7166 Federal Register / Vol. 81, No. 27 / Wednesday, February 10, 2016 / Notices 

20 15 U.S.C. 78s(b)(3)(A)(ii). 

21 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3A Professional will be treated in the same 

manner as an off-floor broker-dealer for purposes of 

Rules 1014(g)(except with respect to all-or-none 

orders, which will be treated like customer orders, 

except that orders submitted pursuant to Rule 

1080(n) for the beneficial account(s) of 

Professionals with an all-or-none designation will 

be treated in the same manner as off-floor brokerdealer orders), 1033(e), 1064.02 (except Professional 

orders will be considered customer orders subject 

to facilitation), 1080(n) and 1080.07 as well as 

Options Floor Procedure Advices B–6 and F–5. 

Member organizations must indicate whether orders 

are for Professionals. 

4The Exchange utilizes a special order origin 

code for Professional orders. The Exchange also 

disseminates the Professional designator over its 

new Top of Phlx Options Plus Orders (‘‘TOPO Plus 

Orders’’), which includes disseminated Exchange 

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.20

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

BX–2016–007 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–BX–2016–007. 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 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–BX– 

2016–007 and should be submitted on 

or before March 2, 2016. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2016–02605 Filed 2–9–16; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–77054; File No. SR–Phlx– 

2016–10] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing of Proposed Rule Change 

Relating to Professional Customer 

Definition 

February 4, 2016. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1, and Rule 19b–4 thereunder,2

notice is hereby given that on January 

21, 2016, NASDAQ OMX PHLX LLC 

(‘‘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 

Exchange Rule 1000(b)(14) 

(Applicability, Definitions and 

References) to add specificity to the 

definition of a Professional with respect 

to the manner in which the volume 

threshold will be calculated by the 

Exchange. 

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 Exchange proposes to amend the 

definition of ‘‘Professional’’ in Rule 

1000(b)(14) to specify the manner in 

which the Exchange calculates orders to 

determine if an order should be treated 

as Professional. 

Background 

Exchange Rule 1000(b)(14) currently 

states, 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).3 In order to properly 

represent orders entered on the 

Exchange member organizations are 

required to indicate whether Customer 

orders are ‘‘Professional’’ orders.’’ 4 To 


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top-of-market data (including orders, quotes and 

trades) together with all of the data currently 

available on the Specialized Order Feed (‘‘SOF’’). 

5Orders for any customer that had an average of 

more than 390 orders per day during any month of 

a calendar quarter must be represented as 

Professional orders for the next calendar quarter. 

Member organizations will be required to conduct 

a quarterly review and make any appropriate 

changes to the way in which they are representing 

orders within five days after the end of each 

calendar quarter. While member organizations will 

only be required to review their accounts on a 

quarterly basis, if during a quarter the Exchange 

identifies a customer for which orders are being 

represented as customer orders but that has 

averaged more than 390 orders per day during a 

month, the Exchange will notify the member 

organization and the member organization will be 

required to change the manner in which it is 

representing the customer’s orders within five days. 

6See Exchange Rules 1080(m), 1083, 1084, and 

1086. 

7All order types count toward the 390 orders on 

average per day. 

8The term ‘‘FLEX option’’ means a FLEX option 

contract that is traded subject to Exchange Rule 

1079. 

9A 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 exchange-traded 

fund (‘‘ETF’’) coupled with the purchase or sale of 

options contract(s). See Exchange Rule 1080, 

Commentary .08(a)(i). A Complex Order must meet 

this definition to be transacted on the Exchange. 

10Orders that have five legs, where one leg is a 

stock, will be considered one order. Stock orders 

shall not count toward the number of legs. 

11Cancel messages do not count as an order. 

12An order which is placed for the beneficial 

account(s) of a person or entity that is not a broker 

or dealer in securities that is broken into multiple 

parts by a broker or dealer or by an algorithm 

housed at a broker or dealer or by an algorithm 

licensed from a broker or dealer. Strategies include 

Complex Orders and volatility orders, for example. 

13See NYSE Arca, Inc.’s and NYSE MKT LLC’s 

Joint Regulatory Bulletin (RBO–15–03 and RBO– 

15–06, respectively) dated September 9, 2015; 

CBOE’s Regulatory Circulator (RG10–126) dated 

December 1, 2010; and the International Securities 

Continued 

comply with this requirement, member 

organizations are required to review 

their Customers’ activity on at least a 

quarterly basis to determine whether 

orders that are not for the account of a 

broker-dealer should be represented as 

Customer orders or Professional orders.5

The Exchange accepts orders routed 

from other markets that are marked 

Professional. The designation of 

Professional or Professional order does 

not result in any different treatment of 

such orders for purposes of Exchange 

rules concerning away market 

protection. That is, all non-broker or 

dealer orders, including those that meet 

the definition of Professional orders, are 

treated equally for purposes of Exchange 

away market protection rules.6 The 

Exchange continues to believe that 

identifying Professional accounts based 

upon the average number of orders 

entered in qualified accounts is an 

appropriately objective approach to 

reasonably distinguish such persons and 

entities from retail investors or market 

participants. 

Proposal 

The Exchange proposes to count each 

order entered by a Professional toward 

the number of orders, regardless of the 

options exchange to which the order 

was routed in determining Professional 

orders,7 except for FLEX orders.8

FLEX Orders 

FLEX orders will not be counted 

toward the 390 threshold because these 

types of orders are non-electronic 

orders. Furthermore, FLEX orders are 

typically not traded by a retail 

Customer, but rather large institutional 

investors and therefore are not relevant 

to the type of analysis the Exchange is 

trying to distinguish as between retail 

investors and market Professionals. 

Cancel and Replace 

A cancel and replace order is a type 

of order that replaces a prior order. The 

Exchange believes that the second order 

(the replacement order) should be 

counted as a new order. Complex 

Orders 9 consisting of four legs or fewer 

will be counted as a single order, and 

with Complex Orders of five options 10

legs or more, each leg will count as a 

separate order. The exception to the 

cancel and replace orders is with 

‘‘single-strike algorithms,’’ which are a 

series of cancel and replace orders in an 

individual strike which track the NBBO. 

Orders resulting from a single-strike 

algorithm shall be counted as new 

orders,11 because the Customer is 

specifically instructing the executing 

broker in the ‘‘single-strike algorithm’’ 

scenario to cancel and replace these 

orders. This type of activity is akin to 

market making in a Customer account 

and should be counted, as a new order. 

Parent/Child Orders 

An order that converts into multiple 

subordinate orders to achieve an 

execution strategy shall be counted as 

one order per side and series, even if the 

order is routed away.12 All strategies 

must comply with Rule 1080 at 

Commentary .07(a)(ii). An order that 

cancels and replaces a resulting 

subordinate order and results in 

multiple sides/series shall be counted as 

a new order on each side and series. For 

purposes of counting Customer orders, 

the manner in which the Customer 

submitted the order and whether the 

order was on the same side and series 

will determine if the order will count as 

one order. If one Customer order on the 

same side and series is subsequently 

broken-up by a broker into multiple 

orders for purposes of execution or 

routed away, this order will count as 

one order. The Exchange believes that 

the proposed amendment will provide 

more certainty to market participants in 

determining the manner in which the 

Exchange will compute the number of 

orders in listed options per day on 

average during a calendar month for its 

own beneficial account(s) to determine 

the Professional designation. 

In order to make clear when orders 

will count as new orders, the Exchange 

offers the following scenarios as 

examples. 

• The Exchange proposes to count 

multiple orders that were submitted by 

the member as separate orders as 

multiple orders. 

• The Exchange proposes to count a 

single order submitted by a member, 

which was automatically executed in 

multiple parts by the trading system, as 

one order, because the member did not 

intervene to create multiple orders. 

Another example is where an order was 

entered in the trading system and only 

partially filled, the order would count as 

one order. The subsequent fills, which 

could be multiple executions, would not 

count as additional orders in 

determining the 390 limit. The manner 

in which the order is ultimately 

executed, as one order or multiple 

orders, should not itself determine 

whether the activity is that of a 

Professional; also the member did not 

intervene in that circumstance. 

• The Exchange proposes to not count 

an order which reprices, for example 

because of a locked and crossed market, 

as a new order because the member did 

not intervene. 

• The Exchange proposes to count 

orders, which result in multiple Orders 

due to cancel and replacement orders, 

as new orders. This is because in this 

situation the member did intervene to 

create the subsequent orders. 

• The Exchange proposes to count an 

order submitted by the Customer as a 

single order, on the same side and 

series, as a single order despite the fact 

that a broker broke-up the order into 

multiple orders for purposes of 

execution. 

The Exchange notes that other options 

exchanges have issued notices which 

describe the manner in which those 

Exchanges believe thresholds should be 

computed for determining if an order 

qualifies as a Professional order.13 The 


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Exchange LLC’s Regulatory Information Circular 

(2009–179) dated June 23, 2009. 

14 15 U.S.C. 78f(b). 

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

16See Securities Exchange Act Release No. 61426 

(January 26, 2010), 75 FR 5360 (February 2, 2010) 

(SR–Phlx–2010–05). 

Exchange believes that there is industry 

confusion as to which orders count 

toward the 390 contract threshold. The 

Exchange’s proposal is intended to 

provide clarity and to continue to 

promote consistency in the treatment of 

orders as Professional orders. 

Below are some examples of the 

calculation of Professional orders. 

Example #1: 

A Customer has an order to buy 100 calls 

at a volatility level of 35. The order then 

generates a child order resulting in a 1.00 bid 

for 100 options which is sent to exchange A. 

After the underlying stock price ticks up 2 

cents the child order is then adjusted to 

reflect a 35 level volatility which in this case 

(50 delta) results in a 1.01 bid sent to 

Exchange A replacing the current 1.00 bid. 

In determining the number of orders that 

attribute to the 390 order count, in this case, 

because the child order is being canceled and 

replaced in the ‘‘same series’’ this would 

only count as one (1) order for purposes of 

Professional designation calculation. 

Example #2: 

A Customer has an order to buy 20k Vega 

at a 35 volatility level in symbol XYZ. The 

order then generates 50 child orders across 

different strikes. Throughout the day those 50 

orders are adjusted as the stock moves 

resulting in the replacement of child orders 

to the tune of 5 times per order (50 × 5 

cancels) resulting in 250 total orders 

generated to Exchange A. 

In determining the number of orders that 

attribute to the 390 order count, in this case, 

because the child orders generated are across 

multiple series it would be necessary to 

count all 250 orders. 

In addition to the above examples, the 

Exchange provides the below chart to 

demonstrate the manner in which it will 

count orders. 

Singular Multiple 

Single Strike Activity: 

Customer order posted to 1 SRO order Book ................................................................................................. x ........................

Customer order posted to Multiple SRO order Books simultaneously ............................................................ x ........................

Cancel/Replace Activity .................................................................................................................................... x ........................

Cancel/Replace Activity tracking NBBO ........................................................................................................... ........................ x 

Complex Order Activity (4 option strikes or fewer): 

Customer order posted to 1 SRO order Book ................................................................................................. x ........................

Customer order posted to Multiple SRO Complex order Books simultaneously ............................................. x ........................

Cancel/Replace Activity .................................................................................................................................... x ........................

Cancel/Replace Activity tracking NBBO ........................................................................................................... x ........................

Complex Order Activity (5 option strikes or greater): 

Customer order posted to 1 SRO order Book ................................................................................................. ........................ x 

Customer order posted to Multiple SRO Complex Order Books simultaneously ............................................ ........................ x 

Cancel/Replace Activity .................................................................................................................................... ........................ x 

Cancel/Replace Activity tracking NBBO ........................................................................................................... ........................ x 

Singular—counts as a single order towards the 390 count. 

Multiple—each order applies towards the 390 count. 

The Exchange proposes to implement 

this rule on April 1, 2016 to provide 

market participants with advance notice 

for their quarterly calculations. The 

Exchange will issue an Options Trader 

Alert in advance to inform market 

participants of such date. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 14 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 15

in particular, in that it is designed to 

promote just and equitable principles of 

trade, 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, by 

promoting the consistent application of 

its rules by further defining the manner 

in which the Exchange will compute the 

number of orders in listed options per 

day on average during a calendar month 

for its own beneficial account(s) for 

purposes of determining the 

Professional designation. Furthermore, 

the Exchange believes that specifying 

the manner in which the 390 threshold 

will be calculated within its Rules will 

provide members with certainty and 

provide them with insight as they 

conduct their own quarterly reviews for 

purposes of designating orders. 

The Exchange believes that counting 

all orders toward the number of orders, 

regardless of the options exchange to 

which the order was routed, will 

promote the consistent application of its 

rules by making clear that all order 

types shall be counted as well as all 

orders for the purpose of determining 

whether the definition of Professional 

has been met. The Exchange previously 

noted in its filing which created 

Professional orders that, 

[t]he Exchange believes that identifying 

Professional accounts based upon the average 

number of orders entered for a beneficial 

account is an appropriately objective 

approach that will reasonably distinguish 

such persons and entities from retail 

investors. The Exchange proposes the 

threshold of 390 orders per day on average 

over a calendar month, because it believes 

that this number far exceeds the number of 

orders that are entered by retail investors in 

a single day, while being a sufficiently low 

number of orders to cover the Professional 

account holders that are competing with 

broker-dealers in the Phlx marketplace. In 

addition, basing the standard on the number 

of orders that are entered in listed options for 

a beneficial account(s) assures that 

Professional account holders cannot 

inappropriately avoid the purpose of the rule 

by spreading their trading activity over 

multiple exchanges, and using an average 

number over a calendar month will prevent 

gaming of the 390 order threshold.16

FLEX Orders 

FLEX orders will not be counted 

toward the 390 threshold because these 

types of orders are non-electronic 

orders. Furthermore, FLEX orders are 

typically not traded by a retail 

Customer, but by large institutional 

investors and are not relevant to the 

type of analysis the Exchange is trying 

to distinguish between retail investors 

and market Professionals. The Exchange 

believes that not counting FLEX orders 

toward the 390 threshold is consistent 

with the Act because these types of 

orders are not utilized by retail 

Customer and the proposal should 

assure that retail investors continue to 

receive the appropriate marketplace 

advantages in the Exchange 

marketplace, while furthering fair 

competition among marketplace 

Professionals. 


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17See Exchange Rule 1080. A cancel with 

replacement order is a single message for the 

immediate cancellation of a previously received 

order and the replacement of that order with a new 

order with new terms and conditions. If the 

previously placed order is already filled partially or 

in its entirety, the replacement order is 

automatically canceled or reduced by the number 

of contracts that were executed. The replacement 

order will not retain the priority of the cancelled 

order except when the replacement order reduces 

the size of the order and all other terms and 

conditions are retained. 

18Tracking the NBBO shall mean any parent 

order that consumes any self-regulatory 

organization order book data feed, or the OPRA 

feed, to generate automated child orders, and move 

with, or follow the Bid or Offer of the series in 

question. 

19See Exchange Rule 1080 and the Exchange’s 

Pricing Schedule. 

20See NYSE Arca, Inc.’s and NYSE MKT LLC’s 

Joint Regulatory Bulletin (RBO–15–03 and RBO– 

15–06, respectively) dated September 9, 2015; The 

Chicago Board Options Exchange, Incorporated’s 

Regulatory Circulator (RG10–126) dated December 

1, 2010; and the International Securities Exchange 

LLC’s Regulatory Information Circular (2009–179) 

dated June 23, 2009. 

21A ROT is a regular member or a foreign 

currency options participant of the Exchange 

located on the trading floor who has received 

permission from the Exchange to trade in options 

for his own account. The term ‘‘ROT’’ shall include 

a Streaming Quote Trader (‘‘SQT’’), and a Remote 

Streaming Quote Trader. An SQT is an ROT who 

has received permission from the Exchange to 

generate and submit option quotations 

electronically in options to which such SQT is 

assigned. An SQT may only submit such quotations 

while such SQT is physically present on the floor 

of the Exchange. An SQT may only trade in a 

market making capacity in classes of options in 

which the SQT is assigned. 

22Market Professionals [sic] have access to 

sophisticated trading systems that contain 

functionality not available to retail customers, 

including things such as continuously updated 

pricing models based upon real-time streaming 

data, access to multiple markets simultaneously and 

order and risk management tools. 

Cancel and Replace 

With respect to determining the 

Professional designation, a cancel and 

replace order which replaces a prior 

order shall be counted as a second 

order. An order that is filled partially or 

in its entirety or is a replacement order 

that is automatically canceled or 

reduced by the number of contracts that 

were executed will not count as second 

order because it was not replaced.17 The 

Exchange believes that counting the 

replacement order as a second order is 

consistent with Exchange Rules because 

the replacement order is viewed as a 

new order with its own unique 

identifier. 

The Exchange believes that counting 

cancel and replace orders with ‘‘singlestrike algorithms,’’ which are a series of 

cancel and replace orders in an 

individual strike which track the NBBO, 

as new orders is consistent with the Act 

because the Customer is specifically 

instructing the executing broker in the 

‘‘single-strike algorithm’’ scenario to 

cancel and replace these orders. 

Tracking the NBBO 18 is akin to market 

making on the Exchange in a Customer 

account and should be counted as new 

orders. The Exchange believes that the 

Customers order designation should be 

reserved for retail Customer. 

Further, the Exchange’s interpretation 

that Complex Orders consisting of four 

legs or fewer will be counted as a single 

order, and respecting Complex Orders of 

five options legs or more, each leg will 

count as a separate order is consistent 

with the Act, because the Exchange 

believes that five or more options legs 

is sufficient quantity to justify counting 

these orders separately toward the 

volume count. The initial purpose of the 

rule change was to distinguish retail 

investors over market Professionals. The 

Exchange believes that typically 

Customer orders will not be as complex 

as to have five legs and therefore using 

five as the threshold reasonably 

differentiates Customer orders from 

Professional orders. The Exchange 

believes that five or more options legs 

evidences the distinction between the 

trading behavior of a retail investors as 

compared to a market Professional that 

would engaged in Complex Orders with 

five or more options legs. 

Parent/Child Orders 

The Exchange’s adoption of the 

Professional order was to treat orders in 

listed options per day on average during 

a calendar month in his or her own 

beneficial account differently from 

Customer orders for purposes of priority 

within the order Book and pricing.19 For 

this reason, the Exchange is adopting 

rules concerning the computation of 

orders which convert into multiple 

subordinate orders for the purpose of 

determining the Professional 

designation. The Exchange’s proposal to 

count multiple subordinate orders that 

achieve an execution strategy as one 

order per side and series and count an 

order that cancels and replaces a 

resulting subordinate order and results 

in multiple sides/series as a new order 

is consistent with the Act, because the 

Exchange is distinguishing where the 

member is actively entering orders that 

result in multiple orders and canceling 

and replacing orders that result in 

multiple orders versus where the 

member had no control of the resulting 

executions. Allowing orders on the 

same side of the market to be counted 

as a single order is consistent with the 

original intent of the Professional order 

designation. The same side of market 

distinction protects retail Customers. 

This practice is typically the type of 

transaction Customers execute versus a 

Professional trader. Multiple related 

orders resulting from a large order filled 

in part, or an order which is cancelled 

and replaced several times are 

considered part of a related order. The 

Exchange does not desire to count large 

orders filled in part as multiple orders 

because the member did not intervene 

in the outcome of the execution. An 

order that results in several separate and 

unrelated orders would be counted as 

multiple orders because the member 

intervened in this circumstance. 

The Exchange believes that the 

proposed amendment will provide more 

certainty to market participants in 

determining the computation of the 

number of orders in listed options per 

day on average during a calendar month 

for its own beneficial account(s) to 

determine the Professional designation. 

The Exchange notes that other options 

exchanges have issued notices 

describing the manner in which they 

believe that Professional order should 

be counted when determining if an 

order qualifies as a Professional order.20

The Exchange believes that there is 

confusion as to which orders count 

toward the 390 contract threshold. The 

Exchange proposes to provide clarity to 

its Rules with specific guidance as to 

the computation of Professional orders, 

which it believes will promote 

consistency in the treatment of orders as 

Professional orders. The Exchange 

believes that this proposed guidance 

will promote consistency and permit the 

proper calculation of options orders to 

prevent members with high volume 

from receiving benefits reserved for 

Customer orders. The Professional 

designation focuses specifically on the 

number of orders generated. 

Pursuant to Exchange Rule 1014(g), a 

Customer account is an account other 

than a controlled account; a controlled 

account is an account controlled by or 

under common control with a brokerdealer. Customer priority is one of the 

marketplace advantages provided to 

Customer orders on the Exchange; 

Customer priority means that Customer 

orders are given execution priority over 

non-Customer orders and quotations of 

specialists and Registered Options 

Traders (‘‘ROTs’’) 21 at the same price. 

Another marketplace advantage afforded 

to Customer orders on the Exchange is 

that member organizations are generally 

not assessed transaction fees for the 

execution of Customer orders. The 

purpose of these marketplace 

advantages is to attract retail order flow 

to the Exchange by leveling the playing 

field for retail investors over market 

Professionals [sic].22 The Exchange 


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23For example, some broker-dealers provided 

their Professional customers with multi-screened 

trading stations equipped with trading technology 

that allows the trader to monitor and place orders 

on all six options exchanges simultaneously. These 

trading stations also provide compliance filters, 

order managements tools, the ability to place orders 

in the underlying securities, and market data feeds. 24See supra note 13. 

believes that permitting certain types of 

orders to be counted as a single order 

and other types of orders to be counted 

as multiple orders is consistent with the 

original intent of the Professional 

designation which was to continue to 

provide Customer accounts with 

marketplace advantages and distinguish 

those accounts non-Professional retail 

investors from the Professionals 

accounts some non-broker-dealer 

individuals and entities have access to 

information and technology that enables 

them to Professionally trade listed 

options in the same manner as a broker 

or dealer in securities.23

Finally, the proposed guidance is 

being issued to stem confusion as to the 

manner in which options exchanges 

compute the Professional order volume. 

The Exchange’s Rules may be similar to 

notices issued by NYSE Arca, Inc, NYSE 

MKT LLC (‘‘NYSE MKT’’) and 

International Securities Exchange LLC 

(‘‘ISE’’). 

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 because the 

Exchange will uniformly apply the rules 

to calculate volume on all member 

organizations in determining 

Professional orders. The designation of 

Professional orders would not result in 

any different treatment of such orders 

for purposes of the Exchange’s Rules 

concerning order protection or routing 

to away exchanges. Also, SIFMA 

supports the guidance issued by NYSE 

Arca and NYSE MKT. The guidance is 

being issued to stem confusion as to the 

manner in which options exchanges 

compute the Professional order volume. 

The Exchange is adopting similar 

counting methods the Exchange believes 

is currently being utilized by NYSE 

MKT, NYSE ARCA and ISE related to 

designation of Professional orders. 

Counting All Orders 

The Exchange believes that counting 

all orders entered by a Professional 

toward the number of orders, regardless 

of the options exchange to which the 

order was routed, does not create an 

undue burden on intra-market 

competition because this proposed rule 

change will be consistently applied to 

all members in determining Professional 

orders. FLEX orders will not be counted 

toward the 390 threshold because these 

types of orders are non-electronic 

orders. 

Cancel and Replace 

The Exchange believes that its 

application of cancel and replace orders 

does not create an undue burden on 

intra-market competition because this 

application is consistent with Exchange 

Rules, where the replacement order is 

viewed as a new order. This treatment 

is consistent with the manner in which 

this order type is applied today within 

the order Book. 

The Exchange’s interpretation that 

Complex Orders consisting of four legs 

or fewer will be counted as a single 

order, and respecting Complex Orders of 

five legs or more, each leg will count as 

a separate order does not create an 

undue burden on intra-market 

competition because the Exchange will 

apply this method of calculation 

uniformly among its member 

organizations. 

Parent/Child Orders 

The Exchange’s treatment of 

subordinate orders does not create an 

undue burden on intra-market 

competition because allowing orders on 

the same side of the market to be 

counted as a single order is consistent 

with the original intent of the 

Professional order designation which is 

to count distinct orders and focus on the 

number of orders generated. 

The Exchange does not believe that 

the proposed rule change will impose 

an undue burden on inter-market 

competition because other exchanges 

have announced the intent to adopt 

similar guidance.24 The Exchange 

believes that disparate rules regarding 

Professional order designation, and a 

lack of uniform application of such 

rules, does not promote the best 

regulation and may, in fact, encourage 

regulatory arbitrage. The Exchange 

believes that it is therefore prudent and 

necessary to conform its rules to that of 

other options exchanges for purposes of 

calculating the threshold volume of 

orders to be designated as a 

Professional. This is particularly true 

where the Exchange’s third-party 

routing broker-dealers are members of 

several exchanges that have rules 

requiring Professional order 

designations. 

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 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission shall: (a) By order 

approve or disapprove such proposed 

rule change, or (b) institute proceedings 

to determine whether the proposed rule 

change should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR– 

Phlx–2016–10 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–Phlx–2016–10. 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 


asabaliauskas on DSK9F6TC42PROD with NOTICES2
Federal Register / Vol. 81, No. 27 / Wednesday, February 10, 2016 / Notices 7171 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(2). 

5Non-Auction Transactions are those transactions 

executed on the BOX Book. 

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 will also 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 No. SR–Phlx–2016– 

10 and should be submitted on or before 

March 2, 2016. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2016–02606 Filed 2–9–16; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–77055; File No. SR–BOX– 

2016–02] 

Self-Regulatory Organizations; BOX 

Options Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

a Proposed Rule Change To Amend 

the Fee Schedule To Lower Certain 

Fees for Non-Auction Transactions on 

the BOX Market LLC (‘‘BOX’’) Options 

Facility 

February 4, 2016. 

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 January 

27, 2016, BOX Options Exchange LLC 

(the ‘‘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 the Exchange. The 

Exchange filed the proposed rule change 

pursuant to Section 19(b)(3)(A)(ii) of the 

Act,3 and Rule 19b–4(f)(2) thereunder,4

which renders the proposal effective 

upon filing with the Commission. 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 the Substance 

of the Proposed Rule Change 

The Exchange is filing with the 

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

to amend the Fee Schedule to lower 

certain fees for Non-Auction 

transactions on the BOX Market LLC 

(‘‘BOX’’) options facility. While changes 

to the fee schedule pursuant to this 

proposal will be effective upon filing, 

the changes will become operative on 

February 1, 2016. The text of the 

proposed rule change is available from 

the principal office of the Exchange, at 

the Commission’s Public Reference 

Room and also on the Exchange’s 

Internet Web site at http://

boxexchange.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to make 

changes to Section I.A. of the BOX Fee 

Schedule, Exchange Fees for NonAuction Transactions. 

Specifically, the Exchange proposes to 

amend certain fees in the pricing model 

outlined in Section I.A. (Non-Auction 

Transactions).5 In this section, fees and 

credits are assessed depending on upon 

three factors: (i) The account type of the 

Participant submitting the order; (ii) 

whether the Participant is a liquidity 

provider or liquidity taker; and (iii) the 

account type of the contra party. NonAuction Transactions in Penny Pilot 

Classes are assessed different fees or 

credits than Non-Auction Transactions 

in Non-Penny Pilot Classes. 

Specifically, the Exchange proposes to 

reduce the Taker fees for Professional 

Customers, Broker Dealers and Market 

Makers interacting with Public 

Customers in Penny Pilot Classes. The 

fee for Professional Customers and 

Broker Dealers taking liquidity against 

Public Customers will be lowered to 

$0.50 from $0.64 and the fee for Market 

Makers taking liquidity against Public 

Customers will be lowered to $0.50 from 

$0.55. 

These transactions will remain 

exempt from the Liquidity Fees and 

Credits outlined in Section II of the BOX 

Fee Schedule. The revised fee structure 

for Non-Auction Transactions will be as 

follows: 

Account type Contra party 

Penny pilot classes Non-penny pilot classes 

Maker fee Taker fee Maker fee Taker fee 

Public Customer ............................... Public Customer ............................... $0.00 $0.00 $0.00 $0.00 

Professional Customer/Broker Dealer.0.00 0.00 0.00 0.00 

Market Maker ................................... 0.00 0.00 0.00 0.00 

Professional Customer or Broker 

Dealer.

Public Customer ............................... 0.60 0.50 0.95 1.07 

Professional Customer/Broker Dealer.0.25 0.40 0.35 0.40 

Market Maker ................................... 0.25 0.44 0.35 0.44 

Market Maker .................................... Public Customer ............................... 0.51 0.50 0.85 1.03 

Professional Customer/Broker Dealer.0.00 0.05 0.00 0.10 

Market Maker ................................... 0.00 0.29 0.00 0.29 


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