Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchange proposes to modify Chapter VII, Section 6 (Market Maker Quotations) of the NASDAQ Options Market, LLC ("NOM"), to eliminate market maker pre-opening obligations on NOM. The Exchange also proposes to modify Chapter VII, Section 5 (Obligations of Market Makers) to conform it to Section 6.
The text of the proposed rule change is available at
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.
The purpose of the proposed rule change is to modify Chapter VII, Section 6 of the NOM rulebook to remove obligations imposed on NOM market makers ("Market Makers")
Currently, Section 6 of Chapter VII requires that a Market Maker must enter continuous bids and offers in options in which the Market Maker is registered on NOM, an all-electronic market. Specifically, Section 6(d)(i) requires that on a daily basis a Market Maker must: (1) Participate in the pre-opening phase; and (2) thereafter make markets consistent with the applicable quoting requirements specified in NOM rules, on a continuous basis in at least sixty percent (60%) of the series in options in which the Market Maker is registered. Additionally, subsection 6(d)(i)1) indicates that to satisfy the Section 6(d)(i) requirement with respect to quoting a series, a Market Maker must: (3) quote such series 90% of the trading day (as a percentage of the total number of minutes in such trading day) or such higher percentage as Nasdaq may announce in advance.
Subsequent to this proposal, a Market Maker will continue to have all of the other quoting obligations that the Market Maker now has pursuant to Section 6, and pursuant to Section 6(d)(i), during regular market hours will be responsible to quote on a continuous basis in at least sixty percent (60%) of the series in options in which the Market Maker is registered for 90% of the trading day (as a percentage of the total number of minutes in such trading day). The change that the Exchange is proposing to Section 6(d)(i) is removal of the Market Maker pre-opening quoting obligation and the insertion of text clarifying that the quoting obligation is during regular market hours.
Phlx and ISE have a continuous quoting obligation during their regular market hours, which are similar to NOM's market hours.
Exchange Market Makers have noted that unlike NOM, other options exchanges do not have a pre-opening quoting obligation for their market makers, and have requested NOM to eliminate the pre-opening obligation so that NOM rules are similar to those of other options exchanges such as, for example, Phlx. This proposed rule change levels the playing field in respect of pre-opening obligations while leaving all other NOM quoting requirements intact.
Moreover, the Exchange believes that its proposal to put NOM market makers in the same position as market makers on other exchanges will not have a negative effect on NOM investors and traders ("NOM participants"). In particular, the Exchange believes the removal of pre-opening market maker obligations on NOM will have no impact on the functioning of the NOM opening process and in turn will not negatively impact NOM participants. The Exchange generally requires two other option markets to be open prior to NOM initiating an opening process.
The Exchange believes further that the proposed rule change eliminating pre-opening obligations should be pro-competitive in that it will attract more Market Makers, and additional liquidity, onto NOM. This should be advantageous to traders and investors executing trading and hedging strategies on the Exchange.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act
Additionally, the Exchange believes the proposal removes a market maker quoting requirement that is unnecessary, as evidenced by the fact that it does not exist on other competitive markets. The Exchange operates in a highly competitive market comprised of ten U.S. options exchanges in which sophisticated and knowledgeable market participants can, and do, send order flow to competing exchanges if they deem trading practices at a particular exchange to be onerous or cumbersome. With this proposal, the Market Maker will be relieved of a market maker requirement that does not materially improve the quality of the markets. On the contrary, the pre-open phase obligation creates an additional obligation and burden on NOM Market Makers that does not exist on numerous other competitive markets. The Exchange believes that in this competitive marketplace, the impact of the pre-open trading practice that exists on the Exchange today compels this proposal. It will allow Market Makers on the Exchange to follow rules that are similar to the rules of other options exchanges that do not impose pre-opening obligations on their market makers, and will allow Market Makers to focus on aspects of their operations that contribute to the market in a more efficient and meaningful way.
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. NASDAQ's proposal to eliminate the pre-trading obligation for Market Makers is consistent with what is already occurring on other markets.
Written comments were neither solicited nor received.
Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
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:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.