[Federal Register Volume 75, Number 49 (Monday, March 15, 2010)]
[Notices]
[Pages 12318-12320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5529]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61666; File No. SR-NASDAQ-2010-027]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Pricing for Option Orders Routed to Away Markets
March 5, 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 March 2, 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 NASDAQ.
Pursuant to Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2)
thereunder,\4\ NASDAQ has designated this proposal as establishing or
changing a due, fee, or other charge, which renders the proposed rule
change effective upon filing. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
NASDAQ proposes to modify 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. NASDAQ
will make the proposed rule change effective for transactions settling
on or after March 2, 2010.
The text of the proposed rule change is available at http://nasdaqomx.cchwallstreet.com/, at NASDAQ's principal office, 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, NASDAQ 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. NASDAQ 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 execution of options orders entered into NOM but routed to and
executed on away markets (``routing fees''). When NASDAQ began trading
standardized options on March 31, 2008, it assessed a routing fee based
upon an approximation of the cost to NASDAQ of executing such orders at
those markets. NASDAQ later determined that the superior approach for
executions on away markets at the time was to pass-through to NASDAQ
members the actual fees assessed by away markets plus the clearing fees
for the execution of orders routed from NASDAQ.
NASDAQ proposes to simplify Rule 7050 by eliminating entirely all
current NOM pass-through fees and replacing those fees with the
following new routing fees: (i) A $0.36 per contract side fee for
customer orders routed to BATS Exchange, Inc. (``BATS'') in all
options, (ii) a $.06 per contract side fee for customer orders routed
to the Boston Options Exchange Group LLC (``BOX'') in all options;
(iii) a $0.06 per contract side fee for customer orders routed to the
Chicago Board Options Exchange, Inc. (``CBOE'') in all options; (iv) a
$.06 per contract side fee for customer orders routed to International
Securities Exchange, LLC (``ISE'') in all options; (v) a $0.50 per
contract side fee for customer orders routed to NYSE Arca, Inc.
(``NYSEArca'') in options included in the penny pilot (``penny
options''); (vi) a $0.06 per contract side fee for customer orders
routed to NYSE Arca non-penny options; (vii) a $0.06 per contract side
fee for customer orders routed to NYSE Amex LLC (``NYSE Amex'') in all
options; (viii) a $0.30 per contract side fee for customer orders
routed to NASDAQ OMX PHLX, Inc. (``Phlx'') in AMZN, C, BAC, DELL, DIA,
DRYS, EK, GDX, GE, GS, IWM, MSFT, QCOM, QQQQ, RIMM, SBUX, SKF, SLV,
SMH, SPY, UNG, USO, UYG, WYNN, and XLF options; (ix) a $0.06 per
contract side fee for customer orders routed to Phlx in all other
options; and (x) a $0.55 per contract side fee for all Firm and Market
Maker orders routed by the Exchange to away markets.
[[Page 12319]]
Recovery of Transaction and Clearing Costs
NASDAQ Options Services LLC (``NOS''), a member of the Exchange, is
the Exchange's exclusive order router. Each time NOS routes to away
markets NOS is charged a $0.06 clearing fee and, in the case of BATS,
NYSEArca, and Phlx, is charged a transaction fee in certain symbols,
which are passed through to the Exchange. The following routing fees
are proposed in order to recoup these costs:
The Exchange is proposing a $.06 per contract routing fee
for orders routed to NYSE, AMEX, BOX, CBOE, ISE and NYSEArca in order
to recoup clearing charges which are incurred by the Exchange when
customer orders are routed to these away markets.
The Exchange is proposing a $0.36 per contract routing fee
for orders routed to BATS in order to recoup transaction and clearing
charges incurred by the Exchange when customer orders are routed to
BATS.
The Exchange is proposing a $0.50 per contract routing fee
for orders routed to NYSE Arca, Inc. (``NYSEArca'') in penny options.
The Exchange is proposing a $0.30 per contract routing fee
for orders routed to Phlx in order to recoup transaction and partial
clearing charges incurred by the Exchange when customer orders in the
symbols listed above (subject to Phlx ``taker'' fees), are routed to
Phlx.\5\
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\5\ Phlx charges a transaction fee of $0.25, together with a
clearing charge of $0.06 in the symbols. The Exchange proposes to
recoup $0.05 of the $0.06 clearing charge for customer orders.
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The Exchange is proposing these fees to recoup the majority of
transaction and clearing costs associated with routing customer orders
to each destination market. As with all fees, the Exchange may adjust
these routing fees by filing a new proposed rule change.
The Exchange has designated this proposal to be operative for
trades settling on or after March 2, 2010.
Routing Fees for Firms and Market Makers
The Exchange proposes a fixed routing fee of $0.55 for routing
orders for the account(s) of Firms (i.e., an order that clears as
``Firm'' with the Options Clearing Corporation (``OCC'')) and Market
Makers to away markets.
The Exchange notes that all U.S options exchanges charge fees for
Firm and Market Maker \6\ orders and that they are consistently higher
than fees for customer orders. Additionally, the pricing on the various
U.S options exchanges for such orders varies significantly from
exchange to exchange, with much more variation than for customer
orders.\7\ Accordingly, the Exchange is proposing the $0.55 per
contract side routing fee in order to capture the majority of the
transaction and clearing fees for Firm and Market Maker orders, while
making the Exchange's routing fees easier to calculate and predict for
members whose proprietary orders are routed away.
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\6\ The Exchange notes that some other options exchanges include
Market Maker transaction and clearing fees as ``broker-dealer''
fees.
\7\ There are, in fact, no customer transaction fees applicable
on BOX, CBOE, ISE, NYSEArca non-penny options, and Phlx options not
subject to the ``taker'' fee.
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Simply put, fixed routing fees are easier to comprehend by the
members whose orders are routed away. There is no uncertainty and it is
simpler for members acting as agent for other members to pass-through
fees to its customer. Currently, predicting, calculating and charging
back ``pass-through'' fees is an unduly burdensome, expensive and
complicated task for Exchange members whose orders are routed away. The
fixed routing fees for Firm and Market Maker orders should ease the
burden, expense and complexity of this task. Furthermore, fixed fees
are easier to manage and maintain for the Exchange, ensuring accurate
billing and accounting.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\8\ in general, and with Section
6(b)(4) of the Act,\9\ 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 or system
which NASDAQ operates or controls.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4).
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NASDAQ further believes that the proposed rule change is consistent
with Section 6(b)(5) of the Act \10\ in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest; and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers, or to regulate by virtue of any authority conferred by the Act
matters not related to the purposes of the Act or the administration of
the Exchange.
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\10\ 15 U.S.C. 78f(b)(5).
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Routing Fees for Customer Orders
The Exchange believes that the proposed routing fees applicable to
customer orders provides 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,
and are not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers. The proposed routing fees applicable to
customer orders are equitable and reasonable, in that they would apply
to all customer orders equally on the reasonable basis that the routing
fees are approximately equal to the transaction and clearing fees
charged to NOS and ultimately to the Exchange.\11\
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\11\ The Exchange notes that it will recoup less than the $0.06
clearing fee for orders routed to Phlx in options subject to the
Phlx ``taker'' fee.
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The routing fees applicable to customer orders are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers because, the Exchange believes, they are much easier to follow
and calculate, and as stated above, most U.S. options exchanges do not
charge transaction fees for customer orders. Therefore, the amount of
the routing fees are naturally less than the proposed fees applicable
to Firm and Market Maker orders routed to away markets.
Routing Fees for Firm and Market Maker Orders
The Exchange believes its proposed fixed routing fees applicable to
Firm and Market Maker orders are equitable, in that they would apply to
all such orders equally. Such orders are reasonably distinguished from
customer orders because most U.S. options exchanges do not charge
transaction fees for customer orders, whereas all U.S. options
exchanges assess transaction and clearing charges for Firm and Market
Maker orders. The Exchange believes that the proposed routing fees for
Firm and Market Maker orders are a reasonable approximation of across-
the-board transaction and clearing fees charged to NOS and ultimately
to the Exchange for such orders.
The Exchange believes that the fixed routing fee for Firm and
Market Maker orders schedule is reasonable and not designed to permit
unfair discrimination between customers, issuers, brokers, or dealers
because as
[[Page 12320]]
stated above, the away market transaction and clearing fees for
customer orders are generally significantly less than such fees for
Firm and Market Maker orders. The $0.55 fee is intended to approximate
the charges to the Exchange for routing such orders to away markets.
Additionally, the proposed fixed routing fees are intended to
simplify the process by which members calculate, predict and account
for routing fees. There is no consistent formula among the exchanges
for determining such charges. Members routing such orders are faced
with the monumental task of determining exactly what charges apply to
each exchange, and accounting for such charges relative to routing fees
charged by the various exchanges. Simply put, it is easier for members
to make such determinations on a real-time basis with one fixed rate
instead of seven different, often complicated, rates.
NASDAQ is one of eight options market in the national market system
for standardized options. Joining NASDAQ and electing to trade options
is entirely voluntary. Under these circumstances, NASDAQ's fees must be
competitive and low in order for NASDAQ to attract order flow, execute
orders, and grow as a market. NASDAQ thus believes that its fees are
fair and reasonable and consistent with the Exchange Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ 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.
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 \12\ and paragraph (f)(2) of Rule 19b-4 \13\
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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\12\ 15 U.S.C. 78s(b)(3)(A)(ii).
\13\ 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-2010-027 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-2010-027. 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 such 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
publicly available. All submissions should refer to File Number SR-
NASDAQ-2010-027 and should be submitted on or before April 5, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-5529 Filed 3-12-10; 8:45 am]
BILLING CODE 8011-01-P