Document ID: SEC-2013-1060-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-06-13T04:00Z

[Federal Register Volume 78, Number 114 (Thursday, June 13, 2013)]
[Notices]
[Pages 35654-35656]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-14026]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69717; File No. SR-Phlx-2013-60]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to the 
Schedule of Fees and Rebates for Execution of Quotes and Orders on 
NASDAQ OMX PSX

June 7, 2013.
    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 May 31, 2013, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes changes to its schedule of fees and rebates 
for execution of quotes and orders on NASDAQ OMX PSX (``PSX''). Phlx 
proposes to implement the proposed rule change on June 3, 2013. The 
text of the proposed rule change is available on the Exchange's Web 
site at http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx, 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
    Phlx is proposing two modifications to its schedule of fees and 
rebates for transactions occurring on PSX.\3\ First, the Exchange 
currently charges a fee of $0.00275 per share executed for orders in 
securities listed on The NASDAQ Stock Market (``NASDAQ'') or the New 
York Stock Exchange (``NYSE'') entered through a PSX market participant 
identifier (``MPID'') through which a member organization provides an 
average daily volume of 10,000 or more shares of liquidity during the 
month. On May 1, 2013, Phlx submitted a proposed rule change that would 
have, among other things, set the applicable fee for this volume tier 
at $0.0028 per share executed.\4\ When that proposed rule change was 
rejected for unrelated reasons, Phlx submitted another proposed rule 
change to modify fees on May 3, 2013.\5\ Because, however, the change 
filed on May 3 did not apply retroactively to May 1, Phlx determined 
that it would be advisable to set the applicable fee at $0.00275 per 
share executed for the month of May, to reflect the fact that member 
organizations qualifying for the tier would be paying the pre-existing 
higher rate of $0.0030 per share executed for transactions occurring on 
May 1 and 2. Phlx is now proposing to set the applicable fee at the 
originally intended rate of $0.0028 per share executed.
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    \3\ The changes apply to securities priced at $1 or more per 
share.
    \4\ SR-Phlx-2013-47 (May 1, 2013).
    \5\ Securities Exchange Act Release No. 69588 (May 15, 2013), 78 
FR 29801 (May 21, 2013) (SR-Phlx-2013-51).
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    Second, the Exchange proposes to modify its rebate tier of $0.0028 
per share executed for displayed quotes/orders entered by a member 
organization that provides an average daily volume of 2 million or more 
shares of liquidity during the month by also requiring that (i) the 
quote/order is entered through an MPID through which the member 
organization displays, on average over the course of the month, 100 
shares or more at the national best bid and/or national best offer at 
least 25% of the time during regular market hours \6\ in the security 
that is the subject of the quote/order, or (ii) the member organization 
displays, on average over the course of the month, 100 shares or more 
at the national best bid and/or national best offer at least 25% of the 
time during regular market hours in 500 or more securities. A member 
organization is not required to register as a PSX Market Maker in order 
to qualify for the pricing tier. Rather, the trading data compiled by 
the Exchange's systems on an ongoing basis allow it to determine which 
member organizations and MPIDs satisfy the requirements for the tier, 
and Phlx will use this information to determine the applicable rebate 
rate to reflect in each member organization's monthly bill. To the 
extent that a member organization satisfies the requirements for the 
tier

[[Page 35655]]

during a particular month, the rebate will apply throughout that month.
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    \6\ Phlx is adding a footnote to the fee schedule defining 
regular market hours to mean ``9:30 a.m. through 4:00 p.m. Eastern 
Time, or such shorter period as may be designated by the Exchange on 
a day when PSX closes early'' (e.g., the day after Thanksgiving).
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    The overall purpose of this change is to use financial incentives 
to encourage member organizations to increase the extent to which they 
choose to offer displayed liquidity at the inside market through 
PSX.\7\ In doing so, the Exchange hopes to increase the attractiveness 
of PSX as a trading venue and benefit all of its market participants by 
increasing the extent to which liquidity is available on PSX at or near 
the national best bid and/or national best offer. This pricing tier is 
similar to programs that are in effect at NASDAQ and NASDAQ OMX BX 
(``BX'') as well as similar programs for options that have been in 
effect at other national securities exchanges, under which the 
availability of a particular fee or rebate is conditioned upon the 
extent to which quotes/orders are at or near the inside market.\8\
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    \7\ In its ``Recommendations Regarding Regulatory Responses to 
the Market Events of May 6, 2010'' (February 18, 2011) (available at 
http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/jacreport_021811.pdf), the Joint CFTC-SEC Advisory Committee on 
Emerging Regulatory Issues recommend that the Commission ``consider 
encouraging, through incentives or regulation, persons who regularly 
implement market maker strategies to maintain best buy and sell 
quotations which are `reasonably related to the market,' '' noting 
that such ``measures could certainly include differential pricing.'' 
Phlx believes that this proposed rule change expands on this 
recommendation by providing incentives for all member organizations, 
whether or not registered as market makers, to maintain buy and sell 
quotations at the inside market for a significant portion of the 
trading day.
    \8\ See NASDAQ Rule 7014(g) and BX Rule 7018(a). See also 
Securities Exchange Act Release No. 62507 (July 15, 2010), 75 FR 
42802 (July 22, 2010) (SR-ISE-2010-68); Securities Exchange Act 
Release No. 65076 (August 9, 2011), 76 FR 50525 (August 15, 2011) 
(SR-BATS-2011-024). Phlx also notes that to the extent that the 
proposed modification to the tier takes account of a member 
organization's time at the inside market, it requires the Exchange 
to perform calculations similar to those performed in connection 
with its Excess Order Fee, which weights orders differently for 
purposes of calculating a fee depending on the extent to which the 
price of an order deviates from the inside market. See NASDAQ OMX 
PHLX Pricing Schedule, Section VIII, paragraph (c). See also NASDAQ 
Rule 7018(m), BX Rule 7018(d).
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2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\9\ in general, and with Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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 customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposal to condition the availability of a rebate tier of 
$0.0028 per share executed upon the satisfaction of stipulated 
requirements for volume and extent of time with quotes/orders at the 
national best bid and/or national best offer is reasonable because it 
will condition the availability of a higher rebate tier on the extent 
to which a member organization makes significant contributions to PSX 
and its market quality by providing liquidity in the aggregate and by 
maintaining trading interest at prices favorable to market participants 
on the opposite side of the market. Moreover, the proposed change is 
consistent with an equitable allocation of fees because the rebate is 
provided to member organizations that benefit other market participants 
through high levels of liquidity provision and consistent quoting at 
the NBBO. In instances where a member organization's contribution to 
PSX's time at the inside is limited to a small number of securities, 
the rebate is allocated solely to transactions in the securities where 
the member organization achieves time at the inside requirements. 
Conversely, where the member organization makes notable market quality 
contributions across 500 securities, the rebate is allocated to all of 
the member organization's displayed quotes/orders, to reflect the more 
significant contribution of the member organization to supporting 
transactions at best prices and PSX's overall attractiveness as a 
trading venue. The proposal is not unreasonably discriminatory because 
the rebate is consistent with the benefits provided by market 
participants receiving it, and because the Exchange offers alternative 
means to receive a rebate that is only slightly lower ($0.0026 per 
share executed) and that has very modest liquidity requirements 
associated with it. The change does not result in any burden on 
competition that is not necessary or appropriate; rather, the change 
will promote competition by using pricing incentives to encourage 
market participants to quote at the inside market to a greater extent, 
thereby increasing the attractiveness of PSX as a trading venue. 
Although the tier allows members qualifying for it to receive a higher 
rebate than other market participants, this does not unduly burden 
competition because the difference between the applicable rebate and 
the next lowest rebate is only $0.0002 per share executed, and Phlx 
believes that the difference is commensurate with the benefits provided 
through satisfaction of the tier's volume and quoting requirements.
    The change with respect to the fee charged for orders in securities 
listed on NASDAQ or NYSE that are entered through a PSX MPID through 
which a member organization provides an average daily volume of 10,000 
or more shares of liquidity during the month is reasonable because it 
reflects a small increase of $0.00005 per share executed. Moreover, the 
fee in question is consistent with the requirements of SEC Rule 610(c) 
under Regulation NMS.\11\ In adopting that rule, the Commission found 
that fees not in excess of $0.0030 per share executed would promote the 
objective of equal regulation and preventing excessive fees.\12\ The 
change is consistent with an equitable allocation of fees because the 
modified fee applicable to the volume tier in question remains lower 
than the fee charged to member organizations not achieving the tier, 
and therefore continues to provide a financial incentive for member 
organizations to achieve higher volume levels at PSX. The change is not 
unfairly discriminatory because the resulting fee is not higher than 
the fee that other members may achieve through the use of routable 
orders. Finally, the fee change does not unduly burden competition 
because affected member organizations will continue to pay an access 
fee that is lower than the base rate of $0.0030 per share executed, and 
therefore their ability to compete will not be impacted; rather, they 
will continue to pay a comparatively lower fee that reflects a volume-
based discount, conceptually similar to volume-based pricing incentives 
that are provided by numerous other trading venues.
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    \11\ 17 CFR 242.610(c).
    \12\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37596 (June 29, 2005).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.\13\ Phlx notes that 
it operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, Phlx must 
continually adjust its fees to remain competitive with other

[[Page 35656]]

exchanges and with alternative trading systems that have been exempted 
from compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, Phlx believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited. In 
this instance, Phlx is instituting a small increase to one fee and 
imposing conditions upon the availability of an enhanced rebate tier. 
If the changes are unattractive to market participants, it is likely 
that PSX will fail to increase its share of executions above its 
current low level. Accordingly, Phlx does not believe that the changes 
will impair the ability of member organizations or competing order 
execution venues to maintain their competitive standing in the 
financial markets.
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    \13\ 15 U.S.C. 78f(b)(8).
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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) of the Act \14\ and paragraph (f) of Rule 19b-4 
thereunder.\15\ 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
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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-Phlx-2013-60 on the subject line.

Paper Comments

 Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2013-60. 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-Phlx-2013-60 and should be 
submitted on or before July 5, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-14026 Filed 6-12-13; 8:45 am]
BILLING CODE 8011-01-P