Document ID: SEC-2014-0063-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-01-14T05:00Z

[Federal Register Volume 79, Number 9 (Tuesday, January 14, 2014)]
[Notices]
[Pages 2501-2504]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00464]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71256; File No. SR-Phlx-2013-124]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating To 
Multiply Listed Options Fees

January 8, 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 December 30, 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 in amending the Exchange's Pricing Schedule proposes 
to: (i) Amend certain Options Transactions Charges with respect to 
Section II related to Multiply Listed Options Fees; \3\ (ii) eliminate 
the Electronic Firm Fee Discount in Section II; and (iii) eliminate 
outdated rule text in Section II related to an expired rebate.
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    \3\ The pricing in Section II includes options overlying 
equities, ETFs, ETNs and indexes which are Multiply Listed.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on January 2, 
2014.
    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 is proposing to amend various sections of its Pricing 
Schedule. Specifically, the Exchange proposes to amend various Options 
Transaction Charges in Section II in both Penny and Non-Penny Pilot 
Options. The Exchange proposes to eliminate the Electronic Firm Fee 
Discount.\4\ The Exchange proposes to eliminate outdated rule text in 
Section II to clarify the Pricing Schedule applicable to Qualified 
Contingent Cross (``QCC'') orders.
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    \4\ The Exchange assesses Firms a reduced Options Transaction 
Charge in Penny and Non-Penny Options provided a Firm has volume 
greater than a certain amount of contracts in a month.
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Section II--Multiply Listed Options Fees
Options Transaction Charges
    The Exchange currently offers Professionals,\5\ Broker-Dealers \6\ 
and Firms \7\ a reduced Options Transaction Charge with respect to 
electronic Complex Orders,\8\ in either Penny or Non-Penny Pilot 
Options of $0.30 per contract. The Exchange is proposing to eliminate 
the reduced fee with respect to Broker-Dealer and Firm Options 
Transaction Charges in Penny and Non-Penny Pilot Options. Professionals 
will continue to be offered the reduced fee with respect to electronic 
Complex Orders. Today, Broker-Dealers are being assessed $0.30 per 
contract for electronic Complex Orders as compared to $0.45 per 
contract for Penny Pilot Options and $0.60 per contract for Non-Penny 
Pilot Options, which applies to electronic Simple Orders. All Broker-
Dealer electronic orders, Complex and Simple Orders, would be assessed 
$0.45 per contract for Penny Pilot Options and $0.60 per contract for 
Non-Penny Pilot Options as of January 2, 2014. Today, Firms are being 
assessed $0.30 per contract for electronic Complex Orders as compared 
to $0.45 per contract for Penny Pilot Options and $0.60 per contract 
for Non-Penny Pilot Options, which applies to electronic Simple Orders. 
All Firm electronic orders, Complex and Simple Orders, would be 
assessed $0.45 per contract for Penny Pilot Options and $0.60 per 
contract for Non-Penny Options as of January 2,

[[Page 2502]]

2014. The Exchange desired to incentivize Professionals, Broker-Dealers 
and Firms to submit electronic Complex Orders to the Exchange at the 
time the reduced fee became effective. The Exchange believes that 
Broker-Dealers and Firms were not incentivized to transact electronic 
Complex Orders. The Exchange believes that eliminating the reduced fee 
for Broker-Dealers and Firms will not impact trading activity on the 
Exchange as these market participants were not taking advantage of the 
reduced fee.
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    \5\ 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).
    \6\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \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.
    \8\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i).
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Section II--Multiply Listed Options Fees
Electronic Firm Fee Discount
    The Exchange currently offers Firms the opportunity to reduce 
Options Transaction Charges in Penny Pilot and Non-Penny Pilot Options 
to $0.20 per contract for a given month provided that a Firm has volume 
greater than 350,000 electronically-delivered contracts in a month 
(``Electronic Firm Fee Discount'').\9\ The Exchange proposes to 
eliminate this Electronic Firm Fee Discount. The Exchange believes that 
eliminating the discount for Firms will not impact trading activity on 
the Exchange as these market participants are not taking advantage of 
the Electronic Firm Fee Discount.
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    \9\ The Electronic Firm Fee Discount applies per member 
organization when such members are trading in their own proprietary 
account. The Exchange initially adopted this discount in 2012 to 
incentivize Firms to transact electronic orders, by providing Firms 
with an opportunity to pay lower fees in Section II of the Pricing 
Schedule by offering a reduction of Firm electronic Options 
Transaction Charges in Penny Pilot and non-Penny Pilot Options, 
provided the Firm had qualifying volume. See Securities Exchange Act 
Release No. 66985 (May 14, 2012), 77 FR 29726 (May 18, 2012) (SR-
Phlx-2012-61).
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Section II--Multiply Listed Options Fees
QCC Bonus
    The Exchange previously filed an immediately effective rule change 
to offer an additional rebate applicable to both electronic QCC Orders 
(``eQCC'') \10\ and Floor QCC Orders \11\ (collectively ``QCC 
Orders''). The Exchange currently offers an additional rebate of 
$35,000 if the member organization transacts 1,750,000 of qualifying 
QCC contracts (``QCC Bonus'').\12\ The QCC Bonus is only available 
during the month of December 2013. The Exchange proposes to delete the 
rule text applicable to the QCC Bonus as of January 2, 2014 as that 
bonus is no longer applicable.
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    \10\ A QCC Order is comprised of an order to buy or sell at 
least 1000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The QCC Order must be executed at a price at or between 
the National Best Bid and Offer and be rejected if a Customer order 
is resting on the Exchange book at the same price. A QCC Order shall 
only be submitted electronically from off the floor to the PHLX XL 
II System. See Rule 1080(o). See also Securities Exchange Act 
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate 
the execution of stock/option Qualified Contingent Trades (``QCTs'') 
that satisfy the requirements of the trade through exemption in 
connection with Rule 611(d) of the Regulation NMS).
    \11\ A Floor QCC Order must: (i) Be for at least 1,000 
contracts, (ii) meet the six requirements of Rule 1080(o)(3) which 
are modeled on the QCT Exemption, (iii) be executed at a price at or 
between the National Best Bid and Offer (``NBBO''); and (iv) be 
rejected if a Customer order is resting on the Exchange book at the 
same price. In order to satisfy the 1,000-contract requirement, a 
Floor QCC Order must be for 1,000 contracts and could not be, for 
example, two 500-contract orders or two 500-contract legs. See Rule 
1064(e). See also Securities Exchange Act Release No. 64688 (June 
16, 2011), 76 FR 36606 (June 22, 2011) (SR-Phlx-2011-56).
    \12\ The QCC Bonus is in addition to the maximum QCC Rebate of 
$375,000 and does not count toward the maximum QCC Rebate of 
$375,000.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and with 
Section 6(b)(4) and 6(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 the Exchange 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.
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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Section II--Multiply Listed Options Fees
Options Transaction Charges
    The Exchange's proposal to eliminate the current electronic Complex 
Order reduced fee with respect to Broker-Dealer and Firm Options 
Transaction Charges in Penny and Non-Penny Pilot Options is reasonable 
because these market participants are not taking advantage of the 
current reduced fee by transacting electronic Complex Orders. The 
Exchange believes that eliminating such a reduced fee for Broker-
Dealers and Firms will not result in any change in the amount of 
electronic Complex Orders transacted on the Exchange by these market 
participants. The Exchange's proposal would not impact electronic 
Simple Orders, which do not receive reduced rates today. By eliminating 
the reduced fee for electronic Complex Orders, Broker-Dealers and Firms 
would be assessed $0.45 per contract for Penny Pilot Options and $0.60 
per contract for Non-Penny Pilot Options for both electronic Complex 
and Simple Orders. Professionals would continue to receive the 
electronic Complex Order discount. The reduced fee assessed to 
Professionals is comparable with electronic Professional fees at other 
options exchanges.\15\
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    \15\ CBOE assesses a Professional and Voluntary Professional a 
$0.30 per contract electronic fee in Penny and Non-Penny Classes. 
See CBOE's Fees Schedule. NYSE Amex assesses a tiered electronic 
Professional Customer rate starting at $.32 per contract for 
electronic orders which take liquidity from 0 to 16,999 contracts. 
See NYSE AMEX Options Fee Schedule.
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    The Exchange's proposal to eliminate the current electronic Complex 
Order reduced fee with respect to Broker-Dealer and Firm Options 
Transaction Charges in Penny and Non-Penny Pilot Options is equitable 
and not unfairly discriminatory for the reasons which follow. Today, 
Broker-Dealer and Firm electronic Simple Orders are not reduced for 
electronic Complex Orders [sic]. Broker-Dealers and Firms are assessed 
$0.45 per contract for electronic Penny Pilot Options Simple Orders and 
$0.60 per contract for electronic Non-Penny Pilot Options Simple 
Orders. The Exchange's proposal to eliminate the reduced fee for 
Broker-Dealer and Firm electronic Complex Orders would remove the 
current differentiation as between Broker-Dealer and Firm electronic 
Complex versus Simple Orders and would assess those electronic 
transactions the same Options Transaction Charges in both Penny and 
Non-Penny Pilot Options. By eliminating the reduced fee for Broker-
Dealers and Firms, these market participants will pay a higher fee as 
compared to a Professional for electronic Complex Orders. A 
Professional only pays a reduced fee for electronic Non-Penny Pilot 
Complex Orders as the reduced fee for electronic Penny Pilot Options in 
Complex Orders is the same as that for Penny Pilot Options in Simple 
Orders.
    With respect to Professionals, these market participants would 
continue to receive the reduced fee of $0.30 per contract with respect 
to electronic Complex Orders. Today, Professionals are assessed a $0.30 
per contract Options Transaction Charge for Penny Pilot Options and a 
$0.60 per contract Options Transaction Charge for Non-Penny Pilot 
Options with respect to Simple Orders. A Professional receiving a 
reduced fee of $0.30 per contract for electronic Complex Orders is 
assessed the same Options Transaction Charge as with electronic Simple 
Orders. Today, a Professional pays $0.30 per contract for electronic 
Non-Penny Pilot Options

[[Page 2503]]

transactions in electronic Complex Orders as compared to $0.60 per 
contract for electronic Non-Penny Pilot Options transactions in 
electronic Simple Orders. The Exchange believes that it is equitable 
and not unfairly discriminatory to assess Professionals a reduced fee 
for electronic Complex Orders in Non-Penny Pilot Options because 
Professionals engage in trading activity similar to that conducted by 
Specialists or Market Makers. For example, Professionals continue to 
join bids and offers on the Exchange and thus compete for incoming 
order flow. For these reasons, the Exchange assesses Professionals 
Penny and Non-Penny Pilot electronic Options Transaction Charges at a 
rate which is greater than fees assessed to a Specialist and Market 
Maker and less than electronic fees assessed to a Firm and Broker-
Dealer. Specialists and Market Makers are assessed lower electronic 
fees as compared to Professionals, because Specialists and Market 
Makers have burdensome quoting obligations \16\ to the market which do 
not apply to Professionals, Customers, Firms and Broker-Dealers. 
Customers are not assessed Options Transactions Charges in either Penny 
Pilot or Non-Penny Pilot Options because Customer order flow brings 
liquidity to the market, which in turn benefits all market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attract Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Today, with respect to Simple Orders, Broker-Dealers and Firms pay 
higher fees as compared to a Professional for electronic transactions 
and this is not changing.\17\
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    \16\ See Exchange Rule 1014 entitled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
    \17\ Firms and Broker-Dealers are assessed a Penny Pilot Options 
Transaction Charge of $0.45 per contract. Firms and Broker-Dealers 
are assessed a Non-Penny Pilot Options Transaction Charge of $0.60 
per contract.
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    The Exchange believes that continuing to assess Professionals a 
higher electronic Options Transaction Charges in both Penny Pilot and 
Non-Penny Pilot Options of $0.30 and $0.60 per contract, respectively, 
as compared to a floor Options Transaction Charge in both Penny Pilot 
and Non-Penny Pilot Options of $0.25 per contract is reasonable, 
equitable and not unfairly discriminatory because these fees recognize 
the distinction between the floor order entry model and the electronic 
model and the proposed fees respond to competition along the same 
lines.\18\ Floor participants incur costs associated with accessing the 
floor, i.e. need for a floor broker, and other costs which are not born 
by electronic members. Today, the Exchange assesses different fees for 
electronic as compared to floor transactions for Firms, Broker-Dealers, 
Specialists and Market Makers in Section II of the Pricing Schedule.
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    \18\ A transaction resulting from an order that was 
electronically delivered utilizes Phlx XL II. See Exchange Rules 
1014 and 1080. Electronically delivered orders do not include orders 
transacted on the Exchange floor. A transaction resulting from an 
order that is non-electronically-delivered is represented on the 
trading floor by a floor broker. See Exchange Rule 1063. All orders 
will be either electronically or non-electronically delivered.
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Section II--Multiply Listed Options Fees
Electronic Firm Fee Discount
    The Exchange's proposal to eliminate the Electronic Firm Fee 
Discount which is currently offered to Firms to reduce Options 
Transaction Charges in Penny Pilot and Non-Penny Pilot Options is 
reasonable because market participants were not taking advantage of the 
Electronic Firm Fee Discount.
    The Exchange's proposal to eliminate the Electronic Firm Fee 
Discount which is currently offered to Firms to reduce Options 
Transaction Charges in Penny Pilot and Non-Penny Pilot Options is 
equitable and not unfairly discriminatory because the Exchange will not 
offer such a discount to any market participant.
Section II--Multiply Listed Options Fees
QCC Bonus
    The Exchange's proposal to remove rule text related to the QCC 
Bonus is reasonable because removing the outdated rule text will add 
clarity to the Pricing Schedule.
    The Exchange's proposal to remove rule text related to the QCC 
Bonus is equitable and not unfairly discriminatory because the QCC 
Bonus will no longer be in effect as of January 2, 2014 and therefore 
not available to any market participant.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose an undue burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Eliminating the electronic 
Complex Order reduced fee with respect to Broker-Dealers and Firms for 
Options Transaction Charges in Penny and Non-Penny Pilot Options and 
not eliminating the reduced fee for Professionals, reflects the trading 
activity of these market participants. Professionals engage in trading 
activity similar to that conducted by Specialists or Market Makers such 
as joining bids and offers on the Exchange and competing for incoming 
order flow. This distinction is consistent with the current 
differentials that exist between these market participants with respect 
to the current Options Transaction Charges which are assessed to these 
participants.\19\ Further, Specialists and Market Makers would be 
assessed lower electronic fees as compared to Professionals, because 
Specialists and Market Makers have burdensome quoting obligations \20\ 
to the market which do not apply to Professionals, Customers, Firms and 
Broker-Dealers. Customers are not assessed Options Transactions Charges 
in either Penny Pilot or Non-Penny Pilot Options because Customer order 
flow brings liquidity to the market, which in turn benefits all market 
participants.
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    \19\ Professionals are assessed a Penny Pilot Options 
Transaction Charge of $0.30 per contract and a Non-Penny Pilot 
Options Transaction Charge of $0.60 per contract. Firms and Broker-
Dealers are assessed a Penny Pilot Options Transaction Charge of 
$0.45 per contract. Firms and Broker-Dealers are assessed a Non-
Penny Pilot Options Transaction Charge of $0.60 per contract.
    \20\ See Exchange Rule 1014 entitled ``Obligations and 
Restrictions Applicable to Specialists and Registered Options 
Traders.''
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    Eliminating the Electronic Firm Fee Discount does not create an 
undue burden on competition. Today, this discount is currently 
available only to Firms. This discount would not be offered to any 
market participant as of January 2, 2014.
    The QCC Bonus would be unavailable to all market participants and 
therefore would not create an undue burden on competition. Also, 
removing unnecessary rule text from the Pricing Schedule adds clarity 
to the rule text.
    The Exchange operates in a highly competitive market, comprised of 
twelve options exchanges, in which market participants can easily and 
readily direct order flow to competing venues if they deem fee levels 
at a particular venue to be excessive or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange described in the above proposal are influenced by these robust 
market forces. Therefore these fees and rebates must remain competitive 
with fees charged and rebates paid by other venues and must continue to 
be reasonable and equitably allocated to those members that opt to 
direct orders to the Exchange rather than competing venues.

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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)(ii) of the Act.\21\ 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.
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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2013-124 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-2013-124. 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-2013-124 and should be 
submitted on or before February 4, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00464 Filed 1-13-14; 8:45 am]
BILLING CODE 8011-01-P