Document ID: SEC-2015-0128-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2015-01-22T05:00Z

[Federal Register Volume 80, Number 14 (Thursday, January 22, 2015)]
[Notices]
[Pages 3292-3294]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00965]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74059; File No. SR-Phlx-2015-01]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Customer Rebate Program

January 15, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on January 2, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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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 amend the Customer Rebate Program in 
Section B of the Pricing Schedule.
    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 ``Customer Rebate Program,'' in 
Section B of the Pricing Schedule to: (i) Increase certain Category B 
rebates; and (ii) increase the additional Category B Tier 2 and 3 
rebates paid to Specialists \3\ and Market Makers \4\ that reach the 
Monthly Market Maker Cap.\5\ The Exchange believes that the proposed 
increased rebates will encourage market participants to direct a 
greater number of Customer orders to the Exchange.
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    \3\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a). An options Specialist 
includes a Remote Specialist which is defined as an options 
specialist in one or more classes that does not have a physical 
presence on an Exchange floor and is approved by the Exchange 
pursuant to Rule 501.
    \4\ 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.
    \5\ Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $550,000 for: (i) Electronic and floor Option 
Transaction Charges; (ii) QCC Transaction Fees (as defined in 
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)); 
and (iii) fees related to an order or quote that is contra to a PIXL 
Order or specifically responding to a PIXL auction. The trading 
activity of separate Specialist and Market Maker member 
organizations is aggregated in calculating the Monthly Market Maker 
Cap if there is Common Ownership between the member organizations. 
All dividend, merger, short stock interest, reversal and conversion, 
jelly roll and box spread strategy executions (as defined in Section 
II) are excluded from the Monthly Market Maker Cap.
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    Currently, the Exchange has a Customer Rebate Program consisting of 
five tiers that pays Customer rebates on two Categories, A \6\ and 
B,\7\ of transactions.\8\ A Phlx member qualifies for a certain rebate 
tier based on the percentage of total national customer volume in 
multiply-listed options that it transacts monthly on Phlx. The Exchange 
calculates Customer volume in Multiply Listed Options by totaling 
electronically-delivered and executed volume, excluding volume 
associated with electronic Qualified Contingent Cross (``QCC'') 
Orders,\9\ as defined in Exchange Rule 1080(o).\10\
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    \6\ Category A rebates are paid to members executing 
electronically-delivered Customer Simple Orders in Penny Pilot 
Options and Customer Simple Orders in Non-Penny Pilot Options in 
Section II symbols. Rebates are paid on Customer PIXL Orders in 
Section II symbols that execute against non-Initiating Order 
interest. In the instance where member organizations qualify for 
Tier 4 or higher in the Customer Rebate Program, Customer PIXL 
Orders that execute against a PIXL Initiating Order will be paid a 
rebate of $0.14 per contract.
    \7\ Category B rebates are paid to members executing 
electronically-delivered Customer Complex Orders in Penny Pilot 
Options and Non-Penny Pilot Options in Section II symbols. Rebates 
are paid on Customer PIXL Complex Orders in Section II symbols that 
execute against non-Initiating Order interest. In the instance where 
member organizations qualify for Tier 4 or higher in the Customer 
Rebate Program, Customer Complex PIXL Orders that execute against a 
Complex PIXL Initiating Order will be paid a rebate of $0.17 per 
contract. The Category B Rebate is not paid when an electronically-
delivered Customer Complex Order, including Customer Complex PIXL 
Order, executes against another electronically-delivered Customer 
Complex Order.
    \8\ See Section B of the Pricing Schedule.
    \9\ 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).
    \10\ Members and member organizations under common ownership may 
aggregate their Customer volume for purposes of calculating the 
Customer Rebate Tiers and receiving rebates. Common ownership means 
members or member organizations under 75% common ownership or 
control.

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[[Page 3293]]

    The Exchange pays the following rebates: \11\
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    \11\ Options overlying SPY are included in the calculation of 
Customer volume in Multiply Listed Options that are electronically-
delivered and executed for purposes of the Customer Rebate Program, 
however, rebates are not paid for electronic executions in options 
overlying SPY.

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                                              Percentage thresholds of national
                                              customer volume in multiply-listed
           Customer rebate tiers               equity and ETF options classes,      Category A      Category B
                                               excluding SPY options (monthly)
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Tier 1.....................................  0.00%-0.60%........................           $0.00           $0.00
Tier 2.....................................  Above 0.60%-1.10%..................          * 0.10          * 0.17
Tier 3.....................................  Above 1.10%-1.60%..................          * 0.12          * 0.17
Tier 4.....................................  Above 1.60%-2.50%..................            0.16            0.19
Tier 5.....................................  Above 2.50%........................            0.17            0.19
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    The Exchange proposes to increase the Tier 4 and 5 Category B 
rebates from $0.19 to $0.20 per contract.
    Currently, the Exchange offers Specialists and Market Makers, or 
its affiliate under Common Ownership,\12\ that have reached the Monthly 
Market Maker Cap \13\ an increased $0.02 per contract Category A and B 
rebate in addition to the Tier 2 and 3 rebates. The Exchange proposes 
to increase the additional Category B rebate, which is currently paid 
in addition to the applicable Tier 2 or 3 rebate, to a Specialist or 
Market Maker, or its affiliate under Common Ownership, provided the 
Specialist or Market Maker has reached the Monthly Market Maker Cap, 
from $0.02 to $0.03 per contract. The Exchange will continue to pay 
Specialists and Market Makers, or its affiliate under Common Ownership, 
that have reached the Monthly Market Maker Cap an increased $0.02 per 
contract Category A rebate in addition to the Tier 2 and 3 rebates.
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    \12\ The term ``Common Ownership'' means members or member 
organizations under 75% common ownership or control.
    \13\ See note 5.
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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,\14\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\15\ 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 that the Exchange operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposal to increase the Tier 4 and 5 Category B 
rebates will encourage market participants to send a greater amount of 
Customer liquidity to Phlx. 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.
    The Exchange believes that its proposal to increase the Tier 4 and 
5 Category B rebates is equitable and not unfairly discriminatory 
because it will be applied to all market participants in a uniform 
matter. All members are eligible to receive the rebate provided they 
submit a qualifying number of electronic Customer volume.
    The Exchange believes that its proposal to pay an increased $0.03 
per contract Category B rebate, in addition to the applicable Tier 2 or 
3 rebate, to a Specialist or Market Maker, or its affiliate under 
Common Ownership, provided the Specialist or Market Maker has reached 
the Monthly Market Maker Cap is reasonable because the Exchange intends 
to continue to encourage Specialists and Market Makers to transact 
Customer Complex Orders on the Exchange to receive the enhanced rebate. 
The Exchange will continue to encourage Specialists and Market Makers 
to transact Customer Simple Orders on the Exchange by offering the 
additional $0.02 per contract Category A rebate in addition to the 
applicable Tier 2 or 3 rebate.
    The Exchange believes that its proposal to pay an increased $0.03 
per contract Category B rebate, in addition to the applicable Tier 2 or 
3 rebate, to a Specialist or Market Maker, or its affiliate under 
Common Ownership, provided the Specialist or Market Maker has reached 
the Monthly Market Maker Cap is equitable and not unfairly 
discriminatory because unlike other market participants, Specialists 
and Market Makers have burdensome quoting obligations \16\ to the 
market that do not apply to Customers, Professionals, Firms and Broker-
Dealers. Specialists and Market Makers serve an important role on the 
Exchange with regard to order interaction and they provide liquidity in 
the marketplace. Additionally, Specialists and Market Makers incur 
costs unlike other market participants including, but not limited to, 
PFOF and other costs associated with market making activities,\17\ 
which results in a higher average cost per execution as compared to 
Firms, Broker-Dealers and Professionals. The proposed differentiation 
as between Specialists and Market Makers as compared to other market 
participants recognizes the differing contributions made to the trading 
environment on the Exchange by these market participants.
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    \16\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
    \17\ Specialists and Market Makers pay for certain data feeds 
including the SQF Port Fee. SQF Port Fees are listed in the 
Exchange's Pricing Schedule at Section VII. SQF is an interface that 
allows Specialists and Market Makers to connect and send quotes into 
Phlx XL and assists them in responding to auctions and providing 
liquidity to the market.
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    Additionally, the Exchange believes that it is reasonable, 
equitable and not unfairly discriminatory to pay Specialists and Market 
Makers different rebates for transacting Simple versus Complex Orders. 
Today, the Exchange pays different Category A (Simple Order) and 
Category B (Complex Order) rebates. The Exchange also differentiates 
pricing for Simple and Complex Orders transaction fees in Section I as 
do other options exchanges.

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. The Exchange believes that the 
Customer Rebate Program will continue to encourage Customer order flow 
to be directed to the Exchange. Certain market participants will 
receive higher Tier 4 and 5 Category B rebates for transacting the same 
Customer order flow as today. The Exchange believes that the

[[Page 3294]]

Customer Rebate Program will continue to encourage Customer order flow 
to be directed to the Exchange. By incentivizing members to route 
Customer orders, the Exchange desires to attract liquidity to the 
Exchange, which in turn benefits all market participants. All market 
participants are eligible to qualify for a Customer Rebate. The 
Exchange believes this pricing amendment does not impose a burden on 
competition but rather that the proposed rule change will continue to 
promote competition on the Exchange.
    The Exchange does not believe that offering Specialists and Market 
Makers an enhanced Category B rebate of $0.03 per contract in addition 
to the applicable Tier 2 or 3 rebate creates an undue burden on 
competition because Specialists and Market Makers have burdensome 
quoting obligations \18\ to the market that do not apply to Customers, 
Professionals, Firms and Broker-Dealers. Specialists and Market Makers 
serve an important role on the Exchange with regard to order 
interaction and they provide liquidity in the marketplace. In addition, 
paying different rebates for Simple and Complex Orders is not novel. 
Other options exchanges today similarly differentiate rebates.\19\
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    \18\ See note 16.
    \19\ See the Chicago Board Options Exchange, Inc.'s Fees 
Schedule and the International Securities Exchange, LLC's Schedule 
of Fees.
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    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 and therefore must remain competitive with fees charged 
and rebates paid by other venues and therefore must continue to be 
reasonable and equitably allocated to those members that opt to direct 
orders to the Exchange rather than competing venues.

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 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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    \20\ 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-2015-01 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-Phlx-2015-01. 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 
a.m. and 3 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-2015-01 and should be 
submitted on or before February 12, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00965 Filed 1-21-15; 8:45 am]
BILLING CODE 8011-01-P