
[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95250-95252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31111]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79619; File No. SR-NASDAQ-2016-178]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Related to SQF Ports

December 20, 2016.
    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 December 16, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter XV, entitled ``Options 
Pricing,'' at Section 3, entitled ``NASDAQ Options Market--Ports and 
other Services.'' Chapter XV governs pricing for Exchange members using 
the NASDAQ Options Market LLC (``NOM''), the Exchange's facility for 
executing and routing standardized equity and index options. The 
Exchange proposes to amend Specialized Quote Feed (``SQF'') Port \3\ 
Fees.
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    \3\ SQF ports are ports that receive inbound quotes at any time 
within that month. The SQF Port allows a NOM Market Maker to access 
information such as execution reports and other relevant data 
through a single feed. For example, this data would show which 
symbols are trading on NOM and the current state of an options 
symbol (i.e., open for trading, trading, halted or closed). NOM 
Market Makers rely on data available through the SQF Port to provide 
them the necessary information to perform market making activities.
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    The text of the proposed rule change is available on the Exchange's 
Web site 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 the SQF Port Fees in Chapter XV, 
Section 3 of the NOM Rules. The Exchange recently transitioned to 
state-of-the-art hardware and software architecture to achieve a more 
efficient and more robust infrastructure to support the growing needs 
of our Options Participants (``NOM Refresh''). In connection with this 
recent NOM Refresh, NOM Market Makers were required to make certain 
changes to connect to the new NOM System via their SQF Ports. As a 
result of these changes to NOM, the number of SQF Ports required by NOM 
Market Makers should be reduced, since a single connection may be 
utilized to quote across all symbols. The Exchange anticipates that NOM 
Market Makers will benefit from the efficiency of the service that is 
available to them as a result of the NOM Refresh.
    The Exchange provided NOM Market Makers with new SQF ports for 
connectivity so that NOM Market Makers could support our migration from 
the old to the new SQF Ports during our symbol rollout period. During 
the months of October and November 2016 (``NOM Refresh Period'') the 
Exchange offered NOM Market Makers a Fixed SQF Port Fee, which is the 
amount that was paid by the NOM Market Maker for SQF Ports for the 
month of August 2016. Currently, NOM Market Makers are not assessed an 
SQF Port Fee for their use of the new version of the SQF Ports to 
connect to the new environment during this NOM Refresh Period.\4\ As of 
December 1, 2016, only new SQF Ports were utilized and the old SQF 
Ports were eliminated.
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    \4\ For example if a NOM Market Maker obtained 1 new SQF Port to 
test during the NOM Refresh Period, the NOM Market Maker was not 
assessed a new SQF Port Fee for that port, but only pay the Fixed 
SQF Port Fee during the two months. The Exchange notes that it is 
removing language related to new NOM Market Makers that request SQF 
Ports after October 3, 2016 would be assessed $750 per port, per 
month between October 3, 2016 and November 30, 2016. This language 
is no longer necessary. The Exchange notes that no NOM Market Makers 
were subject to this fee during the NOM Refresh Period.
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    At this time, the Exchange is proposing to eliminate the Fixed SQF 
Port Fee and adopt the following incremental cost model for SQF Port 
Fees, per port, per month:

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          Number of SQF ports                  Monthly fee per port
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First 5 ports..........................  $1,500 per port.
Next 15 ports (6-20)...................  $1,000 per port.
All ports over 20 ports (21 and above).  $500 per port.
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    For example, if a NOM Market Maker desired 21 SQF Ports in December 
2016, the NOM Market Maker would be billed $1,500 for the first 5 ports 
($7,500), the next 15 ports will be billed $1,000 ($15,000) and the 
final port would be billed $500 for a total SQF Port Fee for December 
of $23,000.
    While NOM Market Makers will be assessed higher fees for each port 
under 20 ports as compared to the original $750 SQF Port Fee prior to 
the implementation of the Fixed SQF Port Fee,\5\ the Exchange believes 
that costs will decline overall as a result of the more efficient 
connectivity offered by the NOM Refresh and the need for fewer ports. 
The Exchange believes that it continues to offer SQF Ports to NOM 
Market Makers at competitive prices.
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    \5\ Prior to the implementation of the Fixed SQF Port Fee, the 
Exchange assessed an SQF Port Fee of $750 per port, per month. See 
Securities Exchange Act Release No. 79105 (October 17, 2016), 81 FR 
72844 (October 21, 2016) (SR-NASDAQ-2016-133).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(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 its facility, and is 
not designed to permit unfair

[[Page 95251]]

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) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \8\
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    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission \9\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\10\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \11\
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    \9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \10\ See NetCoalition, at 534-535.
    \11\ Id. at 537.
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    Further, ``[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\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \12\ Id. at 539 (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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    The Exchange believes it is reasonable to assess NOM Market Makers 
an incremental SQF Port Fee, per port, per month of $1,500 for the 
first 5 SQF Ports, $1,000 for the next 15 SQF Ports and $500 for any 
ports over 20 SQF Ports because with the refresh fewer SQF Ports are 
required to connect to the Exchange. The technology refresh increased 
the efficiency with which Participants connect to the System. As a 
result of the refresh, Participants require fewer SQF Ports to connect 
to the System and therefore this should reduce the number of ports 
required and lower costs. With the refresh, each NOM Market Maker will 
be required to have at least 1 port to connect to the match engine as 
compared to 2 SQF Ports prior to the refresh. NOM Participants may have 
some technological reasons for desiring additional SQF Ports based on 
their own technical infrastructure requirements. The Exchange believes 
that the proposed rates and particularly the number of ports at each 
price point are reasonable because the Exchange utilized historical 
port usage and price points to determine comparable pricing.
    Finally, the Exchange believes that it is reasonable to offer lower 
rates for a greater amount of ports because all NOM Participants only 
require one SQF Port. The Exchange believes that since 2 ports were 
required previously and now only 1 port is required, this pricing 
results in no cost increase. NOM Market Makers were originally assessed 
an SQF Port Fee of $750 per port prior to the implementation of the 
Fixed SQF Port Fee.\13\ With this proposal, one port which equates to 
$1,500 per port, the equivalent of 2 ports at $750 per port. The 
Exchange assesses these fees to cover costs associated with supporting 
its architecture. The Exchange believes it is reasonable to assess less 
fees beyond a certain number of ports because the costs are mostly 
recouped in the first tier. Today, Bats BZX Exchange, Inc. (``BATS 
BZX'') assesses $1,500 to its market makers for Ports with Bulk Quoting 
Capabilities,\14\ which is comparable to the highest priced tier that 
NOM is proposing for SQF Ports. The Exchange notes that the SQF Ports 
also have bulk quoting capability.
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    \13\ Prior to the implementation of the Fixed SQF Port Fee, the 
Exchange assessed an SQF Port Fee of $750 per port, per month. See 
Securities Exchange Act Release No. 79105 (October 17, 2016), 81 FR 
72844 (October 21, 2016) (SR-NASDAQ-2016-133).
    \14\ See Bats BZX Options Exchange Fee Schedule.
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    The Exchange believes it is equitable and not unfairly 
discriminatory to assess NOM Market Makers an incremental SQF Port Fee, 
per port, per month of $1,500 for the first 5 SQF Ports, $1,000 for the 
next 15 SQF Ports and $500 for any ports over 20 SQF Ports because all 
NOM Market Makers would be uniformly assessed the same SQF Port Fees, 
based on usage. Other NOM Participants that do not engage in market 
making activities do not utilize SQF Ports.

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. In terms of inter-market 
competition, 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 to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed SQF Port Fees do not impose a burden 
on competition because 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.
    In terms of intra-market competition, assessing NOM Market Makers 
an incremental SQF Port Fee, per port, per month of $1,500 for the 
first five SQF Ports, $1,000 for six to 20 SQF Ports and $500 for more 
than 20 SQF Ports does not impose an undue burden on competition 
because all NOM Market Makers would be uniformly assessed the same SQF 
Port Fees, based on usage. Other NOM Participants that do not engage in 
market making activities do not utilize SQF Ports.

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

    No written comments were either solicited or received.

[[Page 95252]]

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\
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    \15\ 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2016-178 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-178. 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-2016-178 and should 
be submitted on or before January 17, 2017.

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31111 Filed 12-23-16; 8:45 am]
 BILLING CODE 8011-01-P


