.60
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The Exchange also provides Participants that qualify for the Tier 6
Customer and Professional Penny Pilot Options Rebate to Add Liquidity
in Section 2(1) an additional $0.09 per contract, which is paid in
addition to any MARS Payment tier on MARS Eligible Contracts the NOM
Participant qualifies for in a given month. The specified MARS Payments
are 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.\14\
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\14\ 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.
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The Exchange now proposes to eliminate the additional $0.09 per
contract incentive provided to Participants that qualify for Customer
and Professional Penny Pilot Options Rebate to Add Liquidity Tier 6 for
the Non-Penny MARS Payment tiers. The Exchange will make related
changes within Section 2(6) to clarify that it will continue to pay an
additional $0.09 per contract in addition to any MARS Payment tier on
MARS Eligible Contracts in a given month on the Penny Pilot Options
transactions, provided the Participant qualified for the Customer and
Professional Penny Pilot Options Rebate to Add Liquidity Tier 6 in
Options 7, Section 2(1). The Exchange did not observe an appreciable
increase in Non-Penny Pilot order flow sent to the Exchange to qualify
for this rebate, and therefore proposes to eliminate this incentive to
apply its resources to other, possibly more effective incentives. As
such, the Exchange proposes to offer another incentive in lieu of the
eliminated rebate, which the Exchange will pay to qualifying
Participants on both Penny and Non-Penny Pilot Options transactions in
addition to any MARS Payment tier on MARS Eligible Contracts in a given
month. Specifically, the Exchange proposes to offer Participants that
have total Affiliated Entity \15\ or Common Ownership \16\ average
daily add volume (``ADAV'') of 3.00% or more of total industry customer
equity and ETF option ADV contracts per day in a month an additional
$0.01 per contract in Penny Pilot Options and an additional $0.03 per
contract in Non-Penny Pilot Options, in addition to any MARS Payment
tier on MARS Eligible Contracts the Participant qualifies for in a
given month.\17\ The Exchange believes that its proposal will encourage
Participants that are affiliated either under Common Ownership or as
Affiliated Entities to send additional order flow that add liquidity to
the Exchange to qualify for the higher MARS rebates.
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\15\ The term ``Affiliated Entity'' is a relationship between an
Appointed MM and an Appointed OFP for purposes of aggregating
eligible volume for pricing in Options 7, Sections 2(1) and 2(6) for
which a volume threshold or volume percentage is required to qualify
for higher rebates or lower fees. The term ``Appointed MM'' is a NOM
Market Maker who has been appointed by an Order Flow Provider
(``OFP'') for purposes of qualifying as an Affiliated Entity. An OFP
is a Participant, other than a NOM Market Maker, that submits
orders, as agent or principal, to the Exchange. The term ``Appointed
OFP'' is an OFP who has been appointed by a NOM Market Maker for
purposes of qualifying as an Affiliated Entity. Participants under
Common Ownership may not qualify as a counterparty comprising an
Affiliated Entity. Each Participant may qualify for only one (1)
Affiliated Entity relationship at any given time.
\16\ The term ``Common Ownership'' shall mean Participants under
75% common ownership or control. Common Ownership shall apply to all
pricing in Options 7, Section 2 for which a volume threshold or
volume percentage is required to obtain the pricing.
\17\ See proposed note ``[caret]'' in Section 2(6).
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The Exchange also proposes to provide Participants that qualify for
the Tier 5 MARS Payment two supplemental rebates that are based on
progressively increasing volume requirements of executed MARS Eligible
Contracts ADV and total Affiliated Entity or Common Ownership ADAV. The
Exchange believes that its proposal will encourage Participants to
bring additional order flow to the Exchange to qualify for the higher
MARS incentives. First, the Exchange proposes to offer Participants
that execute at least 75,000 of MARS Eligible Contracts per day and
have total Affiliated Entity or Common Ownership ADAV of 3.25% or more
of total industry customer equity and ETF option ADV contracts per day
in a month an additional $0.01 per contract in Penny Pilot Options and
an additional $0.10 per contract in Non-Penny Pilot Options, in
addition to MARS Payment Tier 5 on MARS
[[Page 16733]]
Eligible Contracts the Participant qualifies for in a given month.\18\
Second, Participants that execute at least 100,000 of MARS Eligible
Contracts per day and have total Affiliated Entity or Common Ownership
ADAV of 3.25% 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 in Penny Pilot Options and an additional $0.19 per contract in
Non-Penny Pilot Options, in addition to MARS Payment Tier 5 on MARS
Eligible Contracts the NOM Participant qualifies for in a given
month.\19\ NOM Participants that qualify for this incentive will not
receive the proposed note ``@'' incentive.
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\18\ See proposed note ``@'' in Section 2(6).
\19\ See proposed note ``&'' in Section 2(6).
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NOM Market Maker Rebate To Add Liquidity in Non-Penny Pilot Options
The Exchange currently offers Participants that qualify for the
Tier 6 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options
\20\ a $0.86 per contract NOM Market Maker Rebate to Add Liquidity in
Non-Penny Pilot options.\21\ This rebate is paid to qualifying
Participants in lieu of the $0.35 per contract fee normally charged to
NOM Market Maker transactions that add Non-Penny Pilot liquidity.\22\
The note ``6'' incentive is designed to encourage Participants that
transact as NOM Market Makers to send more order flow to the Exchange
in either Penny or Non-Penny Pilot Options in order to qualify for the
Tier 6 Penny Pilot Rebate to Add NOM Market Maker Liquidity to earn the
$0.86 Non-Penny Rebate to Add NOM Market Maker Liquidity. To further
incentivize Participants to direct order flow to NOM, the Exchange
proposes to provide an additional $0.02 per contract NOM Market Maker
Rebate to Add Liquidity in Non-Penny Pilot Options for Participants
that qualify for the note ``&'' incentive proposed above in the MARS
Payment Schedule, in addition to receiving the $0.86 per contract NOM
Market Maker Rebate to Add Liquidity in Non-Penny Pilot Options.
Participants would continue to receive the greater of the note ``5'' or
note ``6'' incentive if they qualify for both.
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\20\ To qualify for the Tier 6 rebate, Participant must: (a)(1)
Add 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) 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, and (3) 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; or (b)(1) 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, and (2) 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. For purposes of Tier 6, ``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. See Options 7, Section 2(1).
\21\ See Options 7, Section 2(1), note ``6.''
\22\ The Exchange also offers additional incentives in note
``5'' to reduce this fee or earn a rebate, provided Participants
meet the volume-based requirements. Specifically, Participants who
add NOM Market Maker liquidity in Non-Penny Pilot Options of 7,500
to 9,999 ADV contracts per day in a month would be assessed a $0.00
per contract Non- Penny Options Fee for Adding Liquidity in that
month. In addition, Participants that add NOM Market Maker liquidity
in Non-Penny Pilot Options of 10,000 or more ADV contracts per day
in a month would receive a $0.30 per contract Non-Penny Rebate to
Add Liquidity for that month instead of paying the Non-Penny Fee for
Adding Liquidity. See Options 7, Section 2(1), note ``5.''
Participants that qualify for a note ``5'' incentive would receive
the greater of the note ``5'' or note ``6'' incentive.
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NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
Lastly, the Exchange proposes to replace VXX with VXXB in the Tiers
3 and 4 NOM Market Maker Rebates to Add Liquidity in Penny Pilot
Options which currently apply to AAPL, QQQ, IWM, SPY and VXX. By way of
background, options on the iPath S&P 500 VIX Short-Term Futures
exchange-traded note (``VXX'') are no longer listed for trading on the
Exchange since VXX matured on January 30, 2019 \23\ and VXX shares are
no longer listed for trading on equity trading venues. Prior to its
maturity, VXX's issuer Barclays Bank PLC introduced a substantially
similar product, the iPath Series B S&P 500 VIX Short-Term Futures
exchange-traded note (``VXXB''),\24\ and was intended to serve as the
replacement for VXX upon maturity. The Exchange has since listed VXXB
options for trading on NOM. Accordingly, the Exchange proposes to
replace references to VXX with VXXB in its Pricing Schedule. In
particular, the Exchange proposes to delete references to VXX from the
Tiers 3 and 4 NOM Market Maker Rebates to Add Liquidity in Penny Pilot
Options currently applicable to AAPL, QQQ, IWM, SPY and VXX, and
replace those with VXXB. The Tier 3 and Tier 4 rebates will otherwise
remain unchanged under this proposal.
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\23\ See VXX Prospectus and Pricing Supplement available at
http://www.ipathetn.com/US/16/en/documentation.app?instrumentId=259118&documentId=6204338.
\24\ VXXB was introduced on January 17, 2018 and has a maturity
date of January 23, 2048. See VXXB Prospectus and Pricing Supplement
available at http://www.ipathetn.com/US/16/en/documentation.app?instrumentId=341408&documentId=6585610. While VXXB
is currently a Non-Penny Pilot Option, it will replace VXX in the
Penny Pilot Program as of April 2, 2019. See Options Trader Alert
#2019-8.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\25\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\26\ 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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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(4) and (5).
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Customer and Professional Fee for Removing Liquidity in Penny Pilot
Options
The Exchange believes that the proposed changes to the Customer and
Professional Fees for Removing Liquidity in Penny Pilot Options are
reasonable. As discussed above, the Exchange is proposing to eliminate
the reduced fees of $0.49 per contract (provided to Participants that
remove Customer and Professional liquidity in SPY Options) and $0.48
per contract (provided to Participants that qualify for any MARS
Payment Tier). Instead, the Exchange will charge a flat fee of $0.48
per contract (reduced from $0.50 per contract) for each Customer or
Professional transaction which removes liquidity in Penny Pilot
Options, including SPY. The Exchange believes that these changes will
simplify the operation of this fee by uniformly charging $0.48 per
contract for all Customer and Professional transactions that remove
liquidity in Penny Pilot Options. Furthermore, the Exchange believes
that the fee decrease will further incentivize Participants to send
more Customer and Professional order flow to NOM. All market
participants benefit from the increased order interaction when more
order flow is available on NOM.
The Exchange further believes that the proposed fee changes are
equitable and not unfairly discriminatory because they will apply
equally to all similarly situated Participants. With the proposed
changes, Participants will be charged a uniform $0.48 per contract Fee
for Removing Liquidity in all Penny Pilot Options, including SPY. The
Exchange also believes that it is equitable and not unfairly
discriminatory to offer the lower $0.48 per contract fee to
Participants that transact as Customers or Professionals, and not to
other market
[[Page 16734]]
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 a corresponding
increase in order flow from other market participants. The Exchange
believes that encouraging Participants to add Professional liquidity is
similarly beneficial, as the lower fee 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.
Customer and Professional Rebate To Add Liquidity in Penny Pilot
Options
The Exchange believes that it is reasonable to amend the Customer
and Professional Rebates to Add Liquidity in Penny Pilot Options by
increasing the percentages of total industry customer equity and ETF
option ADV contracts in Tiers 5 and 6, as discussed above. The Exchange
believes that the increased volume thresholds are more closely aligned
to the corresponding rebates than the current volume threshold. This
increase is also reflective of the Exchange's desire to provide
incentives to attract order flow to the Exchange in return for
significant market-improving behavior. By increasing the volume of
liquidity that a Participant must add during the month in order to
qualify for the corresponding Tier 5 and Tier 6 rebates, this change
will help ensure that Participants are providing significant market-
improving behavior in return for the incentives.
In addition, the proposed change in note ``e'' to decrease the
Customer and Professional Rebate to Add Liquidity in Penny Pilot
Options provided to eligible Participants that transact 3.00% or more
in Consolidated Volume on The Nasdaq Stock Market from $0.52 to $0.50
per contract is reasonable because the proposed change is a modest
reduction, and the Exchange believes that its rebate program will
continue to incentivize Participants to transact greater volume on The
Nasdaq Stock Market in order to qualify for a higher rebate on NOM.
The Exchange also believes that the modifications to the Customer
and Professional Rebates to Add Liquidity in Penny Pilot Options
proposed above are equitable and not unfairly discriminatory because
all eligible Participants that meet the relevant qualifications will
uniformly receive the rebates. Further, the Exchange believes that it
is equitable and not unfairly discriminatory to offer the rebates to
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.
MARS Pricing
The Exchange's proposal to modify MARS pricing in Section 2(6) is
reasonable, equitable and not unfairly discriminatory for the reasons
that follow.
The Exchange believes that the elimination of the additional $0.09
per contract incentive for Non-Penny MARS Payment Tiers proposed above
is reasonable because as noted above, the Exchange did not observe an
appreciable increase in Non-Penny Pilot order flow sent to the Exchange
to qualify for this rebate. The Exchange must periodically assess the
effectiveness of the incentives it provides in the form of discounts or
rebates and, in the case of ineffective incentives, eliminate the
incentive so that the Exchange may apply its resources to other,
possibly more effective discounts or rebates such as the note
``[caret]'' incentive based on total Affiliated Entity or Common
Ownership proposed above. Accordingly, while the Exchange is
eliminating the additional $0.09 per contract incentive for Non-Penny
MARS Payment Tiers, the Exchange believes that the additional note
``[caret]'' incentives of $0.01 and $0.03 in Penny and Non-Penny Pilot
Options respectively, will better align the cost of the MARS program
with the benefit it brings to the marketplace.
Furthermore, the Exchange believes that the proposed total
Affiliated Entity or Common Ownership ADAV requirement of 3.00% is
reasonable because it is set at a level that the Exchange believes will
encourage Participants to bring more order flow to the Exchange to
qualify for the higher note ``[caret]'' incentive. To the extent that
order flow is increased by the proposal, market participants will
increasingly compete for the opportunity to trade on the Exchange,
including sending more orders to reach higher tiers or rebates. The
resulting increased volume and liquidity will benefit all market
participants by providing more trading opportunities and tighter
spreads. The Exchange also notes that the concept of allowing market
participants to aggregate volume for purposes of volume pricing is not
novel. Other options markets have similar incentives in place to
attract volume to their markets.\27\
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\27\ See Cboe Exchange (``CBOE'') Fees Schedule. CBOE permits
aggregation of volume to qualify for credits available under an
Affiliated Volume Plan or AVP. See NYSE American Options (``NYSE
Amex'') Fee Schedule at Section I.E. NYSE Amex permits aggregation
of volume to qualify for the Amex Customer Engagement or ACE
Program.
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The Exchange believes that the qualifying volume requirements in
the two additional incentives proposed in note ``@'' and note ``&'' of
Section 2(6) are reasonable and equitable for the same reasons
discussed above for the note ``[caret]'' incentive. Specifically, the
Exchange believes that the total Affiliated Entity or Common Ownership
ADAV requirement of 3.25% proposed for both incentives is set at an
appropriate level, which the Exchange believes will encourage
Participants to bring more order flow to the Exchange to qualify for
the higher note ``@'' and note ``&'' incentives, which liquidity will
benefit all market participants. The Exchange similarly believes that
the proposed MARS Eligible Contracts ADV requirements of 75,000 and
100,000 ADV for note ``@'' and note ``&,'' respectively, are reasonable
and equitable because they are set at levels that the Exchange believes
will encourage Participants and, in particular, Participants that
transact in Firm, Non-NOM Market Maker, Broker-Dealer, or JBO
electronic equity and ETF options orders that add liquidity to execute
more volume on NOM.
The Exchange also believes that the proposed rebate amounts for the
note ``@'' and note ``&'' incentives reflect the progressively
increasing volume requirements to earn the highest MARS incentives by
bringing the most order flow to the Exchange. For instance,
Participants will have to meet the 3.25% total Affiliated Entity or
Common Ownership ADAV requirement and execute 75,000 of MARS Eligible
Contracts ADV, to qualify for the proposed ``@'' incentives and receive
the additional $0.01 per contract in Penny Pilot Options and the
additional $0.10 per contract in Non-Penny Pilot
[[Page 16735]]
Options.\28\ Participants that qualify for note ``@'' would therefore
receive total MARS rebates of $0.18 per contract for Penny Pilot
Options and $0.70 per contract for Non-Penny Pilot Options.
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\28\ The supplemental rebates would be paid in addition to the
Tier 5 MARS Payments of $0.17 per contract in Penny Pilot Options
and $0.60 per contract in Non-Penny Pilot Options.
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Furthermore, Participants will have to meet the 3.25% total
Affiliated Entity or Common Ownership ADAV requirement and execute
100,000 of MARS Eligible Contracts ADV, to qualify for the proposed
``&'' incentives and receive the additional $0.02 per contract in Penny
Pilot Options and the additional $0.19 per contract in Non-Penny Pilot
Options.\29\ Participants that qualify for note ``&'' would therefore
receive total MARS rebates of $0.19 per contract for Penny Pilot
Options and $0.79 per contract for Non-Penny Pilot Options. The
Exchange further believes that it is reasonable to not provide the note
``@'' incentives to Participants that qualify for the note ``&''
incentives. As noted above, the proposed note ``&'' incentives are
higher, and in some cases significantly higher, than the proposed
incentives in note ``@,'' and also require higher qualifying volume
thresholds. Accordingly, the Exchange believes it is reasonable to
provide the note ``@'' incentives instead of the note ``&'' incentives
to Participants that qualify for both.
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\29\ The supplemental rebates would be paid in addition to the
Tier 5 MARS Payments of $0.17 per contract in Penny Pilot Options
and $0.60 per contract in Non-Penny Pilot Options.
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The Exchange's proposal to modify MARS pricing in Section 2(6) is
equitable and not unfairly discriminatory because all Participants may
elect to become an Affiliated Entity as either Appointed MM or
Appointed OFP, or an affiliate under Common Ownership, for purposes of
aggregating eligible volume to qualify for higher rebates or lower
fees. Furthermore, any Participant may qualify for MARS provided they
have the requisite System Eligibility. The Exchange will also uniformly
pay MARS rebates to qualifying Participants on all Eligible Contracts.
NOM Market Maker Rebate To Add Liquidity in Non-Penny Pilot Options
The Exchange believes that its proposal to provide an additional
$0.02 per contract NOM Market Maker Rebate to Add Liquidity in Non-
Penny Pilot Options for Participants that qualify for the note ``&''
incentive proposed above, in addition to receiving the $0.86 per
contract NOM Market Maker Rebate to Add Liquidity in Non-Penny Pilot
Options, is reasonable, equitable, and not unfairly discriminatory. The
Exchange notes that the additional incentive in note ``6'' will be the
highest available rebate (totaling $0.88 per contract) provided to
Participants that add NOM Market Maker liquidity in Non-Penny Pilot
Options. The Exchange believes that the additional incentive is
reasonable because it will require Participants to meet the stringent
volume requirements set forth in the note ``&'' incentive proposed
above, in addition to those set forth in the Tier 6 Penny Pilot Options
Rebate to Add NOM Market Maker Liquidity.\30\ The Exchange believes
that this incentive will continue to encourage Participants to bring
order flow to the Exchange to qualify for the higher rebate, which will
be beneficial for all market participants and will encourage an active
and liquidity market on NOM. The Exchange also believes that it is
reasonable to offer Participants that qualify for a note ``5''
incentive the greater of the current note ``5'' or new note ``6''
incentive because the Participant will be able to receive the greater
of the two rebates with this proposal.
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\30\ See note 22 above.
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The Exchange believes that the additional $0.02 per contract
incentive in note ``6'' is equitable and not unfairly discriminatory
because all similarly-situated Participants are equally capable of
qualifying for the proposed rebates, and the rebate will be uniformly
paid to all qualifying Participants. Further, the Exchange believes
that offering only Participants that transact as NOM Market Makers the
opportunity to qualify for the additional incentive is equitable and
not unfairly discriminatory. Unlike other market participants, NOM
Market Makers add value through continuous quoting and the commitment
of capital.\31\ 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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\31\ 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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NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
The Exchange believes that the replacing VXX with VXXB in the Tiers
3 and 4 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options
currently applicable to AAPL, QQQ, IWM, SPY and VXX is reasonable,
equitable and not unfairly discriminatory because VXX options are no
longer listed for trading on the Exchange, and have been replaced by a
substantially similar product, VXXB options.
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 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.
[[Page 16736]]
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.\32\
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\32\ 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-2019-029 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-2019-029. 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-2019-029, and should be submitted
on or before May 13, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07988 Filed 4-19-19; 8:45 am]
BILLING CODE 8011-01-P