Document ID: SEC-2014-1917-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-11-18T05:00Z

[Federal Register Volume 79, Number 222 (Tuesday, November 18, 2014)]
[Notices]
[Pages 68740-68743]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-27212]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73580; File No. SR-Phlx-2014-72]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
PIXL Executions in SPY and PIXL Pricing

November 12, 2014.
    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 October 31, 2014, 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 to modify Section I entitled ``Rebates and 
Fees for Adding and Removing Liquidity in SPY \3\'' and Section IV 
entitled ``Other Transaction Fees'' of the Phlx Pricing Schedule 
(``Pricing Schedule''). Specifically, the Exchange proposes to amend 
its Initiating Order Fee for PIXL \4\ Executions in SPY and PIXL 
Pricing for Initiating Order that is contra to a Customer \5\ PIXL 
order, to allow for volume discounts. While the changes proposed herein 
are effective upon filing, the Exchange has designated that

[[Page 68741]]

the amendments be operative on November 3, 2014.
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    \3\ SPY options are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 
(Standard and Poors) 500 Index.
    \4\ PIXL is the Exchange's price improvement mechanism known as 
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
    \5\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation (``OCC'') which 
is not for the account of broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
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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 amend Section I entitled ``Rebates 
and Fees for Adding and Removing Liquidity in SPY'' and Section IV 
entitled ``Other Transaction Fees'' of the Pricing Schedule. 
Specifically, the Exchange proposes to amend the Initiating Order Fee 
(``Order Fee'') for PIXL Executions in SPY (``SPY Pricing'') and PIXL 
Pricing for Initiating Orders (``PIXL Pricing'') that is contra to a 
Customer PIXL order. This would allow for volume discounts for 
Professional,\6\ Firm,\7\ Broker-Dealer,\8\ Specialist \9\ or Market 
Maker \10\ orders that are contra to a Customer PIXL Order, such that 
the Initiating Order Fee will be reduced to $0.00 if the Customer PIXL 
Order is greater than 399 contracts. Today, the Initiating Order Fee 
for options overlying SPY is $0.05 per contract and is not specific to 
market participants.
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    \6\ 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).
    \7\ 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 (``OCC'').
    \8\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \9\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \10\ 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.
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    The Exchange believes that the proposed pricing will encourage 
market participants to send an even greater amount of orders to the 
Exchange through PIXL.
    Section IV of the Pricing Schedule specifies PIXL pricing for all 
other options, except SPY. Today, an Initiating Order is assessed $0.07 
per contract or $0.05 per contract if the Customer Rebate Program \11\ 
Threshold Volume defined in Section B is greater than 100,000 contracts 
per day in a month. Any member or member organization under Common 
Ownership \12\ with another member or member organization that 
qualifies for a Customer Rebate Tier discount in Section B will receive 
the PIXL Initiating Order discount as described above. Today, the 
Initiating Order Fee for Professional, Firm, Broker-Dealer, Specialist 
and Market Maker orders that are contra to a Customer PIXL Order will 
be reduced to $0.00 if the Customer PIXL Order is greater than 999 
contracts (``volume discount'').
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    \11\ Currently, the Exchange has in place a four tier structure 
Customer Rebate Program at Section B of the Pricing Schedule which 
pays Customer rebates on four Categories (A, B, C and D) of 
transactions. The four tier structure pays rebates based on 
percentage thresholds of national customer multiply-listed options 
volume by month based on the same four Categories (A, B, C and D) of 
transactions.
    \12\ The term ``Common Ownership'' shall mean members or member 
organizations under 75% common ownership or control. See Preface to 
the Pricing Schedule.
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    The Exchange proposes to amend 999 contracts to 399 contracts in 
the volume discount. Section IV PIXL Pricing, as proposed, would state: 
``The Initiating Order Fee for Professional, Firm, Broker-Dealer, 
Specialist and Market Maker orders that are contra to a Customer PIXL 
Order will be reduced to $0.00 if the Customer PIXL Order is greater 
than 399 contracts.''
    For uniformity, the Exchange also proposes to add the same volume 
discount in Section I regarding SPY Pricing, so that an alternative to 
the Initiating Order fee of $0.05 per contract is indicated. Section I 
SPY Pricing, as proposed, would state: ``The Initiating Order Fee for 
Professional, Firm, Broker-Dealer, Specialist and Market Maker orders 
that are contra to a Customer PIXL Order will be reduced to $0.00 if 
the Customer PIXL Order is greater than 399 contracts.''
    The Exchange believes that this amendment to PIXL pricing will 
encourage a greater number of PIXL Orders on the Exchange, thereby 
increasing liquidity.
 2. Statutory Basis
    The Exchange believes that its proposal to amend the Pricing 
Schedule is consistent with Section 6(b) of the Act \13\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act 
\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange's proposal to adopt new pricing for SPY is reasonable, 
equitable, and not unfairly discriminatory because pricing by symbol is 
a common practice on many U.S. options exchanges as a means to 
incentivize order flow to be sent to an exchange for execution in the 
most actively traded options classes. SPY options are currently the 
most actively traded equity or ETF option class.\15\ Other options 
exchanges price by symbol.\16\
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    \15\ For September 2014, SPY Options accounted for approximately 
14.76% of the overall equity and ETF options volume industry-wide 
(approximately 12.30% of the overall Phlx volume). By comparison, 
the second most actively traded equity or ETF option is AAPL, which 
accounts for approximately 7.80% of the overall equity and ETF 
options volume industry-wide (approximately 6.00% of the overall 
Phlx volume).
    \16\ See the Chicago Board Options Exchange Incorporated's Fees 
Schedule and the International Securities Exchange LLC.
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    The Exchange's proposed volume discount for SPY Pricing is 
reasonable because the Exchange desires to incentivize market 
participants to transact a greater number of SPY options. The Exchange 
is offering a volume discount specific to SPY because, as previously 
mentioned, SPY options are currently the most actively traded options 
class and therefore the Exchange believes that incentivizing 
Professionals, Firms, Broker-Dealers, Specialists and Market Makers to 
add increased liquidity in SPY options and encouraging market 
participants to send order flow to the Exchange by adding a volume 
discount will benefit all market participants through increased 
liquidity, tighter markets and order interaction. The Exchange believes 
it is reasonable to assess lower fees to transact SPY options to 
Professionals, Firms, Broker-

[[Page 68742]]

Dealers, Specialists and Market Makers because the Exchange seeks to 
incentivize these market participants to transact a greater number of 
SPY options. The Exchange would assess higher fees if the Customer PIXL 
Order is 399 contracts or less.
    The Exchange's proposed new volume discount for SPY Pricing is 
equitable and not unfairly discriminatory. Today, the Exchange assesses 
a $0.05 per contract Initiating Order Fee for PIXL Executions in SPY 
(which apply to fees in Parts A and B). When the PIXL Order is contra 
to the Initiating Order, a Customer PIXL Order will be assessed $0.00 
per contract and all other non-Customer market participants will be 
assessed a $0.38 per contract fee when contra to an Initiating Order. 
Also, when the PIXL Order is contra to other than the Initiating Order, 
the PIXL Order will be assessed $0.00 per contract, unless the order is 
a Customer, in which case the Customer will receive a rebate of $0.38 
per contract; all other contra parties to the PIXL Order, other than 
the Initiating Order, will be assessed a Fee for Removing Liquidity of 
$0.38 per contract or will receive the Rebate for Adding Liquidity. The 
Exchange is proposing to continue to assess the aforementioned fees, 
and is proposing to amend the volume discount. The Exchange believes 
that assessing lower Fees for Adding Liquidity, greater than 399 
contracts, will incentivize Professionals, Firms, Broker-Dealers, 
Specialists and Market Makers to interact with a greater number of 
Initiating Orders in SPY options on the Exchange through PIXL. The 
Exchange believes that it is equitable and not unreasonably 
discriminatory to assess the same fees for Initiating Orders in SPY 
options to all market participants based on volume, or liquidity 
provided to the Exchange. Creating incentives and attracting SPY Orders 
to the Exchange benefits all market participants through increased 
liquidity at the Exchange. A higher percentage of SPY Orders in PIXL 
leads to increased auctions and better opportunities for price 
improvement.
    In addition, the Exchange notes that the volume discount is 
currently in place for PIXL pricing.
    The Exchange believes that it is reasonable, equitable and not 
unreasonably discriminatory to reduce the threshold for the PIXL 
Pricing volume discount from 999 contracts to 399 contracts. With this 
change in the volume discount,\17\ the Initiating Order Fee for 
Professional, Firm, Broker-Dealer, Specialist and Market Maker orders 
that are contra to a Customer PIXL Order will be reduced to $0.00 if 
the Customer PIXL Order is greater than 399 contracts. The volume 
discount will be applied uniformly to all according to liquidity 
brought to the Exchange. 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.
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    \17\ The volume discount has been in place for more than a year. 
See Securities Exchange Act Release No. 69768 (June 14, 2013), 78 FR 
37250 (June 20, 2013) (SR-Phlkx-2013-61) [sic] (notice of filing and 
immediate effectiveness).
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    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. SPY options and the PIXL electronic auction are 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 allows the Exchange to continue attracting liquidity 
to 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 Exchange does not believe 
that the proposal creates a burden on intra-market competition because 
the Exchange is applying the same SPY option and PIXL Fees to all 
market participants in the same manner dependent on volume.
    The Exchange believes that the proposed new volume discount for SPY 
options and 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 orders in SPY and other options 
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.
    The Exchange's proposal to reduce the threshold for the volume 
discount for all market participants transacting options on PIXL 
promotes competition in a highly liquid market and a highly liquid 
option, SPY. Today, PIXL and SPY pricing is proposed to incentivize 
Professionals, Firms, Broker-Dealers, Specialists and Market Makers 
Firms to enter Initiating Orders into the PIXL auction by offering an 
incentive to reduce the Initiating Order Fee. By expanding the 
opportunity to all market participants that pay an Initiating Order Fee 
to reduce those fees, the Exchange encourages competition among market 
participants to price improve the order.

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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\18\ the Exchange 
has designated this proposal as establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization on any person, 
whether or not the person is a member of the self-regulatory 
organization, which renders the proposed rule change effective upon 
filing.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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.

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:

[[Page 68743]]

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-2014-72 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 20549-1090.

All submissions should refer to File Number SR-Phlx-2014-72. 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-2014-72 and should be 
submitted on or before December 9, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27212 Filed 11-17-14; 8:45 am]
BILLING CODE 8011-01-P