12662 Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3A Specialist is an Exchange member who is 

registered as an options Specialist pursuant to Rule 

1020(a). 

4A Registered Option Trader is defined in 

Exchange Rule 1014(b) as a regular member of the 

Exchange located on the trading floor who has 

received permission from the Exchange to trade in 

options for his own account. See Exchange Rule 

1014 (b)(i) and (ii). A ‘‘Directed ROT’’ is an ROT 

who is a Directed Participant. The term ‘‘Directed 

Participant’’ applies to transactions for the account 

of a Specialist or ROT resulting from a customer 

order that is (1) directed to it by an order flow 

provider, and (2) executed by it electronically on 

Phlx XL II. 

5See Securities Exchange Act Release No. 59841 

(April 29, 2009), 74 FR 21035 (May 6, 2009) (SR– 

Phlx–2009–38). 

6By contrast, the Exchange maintains only a 

single pool of PFOF funds allocated for use by each 

Directed ROT. The pool consists of PFOF fees 

attributable to Directed Orders that were directed to 

that ROT. The Exchange established the separate 

pools of funds for each Directed ROT and each 

Specialist that participates in the Exchange’s PFOF 

program in 2005. See Securities Exchange Act 

Release No. 52568 (October 6, 2005) 70 FR 60120 

(October 14, 2005) (SR–Phlx–2005–58). In that 

filing, the Exchange stated that separate pools of 

funds would be available to each Specialist unit 

and Directed ROT solely for those trades where the 

PFOF fee was assessed and would be aggregated for 

use by each Specialist unit and each Directed ROT 

to attract customer orders to the Exchange from 

Order Flow Providers that accept payment as a 

factor in making their order routing decisions. For 

Directed Orders, PFOF fees would be assessed on 

a per contract basis (when the Specialist or Directed 

ROT opts into the program) and would be 

aggregated into separate pools of funds for use by 

each Specialist unit or Directed ROT. For nondirected electronically-delivered orders, PFOF fees 

would continue to be assessed on a per contract 

basis and would be allocated for use by the 

participating Specialist. 

7For purposes of assessing PFOF fees, the 

Exchange does not differentiate between Specialists 

and Specialists who receive Directed Orders. The 

Specialist’s pool generated by PFOF fees associated 

with orders directed to the Specialist has long been 

known as the ‘‘Directed ROT’’ pool, which is a 

slight misnomer as a Specialist receiving Directed 

Orders is known as a Directed Specialist rather than 

a Directed ROT. Nevertheless, the Directed ROT 

pool is the pool reflecting PFOF resulting from 

Directed Orders; the other pool reflects PFOF 

resulting from non-Directed orders. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74434; File No. SR–PHLX– 

2015–20] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Amend One 

Aspect of the Administration of Income 

Generated by Payment for Order Flow 

Fees 

March 4, 2015. 

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 February 

20, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend one 

aspect of the administration of income 

generated by Payment for Order Flow 

fees which are assessed under Section II 

of the Pricing Schedule which pertains 

to Multiply Listed Options fees. 

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 

streamline the Exchange’s 

administration of its payment for order 

flow (‘‘PFOF’’) program, by allowing the 

Exchange to consolidate on its books 

two separate pools of PFOF funds per 

Specialist 3 into one consolidated pool 

of PFOF funds per Specialist, as 

explained below. The Exchange is 

proposing no change in the level or 

manner of imposition of PFOF fees. 

Rather, it is simply proposing to change 

the manner in which income from PFOF 

fees is reflected on the Exchange’s books 

for each Specialist. 

The Exchange’s PFOF program helps 

its Specialists and Directed Registered 

Options Traders (‘‘Directed ROTs’’) 4

establish PFOF arrangements with an 

order flow provider in exchange for that 

order flow provider directing some or 

all of its order flow to that Specialist or 

Directed ROT. This program is funded 

through fees paid by Registered Options 

Traders (‘‘ROTs’’), Specialists and 

Directed ROTs and assessed on 

transactions resulting from customer 

orders (the ‘‘PFOF Fees’’).5

These PFOF Fees are available to be 

disbursed by the Exchange according to 

the instructions of the Specialists or 

Directed ROTs to order flow providers 

who are members or member 

organizations, who submit, as agent, 

customer orders to the Exchange or nonmembers or non-member organizations 

who submit, as agent, customer orders 

to the Exchange through a member or 

member organization who is acting as 

agent for those customer orders. Any 

excess PFOF funds billed but not 

utilized by the Specialist or Directed 

ROT are carried forward unless the 

Directed ROT or Specialist elects to 

have those funds rebated to the 

applicable ROT, Directed ROT or 

Specialist on a pro rata basis, reflected 

as a credit on the monthly invoices. At 

the end of each calendar quarter, the 

Exchange calculates the amount of 

excess funds from the previous quarter 

and subsequently rebates excess funds 

on a pro-rata basis to the applicable 

ROT, Directed ROT or Specialist who 

paid into that pool of funds. 

The Exchange provides administrative 

support for the PFOF program by 

maintaining the funds generated by 

PFOF fees, keeping track of the number 

of qualified orders each Specialist and 

Directed ROT has directed to the 

Exchange, and making payments to 

order flow providers on behalf of, and 

at the direction of, the Specialist or 

Directed ROT. The Exchange collects 

and holds the funds generated by the 

PFOF fees to be disbursed according to 

the instructions of the Specialists or 

Directed ROTs to order flow providers 

as stated above. The PFOF fees are 

collected by the Exchange for use by 

these Specialists and Directed ROTs to 

attract Customer orders to the Exchange 

from order flow providers that accept 

payment as a factor in making their 

order routing decisions. 

The Exchange currently maintains on 

its books individual pools of PFOF 

funds for each Directed ROT and 

Specialist participating in the PFOF 

program. Further, the Exchange 

maintains two separate pools of funds 

for each Specialist who elects to 

participate in the PFOF program.6 PFOF 

fees resulting from undirected orders in 

a Specialist’s option are reflected on the 

Exchange’s books as the Specialist’s 

‘‘Specialist’’ pool. PFOF fees resulting 

from orders directed to the Specialist as 

a Directed Specialist are maintained on 

the Exchange’s books for the Specialist 

as a separate ‘‘Directed ROT’’ pool.7 The 

Exchange is now proposing to 

consolidate each Specialist’s 

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Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices 12663 

8See Securities Exchange Act Release No. 52568 

(October 6, 2005) 70 FR 60120 (October 14, 2005) 

(SR–Phlx–2005–58). See also Securities Exchange 

Act Release Nos. 51909 (June 22, 2005), 70 FR 

37484 (June 29, 2005) (SR–Phlx–2005–37, 

modifying the Exchange’s schedule of dues, fees, 

and charges to revise its equity option payment for 

order flow program to establish a payment for order 

flow program that takes into account Directed 

Orders) and 51984 (July 7, 2005), 70 FR 40413 (July 

13, 2005) (order abrogating SR–Phlx–2005–37). 

9As used in this paragraph, the term ‘‘Market 

Maker’’ includes both Specialists and ROTs. 

10 15 U.S.C. 78f. 

11 15 U.S.C. 78f(b)(5). 

12 15 U.S.C. 78s(b)(3)(a)(ii). 

13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 

‘‘Specialist’’ pool and ‘‘Directed ROT’’ 

pool into one single pool of PFOF funds 

per Specialist on the Exchange’s books. 

The Exchange believes that maintaining 

two separate PFOF pools for a single 

Specialist imposes an unnecessary 

administrative burden on the Exchange 

and the Specialist. Instead, the 

Exchange will establish and administer 

on its books only one pool per Specialist 

which will reflect funds resulting from 

all PFOF fees allocable to that 

Specialist, whether resulting from 

Directed Orders or non-Directed Orders. 

The Exchange originally established 

the separate ‘‘Directed ROT’’ pool and 

‘‘Specialist’’ pool for each Specialist for 

purposes of transparency when Directed 

ROTs were first permitted, like 

Specialists, to opt in to the PFOF 

program and to use the funds generated 

by the fee applicable to Directed Orders 

to pay order flow providers, to attract 

orders to the Exchange.8 The inclusion 

of Directed ROTs in the PFOF program 

in addition to Specialists was a 

significant change at the time. 

Specialists who opted into PFOF would 

be eligible to receive a pool of funds 

even if orders were not directed to 

them—the key was that they opted in, 

and their standing as Specialist. On the 

other hand, Directed ROTs who opted 

into the PFOF program would be 

eligible to receive a PFOF pool of funds 

on only those orders that were directed 

to them. 

Specialists also became eligible to 

receive Directed Orders. Having two 

separate pools for Specialists reflecting 

(a) PFOF fees attributable to undirected 

Orders (the ‘‘Specialist’’ pool), and (b) 

PFOF fees attributable to Directed 

Orders directed to the Specialist (the 

‘‘Directed ROT’’ pool) provided 

transparency and clarity as to the source 

of the PFOF funds. Today, the need for 

transparency provided by two separate 

pools per Specialist is not as necessary, 

as Specialists receive significantly 

detailed PFOF marketing reports, driven 

by the enhanced technology and 

supporting automated processes that 

underscore the Exchange’s billing and 

reporting systems. 

Additionally, the report 

accompanying payments that the 

Exchange makes to order flow providers 

on behalf of the pool-owners specifies 

only the Specialist from which the 

funds are coming. The report does not 

identify the type of pool that is the 

source of the payment. From the 

Exchange’s perspective, there is no 

benefit to maintaining the two separate 

types of pools on its books for each 

Specialist. Additionally, from an 

external perspective, based on the 

Exchange’s interaction with Specialists 

who are pool-owners and with orderflow providers, the maintenance of 

separate pools of funds on the 

Exchange’s books is no longer 

necessary. The single pool will be 

termed the PFOF pool. 

Lastly, the above proposal will result 

in each Specialist or Directed ROT 

having only one PFOF pool. This will 

also streamline their administrative and 

accounting processes with regard to the 

information provided by the Exchange 

and instructions they in turn provide to 

the Exchange. To illustrate, assume 

Market Maker A 9 is both a Specialist 

and a Directed ROT. Market Maker B is 

a Directed ROT that has opted into the 

PFOF program. Today, after the 

Exchange collects and processes the 

PFOF fees, Market Maker A will receive 

information on their ‘‘Specialist’’ pool 

and separate information on their 

‘‘Directed ROT’’ pool. Market Maker B 

receives information on their ‘‘Directed 

ROT’’ pool. After the proposal is in 

effect, Market Maker A will receive 

information on its PFOF pool and 

Market Maker B will receive 

information on its PFOF pool. The 

distinction between ‘‘Specialist’’ pools 

and ‘‘Directed ROT’’ pools will be 

eliminated. 

2. Statutory Basis 

Phlx believes that the proposed rule 

change is consistent with the provisions 

of Section 6 of the Act,10 in general, and 

with Section 6(b)(5) of the Act 11 in 

particular, in that the proposal is 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

The proposal is designed simply to 

eliminate an unnecessary administrative 

burden on the Exchange and its 

members, and to result in accounting 

and operational efficiencies for both. All 

Specialists opting into the PFOF 

program will be treated equally under 

the proposal and will realize the 

administrative benefits of the proposal 

uniformly. 

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 

Exchange’s proposal to combine the 

PFOF pools will simply result in 

administrative efficiencies for the 

Exchange and its members. 

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 

Because the foregoing 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, it has 

become effective pursuant to Section 

19(b)(3)(A)(ii) of the Act 12 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.13

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, 

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12664 Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices 

14 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 74018 

(January 8, 2015), 80 FR 1982 (‘‘Notice’’). 

4 In Amendment No. 1, the Exchange clarified 

that it believes that Market Maker bids should not 

be priced the same as or higher than the 

corresponding benchmark, which would be the 

price of the underlying security for call options and 

the strike price for put options. Amendment No. 1 

does not change any of the proposed rule text that 

was submitted in the original filing. Amendment 

No. 1 is technical in nature and, therefore, the 

Commission is not publishing it for comment. 

5Pursuant to Exchange Rule 6.60(b), unless 

determined otherwise by the Exchange and 

announced to OTP Holders and OTP Firms via 

Trader Update, the specified percentage is 100% for 

the contra-side NBB or NBO priced at or below 

$1.00 and 50% for contra-side NBB or NBO priced 

above $1.00. See Notice, supra note 3, at 1983. 

6See Notice, supra note 3, at 1983. 

7The Exchange states that the proposal will assist 

with the maintenance of fair and orderly markets 

by averting the risk of Market Maker quotes 

sweeping through multiple price points resulting in 

executions at prices that are through the last sale 

price or National Best Bid or Best Offer (‘‘NBBO’’). 

See Notice, supra note 3, at 1983. 

8The Exchange represents that this proposed 

price protection mechanism is similar to the 

Exchange’s Limit Order Filter. See Notice, supra 

note 3, at 1983. 

9The Exchange states that the proposed 

percentages are appropriate because they are based 

on the percentages established for the Limit Order 

Filter. See Notice, supra note 3, at 1983. 

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 rule-comments@

sec.gov. Please include File Number SR– 

PHLX–2015–20 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. 

All submissions should refer to File 

Number SR–PHLX–2015–20. 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 refer to File Number SR–PHLX– 

2015–20 and should be submitted on or 

before March 31, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–05481 Filed 3–9–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74441; File No. SR– 

NYSEArca–2014–150] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Granting Approval of 

a Proposed Rule Change, as Modified 

by Amendment No. 1, To Amend Rule 

6.60 and To Adopt Rule 6.61, Which 

Was Previously Reserved, To Provide 

Price Protection for Market Maker 

Quotes 

March 4, 2015. 

I. Introduction 

On December 29, 2014, NYSE Arca, 

Inc. (‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend Exchange Rule 6.60 (Price 

Protection) and to adopt Exchange Rule 

6.61 to provide price protection for 

Market Maker quotes. The proposed rule 

change was published for comment in 

the Federal Register on January 14, 

2015.3 The Commission received no 

comment letters on the proposal. On 

March 2, 2015, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.4 This order approves the 

proposed rule change, as modified by 

Amendment No. 1 thereto. 

II. Description of the Proposal 

The Exchange proposed to amend 

Exchange Rule 6.60 and to adopt 

Exchange Rule 6.61, which was 

previously Reserved, to provide price 

protection for Market Maker quotes. 

Exchange Rule 6.60 currently applies 

and will continue to apply solely to 

orders. Exchange Rule 6.60(b), provides 

a price protection filter for incoming 

limit orders, pursuant to which the 

Exchange rejects limit orders priced a 

specified percentage 5 through the 

National Best Bid (‘‘NBB’’) or National 

Best Offer (‘‘NBO’’) (‘‘Limit Order 

Filter’’). To clarify that Exchange Rule 

6.60 applies only to orders, the 

Exchange proposed to append the word 

‘‘Orders’’ to the Exchange Rule 6.60 

header to provide ‘‘Rule 6.60. Price 

Protection—Orders.’’ 6

A. Proposed Market Maker Quote Price 

Protection 

The Exchange proposed to adopt new 

Exchange Rule 6.61 to provide for a 

price protection mechanism for quotes 

entered by a Market Maker. Exchange 

Rule 6.61(a) will provide price 

protection filters applicable only for 

quotes entered by a Market Maker 

pursuant to Rule 6.37B and will not be 

applicable to orders entered by a Market 

Maker. The Exchange proposed to 

provide for two layers of price 

protection that will be applicable to all 

incoming Market Maker quotes.7 The 

first layer of price protection will assess 

incoming sell quotes against the NBB 

and incoming buy quotes against the 

NBO.8 The second layer of price 

protection will assess the price of call or 

put bids against a specified benchmark. 

1. NBBO Price Reasonability Check 

Proposed Exchange Rule 6.61(a)(1) 

sets forth the Exchange’s proposed 

NBBO price reasonability check, which 

will compare Market Maker bids with 

the NBO and Market Maker offers with 

the NBB. Specifically, provided that an 

NBBO is available, a Market Maker 

quote will be rejected if it is priced a 

specified dollar amount or percentage 

through the contra-side NBBO as 

follows: 

(A) $1.00 for Market Maker bids when 

the contra-side NBO is priced at or 

below $1.00; or 

(B) 50% for Market Maker bids (offers) 

when the contra-side NBO (NBB) is 

priced above $1.00. 

The Exchange will reject inbound 

Market Maker quotes that exceed the 

parameters set forth in proposed 

Exchange Rule 6.61(a)(1)(A)–(B).9 The 

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