[Federal Register Volume 81, Number 146 (Friday, July 29, 2016)]
[Notices]
[Pages 50029-50034]
[FR Doc No: 2016-17909]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78406; File No. SR-NASDAQ-2016-100]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify NASDAQ Options Market LLC Pricing at Chapter XV

July 25, 2016
    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 July 12, 2016, 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 the NASDAQ Options Market LLC's
(``NOM'') pricing at Chapter XV, Sections 2(1) and 2(6) to: (i) Amend

Customer \3\ and Professional \4\ Penny Pilot Options \5\ Rebate to Add
Liquidity tiers; (ii) amend the Customer and Professional Penny Pilot
Options Fee for Removing Liquidity; and (iii) amend the Market Access
and Routing Subsidy or ``MARS.''
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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 which is not for the
account of broker or dealer or for the account of a
``Professional.'' See Chapter XV.
    \4\ The term ``Professional'' or (``P'') means any person or
entity that (i) is not a broker or dealer in securities, and (ii)
places more than 390 orders in listed options per day on average
during a calendar month for its own beneficial account(s) pursuant
to Chapter I, Section 1(a)(48). All Professional orders shall be
appropriately marked by Participants.
    \5\ The Penny Pilot was established in March 2008 and was last
extended in 2016. 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); and 78037 (June 10, 2016), 81 FR 39299 (June 16, 2016) (SR-
NASDAQ-2016-052) (notice of filing and immediate effectiveness
extending the Penny Pilot through December 31, 2016). All Penny
Pilot Options listed on the Exchange can be found at http://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2016-15.
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    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
    The Exchange proposes three NOM pricing amendments at Chapter XV as
described below in greater detail.
Pricing Change Number 1: Chapter XV, Section 2(1)--Customer and
Professional Penny Pilot Options Rebate To Add Liquidity
    The Exchange proposes to amend the Customer and Professional Penny
Pilot Options Rebate to Add Liquidity tiers. Specifically, the Exchange
proposes to amend the current qualifications related to the Tier 8
Customer and Professional Penny Pilot Options rebate. The proposed new
Tier 8 qualifications should continue to attract Customer and
Professional order flow to NOM. This order flow benefits other market
participants through order interaction.
    Today, the Exchange pays Customer and Professional Penny Pilot
Options Rebates to Add Liquidity as follows:

------------------------------------------------------------------------
                                                           Rebate to add
                                      Monthly volume      liquidity  ($)
------------------------------------------------------------------------
Tier 1.........................  Participant adds                   0.20
                                  Customer,
                                  Professional, Firm,
                                  Non-NOM Market Maker
                                  and/or Broker-Dealer
                                  liquidity in Penny
                                  Pilot Options and/or
                                  Non-Penny Pilot
                                  Options of up to 0.10%
                                  of total industry
                                  customer equity and
                                  ETF option average
                                  daily volume (``ADV'')
                                  contracts per day in a
                                  month.
Tier 2.........................  Participant adds                   0.25
                                  Customer,
                                  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                   0.42
                                  Customer,
                                  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                   0.43
                                  Customer,
                                  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                   0.45
                                  Customer,
                                  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 b.......................  Participant has Total              0.45
                                  Volume of 100,000 or
                                  more contracts per day
                                  in a month, of which
                                  25,000 or more
                                  contracts per day in a
                                  month must be Customer
                                  and/or Professional
                                  liquidity in Penny
                                  Pilot Options.
Tier 7 b.......................  Participant has Total              0.47
                                  Volume of 150,000 or
                                  more contracts per day
                                  in a month, of which
                                  50,000 or more
                                  contracts per day in a
                                  month must be Customer
                                  and/or Professional
                                  liquidity in Penny
                                  Pilot Options.
Tier 8.........................  Participant adds                 c 0.48
                                  Customer,
                                  Professional, Firm,
                                  Non-NOM Market Maker
                                  and/or Broker-Dealer
                                  liquidity in Penny
                                  Pilot Options and/or
                                  Non-Penny Pilot
                                  Options above 0.75% or
                                  more of total industry
                                  customer equity and
                                  ETF option ADV
                                  contracts per day in a
                                  month, or Participant
                                  adds: (1) Customer and/
                                  or Professional
                                  liquidity in Penny
                                  Pilot Options and/or
                                  Non-Penny Pilot
                                  Options of 30,000 or
                                  more 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 (defined
                                  below).
------------------------------------------------------------------------

    Today, the Exchange pays a $0.48 per contract rebate \6\ to
Participants that add

Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-Dealer
liquidity in Penny Pilot Options and/or Non-Penny Pilot Options above
0.75% 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 30,000 or more 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.\7\ The Exchange is proposing to
continue to pay a $0.48 per contract rebate provided, NOM Participant
adds Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot Options
above 0.75% or more of total industry customer equity and ETF option
ADV contracts per day in a month, or Participant adds: (1) Customer
and/or Professional liquidity in Penny Pilot Options and/or Non-Penny
Pilot Options of 0.25% or more of total industry customer equity and
ETF option ADV contracts per day in a month,\8\ 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.
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    \6\ Note ``c,'' which is applicable to the Tier 8 rebate,
provides additional rebates to Participants that execute certain
volume on NOM. Participants that: (1) Add Customer, Professional,
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Penny
Pilot Options and/or Non-Penny Pilot Options of 1.15% or more of
total industry customer equity and ETF option ADV contracts per day
in a month receive an additional $0.02 per contract Penny Pilot
Options Customer and/or Professional Rebate to Add Liquidity for
each transaction which adds liquidity in Penny Pilot Options in that
month; or (2) add Customer, Professional, Firm, Non-NOM Market Maker
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 1.30% or more of total industry customer
equity and ETF option ADV contracts per day in a month receive an
additional $0.05 per contract Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity for each transaction which adds
liquidity in Penny Pilot Options in that month; or (3) (a) add
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options above 0.80% of total industry customer equity and ETF option
ADV contracts per day in a month, (b) add Customer, Professional,
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Non-
Penny Pilot Options above 0.15% of total industry customer equity
and ETF option ADV contracts per day in a month, and (c) execute
greater than 0.04% of Consolidated Volume (``CV'') via Market-on-
Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ Stock
Market Closing Cross within a month receive an additional $0.05 per
contract Penny Pilot Options Customer and/or Professional Rebate to
Add Liquidity for each transaction which adds liquidity in Penny
Pilot Options in a month. Consolidated Volume means the total
consolidated volume reported to all consolidated transaction
reporting plans by all exchanges and trade reporting facilities
during a month in equity securities, excluding executed orders with
a size of less than one round lot. For purposes of calculating
Consolidated Volume and the extent of an equity member's trading
activity, expressed as a percentage of or ratio to Consolidated
Volume, the date of the annual reconstitution of the Russell
Investments Indexes shall be excluded from both total Consolidated
Volume and the member's trading activity. This note ``c'' is not
being amended with this proposal.
    \7\ NOM Participants that have System Eligibility and have
executed the requisite number of Eligible Contracts in a month are
paid MARS rebates based on average daily volume in a month. See
Chapter XV, Section 2(6).
    \8\ For reference, in May 2016, 0.25% of total industry customer
equity and ETF option ADV equated to approximately 28,000 contracts.
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    The Exchange's proposal to amend the current qualification from
30,000 or more contracts per day in a month to 0.25% or more of total
industry customer equity and ETF option ADV contracts provides
Participants the ability to qualify for this tier in lower industry ADV
months because the percentage would be tied to the industry volume and
not represent a fixed number. If the industry volume were to increase
in a given month, the Participant will have greater opportunity to
execute a higher number of contracts because the entire industry has
more volume available to execute.
    For example in May 2016, 0.25% of total industry customer equity
and ETF option ADV contracts represented approximately 28,000 contracts
as compared to the requisite 30,000 contracts which Tier 8 currently
requires. Because volume was lower in the month of May 2016, market
participants would have been better able to continue to meet the Tier 8
requirement with a percentage tied to volume as compared to a fixed
number of contracts.
    The Exchange also proposes to amend note ``d,'' which applies to
the Customer and Professional Penny Pilot Options Rebate to Add
Liquidity tiers. Currently, note ``d'' provides that NOM Participants
that qualify for MARS Payment Tiers \9\ 1, 2 or 3 will receive an
additional $0.05 per contract in addition to any Penny Pilot Options
Customer and/or Professional Rebate to Add Liquidity Tiers they may
qualify for in that month, unless the Participant qualifies for a
higher note ``c'' rebate,\10\ in which case the Participants would
receive the appropriate note ``c'' rebate they qualified for in that
month.
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    \9\ MARS Payments are currently based on a 3 tier rebate based
on average daily volume (``ADV''). The Exchange pays a MARS Payment
of $0.07 for ADV of 2,500 Eligible Contracts. The Exchange pays a
MARS Payment of $0.09 for ADV of 5,000 Eligible Contracts. Finally,
the Exchange pays a MARS Payment of $0.11 for AVD of 10,000 Eligible
Contracts. The MARS Payment is 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. See Chapter XV, Section 2(6).
    \10\ The note ``c'' incentive in Chapter XV, Section 2 provides
that Participants that: (1) Add Customer, Professional, Firm, Non-
NOM Market Maker and/or Broker-Dealer liquidity in Penny Pilot
Options and/or Non-Penny Pilot Options of 1.15% or more of total
industry customer equity and ETF option ADV contracts per day in a
month will receive an additional $0.02 per contract Penny Pilot
Options Customer and/or Professional Rebate to Add Liquidity for
each transaction which adds liquidity in Penny Pilot Options in that
month; or (2) add Customer, Professional, Firm, Non-NOM Market Maker
and/or Broker-Dealer liquidity in Penny Pilot Options and/or Non-
Penny Pilot Options of 1.30% or more of total industry customer
equity and ETF option ADV contracts per day in a month will receive
an additional $0.05 per contract Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity for each transaction which adds
liquidity in Penny Pilot Options in that month; or (3) (a) add
Customer, Professional, Firm, Non-NOM Market Maker and/or Broker-
Dealer liquidity in Penny Pilot Options and/or Non-Penny Pilot
Options above 0.80% of total industry customer equity and ETF option
ADV contracts per day in a month, (b) add Customer, Professional,
Firm, Non-NOM Market Maker and/or Broker-Dealer liquidity in Non-
Penny Pilot Options above 0.15% of total industry customer equity
and ETF option ADV contracts per day in a month, and (c) execute
greater than 0.04% of Consolidated Volume (``CV'') via Market-on-
Close/Limit-on-Close (``MOC/LOC'') volume within the NASDAQ Stock
Market Closing Cross within a month will receive an additional $0.05
per contract Penny Pilot Options Customer and/or Professional Rebate
to Add Liquidity for each transaction which adds liquidity in Penny
Pilot Options in a month. Consolidated Volume shall mean the total
consolidated volume reported to all consolidated transaction
reporting plans by all exchanges and trade reporting facilities
during a month in equity securities, excluding executed orders with
a size of less than one round lot. For purposes of calculating
Consolidated Volume and the extent of an equity member's trading
activity, expressed as a percentage of or ratio to Consolidated
Volume, the date of the annual reconstitution of the Russell
Investments Indexes shall be excluded from both total Consolidated
Volume and the member's trading activity. NOM Participants that
qualify for a note ``c'' incentive receive the greater of the note
``c'' or note ``d'' incentive.
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    The Exchange proposes to amend note ``d'' of Chapter XV, Section
2(1) to lower the additional rebate on Penny Pilot Options Customer
and/or Professional Rebates to Add Liquidity from $0.05 to $0.03 per
contract. The Exchange believes that despite lowering the additional
incentive from $0.05 to $0.03 per contract, the note ``d'' incentive
will continue to incentivize NOM Participants to participate in MARS
and send qualifying order flow to the Exchange. The $0.03 per contract
incentive would continue to attract Penny Pilot Option liquidity to
NOM. All market participants benefit from the increased order
interaction when more order flow is available on NOM.
Pricing Change Number 2: Chapter XV, Section 2(6)--MARS Pricing
    The Exchange currently offers a Market Access and Routing Subsidy
or ``MARS'' to qualifying NOM Participants in Chapter XV, Section 2(6).
NOM Participants that have System Eligibility \11\ and have executed
the

requisite number of Eligible Contracts in a month are paid rebates
based on average daily volume (``ADV'') in a month. Today, MARS
Payments are currently based on a 3 tier rebate based on ADV. The
Exchange pays a MARS Payment of $0.07 for ADV of 2,500 Eligible
Contracts. The Exchange pays a MARS Payment of $0.09 for ADV of 5,000
Eligible Contracts. Finally, the Exchange pays a MARS Payment of $0.11
for ADV of 10,000 Eligible Contracts. The MARS Payment is 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.
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    \11\ 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 individually
executed marketable orders if NOM is at the national best bid or
offer (``NBBO''), regardless of size or time, 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. See Chapter
XV, Section 2(6).
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    The Exchange proposes to provide an additional incentive to the
MARS Payment in Chapter XV, Section 2(6) by offering NOM Participants
that qualify for Customer or Professional Penny Pilot Options Rebate to
Add Liquidity Tier 8 \12\ an additional $0.09 per contract rebate
applicable to MARS Payment tiers. This $0.09 rebate would be in
addition to any MARS Payment Tier \13\ on MARS Eligible Contracts that
the NOM Participant qualifies for in a given month. This incentive is
intended to encourage NOM Participants to continue to send more order
flow to the Exchange in either Penny Pilot or Non-Penny Pilot Options
to qualify for the Customer and Professional Penny Pilot Options Tier 8
rebate to earn the additional MARS Payment. All market participants
benefit from the increased order interaction when more order flow is
available on NOM.
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    \12\ With the proposal herein, to be eligible for Tier 8, a
Participant is required to add Customer, Professional, Firm, Non-NOM
Market Maker and/or Broker-Dealer liquidity in Penny Pilot Options
and/or Non-Penny Pilot Options above 0.75% 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 0.25% or more
of total industry customer equity and ETF option ADV contracts per
day in a month, and (2) has added liquidity in all securities
through one or more of its Nasdaq Market Center MPIDs that represent
1.00% or more of Consolidated Volume in a month or qualifies for
MARS.
    \13\ See note 9 above.
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Pricing Change Number 3: Chapter XV, Section 2(1)--Penny Pilot Options
Fee for Removing Liquidity
    The Exchange is proposing to amend note ``4,'' which is currently
reserved, to lower the Customer and Professional Penny Pilot Options
Fees for Removing Liquidity from $0.50 \14\ to $0.48 per contract,
excluding SPY,\15\ for NOM Participants that qualify for MARS Payment
Tiers 1, 2 or 3.
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    \14\ Currently, the Customer and Professional Penny Pilot
Options Fees for Removing Liquidity are $0.50 per contract.
    \15\ Note ``3'' of the Pricing Schedule offers Customers and
Professionals that remove liquidity in SPY Options a lower Customer
and Professional Penny Pilot Options Fees for Removing Liquidity of
$0.47 per contract.
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    The Exchange believes that offering NOM Participants the
opportunity to lower the Customer and Professional Penny Pilot Options
Fees for Removing Liquidity by qualifying for MARS Payment Tiers 1, 2
or 3 and transacting MARS Eligible Contracts,\16\ will incentivize NOM
Participants to send more MARS Eligible Contracts to NOM. All market
participants benefit from the increased order interaction when more
order flow is available on NOM.
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    \16\ MARS Eligible Contracts include electronic Firm, Non-NOM
Market Maker, Broker-Dealer or Joint Back Office orders that add
liquidity, excluding Mini Options. See Chapter XV, Section 2(6).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \19\
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    \19\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission
\20\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of
a market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\21\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \22\
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    \20\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \21\ See NetCoalition, at 534-535.
    \22\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \23\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes that these views apply with equal force to the options
markets.
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    \23\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
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Pricing Change Number 1: Chapter XV, Section 2(1)--Customer and
Professional Penny Pilot Options Rebate to Add Liquidity
    The Exchange's proposal to amend the current qualifications related
to the Tier 8 Customer and Professional Penny Pilot Options Rebate to
Add Liquidity is reasonable because the rebate should continue to
attract Customer and Professional order flow to NOM. The additional
Customer and Professional order flow to NOM benefits other market
participants by providing additional liquidity with which to interact.
Amending the current qualification from 30,000 or more contracts per
day in a month to 0.25% or more of total industry customer equity and
ETF option ADV contracts provides Participants the ability to qualify
for this tier in months with lower industry ADV because the required
number of contracts would be directly correlated to industry volume.
With this proposal, members that consistently send order flow to the
Exchange may continue to qualify for

Tier 8 rebates. The Exchange's proposal to amend the current
qualification from 30,000 or more contracts per day in a month to 0.25%
or more of total industry customer equity and ETF option ADV contracts
provides Participants the ability to qualify for this tier in lower
industry ADV months because the percentage would be tied to the
industry volume and not represent a fixed number. If the industry
volume were to increase in a given month the Participant will have
greater opportunity to execute a higher number of contracts because the
entire industry has more volume available to execute. The Exchange
notes that utilizing a percentage as compared to a fixed number is not
novel. Today, NOM Customer and Professional Penny Pilot Options Tiers 1
through 5 utilize a percentage of total industry customer equity and
ETF option ADV contracts per day in a month.\24\
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    \24\ See Chapter XV, Section 2(1).
---------------------------------------------------------------------------

    The Exchange's proposal to amend the current qualifications related
to the Tier 8 Customer and Professional Penny Pilot Options Rebate to
Add Liquidity is equitable and not unfairly discriminatory because all
Participants are eligible to earn rebates. These rebates would be
uniformly paid to all qualifying Participants.
    The Exchange's proposal to amend note ``d,'' which applies to any
Customer and Professional Penny Pilot Options Rebates to Add Liquidity
tier, to lower the per contract Penny Pilot Options Customer and/or
Professional Rebate to Add Liquidity incentive from $0.05 to $0.03 per
contract is reasonable as discussed hereafter. Despite lowering the
incentive, the reduced rebate would continue to attract Penny Pilot
Options liquidity to NOM and also would continue to incentivize market
participants to participate in MARS. All market participants benefit
from the increased order interaction when more order flow is available
on NOM.
    The Exchange's proposal to amend note ``d,'' which applies to the
additional Customer and Professional Penny Pilot Options Rebate to Add
Liquidity tiers, to lower the additional per contract Penny Pilot
Options Customer and/or Professional Rebate to Add Liquidity incentive
from $0.05 to $0.03 per contract, is equitable and not unfairly
discriminatory because all Participants are eligible to earn rebates
and the rebates would be uniformly paid to all qualifying Participants.
In addition, any Participant may qualify for MARS provided they have
the requisite System Eligibility.
Pricing Change Number 2: Chapter XV, Section 2(6)--MARS Pricing
    The Exchange's proposal to amend the MARS Payment to offer NOM
Participants that qualify for Customer or Professional Penny Pilot
Options Rebate to Add Liquidity Tier 8 an additional $0.09 per contract
rebate in addition to any MARS Payment tier on MARS Eligible Contracts
the NOM Participant qualifies for in a given month is reasonable
because it will encourage NOM Participants to continue to send more
order flow to the Exchange in either Penny Pilot or Non-Penny Pilot
Options to qualify for the higher MARS Payment. All market participants
benefit from the increased order interaction when more order flow is
available on NOM.
    The Exchange's proposal to amend the MARS Payment to offer NOM
Participants that qualify for Customer or Professional Penny Pilot
Options Rebate to Add Liquidity Tier 8 an additional $0.09 per contract
rebate in addition to any MARS Payment tier on MARS Eligible Contracts
the NOM Participant qualifies for in a given month is equitable and not
unfairly discriminatory because 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 MARS
Eligible Contracts.
Pricing Change Number 3: Chapter XV, Section 2(1)--Penny Pilot Options
Fee for Removing Liquidity
    The Exchange's proposal to amend note ``4'' to lower the Customer
and Professional Penny Pilot Options Fees for Removing Liquidity from
$0.50 to $0.48 per contract, excluding SPY, provided NOM Participants
qualify for MARS Payment Tiers 1, 2 or 3 is reasonable for the reasons
which follow. NOM Participants will be encouraged to send additional
electronic MARS Eligible Contracts \25\ to NOM to obtain the fee
reduction. This should in turn incentivize NOM Participants to send
more order flow to NOM. All market participants benefit from the
increased order interaction when more order flow is available on NOM.
Excluding SPY from the note ``4'' discount is reasonable because SPY
options are among the most highly liquid options. Today, the Exchange
prices SPY differently from other Multiply-Listed Options.\26\ Other
options exchanges price differently by options symbol.\27\
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    \25\ See note 16 above.
    \26\ See current note ``3'' at Chapter XV, Section 2(1).
    \27\ See NASDAQ PHLX LLC's (``Phlx'') Pricing Schedule at
Section I which contains pricing for options overlying SPY that is
different from other Multiply Listed Options pricing in Section II
of that Pricing Schedule.
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    The Exchange's proposal to amend note ``4'' to lower the Customer
and Professional Penny Pilot Options Fees for Removing Liquidity from
$0.50 to $0.48 per contract, excluding SPY, provided NOM Participants
qualify for MARS Payment Tiers 1, 2 or 3 is equitable and not unfairly
discriminatory because all Participants may qualify for MARS provided
they have the requisite System Eligibility. The Exchange will also
uniformly assess the discounted Customer and Professional Penny Pilot
Options Fees for Removing Liquidity to qualifying Participants.
Excluding SPY from the note ``4'' discount is equitable and not
unfairly discriminatory because the Exchange pays discounts today for
SPY options transactions. Today, note ``3'' of Chapter XV, Section 2(1)
assesses Customers and Professionals that remove liquidity in SPY
Options a $0.47 per contract discounted Customer and Professional Penny
Pilot Options Fees for Removing Liquidity. Both notes ``3'' and ``4''
of Chapter XV, Section 2(1) are paid uniformly to all qualifying
Participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
    The proposed fee changes are competitive and do not impose a burden

on inter-market competition. Today, other venues offer rebate programs,
discounted fees and incentives for maintain routing systems.\28\ In
sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
changes will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
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    \28\ See Phlx's Pricing Schedule at Section B (Customer Rebate
Program) and Section IV, Part E (MARS). Also, the International
Securities Exchange LLC (``ISE'') offers a lower Market Maker Taker
Fee for Select Symbols of $0.44 per contract for Market Makers with
total affiliated Priority Customer Complex ADV of 150,000 or more
contracts. See ISE's Fee Schedule.
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Pricing Change Number 1: Chapter XV, Section 2(1)--Customer and
Professional Penny Pilot Options Rebate To Add Liquidity
    The Exchange's proposal to amend the current qualifications related
to the Tier 8 Customer and Professional Penny Pilot Options Rebate to
Add Liquidity does not impose an undue burden on intra-market
competition because all Participants are eligible to earn rebates and
these rebates would be uniformly paid to all qualifying Participants.
    The Exchange's proposal to amend note ``d,'' which applies to the
Customer and Professional Penny Pilot Options Rebate to Add Liquidity
tiers, to lower the additional amount of the per contract Penny Pilot
Options Customer and/or Professional Rebate to Add Liquidity from $0.05
to $0.03 per contract does not impose an undue burden on intra-market
competition because all Participants are eligible to earn rebates and
these rebates would be uniformly paid to all qualifying Participants.
In addition, any Participant may qualify for MARS provided they have
the requisite System Eligibility.
Pricing Change Number 2: Chapter XV, Section 2(6)--MARS Pricing
    The Exchange's proposal to amend the MARS Payment to offer NOM
Participants that qualify for Customer or Professional Penny Pilot
Options Rebate to Add Liquidity Tier 8 an additional $0.09 per contract
rebate, in addition to any MARS Payment tier on MARS Eligible Contracts
the NOM Participant qualifies for in a given month, does not impose an
undue burden on intra-market competition because any Participant may
qualify for MARS provided they have the requisite System Eligibility.
The Exchange will also uniformly pay MARS Payments to qualifying
Participants on all Eligible Contracts.
Pricing Change Number 3: Chapter XV, Section 2(1)--Penny Pilot Options
Fee for Removing Liquidity
    The Exchange's proposal to amend note ``4'' to lower the Customer
and Professional Penny Pilot Options Fees for Removing Liquidity from
$0.50 to $0.48 per contract, excluding SPY, provided NOM Participants
qualify for MARS Payment Tiers 1, 2 or 3 does not impose an undue
burden on intra-market competition because all Participants may qualify
for MARS provided they have the requisite System Eligibility. The
Exchange will also uniformly assess the discounted Customer and
Professional Penny Pilot Options Fees for Removing Liquidity to
qualifying Participants. Excluding SPY does not impose an undue burden
on intra-market competition because today, the Exchange offers a
discount for SPY options, which discounts are uniformly paid to all
Participants. Today, other options exchanges price differently by
options symbol.\29\
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    \29\ See note 27.
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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.\30\
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    \30\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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_ADDRESS>Please include
File Number SR-NASDAQ-2016-100 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-2016-100. 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 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 available publicly. All
submissions should referto File Number SR-NASDAQ-2016-100, and should
be submitted on or before August 19, 2016.
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    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17909 Filed 7-28-16; 8:45 am]
 BILLING CODE 8011-01-P