[Federal Register Volume 75, Number 143 (Tuesday, July 27, 2010)]
[Notices]
[Pages 44037-44040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-18404]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62543; File No. SR-NASDAQ-2010-075]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by The NASDAQ Stock Market LLC
Relating to Fees for Execution of Contracts on the NASDAQ Options
Market
July 21, 2010.
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 June 30, 2010, 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 modify Exchange Rule 7050 governing
pricing for NASDAQ members using the NASDAQ Options Market (``NOM''),
NASDAQ's facility for executing and routing standardized equity and
index options. Specifically, NOM proposes to: (i) Modify pricing for
both Penny Pilot\3\ Options and All Other Options with respect to the
fees for adding \4\ and removing liquidity \5\ as well as the rebates
for adding and removing liquidity; (ii) eliminate the rebates for
adding and fees for removing liquidity in options overlying Standard
and Poor's Depositary Receipts/SPDRs (``SPY''),\6\ PowerShares QQQ
Trust (``QQQQ'')[supreg] and Ishares Russell 2000 (``IWM''); (iii)
eliminate the fee for an order that executes against another order
entered by the same firm; and (iv) allow a rebate for Customer orders
which execute against other customer orders.
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\3\ The Penny Pilot was established in March 2008 and in October
2009 was expanded and extended through December 31, 2010. See
Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and
immediate effectiveness establishing Penny Pilot); 60874 (October
23, 2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-091)
(notice of filing and immediate effectiveness expanding and
extending Penny Pilot); 60965 (November 9, 2009), 74 FR 59292
(November 17, 2009) (SR-NASDAQ-2009-097) (notice of filing and
immediate effectiveness adding seventy-five classes to Penny Pilot);
61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR-NASDAQ-
2010-013) (notice of filing and immediate effectiveness adding
seventy-five classes to Penny Pilot); and 62029 (May 4, 2010), 75 FR
25895 (May 10, 2010) (SR-NASDAQ-2010-053) (notice of filing and
immediate effectiveness adding seventy-five classes to Penny Pilot).
See also Exchange Rule Chapter VI, Section 5.
\4\ An order that adds liquidity is one that is entered into NOM
and rests on the NOM book.
\5\ An order that removes liquidity is one that is entered into
NOM and that executes against an order resting on the NOM book.
\6\ SPY options are based on the SPDR exchange-traded fund
(``ETF''), which is designed to track the performance of the S&P 500
Index.
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While changes pursuant to this proposal are effective upon filing,
the Exchange has designated these changes to be operative for
transactions on July 1, 2010.
The text of the proposed rule change is set forth below. Proposed
new text is in italic and deleted text is in [brackets].
7050. NASDAQ Options Market
The following charges shall apply to the use of the order execution and
routing services of the NASDAQ Options Market for all securities.
(1) Fees for Execution of Contracts on the NASDAQ Options Market
Fees and Rebates
(per executed contract)
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Non-NOM market NOM market
Customer Firm maker maker
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Penny Pilot Options:
Rebate to Add Liquidity..................... $0.[25]32 $0.[25]10 $0.25 $0.[25]30
Fee for Removing Liquidity.................. $0.[35]40 $0.45 $0.45 $0.45
[IWM, QQQQ, SPY]
[Rebate to Add Liquidity]................... [$0.30] [$0.30] [$0.30] [$0.30]
[Fee for Removing Liquidity]................ [$0.35] [$0.45] [$0.45] [$0.45]
NDX and MNX
Rebate to Add Liquidity..................... $0.10 $0.10 $0.10 $0.20
Fee for Removing Liquidity.................. $0.50 $0.50 $0.50 $0.40
All Other Options:
Fee for Adding Liquidity.................... [Free]$0.00 $0.[30]45 $0.[30]45 $0.30
Fee for Removing Liquidity.................. [-]$0.40 $0.4[0]5 $0.45 $0.45
Rebate [for] to [Removing] Add Liquidity[*]. $0.20 [-]$0.00 [-]$0.00 $0.00[-]
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[Transactions in which the same participant is the buyer and the seller
shall be charged a net fee of $0.10 per executed contract.]
[*No rebate will be paid when a customer order executes against another
customer order.]
* * * * *
The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaqomx.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
[[Page 44038]]
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
NASDAQ is proposing to modify Rule 7050 governing the fees assessed
for options orders entered into NOM. Specifically, NASDAQ is proposing
to modify pricing for both Penny Pilot Options and All Other Options
with respect to the fees for adding and removing liquidity as well as
the rebates for adding liquidity. These amendments to the fees are part
of the Exchange's continued effort to attract and enhance participation
in NOM. By amending its fees, NASDAQ seeks to encourage industry market
makers to participate as registered market makers on NOM in order to
attract additional liquidity.
Currently, NASDAQ distinguishes between options that are included
in the Penny Pilot and those that are not.
Penny Options--Adding Liquidity: The Exchange currently pays a
rebate of $0.25 per executed contract to members providing liquidity
through NOM in options included in the Penny Pilot and in the capacity
of ``Customer'', ``firm'', ``NOM Market Maker'' \7\ or ``Non-NOM Market
Maker'' \8\. The Exchange proposes to amend these fees as follows:
Customers would be rebated $0.32 per contract instead of $0.25 per
contract; a firm would be rebated $0.10 per contract instead of $0.25
per contract; and a NOM Market Maker would be rebated $0.30 per
contract instead of $0.25 per contract.\9\
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\7\ A NOM Market Maker must be registered as such pursuant to
Chapter VII, Section 2 of Exchange rules, and must remain in good
standing pursuant to Chapter VII, Section 2. In order to receive NOM
Market Maker pricing in all securities, the firm must be registered
as a NOM Market Maker in at least one security.
\8\ A Non-NOM Market Maker is a registered market maker on
another options market that appends the market maker designation to
orders executed on NOM.
\9\ A Non-NOM Market Maker would continue to be rebated $0.25
per contract.
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Penny Options--Removing Liquidity: The Exchange assesses a fee to
members removing liquidity through NOM in options included in the Penny
Pilot and charges a fee of $0.35 per executed contract to Customers for
removing such liquidity and a fee of $0.45 per executed contract to
members in the capacity of firm, NOM Market Maker and Non-NOM Market
Maker for removing liquidity. The Exchange proposes to amend these fees
as follows: Customers would be assessed $0.40 per contract instead of
$0.35 per contract.\10\
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\10\ A firm, NOM Market Maker and Non-NOM Market Maker would
continue to be assessed $0.45 per contract.
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Non-Penny Options--Adding Liquidity: The Exchange assesses a fee of
$0.30 per executed contract to members providing liquidity through NOM
in options not included in the Penny Pilot (under the category of All
Other Options) in the capacity of firm, NOM Market Maker and Non-NOM
Market Maker. The Exchange currently assesses no execution fees for
members adding liquidity through NOM, in All Other Options, with an
account type Customer, and will continue to assess no fee. The Exchange
proposes to amend these fees for adding liquidity as follows: a firm
would be assessed $0.45 per contract instead of $0.30 per contract; and
a Non-NOM Market Maker would be assessed a fee of $0.45 per contract
instead of $0.30 per contract.\11\
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\11\ The fees currently assessed on NOM Market Makers for adding
liquidity in Non-Penny Options (All Other Options) will remain the
same.
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Non-Penny Options--Removing Liquidity: The Exchange assesses fees
to members removing liquidity through NOM in All Other Options and
charges a fee of $0.40 per executed contract to members removing
liquidity in the capacity of firm and a fee of $0.45 per executed
contract to members removing liquidity in the capacity of NOM Market
Maker and Non-NOM Market Maker. The Exchange currently assesses no
execution fees for members removing liquidity through NOM, in All Other
Options, with an account type Customer. The Exchange proposes to amend
these fees for removing liquidity as follows: a Customer would be
assessed $0.40 per contract instead of $0.00 and a firm would be
assessed a fee of $0.45 per contract instead of $0.40.\12\
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\12\ The fees currently assessed on NOM Market Makers and Non-
NOM Market Makers for removing liquidity in Non-Penny Options (All
Other Options) will remain the same.
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Non-Penny Options--Rebates: The Exchange currently provides a
rebate for removing liquidity through NOM in Non-Penny Options (All
Other Options) of $0.20 per executed contract to members acting in the
capacity of Customer. The Exchange proposes to pay a rebate to add
liquidity through NOM in All Other Options of $0.20 per executed
contract to members acting in the capacity of Customer and eliminate
the rebate for removing liquidity.\13\
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\13\ The Exchange currently does not provide firms, NOM Market
Makers and Non-NOM Market Makers rebates in Non-Penny options (All
Other Options) and is not proposing any changes at this time for
these members.
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Elimination of IWM, QQQQ and SPY: The Exchange currently pays a
rebate of $0.30 per executed contract to all members for adding
liquidity in options overlying IWM, QQQQ and SPY. The Exchange also
currently assesses a fee of $0.35 per executed contract to members
removing liquidity through NOM in options overlying IWM, QQQQ and SPY
in the capacity of Customer and a fee of $0.45 per executed contract to
all members removing liquidity in the capacity of firm, NOM Market
Maker and Non-NOM Market Maker.
The Exchange proposes to eliminate the rebate for adding liquidity
and the fee for removing liquidity in options overlying IWM, QQQQ and
SPY. Members would be assessed the rates currently applicable to Penny
Pilot Options going forward. The Exchange no longer believes that these
rebates and fees are necessary incentives to promote order flow in
these symbols.
Elimination of Fees: The Exchange currently assesses a net fee of
$0.10 per executed contract when a member order executes against an
order entered by the same firm. In other words, a transaction in which
the same participant is both the buyer and the seller is currently
assessed a net fee of $0.10 per contract. The Exchange is proposing to
eliminate this fee as the Exchange believes that this fee is no longer
necessary. The fee was initially enacted to change the distinction
between orders that interact with other members' orders and those that
interact with orders from the same firm. At this time, the Exchange
believes that this distinction is no longer necessary to compete for
order flow.
Similarly, the Exchange proposes to eliminate the text which states
that ``No rebate will be paid when a customer order executes against
another customer order.'' The Exchange believes that this distinction
is no longer necessary and that the elimination of this language will
afford Customers additional rebates and create additional incentives to
enhance participation in NOM.
While changes pursuant to this proposal are effective upon filing,
the Exchange has designated these changes to be operative for
transactions on July 1, 2010.
2. Statutory Basis
NASDAQ believes that the proposed rule changes are consistent with
the provisions of Section 6 of the Act,\14\ in general, and with
Section 6(b)(4) of the Act,\15\ in particular, in that it provides
[[Page 44039]]
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility or
system which NASDAQ operates or controls. The Exchange believes the
proposed amendments to the fees and rebates for adding and removing
liquidity are equitable and reasonable because they are within the
range of fees assessed by other exchanges employing similar pricing
schemes and that the proposed fees apply fairly to all similarly
situated participants on NOM for reasons discussed in greater detail
below.
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\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(4).
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With respect to the proposed rebates for adding liquidity in Penny
Options, the Exchange believes that its proposal to increase the
current rebate of $0.25 per contract to $0.32 per contract for
customers is both reasonable and equitable because the rebate is
consistent with other rebates being paid in certain symbols at NYSE
Arca, Inc. (``NYSE Arca'').\16\ Moreover, the Exchange is seeking to
provide the appropriate incentives to broker-dealers acting as agent
for customer orders to select the Exchange as a venue to post customer
limit orders. The Exchange also proposes to increase the current rebate
of $0.25 per contract to $0.30 per contract for NOM Market Makers. The
Exchange believes that this increase is equitable and reasonable
because the proposed increase is within the range of similar fees
assessed by other exchanges, such as the price differential for market
makers and other broker-dealer on other exchanges. Specifically, the
rate differential between NOM Market Makers and Non-NOM Market Makers
is currently similar to pricing distinctions employed at, the
International Securities Exchange, Inc. (``ISE''),\17\ which assesses a
Non-ISE Market Maker \18\ $0.45 per contract for trading in equity
options, while an ISE Market Maker at the lowest tier (highest rate) is
assessed $0.18 per contract.\19\ Finally, the Exchange has decreased
the rebate from $0.25 per contract to $0.10 per contract for Firms. As
with the other proposed changes, the Exchange believes that this
proposal is reasonable because it is within the range of fees assessed
at other exchanges and the proposed price differential is similar to
other price differentials on other exchanges. For example, a Firm
Proprietary order at ISE is assessed a maker fee of $0.10 per contract
while a Market Maker Plus receives a $0.10 per contract rebate in ISE's
select symbols.\20\ In addition to the fair price differential, the
Exchange believes its proposed fee changes are just and equitable
because market makers have obligations to the market place and
regulatory burdens placed on them that other broker-dealers trading for
their own account do not currently endure.
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\16\ See NYSE Arca's Fee Schedule.
\17\ See ISE's Schedule of Fees.
\18\ A Non-ISE Market Maker means a market maker as defined in
Section 3(a)(38) of the Act registered in the same options class on
another options exchange. See ISE's Schedule of Fees.
\19\ See ISE's Schedule of Fees.
\20\ See ISE's Schedule of Fees.
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The Exchange has also amended its fees for removing liquidity in
Penny Options. The Exchange increased the fee for removing liquidity
that is assessed to broker-dealers for customer orders from $0.35 per
contract to $0.40 per contract. The Exchange believes that this
amendment is reasonable and equitable because it is still less than the
fee of $0.45 per contract that is currently assessed on Firms, NOM
Market Makers and Non-NOM Market Makers and $0.05 less than the fees
for removing liquidity at NYSEArca in Penny Options.\21\
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\21\ See NYSE Arca's Fee Schedule.
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The Exchange has also proposed to amend its fees in non-Penny
Options (All Other Options). Specifically, the Exchange has increased
its fees for adding liquidity for both Firms and Non-NOM Market Makers
from $0.30 per contract to $0.45 per contract. The Exchange believes
that these fees are reasonable because they are within the range of
fees assessed in the industry. Further, the Exchange believes that it
is equitable because the price differential exists currently on ISE. At
ISE, a Non-ISE Market Maker (FARMM) is assessed a $0.20 per contract
make fee in the select symbols, while a Market Maker is assessed $0.10
per contract.\22\ As mentioned previously, there are also existing
price differentials on ISE as between an ISE Market Maker and a Non-ISE
Market Maker. As discussed, market makers have certain obligations to
the market and regulatory requirements, which normally do not apply to
Firms and Broker Dealers.\23\
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\22\ See ISE's Schedule of Fees.
\23\ See Exchange Rules Section VII, Market Participants,
Sections 5, Obligations of Market Makers, and Section 6, Market
Maker Quotations.
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Additionally, the Exchange is proposing to assess to a customer a
$0.40 per contract fee for removing liquidity. Currently, customer
orders do not pay for removing liquidity. The Exchange believes that
this fee proposal is reasonable because it is within the range of rates
being assessed to other market participants and to broker-dealers for
executing customer order in Penny Options at other exchanges. The
Exchange also believes that this fee proposal is equitable because it
is $0.05 per contract less the fees being assessed on Firms, NOM Market
Makers and Non-NOM Market Makers. The Exchange also proposes to
increase the fee for removing liquidity that is being assessed on Firms
from $0.40 per contract to $0.45 per contract. The Exchange believes
that this proposal is both reasonable and equitable because it is the
exact fee currently being assessed on NOM Market Makers and Non-NOM
Market Makers. Keeping rates reasonable for customer orders is
necessary to provide incentives for customer order flow in a mature,
highly competitive market place. Finally, the Exchange is amending All
Other Options to convert its rebate for removing liquidity to a rebate
for adding liquidity. The Exchange proposes to pay a rebate to customer
orders for adding liquidity of $.20. The Exchange was previously paying
customer orders that removed liquidity $.20. The Exchange believes that
this proposal is reasonable because customers are still receiving a
rebate, but for adding versus removing liquidity. Also, the Exchange
believes that the proposal is equitable because broker-dealers acting
as agent for customer orders will be eligible to receive rebates
similar to rebates found on other exchange for certain symbols. Also,
the rebate serves to incentivize increased customer order flow to be
sent to the Exchange for the benefit of all market participants.
The Exchange also believes that its proposal to eliminate the
rebate to add liquidity and fee for removing liquidity for options
overlying IWM, QQQQ and SPY is both reasonable and equitable because
the Exchange is proposing to remove these fees for all participants.
The same applies to the Exchange proposal to eliminate the $0.10 net
fee for executed contracts which applies to transactions in which the
same participant is the buyer and the seller as it was rarely assessed.
NASDAQ is one of eight options market in the national market system
for standardized options. It is a mature, robust market that is highly
competitive. Joining NASDAQ and electing to trade options is entirely
voluntary. Under these circumstances, NASDAQ's fees must be
competitive, fair and just in order for NASDAQ to attract order flow,
execute orders, and grow as a market. NASDAQ thus believes that its
fees are equitable, fair and reasonable and consistent with the
Exchange Act.
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
[[Page 44040]]
necessary or appropriate in furtherance of the purposes of the Act.
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 \24\ and paragraph (f)(2) of Rule 19b-4 \25\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission may summarily abrogate such rule change if
it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\24\ 15 U.S.C. 78s(b)(3)(A)(ii).
\25\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NASDAQ-2010-075 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2010-075. This
file number should be included on the subject line if e-mail 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 a.m. and 3 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-2010-075 and should be submitted on or before August 17, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-18404 Filed 7-26-10; 8:45 am]
BILLING CODE 8010-01-P