
[Federal Register Volume 78, Number 240 (Friday, December 13, 2013)]
[Notices]
[Pages 75949-75952]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29740]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71028; File No. SR-NASDAQ-2013-149]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to NOM Penny and Non-Penny Pilot Options

December 9, 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 November 29, 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 modify 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 the NOM Market Maker \3\ Non-Penny Pilot Options \4\ Fee for 
Removing Liquidity and the NOM Market Maker Rebate to Add Liquidity in 
Penny Pilot Options.\5\
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    \3\ The term ``NOM Market Maker'' means a Participant that has 
registered as a Market Maker on NOM pursuant to Chapter VII, Section 
2, and must also remain in good standing pursuant to Chapter VII, 
Section 4. In order to receive NOM Market Maker pricing in all 
securities, the Participant must be registered as a NOM Market Maker 
in at least one security.
    \4\ This would include options on Nasdaq-100 Index (``NDX''). 
For transactions in NDX, a surcharge of $0.10 per contract will be 
added to the Fee for Adding Liquidity and the Fee for Removing 
Liquidity in Non-Penny Pilot Options, except for a Customer who will 
not be assessed a surcharge.
    \5\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2013. See 
Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and 
immediate effectiveness establishing Penny Pilot); 60874 (October 
23, 2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-091) 
(notice of filing and immediate effectiveness expanding and 
extending Penny Pilot); 60965 (November 9, 2009), 74 FR 59292 
(November 17, 2009) (SR-NASDAQ-2009-097) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR-NASDAQ-
2010-013) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62029 (May 4, 2010), 75 FR 
25895 (May 10, 2010) (SR-NASDAQ-2010-053) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
65969 (December 15, 2011), 76 FR 79268 (December 21, 2011) (SR-
NASDAQ-2011-169) (notice of filing and immediate effectiveness 
extension and replacement of Penny Pilot); 67325 (June 29, 2012), 77 
FR 40127 (July 6, 2012) (SR-NASDAQ-2012-075) (notice of filing and 
immediate effectiveness and extension and replacement of Penny Pilot 
through December 31, 2012); 68519 (December 21, 2012), 78 FR 136 
(January 2, 2013) (SR-NASDAQ-2012-143) (notice of filing and 
immediate effectiveness and extension and replacement of Penny Pilot 
through June 30, 2013); and 69787 (June 18, 2013), 78 FR 37858 (June 
24, 2013) (SR-NASDAQ-2013-082). See also NOM Rules, Chapter VI, 
Section 5.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on December 2, 
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

[[Page 75950]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ proposes to modify Chapter XV, entitled ``Options Pricing,'' 
at Section 2(1) governing the rebates and fees assessed for option 
orders entered into NOM.
    The Exchange proposes to increase the NOM Market Maker Fee for 
Removing Liquidity in Non-Penny Pilot Options from $0.85 to $0.86 per 
contract. The Exchange believes that despite the increase to the Fee 
for Removing Liquidity the Exchange continues to offer competitive 
rates to NOM Market Makers.
    The Exchange proposes to amend the NOM Market Maker Penny Pilot 
Options Rebate to Add Liquidity tiers. Today, the Exchange offers a 
four-tiered Rebate to Add Liquidity in Penny Pilot Options to NOM 
Market Makers as follows:

------------------------------------------------------------------------
                                                        Rebate to add
       Monthly volume                                     liquidity
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Tier 1......................  Participant adds NOM  $0.25.
                               Market Maker
                               liquidity in Penny
                               Pilot Options of up
                               to 29,999 contracts
                               per day in a month.
Tier 2......................  Participant adds NOM  $0.30.
                               Market Maker
                               liquidity in Penny
                               Pilot Options of
                               30,000 to 59,999
                               contracts per day
                               in a month.
Tier 3......................  Participant adds NOM  $0.32.
                               Market Maker
                               liquidity in Penny
                               Pilot Options of
                               60,000 to 79,999
                               contracts per day
                               in a month.
Tier 4......................  Participant adds NOM  $0.32 or $0.38 in
                               Market Maker          the following
                               liquidity in Penny    symbols BAC, GLD,
                               Pilot Options of      IWM, QQQ and VXX or
                               80,000 or more        $0.40 in SPY.
                               contracts per day
                               in a month.
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    The Exchange is proposing to amend the qualification for NOM Market 
Maker Penny Pilot rebate Tiers 1 through 4 to provide that Participants 
may qualify for each tier by adding NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options. The Exchange would 
continue to pay the rebates for each volume tier on transactions in 
Penny Pilot Options. This amendment would only impact a Participant's 
ability to qualify for a certain rebate tier. The Exchange anticipates 
that this amendment would provide an opportunity for Participants to 
qualify for higher rebate tiers for their NOM Market Maker liquidity.
    The Exchange is also proposing to add a new Tier 5 rebate to the 
Penny Pilot Rebates to Add Liquidity. The Exchange proposes to pay 
$0.40 per contract to a Participant that adds NOM Market Maker 
liquidity of 40,000 or more contracts per day in a month in Penny Pilot 
Options and/or Non-Penny Pilot Options and also qualifies for Tier 7 or 
8 of the Customer and/or Professional Rebate to Add Liquidity in Penny 
Pilot Options. The Exchange believes the opportunity to earn a higher 
rebate will encourage Participants to direct a greater amount of NOM 
Market Maker liquidity to NOM.
    The Exchange also proposes to relocate certain text in the fee 
schedule. The Exchange proposes to relocate the following text: 
`` The NOM Market Maker Rebate to Add Liquidity in Penny Pilot 
Options will be paid as noted below.'' The Exchange would place the 
text above the NOM Market Maker tiers in the fee schedule for ease of 
reference.
2. Statutory Basis
    NASDAQ believes that its proposal to amend its Pricing Schedule is 
consistent with Section 6(b) of the Act \6\ in general, and furthers 
the objectives of Section 6(b)(4) and (b)(5) of the Act \7\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system which NASDAQ operates or 
controls, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange's proposal to increase the NOM Market Maker Fee for 
Removing Liquidity from $0.85 to $0.86 per contract is reasonable 
because the rate remains competitive with other Non-Penny Pilot Fees 
for Removing Liquidity. The increase also permits the Exchange to 
support providing liquidity rebates to Participants executing NOM 
Market Maker orders.
    The Exchange's proposal to increase the NOM Market Maker Fee for 
Removing Liquidity from $0.85 to $0.86 per contract is equitable and 
not unfairly discriminatory because the rate remains competitive with 
other Non-Penny Pilot Fees for Removing Liquidity. NOM Market Makers 
would continue to be assessed a lower fee as compared to other non-
Customer Participants.\8\ NOM Market Makers have obligations to the 
market and regulatory requirements,\9\ which normally do not apply to 
other market participants. A NOM Market Maker has an obligation to make 
continuous markets, engage in course of dealings reasonably calculated 
to contribute to the maintenance of a fair and orderly market, and not 
make bids or offers or enter into transactions that are inconsistent 
with a course of dealings. Customers would continue to be assessed the 
lowest fee of $0.82 per contract. Customer order flow brings unique 
benefits to the market which benefits all market participants through 
increased liquidity.
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    \8\ All other non-Customer market participants (Professionals, 
Firms, Non-NOM Market Makers and Broker-Dealers) would continue to 
be assessed $0.89 per contract.
    \9\ 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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    The Exchange's proposal to amend the qualifications for the NOM 
Market Maker Rebates to Add Liquidity in Penny Pilot Options is 
reasonable because by providing Participants the opportunity to add NOM 
Market Maker Penny and/or Non-Penny Pilot Option liquidity to qualify 
for a rebate tier provides a greater opportunity to qualify for higher 
rebate tiers. The Exchange would continue to only pay rebates on Penny 
Pilot volume. By incentivizing Participants to select the Exchange as a 
venue to post NOM Market Maker liquidity will benefit market

[[Page 75951]]

participants through increased order interaction.
    The Exchange's proposal to amend the qualifications for the NOM 
Market Maker Rebates to Add Liquidity in Penny Pilot Options is 
equitable and not unfairly discriminatory because this amendment will 
be applied to all Participants in a uniform manner. In addition, 
Participants should continue to qualify for the rebates that they 
currently receive and may earn increased rebates by qualifying for a 
higher volume tier as a result of combing Penny and Non-Penny Pilot NOM 
Market Maker liquidity to qualify for the rebate. The proposal does not 
misalign the current rebate structure. NOM Market Makers are valuable 
market participants that provide liquidity in the marketplace and incur 
costs unlike other market participants. The Exchange believes that NOM 
Market Makers should be offered the opportunity to earn higher rebates 
as compared to Non-NOM Market Makers, Firms and Broker Dealers because 
NOM Market Makers add value through continuous quoting \10\ and the 
commitment of capital. The Exchange believes that encouraging NOM 
Market Makers to be more aggressive when posting liquidity benefits all 
market participants through increased liquidity. The Exchange also 
believes that including Non-Penny volume in calculating on the various 
NOM Market Maker rebate tiers is equitable and not unfairly 
discriminatory because NOM Market Makers will continue to earn higher 
rebates as compared to Firms, Non-NOM Market Makers and Broker-Dealers 
and will earn the same or lower rebates as compared to Customers and 
Professionals.\11\
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    \10\ See note 9.
    \11\ The Tier 1 NOM Market Maker Rebate to Add Liquidity in 
Penny Pilot Options is the same rebate as the Tier 1 Customer and 
Professional rebate in Penny Pilot Options. The Exchange pays the 
highest Tier 1 Rebates to Add Liquidity in Penny Pilot Options of 
$0.25 per contract to Customers, Professionals and NOM Market Makers 
for transacting one qualifying contract as compared to other market 
participants. Firms, Non-NOM Market Makers and Broker-Dealers 
receive a $0.10 per contract Penny Pilot Option Rebate to Add 
Liquidity. In addition, Participant that adds Firm, Non-NOM Market 
Maker or Broker-Dealer liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 15,000 contracts per day or more in a given 
month will receive a Rebate to Add Liquidity in Penny Pilot Options 
of $0.20 per contract.
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    The Exchange believes that continuing to offer NOM Market Makers 
the opportunity to receive higher rebates as compared to Firms, Non-NOM 
Market Makers and Broker-Dealers is equitable and not unfairly 
discriminatory because all Participants may qualify for the NOM Market 
Maker rebate tiers and every Participant is entitled to a rebate solely 
by adding one contract of NOM Market Maker liquidity on NOM. Also, as 
mentioned, the NOM Market Maker would receive the same rebate in Tier 1 
as compared to Customers and Professionals and a higher rebate in all 
other tiers as compared to a Firm, Non-NOM Market Maker or Broker-
Dealer because of the obligations \12\ borne by NOM Market Makers as 
compared to other market participants. Encouraging NOM Market Makers to 
add greater liquidity benefits all Participants in the quality of order 
interaction.
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    \12\ See note 9.
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    The Exchange's proposal to offer a new Tier 5 NOM Market Maker 
Penny Pilot Options Rebate to Add Liquidity is reasonable because the 
new rebate should incentivize Participants to select the Exchange as a 
venue to post NOM Market Maker liquidity. This added liquidity will 
benefit market participants through increased order interaction.
    The Exchange's proposal to offer a new Tier 5 NOM Market Maker 
Penny Pilot Options Rebate to Add Liquidity is equitable and not 
unfairly discriminatory because this amendment will be applied to all 
Participants in a uniform manner.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ 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 believes that incentivizing 
NOM Market Makers to post liquidity on NOM benefits market participants 
through increased order interaction. Also, NOM Market Makers have 
obligations \13\ to the market which are not borne by other market 
participants and therefore the Exchange believes that NOM Market Makers 
are entitled to such higher rebates. Permitting Participants to add 
either Penny or Non-Penny Pilot Market Maker liquidity should further 
encourage NOM Market Makers to post liquidity on NOM.
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    \13\ See note 9.
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    The proposed amendments do not misalign the current rebate 
structure because NOM Market Makers will continue to earn higher 
rebates as compared to Firms, Non-NOM Market Makers and Broker-Dealers 
and will earn the same or lower rebates as compared to Customers and 
Professionals. The Exchange believes the differing outcomes, rebates 
and fees created by the Exchange's proposed pricing incentives 
contributes to the overall health of the market place for the benefit 
of all Participants that willing choose to transact options on NOM. In 
addition, NOM Market Makers will have the opportunity to earn even 
higher rebates. For the reasons specified herein, the Exchange does not 
believe this proposal creates an undue burden on competition.
    Additionally, NOM Market Maker would continue to be assessed a 
lower Non-Penny Pilot Fee for Removing Liquidity as compared to other 
non-Customer Participants.\14\ Customers would continue to be assessed 
the lowest Non-Penny Pilot Fee for Removing Liquidity fee because of 
the benefits that Customer order flow brings to other market 
participants through increased liquidity.
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    \14\ All other non-Customer market participants (Professionals, 
Firms, Non-NOM Market Makers and Broker-Dealers) would continue to 
be assessed $0.89 per contract.
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    The Exchange operates in a highly competitive market comprised of 
twelve U.S. options exchanges in which many sophisticated and 
knowledgeable market participants can readily and do send order flow to 
competing exchanges if they deem fee levels or rebate incentives at a 
particular exchange to be excessive or inadequate. These market forces 
support the Exchange belief that the proposed rebate structure and 
tiers proposed herein are competitive with rebates and tiers in place 
on other exchanges. The Exchange believes that this competitive 
marketplace continues to impact the rebates present on the Exchange 
today and substantially influences the proposals set forth above.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\15\ 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

[[Page 75952]]

whether the proposed rule should be approved or disapproved.
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    \15\ 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-2013-149 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-2013-149. 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 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; 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-2013-149, and should 
be submitted on or before January 3, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29740 Filed 12-12-13; 8:45 am]
BILLING CODE 8011-01-P


