
[Federal Register Volume 79, Number 160 (Tuesday, August 19, 2014)]
[Notices]
[Pages 49127-49132]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-19579]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72831; File No. SR-NASDAQ-2014-077]


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

August 13, 2014.
    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 July 30, 2014, 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 and II 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: 
(i) Amend the Customer \3\ Fee for Removing Liquidity in Penny Pilot 
Options; \4\ (ii) amend certain Penny Pilot Options Rebates to Add 
Liquidity and Non-Penny Pilot Options Fees for Adding Liquidity 
applicable to Firms,\5\ Non-NOM Market Makers \6\ and Broker Dealers; 
\7\ and (iii) amend NOM Market Maker \8\ Penny Pilot Options Rebates to 
Add Liquidity.
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    \3\ The term ``Customer'' 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 Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2014. 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); 69787 (June 18, 2013), 78 FR 37858 (June 24, 
2013) (SR-NASDAQ-2013-082); 71105 (December 17, 2013), 78 FR 77530 
(December 23, 2013) (SR-NASDAQ-2013-154) and 72244 (May 23, 2014), 
79 FR 31151 (May 30, 2014) (SR-NASDAQ-2014-056). See also NOM Rules, 
Chapter VI, Section 5.
    \5\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \6\ 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.
    \7\ 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.
    \8\ 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.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on August 1, 
2014.
    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 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 49128]]

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: (i) Amend the 
Customer Penny Pilot Options Fee for Removing Liquidity; (ii) delete 
certain Firm, Non-NOM Market Maker and Broker-Dealer pricing in Chapter 
XV, Section 2; and (iii) amend the NOM Market Maker Pilot Options 
Rebates to Add Liquidity.
    Today the Exchange assesses the following Penny Pilot Options Fees 
for Removing Liquidity: Customer $0.47 per contract, and 
Professional,\9\ Firm, Non-NOM Market Maker, NOM Market Maker and 
Broker-Dealer $0.49 per contract. In addition a Professional, Firm, 
Non-NOM Market Maker, NOM Market Maker and Broker-Dealer that qualifies 
for Customer or Professional Rebate to Add Liquidity Tiers 7 or 8 in a 
given month will be assessed a Professional, Firm, Non-NOM Market 
Maker, NOM Market Maker or Broker-Dealer Fee for Removing Liquidity in 
Penny Pilot Options of $0.47 per contract.
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    \9\ The term ``Professional'' 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.
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    The Exchange is proposing to make two amendments related to the 
Customer Penny Pilot Options Fees for Removing Liquidity. The Exchange 
is proposing to increase the Customer Penny Pilot Options Fee for 
Removing Liquidity from $0.47 to $0.48 per contract. Despite the 
increase to this fee, the Exchange believes market participants will 
continue to remove Customer orders on NOM. Additionally, the Exchange 
is proposing to amend note ``d'' in Section 2, Chapter XV to provide, 
``Participants or Participants under Common Ownership \10\ that qualify 
for Customer or Professional Rebates to Add Liquidity Tiers 7 or 8 in a 
given month will be assessed a Professional, Firm, Non-NOM Market 
Maker, NOM Market Maker or Broker-Dealer Fee for Removing Liquidity in 
Penny Pilot Options of $0.48 per contract and a Customer Fee for 
Removing Liquidity in Penny Pilot Options of $0.47 per contract.'' The 
Exchange is therefore proposing to offer Customers the opportunity to 
lower the Customer Fee for Removing Liquidity in Penny Pilot Options to 
$0.47 per contract, provided they qualify for Customer or Professional 
Rebates to Add Liquidity Tiers 7 or 8 in a given month. Today, the 
Exchange offers tiered Penny Pilot Options Rebates to Add Liquidity to 
Customers and Professionals based on various criteria with rebates 
ranging from $0.20 to $0.48 per contract. To obtain the Tier 7 Customer 
and Professional Rebates to Add Liquidity in Penny Pilot Options, a 
Participant must have Total Volume \11\ of 150,000 or more contracts 
per day in a month, of which 50,000 or more contracts per day in a 
month must be Customer and/or Professional liquidity in Penny Pilot 
Options.\12\ Tier 7 pays a $0.47 per contract rebate. To obtain the 
Tier 8 Customer and Professional Rebate to Add Liquidity in Penny Pilot 
Options, a Participant must add Customer and/or Professional liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options of 0.75% or more 
of national customer volume in multiply-listed equity and ETF options 
classes in a month. Tier 8 pays a rebate of $0.48 per contract for 
Customers and $0.47 per contract for Professionals.
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    \10\ The term ``Common Ownership'' shall mean Participants under 
75% common ownership or control.
    \11\ Total Volume is 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 note ``b'' in Section 2, Chapter 
XV. The Exchange utilizes data from OCC to determine the total 
industry customer equity and ETF options ADV figure. OCC classifies 
equity and ETF options volume under the equity options category. 
Also, both customer and professional orders that are transacted on 
options exchanges clear in the customer range at OCC and therefore 
both customer and professional volume would be included in the total 
industry figure to calculate rebate tiers. This is the case today 
for the Total Volume number that appear in Tiers 6 and 7 of the 
Customer and Professional rebate today, which includes Customer and 
Professional numbers in both the numerator and denominator of that 
percentage.
    \12\ Tier 8 requires the Participant have Total Volume of 
150,000 or more contracts per day in a month, of which 50,000 or 
more contracts per day in a month must be Customer and/or 
Professional liquidity in Penny Pilot Options.
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    The Exchange proposes to amend the Firm, Non-NOM Market Maker and 
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity and Non-
Penny Pilot Fees for Adding Liquidity by removing the opportunity to 
lower fees as specified in note 2 in Section 2, Chapter XV which 
states, ``[a] 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 and will pay a Fee for Adding Liquidity in Non-Penny Pilot 
Options of $0.36 per contract.'' Firms, Non-NOM Market Makers and 
Broker-Dealers would therefore receive a $0.10 per contract Penny Pilot 
Options Rebate to Add Liquidity and pay a $0.45 per contract Non-Penny 
Pilot Options Fee for Adding Liquidity. The Exchange believes that this 
incentive is not encouraging Firms, Non-NOM Market Makers and Broker-
Dealers to transact additional liquidity on NOM and therefore the 
Exchange desires to remove this incentive.
    Today, the Exchange pays Penny Pilot Options NOM Market Maker 
Rebates to Add Liquidity based on various criteria in four tiers with 
rebates which range from $0.20 to $0.42 per contract as follows:

------------------------------------------------------------------------
                                                              Rebate to
                       Monthly volume                            add
                                                              liquidity
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Tier 1 Participant adds NOM Market Maker liquidity in Penny        $0.20
 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 NOM Market Maker liquidity in Penny         0.25
 Pilot Options and/or Non-Penny Pilot Options above 0.10%
 to 0.30% of total industry customer equity and ETF option
 ADV contracts per day in a month..........................
Tier 3 Participant adds NOM Market Maker liquidity in Penny         0.30
 Pilot Options and/or Non-Penny Pilot Options above 0.30%
 to 0.60% of total industry customer equity and ETF option
 ADV contracts per day in a month..........................
Tier 4 Participant adds NOM Market Maker \1\ liquidity in          (\1\)
 Penny Pilot Options and/or Non-Penny Pilot Options of
 above 0.60% of total industry customer equity and ETF
 option ADV contracts per day in a month...................
Tier 5 Participant adds NOM Market Maker liquidity in Penny         0.40
 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 7
 or Tier 8 Customer and/or Professional Rebate to Add
 Liquidity in Penny Pilot Options..........................

[[Page 49129]]

 
Tier 6 Participant adds NOM Market Maker liquidity in Penny         0.42
 Pilot Options and/or Non-Penny Pilot Options above 0.80%
 of total industry customer equity and ETF option ADV
 contracts per day in a month and qualifies for the Tier 7
 or Tier 8 Customer and/or Professional Rebate to Add
 Liquidity in Penny Pilot Options or Participant adds NOM
 Market Maker liquidity in Penny Pilot Options and/or Non-
 Penny Pilot Options above 0.90% of total industry customer
 equity and ETF option ADV contracts per day in a month....
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\1\ $0.32 or $0.38 in the following symbols BAC, GLD, IWM, QQQ and VXX
  or $0.40 in SPY.

    The Exchange proposes to amend the Tier 2 NOM Market Maker Rebate 
to Add Liquidity in Penny Pilot Options which currently pays a $0.25 
per contract rebate to Participants that add NOM Market Maker liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options above 0.10% to 
0.30% of total industry customer equity and ETF option ADV contracts 
per day in a month. The Exchange intends to instead continue to pay a 
$0.25 per contract rebate to Participant that add NOM Market Maker 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 
0.10% to 0.25% of total industry customer equity and ETF option ADV 
contracts per day in a month. By lowering this tier, the Exchange 
believes a greater number of NOM Market Makers may qualify for the Tier 
2 rebate.
    The Exchange proposes to amend the Tier 3 NOM Market Maker Rebate 
to Add Liquidity in Penny Pilot Options which currently pays a $0.30 
per contract rebate to Participants that add NOM Market Maker liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options above 0.30% to 
0.60% of total industry customer equity and ETF option ADV contracts 
per day in a month. The Exchange intends to instead continue to pay a 
$0.30 per contract rebate to Participants that add NOM Market Maker 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 
0.25% to 0.60% of total industry customer equity and ETF option ADV 
contracts per day in a month. Also, the Exchange intends to offer a 
higher rebate for Tier 3 qualifiers of $0.40 per contract in options 
overlying PowerShares QQQ (``QQQ''), SPDR S&P 500 (``SPY''), iPath S&P 
500 VIX ST Futures ETN (``VXX''). By lowering this tier, and offering a 
higher rebate for certain symbols, the Exchange believes a greater 
number of NOM Market Makers may qualify for the Tier 3 rebate.
    Finally, the Exchange proposes to amend the Tier 4 NOM Market Maker 
Rebate to Add Liquidity in Penny Pilot Options which currently pays a 
$0.32 rebate in all options, except options overlying Bank of America 
Corporation (``BAC''), SPDR Gold Shares (``GLD''), iShares Russell 2000 
Index (``IWM''), QQQ and VXX, which pays a $0.38 per contract rebate, 
and SPY which pays a $0.40 per contract rebate. The Tier 4 rebate is 
paid to Participants that add NOM Market Maker liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options of above 0.60% of total industry 
customer equity and ETF option ADV contracts per day in a month. The 
Exchange proposes to amend the Tier 4 rebate to pay a $0.32 rebate in 
all options, except QQQ, VXX and SPY, which will pay a $0.40 per 
contract rebate. The Exchange will pay a $0.32 per contract rebate for 
BAC, GLD and IWM with this proposal. Additionally, in order to qualify 
for the Tier 4 rebate, a Participant must add NOM Market Maker 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 
above 0.60% to 0.90% of total industry customer equity and ETF option 
ADV contracts per day in a month. The Exchange believes that adding the 
language ``above 0.60% to 0.90% of total industry customer equity'' 
will clarify Tier 4 for purposes of obtaining the rebate. NOM Market 
Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot Options 
of above 0.90% today qualifies for the Tier 6 NOM Market Maker 
rebate.\13\ The Exchange believes the amendment to the description of 
the Tier 4 rebate is non-substantive and clarifies the qualification 
for the rebate. The Exchange believes that paying a higher rebate for 
QQQ and VXX transactions will encourage a greater number of 
transactions in these symbols. Despite the decrease in rebates paid for 
transaction in BAC, GLD and IWM, the Exchange believes that market 
participants will continue to transact volume in these symbols.
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    \13\ The Tier 6 NOM Market Maker Rebate to Add Liquidity pays a 
$0.42 per contract rebate to Participants that add NOM Market Maker 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options 
above 0.80% of total industry customer equity and ETF option ADV 
contracts per day in a month and qualifies for the Tier 7 or Tier 8 
Customer and/or Professional Rebate to Add Liquidity in Penny Pilot 
Options or Participant adds NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options above 0.90% of total 
industry customer equity and ETF option ADV contracts per day in a 
month.
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2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\14\ in general, and with 
Section 6(b)(4) of the Act,\15\ in particular, in that they provide 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 as described in detail below.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
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Customer Penny Pilot Options Fee for Removing Liquidity
    The Exchange's proposal to increase the Customer Penny Pilot 
Options Fee for Removing Liquidity from $0.47 to $0.48 per contract is 
reasonable because the Exchange is seeking to recoup costs associated 
with offering Customer rebates in Penny Options to attract greater 
liquidity to the Exchange. The Exchange believes that increasing the 
Customer Fee for Removing Liquidity by $0.01 per contract ($0.47 to 
$0.48 per contract) allows the Exchange to recoup costs and offer even 
greater Customer rebates, thereby benefitting all market participants 
by attracting Customer order flow to NOM.
    The Exchange's proposal to increase the Customer Penny Pilot 
Options Fee for Removing Liquidity from $0.47 to $0.48 per contract is 
equitable and not unfairly [sic] because Customers would continue to be 
assessed lower fees as compared to non-Customer market participants. 
Currently, Professionals, Firms, Non-NOM Market Makers and NOM Market 
Makers are assessed a $0.49 per contract Fee for Removing Liquidity in 
Penny Options. Customer liquidity benefits all market participants 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. 
Further, the Exchange is

[[Page 49130]]

offering Customers, similar to other non-Customer market participants 
\16\ the opportunity to lower the Customer Penny Pilot Options Fee for 
Removing Liquidity by qualifying for Customer or Professional Rebate to 
Add Liquidity Tiers 7 or 8 in a given month.\17\
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    \16\ See current note ``d'' in Section 2, Chapter XV of NOM 
Rules.
    \17\ See proposed amendment to note ``d'' in Section 2, Chapter 
XV of NOM Rules.
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    The Exchange's proposal to offer Customers the opportunity to lower 
the Customer Fee for Removing Liquidity in Penny Pilot Options to $0.47 
per contract, provided they qualify for Customer or Professional Rebate 
to Add Liquidity Tiers 7 or 8 in a given month is reasonable because 
today the Exchange offers all other non-Customer market participants 
(Professional, Firm, Non-NOM Market Maker, NOM Market Maker and Broker-
Dealer) the opportunity to lower the Fee for Removing Liquidity in 
Penny Pilot Options from $0.49 to $0.48 per contract. The Exchange 
believes that incentivizing Customers, as today is done with other 
market participants,\18\ to transact a greater number of Customer and 
Professional orders \19\ in order to lower fees is reasonable because 
the liquidity from this order flow will benefit other market 
participants that have the opportunity to interact with this order 
flow.
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    \18\ See current note ``d'' in Section 2, Chapter XV of NOM 
Rules.
    \19\ Tier 7 requires 50,000 or more contracts per day in a month 
to be Customer and/or Professional liquidity in Penny Pilot Options. 
Tier 8 requires Participants to add Customer and/or Professional 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 
0.75% or more of national customer volume in multiply-listed equity 
and ETF options classes in a month.
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    The Exchange's proposal to offer Customers the opportunity to lower 
the Customer Fee for Removing Liquidity in Penny Pilot Options to $0.47 
per contract, provided they qualify for Customer or Professional Rebate 
to Add Liquidity Tiers 7 or 8 in a given month, is equitable and not 
unfairly discriminatory because Customers will have the opportunity to 
lower fees similar to other non-Customer market participants.
Firm, Non-NOM Market Maker and Broker-Dealer Penny Pilot Options Rebate 
To Add Liquidity
    The Exchange's proposal to amend the Firm, Non-NOM Market Maker and 
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity and Non-
Penny Pilot Options Fees for Adding Liquidity by removing the 
opportunity to lower fees as specified in note 2 in Section 2, Chapter 
XV which states, ``[a] 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 and will pay a Fee for Adding Liquidity in Non-Penny Pilot 
Options of $0.36 per contract'' is reasonable because the Exchange no 
longer desires to incentivize these market participants in this manner. 
The Exchange believes that focusing on attracting Customer and 
Professional order flow will benefit all market participants. 
Additionally, the Exchange offers these market participants other 
incentives such as the incentive to reduce the Fee for Removing 
Liquidity in Penny Pilot Options by qualifying for Tiers 7 and 8.\20\
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    \20\ See current note ``d'' in Section 2, Chapter XV of NOM 
Rules.
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    The Exchange's proposal to amend the Firm, Non-NOM Market Maker and 
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity and Fees for 
Adding Liquidity by removing the opportunity to lower fees as specified 
in note 2 in Section 2, Chapter XV which states, ``[a] 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 and will pay a Fee for Adding 
Liquidity in Non-Penny Pilot Options of $0.36 per contract'' is 
equitable and not unfairly discriminatory because the Exchange would 
not offer this opportunity to earn higher rebates and receive lower 
fees to any market participant in this manner.
NOM Market Maker Penny Pilot Options Rebates To Add Liquidity
    The Exchange's proposal to amend the Tier 2 NOM Market Maker Rebate 
to Add Liquidity in Penny Pilot Options which currently pays a $0.25 
per contract rebate to apply to NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options above 0.10% to 0.25% of 
total industry customer equity and ETF option ADV contracts per day in 
a month is reasonable because, specifically, the Exchange believes a 
greater number of NOM Market Makers may qualify for the Tier 2 rebate. 
Generally, the proposal is reasonable because it should incentivize NOM 
Market Makers to post liquidity on NOM. NOM Market Makers are valuable 
market participants that provide liquidity in the marketplace and incur 
costs unlike other market participants. The Exchange believes that 
encouraging NOM Market Makers to be more aggressive when posting 
liquidity benefits all market participants through increased liquidity.
    The Exchange's proposal to amend the Tier 2 NOM Market Maker Rebate 
to Add Liquidity in Penny Pilot Options which currently pays a $0.25 
per contract rebate to apply to NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options above 0.10% to 0.25% of 
total industry customer equity and ETF option ADV contracts per day in 
a month is equitable and not unfairly discriminatory because all 
eligible Participants that qualify for the Tier 2 NOM Market Maker 
Penny Pilot Options Rebate to Add Liquidity metric will be uniformly 
paid the rebate.\21\ Further, the NOM Market Maker rebate proposal is 
equitable and not unfairly discriminatory because it does 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.
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    \21\ The NOM Market Maker obligations and regulatory 
requirements remain unchanged. Pursuant to NOM Rules at 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 offer a higher rebate for Tier 3 of 
$0.40 per contract for options in SPY, QQQ and VXX is reasonable 
because the proposal seeks to encourage Participants to add liquidity 
in SPY, QQQ and VXX in order to obtain a higher rebate of $0.40 per 
contract. The Exchange believes that offering NOM Market Makers the 
ability to obtain higher rebates is reasonable because it will 
encourage additional order interaction. The Exchange's proposal to 
amend the Tier 3 NOM Market Maker Rebate to Add Liquidity in Penny 
Pilot Options which currently pays a $0.30 per contract rebate, or with 
this proposal $0.40 per contract for SPY,QQQ and VXX, to apply to NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.25% to 0.60% of total industry customer equity and ETF

[[Page 49131]]

option ADV contracts per day in a month is reasonable because the 
Exchange believes a greater number of NOM Market Makers may qualify for 
the Tier 3 rebate.
    The Exchange's proposal to offer a higher rebate for Tier 3 of 
$0.40 per contract for options in SPY, QQQ and VXX, or $0.30 for other 
symbols, if the Participant adds NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options above 0.25% to 0.60% of 
total industry customer equity and ETF option ADV contracts per day in 
a month is equitable and not unfairly discriminatory because all NOM 
Market Makers may qualify for the Tier 3 NOM Market Maker Penny Pilot 
Options Rebate to Add Liquidity.
    The Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory to adopt specific pricing for SPY, QQQ and VXX 
because pricing by symbol is a common practice on many U.S. options 
exchanges as a means to incentivize order flow to be sent to an 
exchange for execution in the most actively traded options classes, in 
this case actively traded Penny Pilot Options.\22\ The Exchange notes 
that SPY, QQQ and VXX are some of the most actively traded options in 
the U.S. The Exchange believes that this pricing will incentivize 
members to transact options on SPY, QQQ and on NOM in order to obtain 
the higher $0.40 per contract rebate.
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    \22\ See NASDAQ OMX PHLX LLC's Pricing Schedule. See also the 
International Securities Exchange LLC's Fee Schedule. Both of these 
markets segment pricing by symbol.
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    The Exchange's proposal to amend the Tier 4 rebates to assess BAC, 
GLD and IWM the lower rebate of $0.32 per contract is reasonable 
because the Exchange believes that despite the decrease, Participants 
will continue to be incentivized to earn the $0.32 per contract rebate. 
The Exchange's proposal to increase the Tier 4 rebates for QQQ and VXX 
to $0.40 per contract, similar to SPY, is reasonable because the 
proposal seeks to encourage Participants to add more liquidity in QQQ 
and VXX in order to obtain a higher rebate of $0.40 per contract. The 
Exchange believes that offering NOM Market Makers the ability to obtain 
higher rebates is reasonable because it will encourage additional order 
interaction.
    The Exchange's proposals to amend the Tier 4 rebates to assess BAC, 
GLD and IWM the lower rebate of $0.32 per contract and the Exchange's 
proposal to increase the Tier 4 rebates for QQQ and VXX to $0.40 per 
contract, similar to SPY, are equitable and not unfairly discriminatory 
because all NOM Market Makers may qualify for the Tier 4 NOM Market 
Maker Penny Pilot Options Rebate to Add Liquidity.
    The Exchange believes that adding to the phrase ``above 0.60%'' the 
words ``to 0.90%'' to Tier 4 is reasonable, equitable and not unfairly 
discriminatory because it will clarify the rule text with respect to 
the qualification for the rebate and apply uniformly to all market 
participants. The Exchange pays a Rebate to Add Liquidity in Tier 6 to 
Participants that add NOM Market Maker in Penny Pilot Options and/or 
Non-Penny Pilot Options above 0.90% in Tier 6.\23\ The Exchange 
believes clarifying Tier 4 will make this clear.
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    \23\ See note 13.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The Exchange's 
proposal to increase the Customer Penny Pilot Options Fee for Removing 
Liquidity to $0.48 per contract does not create an undue burden on 
competition because Customers will continue to be assessed lower fees 
as compared to non-Customer market participants. Customer liquidity 
benefits all market participants 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. 
Also, the Exchange is offering Customers, similar to other non-Customer 
market participants, the opportunity to lower the Customer Penny Pilot 
Options Fee for Removing Liquidity by qualifying for Customer or 
Professional Rebate to Add Liquidity Tiers 7 or 8 in a given month. The 
Exchange believes that offering Customers the opportunity to lower the 
Customer Fee for Removing Liquidity in Penny Pilot Options, provided 
they qualify for Customer or Professional Rebate to Add Liquidity Tiers 
7 or 8 in a given month, does not impose an unfair burden on 
competition because incentivizing Customers to transact a greater 
number of Customer and Professional orders,\24\ in order to lower fees, 
results in increased liquidity which benefits other market participants 
that have the opportunity to interact with this order flow.
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    \24\ See note 18.
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    The Exchange's proposal to amend the Firm, Non-NOM Market Maker and 
Broker-Dealer Penny Pilot Options Rebates to Add Liquidity and Non-
Penny Pilot Fees for Adding Liquidity to remove the incentive if a 
Participant 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 they will receive a Rebate 
to Add Liquidity in Penny Pilot Options of $0.20 per contract and will 
pay a Fee for Adding Liquidity in Non-Penny Pilot Options of $0.36 per 
contract does not create an undue burden on competition because the 
Exchange would not offer this opportunity to earn higher rebates and 
receive lower fees to any market participant in this manner.
    The Exchange's proposal to amend the Tier 2 NOM Market Maker Rebate 
to Add Liquidity in Penny Pilot Options which currently pays a $0.25 
per contract rebate to apply to NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options above 0.10% to 0.25% of 
total industry customer equity and ETF option ADV contracts per day in 
a month does not create an undue burden on competition because it 
should incentivize NOM Market Makers to post liquidity on NOM. NOM 
Market Makers are valuable market participants that provide liquidity 
in the marketplace and incur costs unlike other market participants. 
The Exchange believes that encouraging NOM Market Makers to be more 
aggressive when posting liquidity benefits all market participants 
through increased liquidity.
    The Exchange's proposal to offer a higher rebate for Tier 3 of 
$0.40 per contract for options in SPY, QQQ and VXX does not create an 
undue burden on competition because all NOM Market Makers may qualify 
for the Tier 3 NOM Market Maker Penny Pilot Options Rebate to Add 
Liquidity. Also more Participants may qualify for the rebate because of 
the lower tier, 0.25% to 0.60% as compared to 0.30% to 0.60%.
    The Exchange's proposal to amend the Tier 4 rebates to assess BAC, 
GLD and IWM the lower rebate of $0.32 per contract and raise the QQQ 
and VXX rebate to $0.40 per contract, similar to SPY, does not create 
an undue burden on competition because all NOM Market Makers may 
qualify for the Tier 4 NOM Market Maker Penny Pilot Options Rebate to 
Add Liquidity. The Exchange believes that adding the ``to 0.90%'' 
language to Tier 4 does not create an undue burden on competition 
because it will clarify the rule text with respect to the qualification 
for the rebate and

[[Page 49132]]

apply uniformly to all market participants.
    The Exchange believes the differing outcomes, rebates and fees 
created by the Exchange's proposed pricing incentives contribute to the 
overall health of the market place to the benefit of all Participants 
that willing choose to transact options on NOM. For the reasons 
specified herein, the Exchange does not believe this proposal creates 
an undue burden on competition. 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 is effective upon filing pursuant to 
Section 19(b)(3)(A) \25\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \26\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \27\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \27\ 15 U.S.C. 78s(b)(2)(B).
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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-2014-077 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-2014-077. 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-2014-077, and should 
be submitted on or before September 9, 2014.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19579 Filed 8-18-14; 8:45 am]
BILLING CODE 8011-01-P


