[Federal Register Volume 84, Number 77 (Monday, April 22, 2019)]
[Notices]
[Pages 16730-16736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07988]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85662; File No. SR-NASDAQ-2019-029]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Pricing Schedule in Options 7, Section 2

April 16, 2019.
    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 April 10, 2019, 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 Pricing Schedule in 
Options 7, Section 2, which governs the pricing for Nasdaq participants 
using The Nasdaq Options Market (``NOM''), Nasdaq's facility for 
executing and routing standardized equity and index options. The 
proposed changes are described further below.
    The text of the proposed rule change is available on the Exchange's 
website 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.

[[Page 16731]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes a number of changes to NOM pricing in Options 
7, Section 2. Each change is discussed below.
    The Exchange initially filed the proposed pricing changes on April 
1, 2019 (SR-NASDAQ-2019-025). On April 10, 2019, the Exchange withdrew 
that filing and submitted this filing.
Customer and Professional Fee for Removing Liquidity in Penny Pilot 
Options
    The Exchange currently charges Participants a Penny Pilot Options 
Fee for Removing Customer \3\ or Professional \4\ Liquidity that is 
$0.50 per contract, excluding SPY. For Participants that remove 
Customer or Professional liquidity in SPY, this fee is reduced to $0.49 
per contract.\5\ The Exchange also offers a reduced $0.48 per contract 
Customer or Professional Penny Pilot Options Fee for Removing Liquidity 
for Participants that qualify for any MARS \6\ Payment Tier in Section 
(6). SPY is excluded from this discount because Participants are 
already offered the $0.49 per contract discounted fee for SPY.
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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\ See Options 7, Section 2(1), note 3. Firms, Non-NOM Market 
Makers, NOM Market Makers and Broker-Dealers are assessed a $0.50 
per contract Penny Pilot Options Fee for Removing Liquidity in SPY, 
similar to other Penny Pilot Options.
    \6\ ``MARS'' is the Market Access and Routing Subsidy program, 
which offers rebates to Participants that have System Eligibility 
and have executed the requisite number of Eligible Contracts in a 
month. See Options 7, Section 2(6).
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    The Exchange now proposes to eliminate both discounts, and instead 
charge a flat fee of $0.48 per contract (reduced from $0.50 per 
contract) for each Customer or Professional transaction which removes 
liquidity in Penny Pilot Options, including SPY. The Exchange is making 
this change to simplify the operation of the Penny Pilot Options Fee to 
Remove Customer and Professional Liquidity.
Customer and Professional Rebate To Add Liquidity in Penny Pilot 
Options
    The Exchange proposes a number of changes to the Customer and 
Professional Rebates to Add Liquidity in Penny Pilot Options set forth 
in Section 2(1). First, the Exchange is proposing to increase certain 
volume thresholds in the Tier 5 and Tier 6 Customer and Professional 
Rebates to Add Liquidity in Penny Pilot Options. Today, the Exchange 
offers the following Customer and Professional Rebates to Add Liquidity 
in Penny Pilot Options, which are structured as a six tier program with 
increasing volume requirements for each tier:

------------------------------------------------------------------------
                                                           Rebate to add
 Monthly  volume                                             liquidity
------------------------------------------------------------------------
Tier 1...........  Participant adds Customer,                      $0.20
                    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.
Tier 2...........  Participant adds Customer,                       0.25
                    Professional, Firm, Non-NOM Market
                    Maker and/or Broker-Dealer liquidity
                    in Penny Pilot Options and/or Non-
                    Penny Pilot Options above 0.10% to
                    0.20% of total industry customer
                    equity and ETF option ADV contracts
                    per day in a month.
Tier 3...........  Participant adds Customer,                       0.42
                    Professional, Firm, Non-NOM Market
                    Maker and/or Broker-Dealer liquidity
                    in Penny Pilot Options and/or Non-
                    Penny Pilot Options above 0.20% to
                    0.30% of total industry customer
                    equity and ETF option ADV contracts
                    per day in a month.
Tier 4...........  Participant adds Customer,                       0.43
                    Professional, Firm, Non-NOM Market
                    Maker and/or Broker-Dealer liquidity
                    in Penny Pilot Options and/or Non-
                    Penny Pilot Options above 0.30% to
                    0.40% of total industry customer
                    equity and ETF option ADV contracts
                    per day in a month.
Tier 5...........  Participant adds Customer,                       0.45
                    Professional, Firm, Non-NOM Market
                    Maker and/or Broker-Dealer liquidity
                    in Penny Pilot Options and/or Non-
                    Penny Pilot Options above 0.40% to
                    0.75% of total industry customer
                    equity and ETF option ADV contracts
                    per day in a month.
Tier 6...........  Participant adds Customer,                       0.48
                    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 Participant
                    adds: (1) Customer and/or
                    Professional liquidity in Penny
                    Pilot Options and/or Non-Penny Pilot
                    Options of 0.20% 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.
------------------------------------------------------------------------

    The Exchange first proposes to amend the criteria in Tier 5 to 
increase the percentage of total industry customer equity and ETF 
option ADV contracts per day in a month from 0.75% to 0.80%, and to 
make a corresponding change in Tier 6 to increase the percentage from 
0.75% to 0.80%. As proposed, Participants will receive a $0.45 per 
contract Tier 5 rebate for adding Customer, Professional, Firm,\7\ Non-
NOM Market Maker \8\ and/or Broker-Dealer \9\ liquidity in Penny Pilot 
Options and/or Non-Penny Pilot Options above 0.40% to 0.80% of total 
industry customer equity and ETF option ADV contracts per day in a 
month. In addition, Participants will receive a $0.48 per contract Tier 
6 rebate for adding 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% or more of total industry customer equity and 
ETF option ADV contracts per day in a month.\10\
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    \7\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \8\ 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.
    \9\ 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.
    \10\ The alternative method to earn the $0.48 per contract Tier 
6 rebate described above is not being amended under this proposal.
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    Further, the Exchange proposes to decrease the Customer and 
Professional Rebate to Add Liquidity in Penny Pilot Options set forth 
in note ``e'' of Section 2(1). Today, this rebate is $0.52 per contract 
if the Participant transacts in all securities through one or more of 
its Nasdaq Market Center MPIDs that represent 3.00% or more of 
Consolidated Volume \11\ in the same month on The Nasdaq Stock Market. 
Participants that qualify for this rebate would not be eligible for any 
other

[[Page 16732]]

Customer and Professional rebates in Tiers 1-6 or other rebate 
incentives on NOM for Customer and Professional order flow in Options 
7, Section 2(1). The Exchange now proposes to reduce this Customer and 
Professional Rebate to Add Liquidity in Penny Pilot Options from $0.52 
to $0.50 per contract.
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    \11\ Consolidated Volume would be determined as set forth in 
Equity 7, Section 118(a). In calculating total volume, the Exchange 
will add the 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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MARS Pricing
    The Exchange currently offers a Market Access and Routing Subsidy 
or ``MARS'' to qualifying Participants in Options 7, Section 2(6). 
Participants that have System Eligibility \12\ and have executed the 
requisite number of Eligible Contracts \13\ daily in a month (``Average 
Daily Volume'') are entitled to a MARS Payment. The Exchange currently 
pays the following MARS Payments according to Average Daily Volume 
(``ADV'') submitted on NOM:
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    \12\ To qualify for MARS, the Participant's routing system 
(``System'') would be 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. Further, the 
Participant's System would also need to cause NOM to be the 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 or (b) orders that 
establish a new NBBO on NOM's Order Book, but allow any user to 
manually override NOM as a default destination on an order-by-order 
basis. Any NOM Participant would be permitted to avail itself of 
this arrangement, provided that its order routing functionality 
incorporates the features described above and satisfies NOM that it 
appears to be robust and reliable. The Participant remains solely 
responsible for implementing and operating its System.
    \13\ 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.

------------------------------------------------------------------------
                          Average daily    MARS  payment   MARS  payment
         Tiers          volume (``ADV'')      (penny)       (non-penny)
------------------------------------------------------------------------
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
------------------------------------------------------------------------

    The Exchange also provides Participants that qualify for the Tier 6 
Customer and Professional Penny Pilot Options Rebate to Add Liquidity 
in Section 2(1) an additional $0.09 per contract, which is paid in 
addition to any MARS Payment tier on MARS Eligible Contracts the NOM 
Participant qualifies for in a given month. 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 will be made 
with respect to orders that are routed to NOM, but not executed.\14\
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    \14\ A Participant will not be entitled to receive any other 
revenue for the use of its System specifically with respect to 
orders routed to NOM.
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    The Exchange now proposes to eliminate the additional $0.09 per 
contract incentive provided to Participants that qualify for Customer 
and Professional Penny Pilot Options Rebate to Add Liquidity Tier 6 for 
the Non-Penny MARS Payment tiers. The Exchange will make related 
changes within Section 2(6) to clarify that it will continue to pay an 
additional $0.09 per contract in addition to any MARS Payment tier on 
MARS Eligible Contracts in a given month on the Penny Pilot Options 
transactions, provided the Participant qualified for the Customer and 
Professional Penny Pilot Options Rebate to Add Liquidity Tier 6 in 
Options 7, Section 2(1). The Exchange did not observe an appreciable 
increase in Non-Penny Pilot order flow sent to the Exchange to qualify 
for this rebate, and therefore proposes to eliminate this incentive to 
apply its resources to other, possibly more effective incentives. As 
such, the Exchange proposes to offer another incentive in lieu of the 
eliminated rebate, which the Exchange will pay to qualifying 
Participants on both Penny and Non-Penny Pilot Options transactions in 
addition to any MARS Payment tier on MARS Eligible Contracts in a given 
month. Specifically, the Exchange proposes to offer Participants that 
have total Affiliated Entity \15\ or Common Ownership \16\ average 
daily add volume (``ADAV'') of 3.00% or more of total industry customer 
equity and ETF option ADV contracts per day in a month an additional 
$0.01 per contract in Penny Pilot Options and an additional $0.03 per 
contract in Non-Penny Pilot Options, in addition to any MARS Payment 
tier on MARS Eligible Contracts the Participant qualifies for in a 
given month.\17\ The Exchange believes that its proposal will encourage 
Participants that are affiliated either under Common Ownership or as 
Affiliated Entities to send additional order flow that add liquidity to 
the Exchange to qualify for the higher MARS rebates.
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    \15\ The term ``Affiliated Entity'' is a relationship between an 
Appointed MM and an Appointed OFP for purposes of aggregating 
eligible volume for pricing in Options 7, Sections 2(1) and 2(6) for 
which a volume threshold or volume percentage is required to qualify 
for higher rebates or lower fees. The term ``Appointed MM'' is a NOM 
Market Maker who has been appointed by an Order Flow Provider 
(``OFP'') for purposes of qualifying as an Affiliated Entity. An OFP 
is a Participant, other than a NOM Market Maker, that submits 
orders, as agent or principal, to the Exchange. The term ``Appointed 
OFP'' is an OFP who has been appointed by a NOM Market Maker for 
purposes of qualifying as an Affiliated Entity. Participants under 
Common Ownership may not qualify as a counterparty comprising an 
Affiliated Entity. Each Participant may qualify for only one (1) 
Affiliated Entity relationship at any given time.
    \16\ The term ``Common Ownership'' shall mean Participants under 
75% common ownership or control. Common Ownership shall apply to all 
pricing in Options 7, Section 2 for which a volume threshold or 
volume percentage is required to obtain the pricing.
    \17\ See proposed note ``[caret]'' in Section 2(6).
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    The Exchange also proposes to provide Participants that qualify for 
the Tier 5 MARS Payment two supplemental rebates that are based on 
progressively increasing volume requirements of executed MARS Eligible 
Contracts ADV and total Affiliated Entity or Common Ownership ADAV. The 
Exchange believes that its proposal will encourage Participants to 
bring additional order flow to the Exchange to qualify for the higher 
MARS incentives. First, the Exchange proposes to offer Participants 
that execute at least 75,000 of MARS Eligible Contracts per day and 
have total Affiliated Entity or Common Ownership ADAV of 3.25% or more 
of total industry customer equity and ETF option ADV contracts per day 
in a month an additional $0.01 per contract in Penny Pilot Options and 
an additional $0.10 per contract in Non-Penny Pilot Options, in 
addition to MARS Payment Tier 5 on MARS

[[Page 16733]]

Eligible Contracts the Participant qualifies for in a given month.\18\ 
Second, Participants that execute at least 100,000 of MARS Eligible 
Contracts per day and have total Affiliated Entity or Common Ownership 
ADAV of 3.25% 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 in Penny Pilot Options and an additional $0.19 per contract in 
Non-Penny Pilot Options, in addition to MARS Payment Tier 5 on MARS 
Eligible Contracts the NOM Participant qualifies for in a given 
month.\19\ NOM Participants that qualify for this incentive will not 
receive the proposed note ``@'' incentive.
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    \18\ See proposed note ``@'' in Section 2(6).
    \19\ See proposed note ``&'' in Section 2(6).
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NOM Market Maker Rebate To Add Liquidity in Non-Penny Pilot Options
    The Exchange currently offers Participants that qualify for the 
Tier 6 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options 
\20\ a $0.86 per contract NOM Market Maker Rebate to Add Liquidity in 
Non-Penny Pilot options.\21\ This rebate is paid to qualifying 
Participants in lieu of the $0.35 per contract fee normally charged to 
NOM Market Maker transactions that add Non-Penny Pilot liquidity.\22\ 
The note ``6'' incentive is designed to encourage Participants that 
transact as NOM Market Makers to send more order flow to the Exchange 
in either Penny or Non-Penny Pilot Options in order to qualify for the 
Tier 6 Penny Pilot Rebate to Add NOM Market Maker Liquidity to earn the 
$0.86 Non-Penny Rebate to Add NOM Market Maker Liquidity. To further 
incentivize Participants to direct order flow to NOM, the Exchange 
proposes to provide an additional $0.02 per contract NOM Market Maker 
Rebate to Add Liquidity in Non-Penny Pilot Options for Participants 
that qualify for the note ``&'' incentive proposed above in the MARS 
Payment Schedule, in addition to receiving the $0.86 per contract NOM 
Market Maker Rebate to Add Liquidity in Non-Penny Pilot Options. 
Participants would continue to receive the greater of the note ``5'' or 
note ``6'' incentive if they qualify for both.
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    \20\ To qualify for the Tier 6 rebate, Participant must: (a)(1) 
Add NOM Market Maker liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options above 0.95% of total industry customer equity 
and ETF option ADV contracts per day in a month, (2) execute Total 
Volume of 250,000 or more contracts per day in a month, of which 
30,000 or more contracts per day in a month must be removing 
liquidity, and (3) add Firm, Broker-Dealer and Non-NOM Market Maker 
liquidity in Non-Penny Pilot Options of 10,000 or more contracts per 
day in a month; or (b)(1) add NOM Market Maker liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options above 1.50% of total 
industry customer equity and ETF option ADV contracts per day in a 
month, and (2) execute Total Volume of 250,000 or more contracts per 
day in a month, of which 15,000 or more contracts per day in a month 
must be removing liquidity. For purposes of Tier 6, ``Total Volume'' 
shall be 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 Options 7, Section 2(1).
    \21\ See Options 7, Section 2(1), note ``6.''
    \22\ The Exchange also offers additional incentives in note 
``5'' to reduce this fee or earn a rebate, provided Participants 
meet the volume-based requirements. Specifically, Participants who 
add NOM Market Maker liquidity in Non-Penny Pilot Options of 7,500 
to 9,999 ADV contracts per day in a month would be assessed a $0.00 
per contract Non- Penny Options Fee for Adding Liquidity in that 
month. In addition, Participants that add NOM Market Maker liquidity 
in Non-Penny Pilot Options of 10,000 or more ADV contracts per day 
in a month would receive a $0.30 per contract Non-Penny Rebate to 
Add Liquidity for that month instead of paying the Non-Penny Fee for 
Adding Liquidity. See Options 7, Section 2(1), note ``5.'' 
Participants that qualify for a note ``5'' incentive would receive 
the greater of the note ``5'' or note ``6'' incentive.
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NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
    Lastly, the Exchange proposes to replace VXX with VXXB in the Tiers 
3 and 4 NOM Market Maker Rebates to Add Liquidity in Penny Pilot 
Options which currently apply to AAPL, QQQ, IWM, SPY and VXX. By way of 
background, options on the iPath S&P 500 VIX Short-Term Futures 
exchange-traded note (``VXX'') are no longer listed for trading on the 
Exchange since VXX matured on January 30, 2019 \23\ and VXX shares are 
no longer listed for trading on equity trading venues. Prior to its 
maturity, VXX's issuer Barclays Bank PLC introduced a substantially 
similar product, the iPath Series B S&P 500 VIX Short-Term Futures 
exchange-traded note (``VXXB''),\24\ and was intended to serve as the 
replacement for VXX upon maturity. The Exchange has since listed VXXB 
options for trading on NOM. Accordingly, the Exchange proposes to 
replace references to VXX with VXXB in its Pricing Schedule. In 
particular, the Exchange proposes to delete references to VXX from the 
Tiers 3 and 4 NOM Market Maker Rebates to Add Liquidity in Penny Pilot 
Options currently applicable to AAPL, QQQ, IWM, SPY and VXX, and 
replace those with VXXB. The Tier 3 and Tier 4 rebates will otherwise 
remain unchanged under this proposal.
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    \23\ See VXX Prospectus and Pricing Supplement available at 
http://www.ipathetn.com/US/16/en/documentation.app?instrumentId=259118&documentId=6204338.
    \24\ VXXB was introduced on January 17, 2018 and has a maturity 
date of January 23, 2048. See VXXB Prospectus and Pricing Supplement 
available at http://www.ipathetn.com/US/16/en/documentation.app?instrumentId=341408&documentId=6585610. While VXXB 
is currently a Non-Penny Pilot Option, it will replace VXX in the 
Penny Pilot Program as of April 2, 2019. See Options Trader Alert 
#2019-8.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\25\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\26\ 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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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(4) and (5).
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Customer and Professional Fee for Removing Liquidity in Penny Pilot 
Options
    The Exchange believes that the proposed changes to the Customer and 
Professional Fees for Removing Liquidity in Penny Pilot Options are 
reasonable. As discussed above, the Exchange is proposing to eliminate 
the reduced fees of $0.49 per contract (provided to Participants that 
remove Customer and Professional liquidity in SPY Options) and $0.48 
per contract (provided to Participants that qualify for any MARS 
Payment Tier). Instead, the Exchange will charge a flat fee of $0.48 
per contract (reduced from $0.50 per contract) for each Customer or 
Professional transaction which removes liquidity in Penny Pilot 
Options, including SPY. The Exchange believes that these changes will 
simplify the operation of this fee by uniformly charging $0.48 per 
contract for all Customer and Professional transactions that remove 
liquidity in Penny Pilot Options. Furthermore, the Exchange believes 
that the fee decrease will further incentivize Participants to send 
more Customer and Professional order flow to NOM. All market 
participants benefit from the increased order interaction when more 
order flow is available on NOM.
    The Exchange further believes that the proposed fee changes are 
equitable and not unfairly discriminatory because they will apply 
equally to all similarly situated Participants. With the proposed 
changes, Participants will be charged a uniform $0.48 per contract Fee 
for Removing Liquidity in all Penny Pilot Options, including SPY. The 
Exchange also believes that it is equitable and not unfairly 
discriminatory to offer the lower $0.48 per contract fee to 
Participants that transact as Customers or Professionals, and not to 
other market

[[Page 16734]]

participants. Customer liquidity offers unique benefits to the market 
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 a corresponding 
increase in order flow from other market participants. The Exchange 
believes that encouraging Participants to add Professional liquidity is 
similarly beneficial, as the lower fee may cause market participants to 
select NOM as a venue to send Professional order flow, which benefits 
all market participants by attracting valuable liquidity to the market 
and thereby enhancing the trading quality and efficiency of all.
Customer and Professional Rebate To Add Liquidity in Penny Pilot 
Options
    The Exchange believes that it is reasonable to amend the Customer 
and Professional Rebates to Add Liquidity in Penny Pilot Options by 
increasing the percentages of total industry customer equity and ETF 
option ADV contracts in Tiers 5 and 6, as discussed above. The Exchange 
believes that the increased volume thresholds are more closely aligned 
to the corresponding rebates than the current volume threshold. This 
increase is also reflective of the Exchange's desire to provide 
incentives to attract order flow to the Exchange in return for 
significant market-improving behavior. By increasing the volume of 
liquidity that a Participant must add during the month in order to 
qualify for the corresponding Tier 5 and Tier 6 rebates, this change 
will help ensure that Participants are providing significant market-
improving behavior in return for the incentives.
    In addition, the proposed change in note ``e'' to decrease the 
Customer and Professional Rebate to Add Liquidity in Penny Pilot 
Options provided to eligible Participants that transact 3.00% or more 
in Consolidated Volume on The Nasdaq Stock Market from $0.52 to $0.50 
per contract is reasonable because the proposed change is a modest 
reduction, and the Exchange believes that its rebate program will 
continue to incentivize Participants to transact greater volume on The 
Nasdaq Stock Market in order to qualify for a higher rebate on NOM.
    The Exchange also believes that the modifications to the Customer 
and Professional Rebates to Add Liquidity in Penny Pilot Options 
proposed above are equitable and not unfairly discriminatory because 
all eligible Participants that meet the relevant qualifications will 
uniformly receive the rebates. Further, the Exchange believes that it 
is equitable and not unfairly discriminatory to offer the rebates to 
Participants that transact as Customers or Professionals, and not to 
other market participants. Customer liquidity offers unique benefits to 
the market 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, which benefits all market participants by 
attracting valuable liquidity to the market and thereby enhancing the 
trading quality and efficiency of all.
MARS Pricing
    The Exchange's proposal to modify MARS pricing in Section 2(6) is 
reasonable, equitable and not unfairly discriminatory for the reasons 
that follow.
    The Exchange believes that the elimination of the additional $0.09 
per contract incentive for Non-Penny MARS Payment Tiers proposed above 
is reasonable because as noted above, the Exchange did not observe an 
appreciable increase in Non-Penny Pilot order flow sent to the Exchange 
to qualify for this rebate. The Exchange must periodically assess the 
effectiveness of the incentives it provides in the form of discounts or 
rebates and, in the case of ineffective incentives, eliminate the 
incentive so that the Exchange may apply its resources to other, 
possibly more effective discounts or rebates such as the note 
``[caret]'' incentive based on total Affiliated Entity or Common 
Ownership proposed above. Accordingly, while the Exchange is 
eliminating the additional $0.09 per contract incentive for Non-Penny 
MARS Payment Tiers, the Exchange believes that the additional note 
``[caret]'' incentives of $0.01 and $0.03 in Penny and Non-Penny Pilot 
Options respectively, will better align the cost of the MARS program 
with the benefit it brings to the marketplace.
    Furthermore, the Exchange believes that the proposed total 
Affiliated Entity or Common Ownership ADAV requirement of 3.00% is 
reasonable because it is set at a level that the Exchange believes will 
encourage Participants to bring more order flow to the Exchange to 
qualify for the higher note ``[caret]'' incentive. To the extent that 
order flow is increased by the proposal, market participants will 
increasingly compete for the opportunity to trade on the Exchange, 
including sending more orders to reach higher tiers or rebates. The 
resulting increased volume and liquidity will benefit all market 
participants by providing more trading opportunities and tighter 
spreads. The Exchange also notes that the concept of allowing market 
participants to aggregate volume for purposes of volume pricing is not 
novel. Other options markets have similar incentives in place to 
attract volume to their markets.\27\
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    \27\ See Cboe Exchange (``CBOE'') Fees Schedule. CBOE permits 
aggregation of volume to qualify for credits available under an 
Affiliated Volume Plan or AVP. See NYSE American Options (``NYSE 
Amex'') Fee Schedule at Section I.E. NYSE Amex permits aggregation 
of volume to qualify for the Amex Customer Engagement or ACE 
Program.
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    The Exchange believes that the qualifying volume requirements in 
the two additional incentives proposed in note ``@'' and note ``&'' of 
Section 2(6) are reasonable and equitable for the same reasons 
discussed above for the note ``[caret]'' incentive. Specifically, the 
Exchange believes that the total Affiliated Entity or Common Ownership 
ADAV requirement of 3.25% proposed for both incentives is set at an 
appropriate level, which the Exchange believes will encourage 
Participants to bring more order flow to the Exchange to qualify for 
the higher note ``@'' and note ``&'' incentives, which liquidity will 
benefit all market participants. The Exchange similarly believes that 
the proposed MARS Eligible Contracts ADV requirements of 75,000 and 
100,000 ADV for note ``@'' and note ``&,'' respectively, are reasonable 
and equitable because they are set at levels that the Exchange believes 
will encourage Participants and, in particular, Participants that 
transact in Firm, Non-NOM Market Maker, Broker-Dealer, or JBO 
electronic equity and ETF options orders that add liquidity to execute 
more volume on NOM.
    The Exchange also believes that the proposed rebate amounts for the 
note ``@'' and note ``&'' incentives reflect the progressively 
increasing volume requirements to earn the highest MARS incentives by 
bringing the most order flow to the Exchange. For instance, 
Participants will have to meet the 3.25% total Affiliated Entity or 
Common Ownership ADAV requirement and execute 75,000 of MARS Eligible 
Contracts ADV, to qualify for the proposed ``@'' incentives and receive 
the additional $0.01 per contract in Penny Pilot Options and the 
additional $0.10 per contract in Non-Penny Pilot

[[Page 16735]]

Options.\28\ Participants that qualify for note ``@'' would therefore 
receive total MARS rebates of $0.18 per contract for Penny Pilot 
Options and $0.70 per contract for Non-Penny Pilot Options.
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    \28\ The supplemental rebates would be paid in addition to the 
Tier 5 MARS Payments of $0.17 per contract in Penny Pilot Options 
and $0.60 per contract in Non-Penny Pilot Options.
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    Furthermore, Participants will have to meet the 3.25% total 
Affiliated Entity or Common Ownership ADAV requirement and execute 
100,000 of MARS Eligible Contracts ADV, to qualify for the proposed 
``&'' incentives and receive the additional $0.02 per contract in Penny 
Pilot Options and the additional $0.19 per contract in Non-Penny Pilot 
Options.\29\ Participants that qualify for note ``&'' would therefore 
receive total MARS rebates of $0.19 per contract for Penny Pilot 
Options and $0.79 per contract for Non-Penny Pilot Options. The 
Exchange further believes that it is reasonable to not provide the note 
``@'' incentives to Participants that qualify for the note ``&'' 
incentives. As noted above, the proposed note ``&'' incentives are 
higher, and in some cases significantly higher, than the proposed 
incentives in note ``@,'' and also require higher qualifying volume 
thresholds. Accordingly, the Exchange believes it is reasonable to 
provide the note ``@'' incentives instead of the note ``&'' incentives 
to Participants that qualify for both.
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    \29\ The supplemental rebates would be paid in addition to the 
Tier 5 MARS Payments of $0.17 per contract in Penny Pilot Options 
and $0.60 per contract in Non-Penny Pilot Options.
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    The Exchange's proposal to modify MARS pricing in Section 2(6) is 
equitable and not unfairly discriminatory because all Participants may 
elect to become an Affiliated Entity as either Appointed MM or 
Appointed OFP, or an affiliate under Common Ownership, for purposes of 
aggregating eligible volume to qualify for higher rebates or lower 
fees. Furthermore, any Participant may qualify for MARS provided they 
have the requisite System Eligibility. The Exchange will also uniformly 
pay MARS rebates to qualifying Participants on all Eligible Contracts.
NOM Market Maker Rebate To Add Liquidity in Non-Penny Pilot Options
    The Exchange believes that its proposal to provide an additional 
$0.02 per contract NOM Market Maker Rebate to Add Liquidity in Non-
Penny Pilot Options for Participants that qualify for the note ``&'' 
incentive proposed above, in addition to receiving the $0.86 per 
contract NOM Market Maker Rebate to Add Liquidity in Non-Penny Pilot 
Options, is reasonable, equitable, and not unfairly discriminatory. The 
Exchange notes that the additional incentive in note ``6'' will be the 
highest available rebate (totaling $0.88 per contract) provided to 
Participants that add NOM Market Maker liquidity in Non-Penny Pilot 
Options. The Exchange believes that the additional incentive is 
reasonable because it will require Participants to meet the stringent 
volume requirements set forth in the note ``&'' incentive proposed 
above, in addition to those set forth in the Tier 6 Penny Pilot Options 
Rebate to Add NOM Market Maker Liquidity.\30\ The Exchange believes 
that this incentive will continue to encourage Participants to bring 
order flow to the Exchange to qualify for the higher rebate, which will 
be beneficial for all market participants and will encourage an active 
and liquidity market on NOM. The Exchange also believes that it is 
reasonable to offer Participants that qualify for a note ``5'' 
incentive the greater of the current note ``5'' or new note ``6'' 
incentive because the Participant will be able to receive the greater 
of the two rebates with this proposal.
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    \30\ See note 22 above.
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    The Exchange believes that the additional $0.02 per contract 
incentive in note ``6'' is equitable and not unfairly discriminatory 
because all similarly-situated Participants are equally capable of 
qualifying for the proposed rebates, and the rebate will be uniformly 
paid to all qualifying Participants. Further, the Exchange believes 
that offering only Participants that transact as NOM Market Makers the 
opportunity to qualify for the additional incentive is equitable and 
not unfairly discriminatory. Unlike other market participants, NOM 
Market Makers add value through continuous quoting and the commitment 
of capital.\31\ Because NOM Market Makers have these obligations to the 
market and regulatory requirements that normally do not apply to other 
market participants, the Exchange believes that offering these rebates 
to only NOM Market Makers is equitable and not unfairly discriminatory 
in light of their obligations. Finally, encouraging NOM Market Makers 
to add greater liquidity benefits all market participants in the 
quality of order interaction.
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    \31\ Pursuant to Chapter VII (Market Participants), Section 5 
(Obligations of Market Makers), in registering as a market maker, an 
Options Participant commits himself to various obligations. 
Transactions of a Market Maker in its market making capacity must 
constitute a course of dealings reasonably calculated to contribute 
to the maintenance of a fair and orderly market, and Market Makers 
should not make bids or offers or enter into transactions that are 
inconsistent with such course of dealings. Further, all Market 
Makers are designated as specialists on NOM for all purposes under 
the Act or rules thereunder. See Chapter VII, Section 5.
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NOM Market Maker Rebate To Add Liquidity in Penny Pilot Options
    The Exchange believes that the replacing VXX with VXXB in the Tiers 
3 and 4 NOM Market Maker Rebate to Add Liquidity in Penny Pilot Options 
currently applicable to AAPL, QQQ, IWM, SPY and VXX is reasonable, 
equitable and not unfairly discriminatory because VXX options are no 
longer listed for trading on the Exchange, and have been replaced by a 
substantially similar product, VXXB options.

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. The pricing changes proposed 
above are generally designed to attract additional order flow to NOM, 
which strengthens NOM's competitive position. Greater liquidity 
benefits all market participants by providing more trading 
opportunities and attracting greater participation by market makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads.
    The Exchange 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 and rebates to remain 
competitive. Because competitors are free to modify their own fees and 
rebates in response, the Exchange believes that the degree to which 
pricing changes in this market may impose any burden on competition is 
extremely limited.

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 16736]]

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.\32\
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    \32\ 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-2019-029 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-2019-029. 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 website (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 website 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-2019-029, and should be submitted 
on or before May 13, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07988 Filed 4-19-19; 8:45 am]
 BILLING CODE 8011-01-P


