[Federal Register Volume 80, Number 50 (Monday, March 16, 2015)]
[Notices]
[Pages 13641-13646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-05857]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74460; File No. SR-Phlx-2015-21]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Customer Rebate Program, Multiply Listed Options, PIXL Pricing

March 10, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 26, 2015, NASDAQ OMX PHLX LLC (``Phlx'' 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to modify the Phlx Pricing Schedule 
(``Pricing Schedule''). Specifically, the Exchange proposes to amend 
pricing in Section B, entitled ``Customer Rebate Program,'' Section II, 
entitled ``Multiply Listed Options Fees,'' \3\ and Section IV, Part A, 
entitled ``PIXL Pricing,'' \4\ of the Pricing Schedule. The Exchange 
proposes these amendments in order to: (i) Establish a cap on rebates 
specifically for electronic Simple PIXL and Complex \5\ PIXL Orders and 
not pay rebates when electronic \6\ Customer \7\ Complex PIXL Orders 
execute against electronic Complex PIXL Initiating Orders; (ii) 
increase the assessment of fees for electronic Firm \8\ Simple Orders 
underlying options in AAPL, BAC, EEM, FB, FXI, IWM, QQQ, TWTR, VXX and 
XLF; \9\ (iii) increase the assessment of fees for electronic Complex 
Orders for Professionals,\10\ Firms and Broker-Dealers; \11\ (iv) 
increase the assessment of fees for adding liquidity in Penny Pilot 
Options \12\ for Specialists \13\ and Market Makers; \14\ (v) clarify 
that the fee for Specialists and Market Makers that have reached their 
Monthly Market Maker Cap \15\ in a non-complex electronic auction will 
include transactions which execute against an order for which the 
Exchange broadcast an order exposure alert; (vi) amend the Initiating 
Order Fee for Simple PIXL and Complex PIXL Initiating Orders; and (vii) 
amend the requirements to receive the PIXL Initiating Order Fee 
discount to require a member or member organization under Common 
Ownership \16\ to qualify for a Tier 4 or Tier 5 Customer Rebate in 
Section B of the Pricing Schedule.
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    \3\ This includes options overlying equities, exchange traded 
funds (``ETFs''), exchange traded notes (``ETNs'') and indexes which 
are Multiply Listed.
    \4\ PIXL\SM\ is the Exchange's price improvement mechanism known 
as Price Improvement XL or PIXL. See Rule 1080(n).
    \5\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or ETF coupled with the purchase or sale of 
options contract(s). See Exchange Rule 1080, Commentary .08(a)(i) 
[sic].
    \6\ A transaction resulting from an order that was 
electronically delivered utilizes Phlx XL. See Exchange Rules 1014 
and 1080. Electronically delivered orders do not include orders 
transacted on the Exchange floor. A transaction resulting from an 
order that is non-electronically-delivered is represented on the 
trading floor by a floor broker. See Exchange Rule 1063. All orders 
will be either electronically or non-electronically delivered.
    \7\ The term ``Customer'' defines a person or entity that is 
neither a broker-dealer nor a direct or indirect affiliate of a 
broker-dealer, and includes a ``Professional'' as defined in Rule 
1000(b)(14). See Securities Exchange Act Release Nos. 66755 (April 
6, 2012), 77 FR 22037 (April 12, 2012) (SR-Phlx-2012-42) (notice of 
filing and immediate effectiveness).
    \8\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation.
    \9\ AAPL, BAC, EEM, FB, FXI, IWM, QQQ, TWTR, VXX and XLF are 
currently Penny Pilot options (together ``certain Penny Options''). 
The $ 0.27 per contract pricing proposed herein is symbol-specific 
and will continue to apply to these symbols whether or not they are 
deleted from or added to the Penny Pilot.
    \10\ The term ``Professional'' 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). See Rule 
1000(b)(14).
    \11\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \12\ The Penny Pilot was established in January 2007 and was 
last extended in 2014. See Securities Exchange Act Release Nos. 
55153 (January 23, 2007), 72 FR 4553 (January 31, 2007) (SR-Phlx-
2006-74) (notice of filing and approval order establishing Penny 
Pilot); and 73688 (November 25, 2014), 79 FR 71484 (December 2, 
2014) (SR-Phlx-2014-77) (notice of filing and immediate 
effectiveness extending the Penny Pilot through June 30, 2015). All 
Penny Pilot Options listed on the Exchange can be found at http://www.nasdaqtrader.com/Micro.aspx?id=phlx.
    \13\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \14\ A ``Market Maker'' includes Registered Options Traders 
(Rule 1014(b)(i) and (ii)), which includes Streaming Quote Traders 
(see Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see 
Rule 1014(b)(ii)(B)). Directed Participants are also market makers.
    \15\ Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $500,000 for: (i) Electronic and floor Option 
Transaction Charges; (ii) QCC Transaction Fees (as defined in 
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)); 
and (iii) fees related to an order or quote that is contra to a PIXL 
Order or specifically responding to a PIXL auction [sic]. The 
trading activity of separate Specialist and Market Maker member 
organizations is aggregated in calculating the Monthly Market Maker 
Cap if there is Common Ownership between the member organizations. 
All dividend, merger, short stock interest, reversal and conversion, 
jelly roll and box spread strategy executions (as defined in Section 
II) are excluded from the Monthly Market Maker Cap.
    \16\ The term ``Common Ownership'' shall mean members or member 
organizations under 75% common ownership or control.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.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 purpose of this filing is to modify the Pricing Schedule to 
specifically amend fees in Section B, entitled ``Customer Rebate 
Program,'' Section II, entitled ``Multiply Listed Options Fees,'' and 
Section IV, Part A, entitled ``PIXL Pricing.'' The Exchange proposes

[[Page 13642]]

various amendments to the Pricing Schedule as described below.
Section B--Customer Rebate Program
    Currently, the Exchange has a Customer Rebate Program consisting of 
five tiers that pays Customer rebates on two categories, A and B,\17\ 
of transactions. A Phlx member qualifies for a certain rebate tier 
based on the percentage of total national customer volume in Multiply 
Listed equity and ETFs options classes, excluding SPY Options that it 
transacts monthly on Phlx. The Exchange calculates Customer volume in 
Multiply Listed Options (including SPY options) by totaling 
electronically-delivered and executed volume, excluding volume 
associated with electronic Qualified Contingent Cross Orders,\18\ as 
defined in Exchange Rule 1080(o).\19\ The Exchange proposes, as 
discussed below, to establish a cap for Simple PIXL Orders (Category A) 
and Complex PIXL Orders (Category B) rebates. Also, the Exchange is 
proposing to not offer rebates when Customer Complex PIXL Orders 
execute against Complex PIXL Initiating Orders for Category B rebates.
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    \17\ Category A and Category B rebates are described below.
    \18\ A QCC Order is comprised of an order to buy or sell at 
least 1000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The QCC Order must be executed at a price at or between 
the National Best Bid and Offer and be rejected if a Customer order 
is resting on the Exchange book at the same price. A QCC Order shall 
only be submitted electronically from off the floor to the PHLX XL 
II System. See Rule 1080(o). See also Securities Exchange Act 
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate 
the execution of stock/option Qualified Contingent Trades (``QCTs'') 
that satisfy the requirements of the trade through exemption in 
connection with Rule 611(d) of the Regulation NMS).
    \19\ Members and member organizations under common ownership may 
aggregate their Customer volume for purposes of calculating the 
Customer Rebate Tiers and receiving rebates. Common ownership means 
members or member organizations under 75% common ownership or 
control.
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    Currently, a Category A Customer rebate is paid to members 
executing electronically-delivered Customer Simple Orders in Penny 
Pilot Options and Customer Simple Orders in Non-Penny Pilot Options in 
Section II symbols. Rebates are paid on Customer PIXL Orders in Section 
II symbols that execute against non-Initiating Order interest. In the 
instance where member organizations qualify for Tier 4 or higher in the 
Customer Rebate Program, Customer PIXL Orders that execute against a 
PIXL Initiating Order are paid a rebate of $0.14 per contract. Today 
there is no rebate cap. The Exchange proposes to establish a cap for 
Category A rebates as follows: rebates on Customer PIXL Orders will be 
capped at 4,000 contracts per order for Simple PIXL Orders. The 
Exchange believes that the Category A rebates will continue to 
encourage members to send Customer liquidity to Phlx despite the cap on 
PIXL Simple Order rebates at the proposed 4,000 contracts.
    Currently, a Category B rebate is paid to members executing 
electronically-delivered Customer Complex Orders in Penny Pilot Options 
and Non-Penny Pilot Options in Section II symbols. Rebates are paid on 
Customer PIXL Complex Orders in Section II symbols that execute against 
non-Initiating Order interest. In the instance where member 
organizations qualify for Tier 4 or higher in the Customer Rebate 
Program, Customer Complex PIXL Orders that execute against a Complex 
PIXL Initiating Order are paid a rebate of $0.17 per contract. The 
Category B rebate is not paid when an electronically-delivered Customer 
Complex Order, including Customer Complex PIXL Order, executes against 
another electronically-delivered Customer Complex Order. Today there is 
no rebate cap. The Exchange proposes to establish a cap for Category B 
Customer Complex Order rebates as follows: rebates on Customer PIXL 
Orders will be capped at 4,000 contracts per order leg for Complex PIXL 
Orders. The Exchange believes that the Category B rebates will continue 
to encourage members to send Customer liquidity to Phlx despite the cap 
on PIXL Complex Order rebates at the proposed 4,000 contracts per order 
leg.
    The Exchange also proposes to amend the rule change to specify that 
Category B Customer Complex PIXL Orders that execute against a Complex 
PIXL Initiating Order will not be paid a rebate. As noted above, the 
Category B rebate is not paid when an electronically-delivered Customer 
Complex Order, including Customer Complex PIXL Order, executes against 
another electronically-delivered Customer Complex Order, which includes 
a Complex PIXL Initiating Order.
Section II--Multiply Listed Options
    The Exchange proposes to amend the discounted amount that is 
currently assessed to a Firm for electronic orders in certain Penny 
Options. Today, the Exchange assesses a Firm a $0.48 per contract 
Options Transaction Charge for electronic transactions in Penny Pilot 
Options and a $0.70 per contract Options Transaction Charge for Non-
Penny Pilot Options. The Exchange also offers a discount to Firms 
transacting electronic Simple Orders in certain Penny Options of $0.25 
per contract. The Exchange is proposing to increase the discount fee 
from $0.25 to $0.27 per contract,\20\ resulting in a higher effective 
fee. Despite the increase in the discount fee, the Exchange believes 
that Firms will continue to be incentivized to transact volume in these 
symbols.
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    \20\ The fee reduction today is only applicable to Penny Pilot 
Options as all of the symbols, AAPL, BAC, EEM, FB, FXI, IWM, QQQ, 
TWTR, VXX and XLF, are Penny Pilot symbols.
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    The Exchange proposes to increase the discount fee for electronic 
Complex Orders to Professionals, Broker-Dealers and Firms in Penny and 
Non-Penny Pilot Options regarding electronic Complex Orders. Today, 
Professionals, Broker-Dealers and Firms are offered the opportunity to 
reduce Options Transaction Charges in Penny Pilot Complex Orders from 
$0.48 to $0.30 per contract and to reduce Options Transaction Charges 
in Non-Penny Pilot Complex Orders from $0.70 to $0.30 per contract. The 
Exchange is proposing to increase the discount fee for Professionals, 
Firms and Broker-Dealers from $0.30 to $0.35 per contract when 
transacting electronic Complex Orders, resulting in a higher effective 
fee. Despite the increase in the discount fee, the Exchange believes 
that this discount will continue to incentivize Professionals, Firms 
and Broker-Dealers to transact electronic Complex Order volume. The 
Exchange believes that the proposed discount fee, although higher, will 
continue to incentivize Professionals, Broker-Dealers and Firms to send 
order flow to the Exchange.
    Currently, Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $500,000 for: (i) Electronic and floor Option 
Transaction Charges; and (ii) QCC Transaction Fees (as defined in 
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)). The 
trading activity of separate Specialist and Market Maker member 
organizations are aggregated in calculating the Monthly Market Maker 
Cap if there is Common Ownership between the member organizations. All 
dividend, merger, short stock interest, reversal and conversion, jelly 
roll and box spread strategy executions \21\ are excluded from the 
Monthly Market Maker Cap. Specialists or Market Makers that (i) are on 
the contra-side of an electronically-delivered and executed Customer 
order, excluding responses to a PIXL auction; and (ii) have reached the 
Monthly Market Maker

[[Page 13643]]

Cap are currently assessed fees per contract as follows: $0.00 per 
contract Fee for Adding Liquidity in Penny Pilot Options; $0.17 per 
contract Fee for Removing Liquidity in Penny Pilot Options; $0.17 per 
contract in Non-Penny Pilot Options; and $0.17 per contract in a non-
Complex electronic auction, including the Quote Exhaust auction and, 
for purposes of this fee, the opening process. A Complex electronic 
auction includes, but is not limited to, the Complex Order Live Auction 
(``COLA'').
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    \21\ See descriptions of these strategies in Section II of the 
Pricing Schedule.
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    The Exchange proposes to increase the Fee for Adding Liquidity in 
Penny Pilot Options, when a Specialist or Market Maker is on the 
contra-side of an electronically-delivered and executed Customer order, 
excluding responses to a PIXL auction, and has reached the Monthly 
Market Maker Cap, from $0.00 to $0.05 per contract. The Exchange also 
proposes to make it clear that transactions which execute against an 
order for which the Exchange broadcast an order exposure alert will be 
subject to the existing fee of $0.17 per contract in a non-Complex 
electronic auction.\22\ This rule change should add greater clarity to 
the Pricing Schedule.\23\
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    \22\ The $0.17 per contract fee that exists today is not 
changed, and the proposal in respect of the fee is only for 
electronic auction.
    \23\ The Exchange broadcasts orders on the Phlx Book by issuing 
order exposure alerts to all Phlx XL II participants and market 
participants that subscribe to certain data feeds. See Securities 
Exchange Act Release Nos. 68517 (December 21, 2012), 77 FR 77134 
(December 31, 2012) (SR-Phlx-2012-136) (notice of filing and 
immediate effectiveness relating to distribution of auction 
messages); and 68593 [sic] (January 31, 2013), 78 FR 8633 (February 
6, 2013) (SR-Phlx-2013-06) (notice of filing and immediate 
effectiveness to clarify when an order is adding or removing 
liquidity and discussing order alerts). The Exchange notes that 
there is currently an exposure alert provision in the Pricing 
Schedule, albeit for fees and rebates regarding SPY (Section I).
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Section IV, Part A--PIXL Pricing
    Currently, PIXL pricing for Initiating Orders is located in 
subsection IV, Part A (Other Transaction Fees) of the Pricing Schedule. 
Today, the Initiating Order Fee is $0.07 per contract or $0.05 per 
contract if Customer Rebate Program Threshold Volume defined in Section 
B is greater than 100,000 contracts per day in a month. The Exchange 
proposes, as discussed below, to continue to assess the $0.07 
Initiating Order Fee. The Exchange proposes, where the member or member 
organization qualifies for the Tier 4 or 5 Customer Rebate in Section 
B, to asses [sic] a $0.05 Simple PIXL Order Fee; and to indicate that 
where the member or member organization qualifies for the Tier 4 or 5 
Customer Rebate in Section B it will assess a $0.03 Complex PIXL Order 
Fee. The Exchange also proposes to amend the qualifier for the 
discounted fees.
    With respect to the qualifier, today, for an Initiating Order there 
is a fee of $0.07 per contract or $0.05 per contract if the Customer 
Rebate Program Threshold Volume defined in Section B is greater than 
100,000 contracts per day in a month.\24\ The Initiating Order Fee for 
non-Customers, including Professionals, Firms, Broker-Dealers, 
Specialists and Market Makers, that have orders contra to a Customer 
PIXL Order is reduced to $0.00 if the Customer PIXL Order is greater 
than 399 contracts. The Exchange proposes to continue to assess an 
Initiating Order Fee of $0.07 per contract, but proposes, where the 
member or member organization qualifies for the Tier 4 or 5 Customer 
Rebate in Section B, to instead assess an Initiating Order Fee of $0.05 
per contract for Simple PIXL Orders and a new lower Initiating Order 
Fee of $0.03 per contract for Complex PIXL Orders. The Exchange also 
proposes to amend the qualifier to receive the $0.07 [sic] per contract 
Initiating Order Fee to require a member to qualify for the Tier 4 or 5 
Customer Rebate in Section B of the Pricing Schedule, instead of 
today's requirement that a member's Customer Rebate Program Threshold 
Volume, as defined in Section B of the Pricing Schedule, must be 
greater than 100,000 contracts per day in a month.\25\ Tier 4 and 5 of 
the Customer Rebate Schedule in Section B provides the highest relative 
rebates in the five tier Customer Rebate Program, in particular where 
the percentage thresholds of national customer volume in multiply-
listed equity and ETF Options classes, excluding SPY Options (monthly), 
are also the highest. In making these proposals, the Exchange continues 
to incentivize members to execute Customer liquidity on the Exchange.
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    \24\ Any member or member organization under Common Ownership 
with another member or member organization that qualifies for a 
Customer Rebate Tier discount in Section B receives the PIXL 
Initiating Order discount of $0.05 per contract.
    \25\ Moreover, any member or member organization under Common 
Ownership with another member or member organization that qualifies 
for a Customer Rebate Tier 4 or 5 rebate in Section B will receive 
the PIXL Initiating Order discount as described in Section IV of the 
Pricing Schedule.
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2. Statutory Basis
    The Exchange believes that its proposal to amend the Pricing 
Schedule is consistent with Section 6(b) of the Act \26\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act 
\27\ 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 Phlx operates or 
controls, and is not designed to permit unfair discrimination between 
market participants to whom the Exchange's fees and rebates are 
applicable.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(4), (5).
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Section B--Customer Rebates
    The Exchange believes that capping rebates on electronic Customer 
PIXL Simple Orders at 4,000 contracts per order for Category A or 4,000 
contracts per order leg for Customer Complex PIXL Orders for Category B 
is reasonable because it will, with the cap, allow the Exchange to 
continue to attract Customer liquidity to the Exchange. Customer orders 
bring valuable liquidity to the market which liquidity benefits other 
market participants. Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Specialists and Market Makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants. Additionally, the Chicago Board Options Exchange 
Incorporated (``CBOE'') similarly caps AIM transactions at 1,000 
contracts.\28\
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    \28\ See CBOE's Fees Schedule. Credits on Customer orders 
executed electronically in AIM are capped at 1,000 contracts per 
order for simple executions and 1,000 contracts per leg for complex 
executions.
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    The Exchange believes that capping rebates on electronic Customer 
PIXL Simple Orders at 4,000 contracts per order for Category A or 4,000 
contracts per order leg for Complex PIXL Orders for Category B is 
equitable and not unfairly discriminatory because these amendments to 
Category A and Category B apply uniformly to all market participants to 
whom Category A and Category B apply.
    The Exchange believes also that it is reasonable to no longer offer 
a $0.17 per contract rebate for Customer Complex PIXL Orders that 
execute against a Complex PIXL Initiating Order because the Exchange 
believes this rebate incentive is no longer necessary for this 
particular service to increase order flow to the Exchange.
    The Exchange's proposal to no longer offer a $0.17 per contract 
rebate for Customer Complex PIXL Orders that execute against a Complex 
PIXL Initiating is equitable and not unfairly discriminatory because 
the Exchange

[[Page 13644]]

will not pay such a rebate to any market participant.
Section II--Multiply Listed Options
    The Exchange believes that increasing the assessment for Firms 
executing electronic Simple Orders in certain Penny Options from $0.25 
to $0.27 per contract is reasonable because the Exchange would continue 
to offer a discount to Firms which will continue to attract liquidity. 
This benefits all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. In 
addition, this fee is consistent with fees associated with Miami 
International Securities Exchange LLC (``MIAX'').\29\ Despite the 
increase from $0.25 to $0.27 per contract, the Exchange believes that 
Firms will continue to be incentivized to send volume to the Exchange.
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    \29\ See MIAX's Fee Schedule. MIAX assesses firms a $0.27 per 
contract fee for transactions in Penny classes. This fee is assessed 
to an EEM that enters an order that is executed for an account 
identified by the EEM for clearing in the OCC ``Firm'' range.
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    The Exchange believes that increasing the assessment for Firms 
executing electronic Simple Orders, and thereby offering a smaller 
discount, in certain Penny Options \30\ from $0.25 to $0.27 per 
contract is equitable and not unfairly discriminatory because it 
applies uniformly to all Firms. Further, the proposed amendment will 
continue to allow the Exchange to incentivize Firms to send electronic 
Simple Orders in these symbols to the Exchange and because pricing by 
symbol is a common practice on many U.S. options exchanges \31\ as a 
means to incentive order flow to be sent to an exchange for execution. 
The Exchange believes it is reasonable to continue to use a pricing 
reduction to provide additional opportunities for members to increase 
their participation in the market. The Exchange's fees will be 
competitive with fees at other options markets. Although the Exchange 
will still be assessing Firms more than Customers (which do not pay the 
Option Transaction Charge in Penny Pilot or in non-Penny Pilot 
options), Customer order flow enhances liquidity on the Exchange for 
the benefit of all market participants and benefits all market 
participants by providing more trading opportunities, which attracts 
Specialists and Market Makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants. Although Firms will still be charged more for 
Penny Pilot Options than Specialists and Market Makers who are charged 
$0.22, Specialists and Market Makers have obligations to the market and 
regulatory requirements, which normally do not apply to other market 
participants.\32\ They have obligations to make continuous markets, 
engage in a course of dealings reasonably calculated to contribute to 
the maintenance of a fair and orderly market, and not make bids or 
offers or enter into transactions that are inconsistent with a course 
of dealings. Finally, as proposed, Firms will be charged only $0.27 in 
these particular Penny Pilot Option symbols, which is less than the 
Professional and Broker-Dealer charge of $0.48 (for Penny Pilot 
Options). Moreover, the proposed differential does not misalign 
pricing, in that Firms already benefit from certain pricing advantages 
that Broker-Dealers do not also enjoy (for example, the Firm Monthly 
Fee Cap).\33\ The proposed fee reduction that will apply to Firms but 
not to Broker-Dealers is equitable and not unfairly discriminatory for 
the same reasons that the Firm Monthly Fee Cap which applies to Firms 
and not to Broker-Dealers is equitable and not unfairly discriminatory. 
The fee reduction proposed herein, like the Monthly Firm Fee Cap, 
provides an incentive for Firms to transact order flow on the Exchange, 
which order flow brings increased liquidity to the Exchange for the 
benefit of all Exchange participants. To the extent the purpose of the 
proposed Firm fee reduction is achieved, all the Exchange's market 
participants, including Broker-Dealers, should benefit from the 
improved market liquidity. Further, competitive forces are influencing 
the price reduction in these symbols for Firm orders.
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    \30\ All of the symbols, AAPL, BAC, EEM, FB, FXI, IWM, QQQ, 
TWTR, VXX and XLF, are currently Penny Pilot Options. This fee 
discount is only available on these symbols and therefore not 
available for Non-Penny Pilot Options.
    \31\ See, e.g., the International Securities Exchange LLC 
(``ISE'') Schedule of Fees.
    \32\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
    \33\ Firms are subject to a maximum fee of $75,000 (``Monthly 
Firm Fee Cap''). Firm Floor Option Transaction Charges and QCC 
Transaction Fees, in the aggregate, for one billing month may not 
exceed the Monthly Firm Fee Cap per member organization when such 
members are trading in their own proprietary account. All dividend, 
merger, and short stock interest strategy executions (as defined in 
Section II of the Pricing Schedule) are excluded from the Monthly 
Firm Fee Cap. Reversal and conversion, jelly roll and box spread 
strategy executions (as defined in Section II) are included in the 
Monthly Firm Fee Cap. QCC Transaction Fees are included in the 
calculation of the Monthly Firm Fee Cap. See Section II of the 
Pricing Schedule.
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    The Exchange believes it is reasonable to increase the assessment 
applicable to Professionals, Broker-Dealers and Firms that transact 
Electronic Complex Orders from $0.30 to $0.35 per contract, thereby 
reducing the discount, because this discount will continue to attract 
liquidity and benefit all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. The 
Exchange's fees will continue to remain competitive with fees at other 
options markets.\34\ Today, a Professional, Firm and Broker-Dealer are 
assessed the highest electronic Options Transaction Charges in Penny 
Pilot Options of $0.48 per contract, as compared to other market 
participants. Despite the fee increase, the proposal will allow the 
Exchange to incentivize these market participants by offering the 
opportunity to lower Options Transaction Charges as described herein.
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    \34\ See the NASDAQ Options Market LLC's (``NOM'') pricing at 
Chapter XV of NOM's Rulebook.
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    The Exchange believes it is equitable and not unfairly 
discriminatory to increase the assessment applicable to Professionals, 
Broker-Dealers and Firms that transact Electronic Complex Orders from 
$0.30 to $0.35 per contract because the Exchange will assess 
Professionals, Broker-Dealers and Firms the same electronic Options 
Transaction Charges in Penny Pilot Options. The Exchange does not 
assess Customers an electronic Options Transaction Charge in Penny 
Pilot Options because Customer order flow enhances liquidity on the 
Exchange for the benefit of all market participants. Customer liquidity 
benefits all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Specialists and Market Makers are assessed lower electronic Options 
Transaction Charges in Penny Pilot Options as compared to 
Professionals, Broker-Dealers and Firms because they have obligations 
to the market and regulatory requirements, which normally do not apply 
to other market participants.\35\ They have obligations to make 
continuous markets, engage in a course of dealings reasonably 
calculated to contribute to

[[Page 13645]]

the maintenance of a fair and orderly market, and not make bids or 
offers or enter into transactions that are inconsistent with a course 
of dealings. The proposed differentiation as between Customers, 
Specialists and Market Makers and other market participants recognizes 
the differing contributions made to the liquidity and trading 
environment on the Exchange by these market participants.
---------------------------------------------------------------------------

    \35\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------

    The Exchange believes that increasing the assessment from $0.00 to 
$0.05 per contract rebate for Adding Liquidity in Penny Pilot Options 
is reasonable when Specialists or Market Makers are on the contra-side 
of an electronically-delivered and executed Customer order, excluding 
responses to a PIXL auction; and have reached the Monthly Market Maker 
Cap. This is because Specialists and Market Makers will continue to pay 
a lower fee as compared to other market participants and should be 
incentivized to continue to add liquidity.
    The Exchange believes that increasing the assessment from $0.00 to 
$0.05 per contract rebate for Adding Liquidity in Penny Pilot Options 
is equitable and not unfairly discriminatory when Specialists or Market 
Makers are on the contra-side of an electronically-delivered and 
executed Customer order, excluding responses to a PIXL auction; and 
have reached the Monthly Market Maker Cap. This is because Specialists 
and Market Makers are assessed lower electronic order fees as compared 
to Professionals, Broker-Dealers and Firms because they have 
obligations to the market and regulatory requirements, which normally 
do not apply to other market participants.\36\
---------------------------------------------------------------------------

    \36\ Id.
---------------------------------------------------------------------------

    The Exchange believes that clarifying that transactions which 
execute against an order for which the Exchange broadcast an order 
exposure alert in an electronic auction is also subject to the $0.17 
per contract fee is reasonable, equitable and not unfairly 
discriminatory because the Exchange is not proposing to amend the 
manner in which the fee is applied, but rather provide additional 
clarity to market participants that responses to an order exposure 
alert shall be treated by the Exchange in a similar manner as other 
auctions for purposes of applying this fee.
Section IV, Part A--PIXL Pricing
    Today, the Exchange assesses an Initiating Order Fee of $0.07 per 
contract or $0.05 per contract for Simple PIXL Orders. The Exchange 
believes that its proposal to adopt an alternative of $0.03 per 
contract for Complex PIXL Orders (with the qualifier that a Customer 
must qualify for the Tier 4 or 5 Customer Rebate in Section B of the 
Pricing Schedule) is reasonable. This is because the Exchange believes 
this additional incentive will further incentivize members to send 
price improving seeking orders to PIXL as well as bring additional 
liquidity to the Exchange in an effort to earn the Initiating Order 
discount. Amending the qualifier from 100,000 contracts to qualifying 
for a Tier 4 and Tier 5 Customer rebate is reasonable because this 
simply establishes a different metric that requires members that desire 
to earn the discounted PIXL pricing to send additional Customer order 
flow to the Exchange with the new qualifier. The Exchange notes that in 
order to remain competitive, the Exchange must implement fees and 
rebates that are competitive with pricing at other options exchanges 
that offer a similar auction opportunity. The PIXL electronic auction 
represents an increasingly important and crucial segment of options 
trading. The goal is creating and increasing incentives to attract 
orders to the Exchange that will, in turn, benefit all market 
participants through increased liquidity at the Exchange. The proposal 
is designed to continue to incentivize market participants to send 
liquidity to the Exchange. The Exchange believes that in addition to 
currently assessing an Initiating Order of $0.07 per contractor [sic] 
today, its proposal to adopt an alternative fee of $0.03 per contract 
for Complex PIXL Orders (with the qualifier that a Customer must 
qualify for the Tier 4 or 5 Customer Rebate in Section B of the Pricing 
Schedule), and a $0.05 per contract for Simple PIXL Orders (with the 
qualifier that a Customer must qualify for the Tier 4 or 5 Customer 
Rebate in Section B of the Pricing Schedule), is equitable and not 
unfairly discriminatory. The volume discount will be applied uniformly 
to all according to liquidity brought to the Exchange by non-Customers. 
The Exchange would offer all market participants, other than Customers 
who are not assessed an Initiating Order Fee, an incentive to transact 
large sized orders in PIXL. The Exchange believes that the proposal 
will continue to attract liquidity, which benefits market participants 
and provides the opportunity for increased order interaction on the 
Exchange.
    The Exchange desires to incentivize members and member 
organizations, through the Exchange's rebate and fee structure, to 
select Phlx as a venue for bringing liquidity and trading by offering 
competitive pricing. Such competitive, differentiated pricing exists 
today on other options exchanges. The Exchange's goal is creating and 
increasing incentives to attract orders to the Exchange that will, in 
turn, benefit all market participants through increased liquidity at 
the Exchange.

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. The Customer Rebate Program 
amendments in Section B of the Pricing Schedule do not create an undue 
burden on competition because the caps applicable to PIXL Orders will 
apply uniformly to all market participants. The Exchange's proposal to 
increase the assessment for Firms executing electronic Simple Orders in 
certain Penny Options from $0.25 to $0.27 per contract does not place 
an undue burden on competition, rather this reduction will continue to 
attract liquidity which benefits all market participants by providing 
more trading opportunities, which attracts Specialists and Market 
Makers. In addition, this fee is consistent with fees assessed by 
MIAX.\37\
---------------------------------------------------------------------------

    \37\ See MIAX's Fee Schedule. MIAX assesses firms a $0.27 per 
contract fee for transactions in Penny classes. This fee is assessed 
to an EEM that enters an order that is executed for an account 
identified by the EEM for clearing in the OCC ``Firm'' range.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to increase the assessment 
applicable to Professionals, Broker-Dealers and Firms that transact 
Electronic Complex Orders from $0.30 to $0.35 per contract, thereby 
reducing the discount, because this discount will continue to attract 
liquidity and benefit all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. The 
Exchange's fees will continue to remain competitive with fees at other 
options markets.\38\ Today, a Professional, Firm and Broker-Dealer are 
assessed the highest electronic Options Transaction Charges in Penny 
Pilot Options of $0.48 per contract, as compared to other market 
participants. Despite the fee increase, the proposal will allow the 
Exchange to incentivize market participants by offering the opportunity 
to lower Options Transaction Charges as described herein.
---------------------------------------------------------------------------

    \38\ See the NOM pricing at Chapter XV of NOM's Rulebook.
---------------------------------------------------------------------------

    The Exchange believes its proposal to increase the assessment 
applicable to Professionals, Broker-Dealers and Firms that transact 
Electronic Complex Orders

[[Page 13646]]

from $0.30 to $0.35 per contract does not create an undue burden on 
competition because the Exchange will continue to offer a discount to 
these market participants that pay the highest Penny Pilot Options 
transaction fees. The Exchange does not assess Customers an electronic 
Options Transaction Charge in Penny Pilot Options because Customer 
order flow enhances liquidity on the Exchange for the benefit of all 
market participants. Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Specialists and Market Makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants. Specialists and Market Makers are assessed lower 
electronic Options Transaction Charges in Penny Pilot Options as 
compared to Professionals, Broker-Dealers and Firms because they have 
obligations to the market and regulatory requirements, which normally 
do not apply to other market participants.\39\
---------------------------------------------------------------------------

    \39\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------

    The Exchange's proposal to increase the fee assessment from $0.00 
to $0.05 per contract rebate for Adding Liquidity in Penny Pilot 
Options when Specialists or Market Makers are on the contra-side of an 
electronically-delivered and executed Customer order, excluding 
responses to a PIXL auction, and have reached the Monthly Market Maker 
Cap, is reasonable. This is because Specialists and Market Makers do 
not create an undue burden on competition because market makers have 
obligations to the market and regulatory requirements, which normally 
do not apply to other market participants.\40\
---------------------------------------------------------------------------

    \40\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal to clarify that transactions which execute 
against an order for which the Exchange broadcast an order exposure 
alert in an electronic auction does not create an undue burden on 
competition. This amendment will bring additional clarity to the fees.
    The Exchange believes that the proposed new volume discount for 
PIXL Fees creates additional opportunity for incentivizing 
Professionals, Firms, Broker-Dealers, Specialists and Market Makers to 
bring additional liquidity to the market. The Exchange believes that 
effectively assessing lower fees or paying rebates when a market 
participant brings a certain amount of Customer orders creates 
competition among market participants to remove liquidity from the Phlx 
Book. This competition does not create an undue burden on competition 
but rather offers all market participants the opportunity to receive 
the benefit of the pricing when transacting options. Also, providing an 
ability to earn greater discounts incentivizes order flow into the 
auction.
    The Exchange operates in a highly competitive market, comprised of 
twelve exchanges, in which market participants can easily and readily 
direct order flow to competing venues if they deem fee levels at a 
particular venue to be excessive or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange, as described in the proposal, are influenced by these robust 
market forces and therefore must remain competitive with fees charged 
and rebates paid by other venues and therefore must continue to be 
reasonable and equitably allocated to those members that opt to direct 
orders to the Exchange rather than competing venues.
    The proposed fees are designed to ensure a fair and reasonable use 
of Exchange resources by allowing the Exchange to recoup costs while 
continuing to attract liquidity and offer connectivity at competitive 
rates to Exchange members and member organizations.

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.\41\ 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1a686f767f37797577777f746e695a697f79347d756c"><span class="__cf_email__" data-cfemail="1d6f687178307e7270707873696e5d6e787e337a726b">[email protected]</span></a>. Please include 
File Number SR-Phlx-2015-21 on the subject line.

Paper Comments

    <bullet> 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-Phlx-2015-21. 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 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 refer to File Number SR-Phlx-2015-21, and should be 
submitted on or before April 6, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-05857 Filed 3-13-15; 8:45 am]
 BILLING CODE 8011-01-P


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