
[Federal Register Volume 82, Number 14 (Tuesday, January 24, 2017)]
[Notices]
[Pages 8230-8235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01464]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79809; File No. SR-NASDAQ-2017-001]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Transaction Fees To Implement New Incentive

January 17, 2017.
    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 January 3, 2017, 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 the Exchange's transaction fees at 
Chapter XV, Section 2, entitled ``NASDAQ Options Market--Fees and 
Rebates,'' which governs pricing for Nasdaq members using the NASDAQ 
Options Market (``NOM''), Nasdaq's facility for executing and routing 
standardized equity and index options. Nasdaq proposes to implement a 
new incentive for NOM Participants that add liquidity for Customer and 
Professional orders in Penny and Non-Penny Pilot Options as described 
further below.
    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

[[Page 8231]]

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 create an alternative method for earning a 
rebate for adding liquidity for both Customers \3\ and Professionals 
\4\ in Penny Pilot \5\ and Non-Penny Pilot Options. For Customers and 
Professionals transacting in Penny Pilot Options, the Exchange 
currently pays a volume-based tiered rebate to add liquidity. That 
rebate consists of 8 tiers, ranging from $0.20 per contract to $0.48 
per contract, with the volume requirements increasing with each tier. 
Thus, a NOM Participant would qualify for a rebate of $0.20 per 
contract in Tier 1 for Customers and Professionals if it added 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity in Penny 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. In comparison, a 
Participant would qualify for a rebate of $0.48 in Tier 8 for Customers 
and Professionals if it adds Customer, Professional, Firm, Non-NOM 
Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options above 0.75% or more of total industry 
customer equity and ETF option ADV contracts per day in a month, or if 
the Participant adds: (1) Customer and/or Professional liquidity in 
Penny Pilot Options and/or Non-Penny Pilot Options of 0.25% or more of 
total industry customer equity and ETF option ADV contracts per day in 
a month, and (2) has added liquidity in all securities through one or 
more of its Nasdaq Market Center MPIDs that represent 1.00% or more of 
Consolidated Volume in a month or qualifies for MARS.\6\
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    \3\ The term ``Customer'' or (``C'') 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 term ``Professional'' or (``P'') 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.
    \5\ The Penny Pilot was established in March 2008. See 
Securities Exchange Act Release No. 57579 (March 28, 2008), 73 FR 
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and 
immediate effectiveness establishing Penny Pilot). Since that date, 
the Penny Pilot has been expanded and is currently extended through 
December 31, 2016 or the date of permanent approval, if earlier. See 
Securities Exchange Act Release No. 78037 (June 10, 2016), 81 FR 
39299 (June 16, 2016) (SR-NASDAQ-2016-052).
    \6\ MARS refers to the Market Access and Routing Subsidy, which 
is set forth in Chapter XV, Section 6 [sic]. The MARS payment 
comprises four volume-based tiers, and is paid to NOM Participants 
that route eligible contracts to NOM through a participating NOM 
Participant's System. The MARS Payment will be paid on all executed 
Eligible Contracts that add liquidity. See NOM Rules at Chapter XV, 
Section 6 [sic].
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    Currently, Customers and Professionals transacting in Non-Penny 
Pilot Options on NOM receive a $0.80 per contract Rebate to Add 
Liquidity. In addition, a Participant that qualifies for a Customer or 
Professional Penny Pilot Options Rebate to Add Liquidity in Tiers 2, 3, 
4, 5 or 6 in a month will receive an additional $0.10 per contract Non-
Penny Pilot Options Rebate to Add Liquidity for each transaction which 
adds liquidity in Non-Penny Pilot Options in that month. A Participant 
that qualifies for a Customer or Professional Penny Pilot Options 
Rebate to Add Liquidity in Tiers 7 or 8 in a month will receive an 
additional $0.20 per contract Non-Penny Pilot Options Rebate to Add 
Liquidity for each transaction which adds liquidity in Non-Penny Pilot 
Options in that month.
    Furthermore, a Participant that may receive a $0.53 per contract 
Rebate to Add Liquidity in Penny Pilot Options as a Customer or 
Professional, and $1.00 per contract Rebate to Add Liquidity in Non-
Penny Pilot Options as a Customer or Professional, if that NOM 
Participant transacts on the NASDAQ Stock Market through one or more of 
its Nasdaq Market Center MPIDs in the same month, and such transactions 
in all securities on the NASDAQ Stock Market that month through all of 
its Nasdaq Market Center MPIDs represent 3.00% or more of Consolidated 
Volume.\7\ Participants that qualify for this rebate would not be 
eligible for any other rebates in Tiers 1 through 8 or other rebate 
incentives on NOM for Customer and Professional order flow in Chapter 
XV, Section 2(1) of NOM Rules.\8\
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    \7\ Consolidated Volume would be determined as set forth in 
Nasdaq Rule 7018(a).
    \8\ In calculating total volume, the Exchange will add the NOM 
Participant's total volume transacted on the NASDAQ Stock Market in 
a given month across its Nasdaq Market Center MPIDs, and will divide 
this number by the total industry Consolidated Volume.
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    The Exchange proposes an additional incentive to a Participant that 
adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options 
above 1.45% of total industry customer equity and ETF option ADV 
contracts per day in a month, (b) executes greater than 0.04% of 
Consolidated Volume (``CV'') \9\ via Market-on-Close/Limit-on-Close 
(``MOC/LOC'') \10\ volume within the NASDAQ Stock Market Closing Cross 
within a month, and (c) adds greater than 1.5 million shares per day of 
non-displayed volume within the NASDAQ Stock Market within a month. The 
Participant would receive a $0.55 per contract rebate to add liquidity 
in Penny Pilot Options as Customer or Professional and $1.05 per 
contract rebate to add liquidity in Non-Penny Pilot Options as Customer 
or Professional. Participants that qualify for this rebate would not be 
eligible for any other rebates in Tiers 1-8 or other rebate incentives 
on NOM for Customer and Professional order flow in Chapter XV, Section 
2(1). The Exchange believes that the new incentives will attract a 
greater amount of order flow on NOM by offering a discounted rate.
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    \9\ See note 7 above.
    \10\ MOC/LOC, as set forth in NASDAQ Rule 4754, represents the 
volume in the NASDAQ Stock Market Closing Cross that allows market 
participants to contribute order flow that will result in executions 
at the official closing price for the day in the NASDAQ listed 
security. A ``MOC Order'' is an order type entered without a price 
that may be executed only during the NASDAQ Closing Cross, which 
refers to the equity closing cross. A ``LOC Order'' is an order type 
entered with a price that may be executed only in the NASDAQ Closing 
Cross.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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

[[Page 8232]]

broader forms that are most important to investors and listed 
companies.'' \13\
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    \13\ 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 
\14\ (``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.\15\ 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.'' \16\
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    \14\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \15\ See NetCoalition, at 534-535.
    \16\ 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' . . . . '' \17\ 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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    \17\ 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 notes that the purpose of the proposed rebates is to 
incentivize NOM Participants to transact greater volume on NOM and the 
NASDAQ Stock Market in order to qualify for a higher rebate on NOM. The 
Exchange believes that the amount of the rebate ($0.55 per contract for 
Penny Pilot Options and $1.05 per contract for Non-Penny Pilot Options) 
along with the various criteria for qualifying for the rebate ((a) add 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above 
1.45% of total industry customer equity and ETF option ADV contracts 
per day in a month, (b) execute greater than 0.04% of Consolidated 
Volume (``CV'') via Market-on-Close/Limit-on-Close (``MOC/LOC'') volume 
within the NASDAQ Stock Market Closing Cross within a month, and (c) 
add greater than 1.5 million shares per day of non-displayed within the 
NASDAQ Stock Market within a month) are reasonable. With respect to the 
rebate for Penny Pilot Options, the Exchange notes that the proposed 
$0.55 per contract rebate is higher than the currently highest rebate 
available ($0.53 per contract) to Customers and Professionals for 
adding liquidity in Penny Pilot Options.\18\ The Exchange believes the 
proposed rebate of $0.55 per contract is reasonable because the 
proposed rebate requires three components ((a) add Customer, 
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity 
in Penny Pilot Options and/or Non-Penny Pilot Options above 1.45% of 
total industry customer equity and ETF option ADV contracts per day in 
a month, (b) execute greater than 0.04% of Consolidated Volume (``CV'') 
via Market-on-Close/Limit-on-Close (``MOC/LOC'') volume within the 
NASDAQ Stock Market Closing Cross within a month, and (c) add greater 
than 1.5 million shares per day of non-displayed volume within the 
NASDAQ Stock Market within a month) to be met by NOM Participants in 
order to qualify for that rebate. These requirements require more 
volume to be submitted on NOM than the current highest rebate requires 
today. Similarly, the Exchange believes the proposed $1.05 rebate per 
contract for Non-Penny Pilot Options is reasonable for similar reasons. 
The requirements to obtain this rebate require more volume to be 
submitted on NOM.
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    \18\ As noted above, a NOM Participant will receive a rebate of 
$0.48 per contract for adding liquidity as a Customer or 
Professional in Penny Pilot Options if it qualifies for Tier 8. In 
addition, as noted in footnote c of Chapter XV, Section 2, a NOM 
Participant may receive an additional rebate of up to $0.05 per 
contract in Penny Pilot Options, for a total rebate of $0.53 per 
contract. Specifically, Participants that: (1) Add Customer, 
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity in Penny Pilot Options and/or Non- Penny Pilot Options of 
1.15% or more of total industry customer equity and ETF option ADV 
contracts per day in a month will receive an additional $0.02 per 
contract Penny Pilot Options Customer and/or Professional Rebate to 
Add Liquidity for each transaction which adds liquidity in Penny 
Pilot Options in that month; or (2) add Customer, Professional, 
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options of 1.30% or more of 
total industry customer equity and ETF option ADV contracts per day 
in a month will receive an additional $0.05 per contract Penny Pilot 
Options Customer and/or Professional Rebate to Add Liquidity for 
each transaction which adds liquidity in Penny Pilot Options in that 
month; or (3) (a) add Customer, Professional, Firm, Non-NOM Market 
Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or 
Non-Penny Pilot Options above 0.80% of total industry customer 
equity and ETF option ADV contracts per day in a month, (b) add 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Non-Penny Pilot Options above 0.15% of total 
industry customer equity and ETF option ADV contracts per day in a 
month, and (c) execute greater than 0.04% of Consolidated Volume 
(``CV'') via Market-on-Close/Limit-on-Close (``MOC/LOC'') volume 
within the NASDAQ Stock Market Closing Cross within a month will 
receive an additional $0.05 per contract Penny Pilot Options 
Customer and/or Professional Rebate to Add Liquidity for each 
transaction which adds liquidity in Penny Pilot Options in a month. 
Consolidated Volume shall mean the total consolidated volume 
reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities during a month in equity 
securities, excluding executed orders with a size of less than one 
round lot. For purposes of calculating Consolidated Volume and the 
extent of an equity member's trading activity, expressed as a 
percentage of or ratio to Consolidated Volume, the date of the 
annual reconstitution of the Russell Investments Indexes shall be 
excluded from both total Consolidated Volume and the member's 
trading activity.
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    The Exchange believes that the requirement that a NOM Participant 
add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options 
above 1.45% of total industry customer equity and ETF option ADV 
contracts per day in a month, execute greater than 0.04% of 
Consolidated Volume (``CV'') via Market-on-Close/Limit-on-Close (``MOC/
LOC'') volume within the NASDAQ Stock Market Closing Cross within a 
month, and add greater than 1.5 million shares per day of non-displayed 
volume within the NASDAQ Stock Market within a month is reasonable 
because the Exchange is offering to pay a rebate of $0.55 per contract, 
the highest rebate. These more stringent volume-based requirements 
bring a greater amount of volume to both NOM and the NASDAQ Stock 
Market. The first volume requirement, which requires volume to be added 
to NOM, is reasonable because it is similar to that required to qualify 
for certain NOM Market Maker discounted remove fees.\19\ The second 
volume requirement

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to execute greater than 0.04% of Consolidated Volume (``CV'') via 
Market-on-Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ 
Stock Market Closing Cross within a month is reasonable because it is 
one of the same requirements to qualify for note ``c'' in Chapter XV, 
Section 2 of NOM Rules.\20\ The third volume requirement to add greater 
than 1.5 million shares per day of non-displayed volume within the 
NASDAQ Stock Market within a month is a new requirement, which must be 
met in addition to the first and second volume requirements. The 
Exchange believes that this requirement is reasonable because linking 
rebates on NOM to activity on the NASDAQ Stock Market is not novel. The 
Exchange believes that requiring Participants to add non-displayed 
volume within the NASDAQ Stock Market is reasonable because this type 
of liquidity benefits all market participants by way of interacting 
with that liquidity on the equity market.\21\ By encouraging market 
participants to increase their participation on the equities market by 
delivering non-displayed volume, the Exchange is rewarding Participants 
with an opportunity to earn an additional options incentive, provided 
all requirements are met. The Exchange notes that previous and current 
rebates offered by NOM relate to activity on the NASDAQ Stock 
Market.\22\ Similarly, the NASDAQ Stock Market offers enhanced rebates 
that are based on activity on NOM.\23\ Moreover, the Exchange notes 
that any NOM Options Participant may trade equities on the NASDAQ Stock 
Market because they are approved members.\24\
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    \19\ See note ``2'' of Chapter XV, Section 2 of NOM Rules. The 
note ``2 ``rebate is offered to Non-NOM Market Makers and NOM Market 
Makers that add 1.30% of Customer, Professional, Firm, Broker-Dealer 
or Non-NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of total industry customer equity and ETF option 
ADV contracts per day in a month will be subject to the following 
pricing applicable to executions: A $0.48 per contract Penny Pilot 
Options Fee for Removing Liquidity when the Participant is (i) both 
the buyer and the seller or (ii) the Participant removes liquidity 
from another Participant under Common Ownership. In the alternative, 
Participants that add 1.50% of Customer, Professional, Firm, Broker-
Dealer or Non-NOM Market Maker liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options of total industry customer equity and ETF 
option ADV contracts per day in a month and meet or exceed the cap 
for the NASDAQ Stock Market Opening Cross during the month will be 
subject to the following pricing applicable to executions less than 
10,000 contracts: A $0.32 per contract Penny Pilot Options Fee for 
Removing Liquidity when the Participant is (i) both the buyer and 
seller or (ii) the Participant removes liquidity from another 
Participant under Common Ownership. Finally, Participants that add 
1.75% of Customer, Professional, Firm, Broker-Dealer or Non-NOM 
Market Maker liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of total industry customer equity and ETF option ADV 
contracts per day in a month will be subject to the following 
pricing applicable to executions less than 10,000 contracts: A $0.32 
per contract Penny Pilot Options Fee for Removing Liquidity when the 
Participant is (i) both the buyer and seller or (ii) the Participant 
removes liquidity from another Participant under Common Ownership.
    \20\ Note ``c'' of Chapter XV, Section 2 pays an additional 
$0.05 per contract Penny Pilot Options Customer and/or Professional 
Rebate to Add Liquidity, in addition to the Tier 8 rebate of $0.48 
per contract if a Participant: (1) Adds Customer, Professional, 
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options of 1.15% or more of 
total industry customer equity and ETF option ADV contracts per day 
in a month will receive an additional $0.02 per contract Penny Pilot 
Options Customer and/or Professional Rebate to Add Liquidity for 
each transaction which adds liquidity in Penny Pilot Options in that 
month; or (2) adds Customer, Professional, Firm, Non-NOM Market 
Maker and/or Broker-Dealer liquidity in Penny Pilot Options and/or 
Non-Penny Pilot Options of 1.30% or more of total industry customer 
equity and ETF option ADV contracts per day in a month will receive 
an additional $0.05 per contract Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity for each transaction which adds 
liquidity in Penny Pilot Options in that month; or (3) (a) adds 
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options above 0.80% of total industry customer equity and ETF option 
ADV contracts per day in a month, (b) adds Customer, Professional, 
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Non-
Penny Pilot Options above 0.15% of total industry customer equity 
and ETF option ADV contracts per day in a month, and (c) executes 
greater than 0.04% of Consolidated Volume (``CV'') via Market-on-
Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ Stock 
Market Closing Cross within a month.
    \21\ Orders that are non-displayed would not be disseminated on 
the NASDAQ Stock Market Order Book feed. A Participant may be 
incentivized to increase their participation on the NASDAQ Stock 
Market, which may result in interacting with such non-displayed 
volume. Increased order interaction benefits all market 
participants.
    \22\ See current note ``e'' of Chapter XV, Section IV [sic] of 
NOM Rules which provides a rebate to NOM Participants that transact 
in all securities through one or more of its Nasdaq Market Center 
MPIDs that represent 3.00% or more of Consolidated Volume in the 
same month on the NASDAQ Stock Market.
    \23\ For example, Nasdaq provides an enhanced rebate on the 
NASDAQ Stock Market of $0.00295 if the member adds Customer, 
Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer 
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options of 
1.15% or more of total industry ADV in the customer clearing range 
for Equity and ETF option contracts per day in a month on NOM. See 
Nasdaq Rule 7018.
    \24\ Although a NOM Participant may incur additional labor and/
or costs to establish connectivity to the NASDAQ Stock Market, there 
are no additional membership fees for NOM Participants that want to 
transact on the NASDAQ Stock Market.
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    Further, the Exchange believes it is reasonable to make this rebate 
exclusive of any other rebates in Tiers 1 through 8 or other rebate 
incentives on NOM for Customer and Professional order flow in Chapter 
XV, Section 2(1) of NOM Rules. As noted above, the proposed rebates are 
higher, and in some cases significantly higher, than the rebates that a 
NOM Participant may currently receive for adding liquidity in Penny 
Pilot and Non-Penny Pilot Options as a Customer or Professional. Given 
the size of the proposed rebates, the Exchange believes it is 
reasonable to make these rebates exclusive of other rebates on NOM for 
Customer and Professional order flow. Finally, the Exchange also 
believes the proposal is reasonable because the proposed rebates apply 
to both transactions in Penny Pilot and Non-Penny Pilot Options.
    The Exchange believes that the amount of the rebate ($0.55 per 
contract for Penny Pilot Options and $1.05 per contract for Non-Penny 
Pilot Options) along with the various criteria for qualifying for the 
rebate ((a) add Customer, Professional, Firm, Non-NOM Market Maker and/
or Broker-Dealer liquidity in Penny Pilot Options and/or Non-Penny 
Pilot Options above 1.45% of total industry customer equity and ETF 
option ADV contracts per day in a month, (b) execute greater than 0.04% 
of Consolidated Volume (``CV'') via Market-on-Close/Limit-on-Close 
(``MOC/LOC'') volume within the NASDAQ Stock Market Closing Cross 
within a month, and (c) add greater than 1.5 million shares per day of 
non-displayed within the NASDAQ Stock Market within a month) is 
equitable and not unfairly discriminatory because any Participant that 
qualifies for this rebate will be uniformly paid $0.55 per contract for 
Penny Pilot Options and $1.05 per contract for Non-Penny Pilot Options. 
The requirements for earning this rebate will be applied uniformly to 
all market participants. The Exchange believes that requiring 
Participants to add non-displayed volume is equitable and not unfairly 
discriminatory because the Exchange will pay the incentive, in a 
uniform manner, to Participants that have met all criteria required for 
the rebate.
    The Exchange believes that the requirement that a NOM Participant 
add Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options 
above 1.45% of total industry customer equity and ETF option ADV 
contracts per day in a month, execute greater than 0.04% of 
Consolidated Volume (``CV'') via Market-on-Close/Limit-on-Close (``MOC/
LOC'') volume within the NASDAQ Stock Market Closing Cross within a 
month, and add greater than 1.5 million shares per day of non-displayed 
volume within the NASDAQ Stock Market within a month is equitable and 
not unfairly discriminatory because while the requirements for 
qualifying for the proposed rebates may be more stringent than other 
requirements for qualifying for other rebates currently offered by NOM, 
the Exchange believes that these requirements are proportionate to the 
amount of the proposed rebates and equitably reflect the purpose of the 
proposed rebates, which is to incentivize NOM Participants to transact 
greater volume on NOM and the NASDAQ Stock Market. Moreover, all 
similarly-situated NOM Participants, e.g., those that add liquidity in 
either Penny Pilot or Non-Penny Pilot Options as either Customers or 
Professionals and also transact on the NASDAQ Stock

[[Page 8234]]

Market, are equally capable of qualifying for the proposed rebates, and 
the same rebates will be paid to all NOM Participants that qualify for 
them. Further, the Exchange believes that it is equitable and not 
unfairly discriminatory to offer this rebate to NOM Participants that 
add liquidity as Customers or Professionals, and not to offer this 
rebate to NOM Participants that add liquidity as Firms,\25\ NOM Market 
Makers,\26\ Non-NOM Market Makers, or Broker-Dealers.\27\ Nasdaq notes 
that Customer liquidity offers unique benefits to the market which 
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. 
The Exchange believes that encouraging Participants to add Professional 
liquidity is similarly beneficial, as the rebates may cause market 
participants to select NOM as a venue to send Professional order flow, 
increasing competition among the exchanges. As with Customer liquidity, 
the Exchange believes that increased Professional additional order flow 
should benefit other market participants.
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    \25\ The term ``Firm'' or (``F'') applies to any transaction 
that is identified by a Participant for clearing in the Firm range 
at OCC.
    \26\ The term ``NOM Market Maker'' or (``M'') is 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.
    \27\ 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.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. 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.
    The Exchange does not believe that the proposed rebates will impose 
any burden on competition that is not necessary or appropriate. The 
Exchange notes that the purpose of the proposed rebate is to 
incentivize NOM Participants to transact on NOM and the NASDAQ Stock 
Market. All similarly-situated NOM Participants, e.g., those that add 
liquidity in either Penny Pilot or Non-Penny Pilot Options as either 
Customers or Professionals and also transact the requisite volumes on 
the NASDAQ Stock Market, are equally capable of qualifying for the 
proposed rebates. Additionally, the Exchange will pay the same rebates, 
in a uniform manner, to all NOM Participants that qualify for them. The 
Exchange believes that Customer and Professional order flow provides 
unique benefits to all participants on the Exchange and may even 
facilitate inter-market competition, and is therefore offering the 
proposed rebates to NOM Participants that add liquidity as either a 
Customer or a Professional accordingly. With respect to linking the 
proposed rebates to a participant's activity on the NASDAQ Stock 
Market, NOM currently offers rebates that are based on activity on the 
NASDAQ Stock Market.\28\ Similarly, the NASDAQ Stock Market currently 
offers reduced transaction fees that are based on activity on NOM.\29\ 
Finally, because they are approved members, any NOM Options Participant 
may trade equities on the NASDAQ Stock Market and therefore attempt to 
qualify for the proposed rebates.\30\
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    \28\ See note 22 above.
    \29\ See note 23 above.
    \30\ See note 24 above.
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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.\31\
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    \31\ 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-2017-001 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-2017-001. 
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

[[Page 8235]]

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-2017-001 and should be submitted on or before 
February 14, 2017.
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    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01464 Filed 1-23-17; 8:45 am]
 BILLING CODE 8011-01-P


