Skip to Content

Notice

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Routing Fees

Document Details

Information about this document as published in the Federal Register.

Enhanced Content

Relevant information about this document from Regulations.gov provides additional context. This information is not part of the official Federal Register document.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

April 16, 2012.

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 11, 2012, The NASDAQ Stock Market LLC (“NASDAQ” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by NASDAQ. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The NASDAQ Stock Market LLC proposes to modify Chapter XV, Section 2, governing pricing for NASDAQ members using the NASDAQ Options Market (“NOM”), NASDAQ's facility for executing and routing standardized equity and index options.

The text of the proposed rule change is available on the Exchange's Web site at http://www.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. 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 purpose of this rule filing is to recoup costs that the Exchange incurs for routing and executing Customer, Firm, Market Maker and Professional orders in equity and index options to the BATS Exchange, Inc. (“BATS”). The Exchange's Routing Fees are located at Chapter XV, Section 2, entitled “NASDAQ Options Market-Fees and Rebates,” and are as follows:

ExchangeCustomerFirmMMProfessional
BATS$0.55$0.55$0.55$0.55
BOX0.110.550.550.11
CBOE0.110.550.550.31
CBOE orders greater than 99 contracts in NDX, MNX ETFs, ETNs & HOLDRs0.290.550.550.31
C20.550.550.550.55
ISE0.110.550.550.29
ISE Select Symbols *0.310.550.550.39
NYSE Arca Penny Pilot0.550.550.550.55
NYSE Arca Non Penny Pilot0.110.550.550.11
NYSE AMEX0.110.550.550.31
PHLX (for all options other than PHLX Select Symbols)0.110.550.550.31
PHLX Select Symbols **0.500.550.550.51
* These fees are applicable to orders routed to ISE that are subject to Rebates and Fees for Adding and Removing Liquidity in Select Symbols. See ISE's Schedule of Fees for the complete list of symbols that are subject to these fees.
** These fees are applicable to orders routed to PHLX that are subject to Rebates and Fees for Adding and Removing Liquidity in Select Symbols. See PHLX's Pricing Schedule for the complete list of symbols that are subject to these fees.

The Exchange is proposing to amend the current BATS Routing Fees by renaming those fees as “BATS Penny.” [3] The Exchange is not proposing to amend the current rate of $0.55 per contract for Customers, Firms, Market Makers, and Professionals but proposes to apply those fees solely to Penny options routed to BATS.

The Exchange proposes to create new Routing Fees to BATS for non-Penny options. BATS recently adopted a $0.75 per contract non-Penny fee for customers that remove liquidity from the BATS Options order book and a $0.80 per contract non-Penny fee for professionals, firms and market makers that remove liquidity from the BATS Options order book.[4] The Exchange is proposing to adopt BATS non-Penny Routing Fees to account for the new BATS fees to remove liquidity and other routing costs incurred by the Exchange when routing to BATS, as follows:

ExchangeCustomerFirmMMProfessional
BATS non-Penny$0.86$0.91$0.91$0.91

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 certain exchanges, a transaction fee is also charged in certain symbols, which are passed through to the Exchange. The Exchange currently recoups clearing and transaction charges incurred by the Exchange when Customer, Firm, Market Maker and Professional orders are routed to an away market. The Exchange currently recoups clearing and transaction charges incurred by the Exchange as well as certain other costs incurred by the Exchange when routing to away markets, such as administrative and technical costs associated with operating NOS, the Exchange's exclusive order router; the Exchange's membership fees at away markets; and technical costs associated with routing.[5]

The Exchange is adopting BATS non-Penny Routing Fees to account for the BATS remove fees of $0.75 per contract for customer orders and $0.80 per contract for professional, firm and market maker orders, the $0.06 clearing cost and another $0.05 per contract associated with administrative and technical costs associated with operating NOS.

As with all fees, the Exchange may adjust these Routing Fees in response to competitive conditions by filing a new proposed rule change.

2. Statutory Basis

NASDAQ NASDAQ [sic] believes that the proposed rule changes are consistent with the provisions of Section 6 of the Act,[6] in general, and with Section 6(b)(4) of the Act,[7] 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.

The Exchange believes that the proposed amendment to the current BATS Routing Fees to rename those fees as “BATS Penny” and apply those fees to Penny options routed to BATS and adopt separate Routing Fees for non-Penny options routed to BATS is reasonable because the two separate categories take into account the different fees to remove liquidity assessed by BATS for non-Penny versus Penny options. The Exchange seeks to recoup costs incurred when routing orders to BATS on behalf of its members.

The Exchange believes that the proposed amendment to the current BATS Routing Fees to rename those fees as “BATS Penny” and apply those fees to Penny options routed to BATS and adopt separate Routing Fees for non-Penny options routed to BATS is equitable and not unfairly discriminatory because the Exchange will uniformly apply the BATS Penny as well as BATS non-Penny Routing Fees to its members based on the type of options orders routed to BATS.[8]

The proposed BATS non-Penny Routing Fees are reasonable because they seek to recoup costs that are incurred by the Exchange when routing Customer, Firm, Market Maker and Professional orders to BATS on behalf of members. Each destination market's transaction charge varies and there is a standard clearing charge for each transaction incurred by the Exchange along with other administrative and technical costs that are incurred by the Exchange. The Exchange believes that the proposed Routing Fees would enable the Exchange to recover the remove fees assessed by BATS for non-Penny options, plus clearing and other administrative and technical fees for the execution of such orders when routed to BATS. The Exchange also believes that the proposed BATS non-Penny Routing Fees are equitable and not unfairly discriminatory because they would be uniformly applied to all non-Penny orders that are routed to BATS.

With respect to the Firm and Market Maker Routing Fees, the Exchange initially proposed to assess fixed Routing Fees of $0.55 per contract applicable to all away markets.[9] The Exchange noted in that rule change that pricing on the various options exchanges varies significantly from exchange to exchange for non-Customer orders. Accordingly, the Exchange proposed a $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. In addition, fixed Routing Fees are easier to comprehend by the members whose orders are routed away. Further, predicting, calculating and charging back “pass-through” fees is an unduly burdensome, expensive and complicated task for members whose orders are routed away. The Exchange noted that 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. The Exchange believes its proposal to increase the BATS non-Penny Customer Routing Fee from $0.55 per contract to $0.86 per contract and the Professional, Firm and Market Maker Routing Fees from $0.55 per contract to $0.91 per contract is reasonable because the fees proposed by BATS are not within the range of fees assessed by other exchanges since the recent increase in the BATS fee to remove liquidity from $0.44 per contract to $0.75 per contract for customer non-Penny options and from $0.44 per contract to $0.80 for professionals, firms and market makers. The Exchange believes it is reasonable to recoup the BATS remove fees plus the clearing and other costs to recoup Routing Fees. The Exchange believes that the increase to the Firm and Market Maker non-Penny BATS Routing Fees are equitable and not unfairly discriminatory because, as previously mentioned, those fees would be similarly calculated for Customers, Firms, Market Makers and Professionals.[10] Additionally, the non-Penny BATS Routing Fees would be uniformly assessed for all non-Penny orders routed to BATS.

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.

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.[11] 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 necessary or appropriate in the public interest, for the protection of investors, or 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

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-2012-050. 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 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-2012-050 and should be submitted on or before May 11, 2012.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[12]

Kevin M. O'Neill,

Deputy Secretary.

Footnotes

3.  BATS defines Penny options as those issues that are quoted pursuant to BATS Rule 21.5, Interpretation and Policy .01.

Back to Citation

4.  See SR-BATS-2012-015.

Back to Citation

5.  In addition to membership fees and transaction fees, the Exchange also incurs an Options Regulatory Fee when routing to an away market that assesses that fee.

Back to Citation

8.  See note 3.

Back to Citation

9.  See Securities Exchange Act Release No. 61666 (March 5, 2010), 75 FR 12318 (March 15, 2010) (SR-NASDAQ-2010-027).

Back to Citation

10.  The Exchange's proposed non-Penny BATS Routing Fees are calculated similarly for all participants by adding the fee to remove liquidity assessed by BATS for the particular market participant plus a fee of $.11 per contract which represents clearing and other costs noted herein.

Back to Citation

11.  15 U.S.C. 78s(b)(3)(A)(ii).

Back to Citation

[FR Doc. 2012-9529 Filed 4-19-12; 8:45 am]

BILLING CODE 8011-01-P