[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55644-55648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22594]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87276; File No. SR-NASDAQ-2019-084]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend The Nasdaq Options Market LLC (``NOM'') Pricing Schedule at
Options 7, Section 2
October 10, 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 September 27, 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 Nasdaq Options Market LLC
(``NOM'') Pricing Schedule at Options 7, Section 2, titled ``Nasdaq
Options Market--Fees and Rebates.''
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 amend NOM's Pricing Schedule at Options 7,
Section 2, titled ``Nasdaq Options Market--Fees and Rebates.''
Specifically, the Exchange proposes to amend the Tier 5 NOM Market
Maker Rebate to Add Liquidity in Penny Pilot Options.
Description of Proposed NOM Market Maker Pricing
The purpose of the proposed rule change is to incentivize Market
Makers to add liquidity on the Exchange. Today, NOM offers Market Maker
Rebates to Add Liquidity in Penny Pilot Options. There are currently 6
tiers of Rebates to Add Liquidity.\3\ This proposal seeks to amend Tier
5 of the NOM Market Maker Rebates to Add Liquidity in Penny Pilot
Options, which currently pays a $0.40 per contract rebate to a
Participant that adds NOM Market Maker 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.
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\3\ See NOM Pricing Schedule at Options 7, Section 2(1).
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The Exchange proposes to increase the Tier 5 Market Maker Rebate to
Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per contract.
Further, the Exchange proposes to amend the first requirements to
obtain a Tier 5 Market Maker Rebate to Add Liquidity. The Exchange
proposes to amend the current rule text to require a Participant to add
NOM Market Maker liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options of above 0.40% of total industry customer equity and ETF
option ADV contracts per day in a month This amendment increases the
amount of total industry customer equity and ETF options ADV contracts
per day in a month from 0.30% to 0.40%. In addition to the
aforementioned requirement, Tier 5 additionally currently requires, as
a second requirement, that a Participant qualify for the Tier 6 \4\
Customer and/or
[[Page 55645]]
Professional Rebate to Add Liquidity in Penny Pilot Options. The
Exchange proposes to remove this requirement to qualify for the Tier 6
Customer and/or Professional Rebate to Add Liquidity in Penny Pilot
Options and instead require, as the second part of the overall Tier 5
requirements, that a Participant transact in all securities through one
or more of its Nasdaq Market Center MPIDs that represent 0.40% or more
of Consolidated Volume (``CV'') \5\ which adds liquidity in the same
month on The Nasdaq Stock Market.\6\ This particular requirement is
intended to incentivize Participants to transact a greater volume on
The Nasdaq Stock Market in order to qualify for the Tier 5 rebate on
NOM. As proposed, the Tier 5 Market Maker Rebate to Add Liquidity in
Penny Pilot Options requirement would provide.
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\4\ Tier 6 of the Customer and/or Professional Rebate to Add
Liquidity in Penny Pilot Options requires that, ``Participant adds
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options above 0.80% 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 (defined
below).''
\5\ 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.
\6\ 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.
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Participant adds NOM Market Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of above 0.40% of total industry
customer equity and ETF option ADV contracts per day in a month and
transacts in all securities through one or more of its Nasdaq Market
Center MPIDs that represent 0.40% or more of Consolidated Volume
(``CV'') which adds liquidity in the same month on The Nasdaq Stock
Market.
Both the requirement to add 0.40% of total industry customer equity
and ETF option ADV contracts per day in a month and the requirement to
transact in all securities through one or more of its Nasdaq Market
Center MPIDs that represent 0.40% or more of Consolidated Volume
(``CV''), as specified, are necessary to achieve the proposed increased
rebate of $0.44 per contract. This proposal would provide participants
with additional opportunities to earn an increased Tier 5 NOM Market
Maker rebate, and will encourage Participants to send order flow to
both the options and equity markets to receive the rebate. 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.
The Exchange also proposes to add a new note to Options 7, Section
2 of the Pricing Schedule which provides that NOM Participants that
qualify for the Tier 5 NOM Market Maker Rebate to Add Liquidity in
Penny Pilot Options and add NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options of above 0.50% of total industry
customer equity and ETF option ADV contracts per day in a month, will
receive a $0.46 per contract rebate to add liquidity in Penny Pilot
Options as Market Maker in lieu of the Tier 5 rebate. The Exchange
notes that in comparison to proposed Tier 5 qualifications, which
require 0.40% of total industry customer equity and ETF option ADV
contracts per day in a month and pays a proposed $0.44 per contract
rebate, this incentive would pay an increased rebate of $0.46 per
contract for 0.50% of total industry customer equity and ETF option ADV
contracts per day in a month, in lieu of the Tier 5 rebate. The
Exchange believes that this incentive will attract additional liquidity
to NOM to the benefit of all market participants who may interact with
that order flow.
Applicability to and Impact on Participants 7
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\7\ On May 21, 2019, the SEC Division of Trading and Markets
(the ``Division'') issued fee filing guidance titled ``Staff
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance'').
Within the Guidance, the Division noted, among other things, that
the purpose discussion should address ``how the fee may apply
differently (e.g., additional cost vs. additional discount) to
different types of market participants (e.g., market makers,
institutional brokers, retail brokers, vendors, etc.) and different
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees).
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The Exchange believes that increasing the NOM Market Maker Tier 5
Rebate to Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per
contract as well as requiring a greater amount of total industry
customer equity and ETF options ADV contracts per day in a month (from
0.30% to 0.40%) and also replacing the current criteria to qualify for
the Tier 6 Customer and/or Professional Rebate to Add Liquidity in
Penny Pilot Options with the requirement to transact in all securities
through one or more of its Nasdaq Market Center MPIDs that represent
0.40% or more of Consolidated Volume (``CV'') which adds liquidity in
the same month on The Nasdaq Stock Market will attract greater volume
to both NOM and The Nasdaq Stock Market. Any NOM Market Maker may
obtain the Tier 5 rebate provided the qualifications are met. The
Exchange notes that Market Makers have certain obligations \8\ on NOM,
unlike other market participants. Market Maker are a source of
liquidity. The proposed amendments are generally designed to attract
additional order flow to the Exchange by incentivizing NOM Market
Makers. 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.
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\8\ 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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Furthermore, the additional incentive to receive an even greater
Tier 5 rebate of $0.46 per contract to add liquidity in Penny Pilot
Options as Market Maker, provided the NOM Participant qualified for the
Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options
and added NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of above 0.50% of total industry customer equity
and ETF option ADV contracts per day in a month, will further
incentivize NOM Market Makers to add liquidity to NOM. These incentives
are intended to benefit all NOM market participants who will be able to
interact with additional liquidity which this incentive attracts to the
Exchange.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\10\ 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
[[Page 55646]]
discrimination between customers, issuers, brokers, or dealers. The
proposal is also consistent with Section 11A of the Act relating to the
establishment of the national market system for securities. Moreover,
the Exchange believes that its proposal complies with Commission
guidance on SRO fee filings that the Commission Staff issued on May 21,
2019.\11\
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4) and (5).
\11\ See Guidance, supra note 7. Although the Exchange believes
that this filing complies with the Guidance, the Exchange does not
concede that the standards set forth in the Guidance are consistent
with the Exchange Act and reserves its right to challenge those
standards through administrative and judicial review, as
appropriate.
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The Proposal Is Reasonable
The Exchange's proposed amendments to Options 7, Section 2 relating
to the Tier 5 NOM Market Maker Rebate to Add Liquidity in Penny Pilot
Options are reasonable in several respects. As a threshold matter, the
Exchange is subject to significant competitive forces in the market for
options transaction services that constrain its pricing determinations
in that market. The fact that this market is competitive has long been
recognized by the courts. In NetCoalition v. Securities and Exchange
Commission, the D.C. Circuit stated as follows: ``[n]o one disputes
that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \12\
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\12\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is one of several options
venues to which market participants may direct their order flow, and it
represents a small percentage of the overall market. Competing options
exchanges offer similar options functionality, with varying pricing
schedules. Within this environment, market participants can freely and
often do shift their order flow among the Exchange and competing venues
in response to changes in their respective pricing schedules.\13\
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\13\ The Exchange perceives no regulatory, structural, or cost
impediments to market participants shifting order flow away from it
as a result of this rule change.
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Within the foregoing context, the proposal represents a reasonable
attempt by the Exchange to increase its liquidity and market share
relative to its competitors. The Exchange believes that its proposed
rebate is a reasonable attempt to achieve this end as this rebate
represents competitive pricing as compared to other options markets.
Market participants have a number of choices in deciding where to
direct their options orders. Options exchanges offer different markets
offering incentives and rebates to market participants to lower
transaction fees. With this proposal, the Exchange is attempting to
attract additional order flow to both NOM and The Nasdaq Stock Market.
The Exchange may be unsuccessful in its initial attempt to attract
order flow with the proposed rebate.
NOM Market Maker Rebates
With respect to the proposed Tier 5 NOM Market Maker rebate
amendment, the Exchange believes that increasing the Tier 5 Market
Maker Rebate to Add Liquidity in Penny Pilot Options from $0.40 to
$0.44 per contract while also amending the qualifications for the Tier
5 rebate is reasonable. The Exchange believes that increasing the
volume requirement for NOM Market Maker liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options, from above 0.30% to above 0.40%
of total industry customer equity and ETF options ADV contracts per day
in a month, will attract additional liquidity to NOM. Further, the
proposal to amend the second part of the Tier 5 rebate requirement by
eliminating the requirement that a Participant qualify for the Tier 6
Customer and/or Professional Rebate to Add Liquidity in Penny Pilot
Options \14\ and instead require a Participant transact in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent 0.40% or more of Consolidated Volume (``CV'') which adds
liquidity in the same month on The Nasdaq Stock Market, will also
attract liquidity to NOM and also The Nasdaq Stock Market.
Specifically, the new second requirement for the Tier 5 rebate is
intended to incentivize Participants to transact greater volume on The
Nasdaq Stock Market in order to qualify for the Tier 5 rebate on NOM.
Because the Exchange requires a Participant to comply with both the
first requirement,\15\ to add NOM Market Maker liquidity, and the
second requirement,\16\ to transact in securities and add liquidity on
The Nasdaq Stock Market, in order to qualify for the proposed increased
$0.44 per contract Tier 5 rebate, the Exchange believes that Market
Makers will be incentivized to direct additional order flow to NOM and
The Nasdaq Stock Market and, in turn, market participants will benefit
from the opportunity to interact with such order flow.
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\14\ See note 4 above.
\15\ The first requirement to qualify for the Tier 5 rebate
requires a Participant to add NOM Market Maker liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options of above 0.40% of total
industry customer equity and ETF options ADV contracts per day in a
month.
\16\ The second requirement to qualify for the Tier 5 rebate
requires a Participant to transact in all securities through one or
more of its Nasdaq Market Center MPIDs that represent 0.40% or more
of CV which adds liquidity in the same month on The Nasdaq Stock
Market.
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The Exchange acknowledges that the proposed new criteria would
require additional volume to achieve the first requirement \17\ of the
Tier 5 rebate and different volume to achieve the second requirement
\18\ of the Tier 5 rebate to qualify for the increased proposed $0.44
per contract Tier 5 rebate, as compared to the current Tier 5 rebate
qualifications.\19\ The Exchange's proposal offers to pay a higher Tier
5 rebate ($0.44 per contract as compared to the current $0.40 per
contract) to NOM Market Makers who qualify for the rebate with the new
requirements. The Exchange believes that it is reasonable to create an
additional opportunity for Participants to earn the Tier 5 rebate by
incentivizing Participants to transact greater volume on The Nasdaq
Stock Market in order to qualify for the Tier 5 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. This proposal will encourage Participants to send order flow
to both the options and equity markets to receive the Tier 5 rebate.
The Exchange believes that replacing the second requirement of the Tier
5 rebate, which currently requires Participants to achieve the Tier 6
Customer and Professional Rebate to Add Liquidity in
[[Page 55647]]
Penny Pilot Options, with the proposed requirement to add liquidity to
The Nasdaq Stock Market will permit a greater number of market
participants to qualify for the Tier 5 rebate. Today, NOM Market Makers
also transact an equities business on The Nasdaq Stock Market. The
proposed qualifications for the Tier 5 rebate will incentivize those
Participants that are engaged in an equities business to add a greater
amount of liquidity both on NOM and The Nasdaq Stock Market.
Furthermore, the concept of linking an 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.\20\
Similarly, The Nasdaq Stock Market offers credits that are based on
activity on NOM.\21\ 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 0.40% 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.\22\
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\17\ See note 15 above.
\18\ See note 16 above.
\19\ Today, the Tier 5 NOM Market Maker Rebate to Add Liquidity
in Penny Pilot Options requires a Participant to add NOM Market
Maker 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.
\20\ For example, the Tier 3 NOM Market Maker Rebate to Add
Liquidity requires: Participant: (a) Adds 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: Or (b)(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'') which adds liquidity in the
same month on The Nasdaq Stock Market, (2) transacts in Tape B
securities 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'') volume
within The Nasdaq Stock Market Closing Cross in the same month. See
Options 7, Section 2(1).
\21\ 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).
\22\ Id.
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Further, the Exchange proposes to add a new note to Options 7,
Section 2 of the Pricing Schedule which provides that NOM Participants
that qualify for the Tier 5 NOM Market Maker Rebate to Add Liquidity in
Penny Pilot Options, as proposed herein, and add NOM Market Maker
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of
above 0.50% of total industry customer equity and ETF option ADV
contracts per day in a month, will receive an increased Tier 5 rebate
of $0.46 per contract rebate (in lieu of the $0.44 per contract Tier 5
rebate) to add liquidity in Penny Pilot Options as Market Maker in lieu
of the Tier 5 rebate. The Exchange notes that in comparison to the
proposed Tier 5 qualifications, which require Participant to add NOM
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options of above 0.40% of total industry customer equity and ETF option
ADV contracts per day in a month, and pays a proposed $0.44 per
contract rebate, this additional incentive would pay an increased
rebate of $0.46 per contract to add liquidity in Penny Pilot Options as
Market Maker, provided the Participants adds liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options of above 0.50% of total industry
customer equity and ETF option ADV contracts per day in a month. The
Exchange believes that this incentive will attract additional liquidity
to NOM.
The Exchange's proposal to increase the Tier 5 NOM Market Maker
Rebate to Add Liquidity in Penny Pilot Options from $0.40 to $0.44 per
contract while also amending the qualifications for the Tier 5 rebate
is equitable and not unfairly discriminatory. All eligible Participants
that qualify for the Tier 5 rebate will uniformly receive the rebate.
The Exchange believes that the proposed volume requirements to qualify
for the Tier 5 rebate are proportionate to the amount of the increased
Tier 5 rebate of $0.44 per contract and equitably reflect the purpose
of the rebate, 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.\23\ Furthermore, unlike other market participants,
NOM Market Makers add value through continuous quoting and the
commitment of capital.\24\ 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 on the Exchange
benefits all market participants in the quality of order interaction.
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\23\ 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.
\24\ See note 8 above.
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The Exchange's proposal to offer Participants that qualify for the
Tier 5 rebate and add NOM Market Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of above 0.50% of total industry
customer equity and ETF option ADV contracts per day in a month, a
rebate of $0.46 per contract to add liquidity in Penny Pilot Options as
Market Maker is reasonable. This additional incentive will further
incentivize NOM Market Makers to add liquidity to NOM and The Nasdaq
Stock Market to achieve the greater rebate. The incentive is intended
to benefit all NOM market participants who will be able to interact
with additional liquidity which this incentive attracts to the
Exchange.
The Exchange's proposal to offer Participants that qualify for the
Tier 5 rebate and add NOM Market Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of above 0.50% of total industry
customer equity and ETF option ADV contracts per day in a month, a
rebate of $0.46 per contract to add liquidity in Penny Pilot Options as
Market Maker is equitable and not unfairly discriminatory. As noted
above, NOM Market Makers add value through continuous quoting and the
commitment of capital.\25\ 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, on both NOM and The Nasdaq Stock Market, in the
quality of order interaction.
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\25\ See note 8 above.
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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. 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.
[[Page 55648]]
Inter-Market Competition
The proposed amendments to the Tier 5 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options do not impose an undue burden on
inter-market competition. The pricing changes proposed above are
generally designed to attract additional order flow to the Exchange,
which strengthens the Exchange's competitive position.
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 and
rebates to remain competitive with other exchanges that have been
exempted from compliance with the statutory standards applicable to
exchanges. Because competitors are free to modify their own fees and
rebates in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which pricing changes in this market may impose any burden on
competition is extremely limited.
NOM is a relatively small market so its ability to burden
intermarket competition is limited. Moreover, as noted above, price
competition between exchanges is fierce, with liquidity and market
share moving freely between exchanges in reaction to fee and credit
changes.
In sum, if the 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.
Intra-Market Competition
The proposed amendments to the Tier 5 NOM Market Maker Rebate to
Add Liquidity in Penny Pilot Options do not impose an undue burden on
intra-market competition. Increasing the Tier 5 NOM Market Maker Rebate
to Add Liquidity in Penny Pilot Options and also requiring participants
to add more volume on NOM and add liquidity on The Nasdaq Stock Market
will attract liquidity to the Exchange. The additional rebate incentive
that is being offered to Participants that qualify for the Tier 5
rebate and also add NOM Market Maker liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options of above 0.50% of total industry
customer equity and ETF option ADV contracts per day in a month will
further incentivize Market Makers to direct order flow to the Exchange.
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. Overall, the Exchange believes that
the tiered NOM Market Maker Rebates to Add Liquidity in Penny Pilot
Options along with the proposed Tier 5 increased rebate incentive will
continue to reflect the progressively increasing rebate requirements
offered to NOM Market Maker to incentivize them to earn the highest
possible rebates by bringing the most order flow to the Exchange.
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.\26\
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\26\ 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-2019-084 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-2019-084. 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-2019-084 and should be submitted
on or before November 7, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22594 Filed 10-16-19; 8:45 am]
BILLING CODE 8011-01-P