
[Federal Register Volume 78, Number 63 (Tuesday, April 2, 2013)]
[Notices]
[Pages 19791-19794]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07548]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69231; File No. SR-NASDAQ-2013-051]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Routing Fees

March 25, 2013.
    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 March 19, 2013, 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 NASDAQ. 
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

    NASDAQ proposes to amend Chapter XV, entitled ``Options Pricing,'' 
at Section 2 governing pricing for NASDAQ members using the NASDAQ 
Options Market (``NOM''), NASDAQ's facility for executing and routing 
standardized equity and index options. Specifically, NOM proposes to 
amend its Routing Fees.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on April 1, 2013.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.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. 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 19792]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ proposes to amend its Routing Fees at Chapter XV, Section 
2(3) of the Exchange Rules in order to recoup costs that the Exchange 
incurs for routing and executing orders in equity options to various 
away markets.
    Today, the Exchange calculates Routing Fees by assessing certain 
Exchange costs related to routing orders to away markets plus the away 
market's transaction fee. The Exchange assesses a $0.05 per contract 
\3\ fixed Routing Fee when routing orders to NASDAQ OMX PHLX LLC 
(``PHLX'') and NASDAQ OMX BX, Inc. (``BX Options'') and a $0.11 per 
contract \4\ fixed Routing Fee to all other options exchanges in 
addition to the actual transaction fee or rebate paid by the away 
market. The fixed Routing Fee is based on costs that are incurred by 
the Exchange when routing to an away market in addition to the away 
market's transaction fee. For example, the Exchange incurs a fee when 
it utilizes Nasdaq Options Services LLC (``NOS''), a member of the 
Exchange and the Exchange's exclusive order router,\5\ to route orders 
in options listed and open for trading to destination markets. Each 
time NOS routes to away markets NOS incurs a clearing-related cost \6\ 
and, in the case of certain exchanges, a transaction fee is also 
charged in certain symbols, which fees are passed through to the 
Exchange. The Exchange also incurs administrative and technical costs 
associated with operating NOS, membership fees at away markets, Options 
Regulatory Fees (``ORFs'') and technical costs associated with routing 
options. The transaction fee assessed by the Exchange is based on the 
away market's actual transaction fee or rebate for a particular market 
participant at the time that the order was entered into the Exchange's 
trading system. This transaction fee is calculated on an order-by-order 
basis, since different away markets charge different amounts. In the 
event that there is no transaction fee or rebate assessed by the away 
market, the only fee assessed is the fixed Routing Fee. With respect to 
the rebate, the Exchange pays a market participant the rebate offered 
by an away market where there is such a rebate. Any rebate available is 
netted against a fee assessed by the Exchange.\7\
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    \3\ In a previous rule filing, the Exchange discussed the manner 
in which it analyzed costs related to routing to BX Options and PHLX 
and determined the costs are lower as compared to other away markets 
because NOS is utilized by all three exchanges to route orders. In 
that filing the Exchange noted that because PHLX, BX Options and NOM 
all utilize NOS, the cost to the Exchange is less as compared to 
routing to other away markets. In addition the fixed costs are 
reduced because NOS is owned and operated by NASDAQ OMX and the 
three exchanges and NOS share common technology and related 
operational functions. See Securities Exchange Act Release No. 68718 
(January 24, 2013), 78 FR 6386 (January 30, 2013) (SR-NASDAQ-2012-
010).
    \4\ The $0.11 per contract Fixed Fee would apply to all options 
exchanges other than BX Options and PHLX, which are discussed 
separately in this proposal. The Exchange anticipates that if other 
options exchanges are approved by the Commission after the filing of 
this proposal, those exchanges would be assessed the $0.11 per 
contract fee applicable to ``all other options exchanges.''
    \5\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order 
Routing).
    \6\ The Options Clearing Corporation (``OCC'') assesses a 
clearing fee of $0.01 per contract side. See Securities Exchange Act 
Release No. 68025 (October 10, 2012), 77 FR 63398 (October 16, 2012) 
(SR-OCC-2012-18).
    \7\ For example, if a Customer order is routed to BOX, and BOX 
offers a customer rebate of $0.20 per contract, the Exchange would 
assess a $0.11 per contract fixed fee which would net against the 
rebate ($0.20 per contract in this example). The market participant 
for whom the Customer contract was routed would receive a $0.09 per 
contract rebate.
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    C2 recently filed a rule change to amend its transaction fees and 
rebates for simple, non-complex orders, in equity options classes which 
became operative on February 1, 2013.\8\ As a result of that filing the 
Exchange amended its Pricing Schedule and today assesses non-Customer 
simple, non-complex orders in equity options (single stock) that are 
routed to C2 a Routing Fee which includes a fixed cost of $0.11 per 
contract plus a flat rate of $0.85 per contract, except with respect to 
Customers.\9\ With respect to Customers, the Exchange does not pass the 
rebate offered by C2, rather, Customer simple, non-complex orders in 
equity options (single stock) that are routed to C2 are assessed $0.00 
per contract.
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    \8\ See Securities Exchange Act Release No. 68792 (January 31, 
2013), 78 FR 8621 (February 6, 2013) (SR-C2-2013-004).
    \9\ See Securities Exchange Act Release No. 68976 (February 25, 
2013), 78 FR 13928 (March 1, 2013) (SR-NASDAQ-2013-029).
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    The Exchange is proposing to further simplify its Routing Fees by 
assessing a flat rate of $0.95 per contract on all non-Customer orders 
routed to any away market. The Exchange would no longer pass any rebate 
paid by an away market for non-Customer orders. With respect to 
Customer orders, the Exchange is proposing to continue to assess 
Customer orders routed to PHLX a fixed fee of $0.05 per contract 
(``Fixed Fee'') in addition to the actual transaction fee assessed by 
the away market. This fee is not changing. With respect to Customer 
orders that are routed to BX Options, the Exchange will not assess a 
Routing Fee and will not pass the rebate. Today, BX Options pays a 
Customer Rebate to Remove Liquidity as follows: Customers are paid 
$0.12 per contract in IWM, SPY and QQQ, $0.32 per contract in All Other 
Penny Pilot Options and $0.70 per contract in Non-Penny Pilot 
Options.\10\ The Exchange is proposing to not assess a Routing Fee when 
routing orders to BX Options because that exchange pays a rebate. 
Instead of netting the customer rebate paid by BX Options against the 
fixed fee,\11\ the Exchange would simply not assess a fee. Although 
market participants routing to BX Options will not receive a credit, as 
is the case today, market participants will not pay a Customer Routing 
Fee when their orders are routed to BX Options with this proposal. The 
Exchange proposes to assess a Customer Routing Fee of $0.11 per 
contract (``Fixed Fee'') in addition to the actual transaction fee when 
routing to an options exchange other than PHLX and BX Options, as is 
the case today. The Exchange is amending the payment of rebates and 
will no longer pay rebates when routing Customer orders to an away 
market, instead the Exchange will not assess a Routing Fee if a 
Customer order is routed to an away market that pays a rebate.
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    \10\ See BX Options Rules at Chapter XV, Section 2(1).
    \11\ BX Options does not assess a Customer a Fee to Remove 
Liquidity in any symbols today. See Chapter V, Section 2(1) of the 
BX Options Rules.
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    As with all fees, the Exchange may adjust these Routing Fees in 
response to competitive conditions by filing a new proposed rule 
change.
2. Statutory Basis
    NASDAQ believes that its proposal to amend its pricing is 
consistent with Section 6(b) of the Act \12\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act,\13\ in particular, in 
that it is an equitable allocation of reasonable fees and other charges 
among its Participants.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to amend its non-Customer 
Routing Fees from a fixed fee plus actual transaction charges to a flat 
rate is reasonable because the flat rate makes it easier for market 
participants to anticipate the Routing Fees which they would be 
assessed at any given time. The Exchange believes that assessing all 
non-Customer orders the same flat rate will provide market participants 
with certainty with respect to Routing Fees. While, each destination 
market's transaction charge varies and there is a

[[Page 19793]]

cost incurred by the Exchange when routing orders to away markets, 
including clearing costs, administrative and technical costs associated 
with operating NOS, membership fees at away markets, ORFs and technical 
costs associated with routing options, the Exchange believes that the 
proposed Routing Fees will enable it to recover the costs it incurs to 
route non-Customer orders to away markets. Other exchanges similarly 
assess a fixed rate fee to route non-Customer orders.\14\
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    \14\ BATS Exchange, Inc. (``BATS'') assesses non-Customer fixed 
rates of $0.57 and $0.95 per contract when routing to away markets. 
See BATS BZX Exchange Fee Schedule. The Chicago Board Options 
Exchange Incorporated (``CBOE'') assesses non-Customer orders a 
$0.50 per contract routing fee in addition to the customary CBOE 
execution charges. See CBOE's Fees Schedule.
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    The Exchange believes that its proposal to amend the non-Customer 
Routing Fees from a fixed fee plus actual transaction charges to a flat 
rate is equitable and not unfairly discriminatory because the Exchange 
would uniformly assess the same Routing Fees to all non-Customer market 
participants. Under its flat fee structure, taking all costs to the 
Exchange into account, the Exchange may operate at a slight gain or a 
slight loss for non-Customer orders routed to and executed at away 
markets. The proposed Routing Fee for non-Customer orders is an 
approximation of the maximum fees the Exchange will be charged for such 
executions, including costs, at away markets. As a general matter, the 
Exchange believes that the proposed fees will allow it to recoup and 
cover its costs of providing routing services for non-Customer orders. 
The Exchange believes that the fixed rate non-Customer Routing Fee is 
equitable and not unfairly discriminatory because market participants 
have the ability to directly route orders to an away market and avoid 
the Routing Fee. Participants may choose to mark the order as 
ineligible for routing to avoid incurring these fees.\15\ The Exchange 
routes orders to away markets where the Exchange's disseminated bid or 
offer is inferior to the national best bid (best offer) (``NBBO'') 
price and based on price first.\16\
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    \15\ See NASDAQ Rules at Chapter VI, Section 11(e) (Order 
Routing).
    \16\ Id.
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    The Exchange believes that its proposal to not pass a rebate that 
is offered by an away market for non-Customer orders is reasonable 
because to the extent that another market is paying a rebate, the 
Exchange will assess a $0.95 per contract fee as its total cost in each 
instance. The Routing Fee is transparent and simple. If a market 
participant desires the rebate, the market participant has the option 
to direct the order to that away market. Other options exchanges today 
do not pass the rebate.\17\ The Exchange believes that its proposal to 
not pass a rebate that is offered by an away market for non-Customer 
orders is equitable and not unfairly discriminatory because the 
Exchange would not pay such a rebate on any non-Customer order.
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    \17\ See CBOE's Fees Schedule and International Securities 
Exchange LLC's (``ISE'') Fee Schedule.
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    The Exchange believes that amending the Customer Routing Fee to BX 
Options from $0.05 per contract in addition to the actual transaction 
fee to $0.00 is reasonable, because, unlike PHLX,\18\ BX Options pays a 
Customer Rebate to Remove Liquidity as follows: Customers are paid 
$0.12 per contract in IWM, SPY and QQQ, $0.32 per contract in All Other 
Penny Pilot Options and $0.70 per contract in Non-Penny Pilot 
Options.\19\ The Exchange believes that not assessing a fee for routing 
orders to BX Options, instead of netting the customer rebate paid by BX 
Options against the fixed fee \20\ is reasonable because although 
market participants routing orders to BX Options will not receive a 
credit, as is the case today with respect to Customer orders routed to 
BX Options, the Routing Fee will be more transparent. Market 
participants will not pay a Customer Routing Fee when routing orders to 
BX Options with this proposal instead of the $0.05 per contract fee 
netted against the rebate, as is the case today. The Exchange believes 
that the proposed Customer Routing Fee to BX Options is equitable and 
not unfairly discriminatory because the proposal would apply uniformly 
to all market participants.
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    \18\ The PHLX Customer Routing Fee is not being amended by this 
proposal. The Exchange would continue to assess Customer orders 
routed to PHLX a $0.05 per contact Fixed Fee along plus the actual 
transaction fee.
    \19\ See BX Options Rules at Chapter XV, Section 2(1).
    \20\ BX Options does not assess a Customer a Fee to Remove 
Liquidity in any symbols today. See Chapter V, Section 2(1) of the 
BX Options Rules.
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    Further, the Exchange believes that it is reasonable to also not 
assess a Customer Routing Fee when routing to all other options 
exchanges, except PHLX and BX Options, if the away market pays a 
rebate. The Exchange will continue to assess a Fixed Fee of $0.11 per 
contract plus the actual transaction charge assessed by the away market 
when routing to all other options exchanges, except PHLX and BX 
Options, but instead of paying the rebate, as is the case today, the 
Exchange will not assess a Customer Routing Fee to that away market 
because the Exchange will collect the rebate to offset the fee. The 
Exchange believes that market participants will have more certainty as 
to the Customer Routing Fee that will be assessed by the Exchange. The 
Exchange believes that the proposed pricing for the Customer Routing 
Fee to all other away markets, except PHLX and BX Options, is equitable 
and not unfairly discriminatory because while the Exchange may operate 
at a slight gain or a slight loss when routing Customer orders to the 
away market, depending on the rebate paid by the away market, the 
proposal would apply uniformly to all market participants when routing 
to an away market that pays a rebate.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to continue to assess Customer orders that are 
routed to PHLX a Fixed Fee of $0.05 per contract and orders that are 
routed to other away markets, other than PHLX and BX Options, a Fixed 
Fee of $0.11 per contract because the cost, in terms of actual cash 
outlays, to the Exchange to route to PHLX (and BX Options) \21\ is 
lower. For example, costs related to routing to PHLX are lower as 
compared to other away markets because NOS is utilized by all three 
exchanges to route orders.\22\ NOS and the three NASDAQ OMX options 
markets have a common data center and staff that are responsible for 
the day-to-day operations of NOS. Because the three exchanges are in a 
common data center, Routing Fees are reduced because costly expenses 
related to, for example, telecommunication lines to obtain connectivity 
are avoided when routing orders in this instance. The costs related to 
connectivity to route orders to other NASDAQ OMX exchanges are de 
minimis. When routing orders to non-NASDAQ OMX exchanges, the Exchange 
incurs costly connectivity charges related to telecommunication lines 
and other related costs when routing orders. The Exchange believes it 
is reasonable, equitable and not unfairly discriminatory to pass along 
savings realized by leveraging NASDAQ OMX's infrastructure and scale to 
market participants when those orders are routed to PHLX.
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    \21\ With this proposal, the Exchange would not assess the $0.05 
per contract Fixed Fee for routing orders to BX Options because that 
exchange pays Customer rebates, which the Exchange would retain to 
offset its cost.
    \22\ See Chapter VI, Section 11 of the NASDAQ and BX Options 
Rules and PHLX Rule 1080(m)(iii)(A).
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    Finally, the Exchange believes that it is reasonable, equitable and 
not unfairly discriminatory to assess different fees for Customers 
orders as compared to

[[Page 19794]]

non-Customer orders because the Exchange has traditionally assessed 
lower fees to Customers as compared to non-Customers. Customers will 
continue to receive the lowest fees or no fees when routing orders, as 
is the case today. Other options exchanges also assess lower Routing 
Fees for customer orders as compared to non-customer orders.\23\
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    \23\ BATS assesses lower customer routing fees as compared to 
non-customer routing fees per the away market. For example BATS 
assesses ISE customer routing fees of $0.30 per contract and an ISE 
non-customer routing fee of $0.57 per contract. See BATS BZX 
Exchange Fee Schedule.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ 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 Exchange does not believe 
that the proposal creates intra-market competition because the Exchange 
is applying the same Routing Fees and credits to all market 
participants in the same manner dependent on the routing venue, with 
the exception of Customers. The Exchange has proposed separate Customer 
Routing Fees. Customers will continue to receive the lowest fees or no 
fees when routing orders, as is the case today. Other options exchanges 
also assess lower Routing Fees for customer orders as compared to non-
customer orders.\24\
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    \24\ Id.
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    The Exchange's proposal would allow the Exchange to recoup its 
costs when routing orders to away markets when such orders are 
designated as available for routing by the market participant. The 
Exchange is passing along savings realized by leveraging NASDAQ OMX's 
infrastructure and scale to market participants when those orders are 
routed to PHLX and is providing those saving to all market 
participants. Participants may choose to mark the order as ineligible 
for routing to avoid incurring these fees.\25\ Today, other options 
exchanges also assess fixed routing fees to recoup costs incurred by 
the Exchange to route orders to away markets.\26\
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    \25\ See supra note 15.
    \26\ See CBOE's Fees Schedule and ISE's Fee Schedule.
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    The Exchange operates in a highly competitive market, comprised of 
eleven exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive. Accordingly, the fees that are 
assessed by the Exchange must remain competitive with fees charged by 
other venues and therefore must continue to be reasonable and equitably 
allocated to those Participants that opt to direct orders to the 
Exchange rather than competing venues.

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.\27\ 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 necessary or appropriate in the public interest, 
for the protection of investors, or 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.
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    \27\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-051 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2013-051. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2013-051, and should 
be submitted on or before April 23, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-07548 Filed 4-1-13; 8:45 am]
BILLING CODE 8011-01-P


