[Federal Register Volume 82, Number 215 (Wednesday, November 8, 2017)]
[Notices]
[Pages 51885-51887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24251]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81997; File No. SR-NASDAQ-2017-116]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to an Incentive to the Market Access and Routing Subsidy 
Program

November 2, 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 October 31, 2017, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 pricing at Chapter 
XV, Section 2 entitled ``Nasdaq Options Market--Fees and Rebates,'' 
which governs pricing for Nasdaq Participants using The Nasdaq Options 
Market LLC (``NOM''), Nasdaq's facility for executing and routing 
standardized equity and index options. The Exchange proposes to amend 
an incentive offered today related to its subsidy program, the Market 
Access and Routing Subsidy or ``MARS.''
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on November 1, 2017.
    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
    NOM proposes to amend the Exchange's pricing at Chapter XV, Section 
2 entitled ``Nasdaq Options Market--Fees and Rebates.'' Specifically, 
the Exchange proposes to amend an incentive in note ``d'' offered to 
NOM Participants that qualify for any MARS Payment Tier in Chapter XV, 
Section 2(6) related to the MARS subsidy program. MARS pays a subsidy 
to NOM Participants that provide certain order routing functionalities 
to other NOM Participants and/or use such functionalities 
themselves.\3\
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    \3\ Generally, under MARS, the Exchange pays participating NOM 
Participants to subsidize their costs of providing routing services 
to route orders to NOM. The Exchange believes that the proposed 
amendment to MARS will continue to attract higher volumes of 
electronic equity and ETF options volume to the Exchange from non-
NOM Participants as well as NOM Participants. The order routing 
functionalities permit NOM Participants to provide access and 
connectivity to other Participants as well as utilize such access 
for themselves. The Exchange notes that one NOM Participant is 
eligible for payments under MARS, while another NOM Participant 
might potentially be liable for transaction charges associated with 
the execution of the order, because those orders were delivered to 
the Exchange through a NOM Participant's connection to the Exchange 
and that Participant qualified for the MARS Payment.
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Background on MARS
    Today, to qualify for MARS, a NOM Participant's routing system 
(hereinafter ``System'') is required to meet certain criteria.\4\
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    \4\ Specifically the Participant's System is required to: (1) 
Enable the electronic routing of orders to all of the U.S. options 
exchanges, including NOM; (2) provide current consolidated market 
data from the U.S. options exchanges; and (3) be capable of 
interfacing with NOM's API to access current NOM match engine 
functionality. The NOM Participant's System would also need to cause 
NOM to be one of the top three default destination exchanges for (a) 
individually executed marketable orders if NOM is at the national 
best bid or offer (``NBBO''), regardless of size or time, (b) orders 
that establish a new NBBO on NOM's Order Book, but allow any user to 
manually override NOM as the default destination on an order-by-
order basis. Any NOM Participant is permitted to avail itself of 
this arrangement, provided that its order routing functionality 
incorporates the features described herein and the Participant 
satisfies NOM that it appears to be robust and reliable. 
Participants remain solely responsible for implementing and 
operating its System.
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    MARS Payments are made to NOM Participants that have System 
Eligibility and have routed the requisite number of Eligible Contracts 
daily in a month (``Average Daily Volume''), which were executed on 
NOM.\5\ Today, NOM Participants that have System Eligibility and have 
executed the requisite number of Eligible Contracts in a month will be 
paid the following rebates: \6\
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    \5\ For the purpose of qualifying for the MARS Payment, Eligible 
Contracts may include Firm, Non-NOM Market Maker, Broker-Dealer, or 
Joint Back Office or ``JBO'' equity option orders that add liquidity 
and are electronically delivered and executed. Eligible Contracts do 
not include Mini Option orders.
    \6\ The specified MARS Payments are paid on all executed 
Eligible Contracts that add liquidity, which are routed to NOM 
through a participating NOM Participant's System and meet the 
requisite Eligible Contracts ADV. No payments are made with respect 
to orders that are routed to NOM, but not executed. Also, a 
Participant is not entitled to receive any other revenue from the 
Exchange for the use of its System specifically with respect to 
orders routed to NOM. Specifically, the specified MARS Payments are 
paid on all executed Eligible Contracts that add liquidity, which 
are routed to NOM through a participating NOM Participant's System 
and meet the requisite Eligible Contracts ADV. No payments are made 
with respect to orders that are routed to NOM, but not executed.

[[Page 51886]]



----------------------------------------------------------------------------------------------------------------
                                                                Average daily
                            Tiers                                   volume        MARS payment     MARS payment
                                                                  (``ADV'')         (penny)        (non-penny)
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1............................................................            2,000          * $0.07          * $0.15
2............................................................            5,000           * 0.09           * 0.20
3............................................................           10,000           * 0.11           * 0.30
4............................................................           20,000           * 0.15           * 0.50
5............................................................           45,000           * 0.17           * 0.60
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    Specifically, the specified MARS Payments are paid on all executed 
Eligible Contracts that add liquidity, which are routed to NOM through 
a participating NOM Participant's System and meet the requisite 
Eligible Contracts ADV.\7\
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    \7\ No payments are made with respect to orders that are routed 
to NOM, but not executed.
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Incentive
    Today, the Exchange pays certain Customer \8\ and Professional \9\ 
Penny Pilot Options Rebates to Add Liquidity. These rebates are 
structured as an 8 tier rebate program with certain eligibility 
requirements for each tier. In addition to the Customer and 
Professional Penny Pilot Options Rebates to Add Liquidity, the NOM 
Participant may also qualify for an additional rebate provided the NOM 
Participant qualifies for any MARS Payment Tier for each transaction 
which adds liquidity in Penny Pilot Options in that month. Today, the 
Exchange pays an additional $0.03 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, 
in addition to qualifying Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity Tiers 1-8. Also, today, NOM 
Participants that qualify for a note ``c'' incentive \10\ receive the 
greater of the note ``c'' or note ``d'' incentive. The Exchange 
proposes to increase the additional incentive in note ``d'' currently 
offered to NOM Participants that qualify for any MARS Payment Tier for 
each transaction, by increasing the additional $0.03 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, in addition to qualifying Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity Tiers 1-8, to $0.04 per contract. 
The Exchange believes that this proposal will continue to attract Penny 
Pilot and Non-Penny Pilot Options liquidity to NOM. All market 
participants benefit from the increased order interaction when more 
order flow is available on NOM.
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    \8\ 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 which is not for the 
account of broker or dealer or for the account of a 
``Professional.'' See Chapter XV.
    \9\ 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. See Chapter XV.
    \10\ The note ``c'' incentive can be found at Chapter XV, 
Section 2(1) and provides additional incentives to NOM Participants 
for meeting certain criteria specified therein.
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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 Participants and issuers and other persons using 
any facility or system which the Exchange operates or controls, 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 Exchange's proposal to amend note ``d'' in Chapter XV, Section 
2(1) to permit any MARS Payment tier to qualify a NOM Participant for 
an additional $0.04 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, in addition to 
qualifying for Penny Pilot Options Customer and/or Professional Rebate 
to Add Liquidity Tiers 1-8,\13\ is reasonable because the proposed 
amendment should continue to encourage NOM Participants to qualify for 
both a MARS Payment tier and a Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity, thereby executing a greater 
amount of order flow on NOM to the benefit of all market participants 
who may interact with the order flow.
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    \13\ If the Participant qualified for a higher note ``c'' 
rebate, the Participant would receive the appropriate note ``c'' 
rebate they qualified for in that month.
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    The Exchange's proposal to amend note ``d'' in Chapter XV, Section 
2(1) to permit any MARS Payment tier to qualify a NOM Participant for 
an additional $0.04 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, in addition to 
qualifying for Penny Pilot Options Customer and/or Professional Rebate 
to Add Liquidity Tiers 1-8,\14\ is equitable and not unfairly 
discriminatory. All NOM Participants are eligible to qualify for a MARS 
Payment, provided they have System Eligibility, and all NOM 
Participants may be eligible for a Penny Pilot Options Customer and/or 
Professional Rebate to Add Liquidity provided they execute qualifying 
volume. All NOM Participants are eligible to qualify for the note ``d'' 
incentive provided the requisite requirements are met. The Exchange 
would uniformly pay the additional note ``d'' incentive to all 
qualifying NOM Participants.
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    \14\ Id.
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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.
    The Exchange's proposal to amend note ``d'' in Chapter XV, Section 
2(1) to permit any MARS Payment tier to qualify a NOM Participant for 
an additional $0.04 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, in addition to 
qualifying for Penny Pilot Options Customer and/or Professional Rebate 
to Add Liquidity Tiers 1-8,\15\

[[Page 51887]]

does not impose an undue burden on intra-market competition. All NOM 
Participants are eligible to qualify for a MARS Payment, provided they 
have System Eligibility, and all NOM Participants may be eligible for a 
Penny Pilot Options Customer and/or Professional Rebate to Add 
Liquidity provided they execute qualifying volume. All NOM Participants 
are eligible to qualify for the note ``d'' incentive provided the 
requisite requirements are met. The Exchange would uniformly pay the 
additional note ``d'' incentive to all qualifying NOM Participants.
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    \15\ Id.
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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.\16\
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    \16\ 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 [email protected]. Please include 
File Number SR-NASDAQ-2017-116 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-2017-116. 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. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-116 and should 
be submitted on or before November 29, 2017.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24251 Filed 11-7-17; 8:45 am]
 BILLING CODE 8011-01-P


