Document ID: SEC-2017-1385-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2017-08-15T04:00Z

[Federal Register Volume 82, Number 156 (Tuesday, August 15, 2017)]
[Notices]
[Pages 38730-38733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17170]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81362; File No. SR-Phlx-2017-61]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule

August 9, 2017.
    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 July 31, 2017 NASDAQ 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 Exchange's Pricing Schedule to: 
(i) Increase the Options Transaction Charge for Specialists and Market 
Makers who engage in NDX transactions on the Exchange Floor; (ii) 
exclude NDX transactions from the Exchange's Monthly Firm Fee Cap that 
otherwise applies to the monthly transaction fees that market 
participants incur when trading on the Exchange; and (iii) exempt NDX 
transactions from the Exchange's waiver of Options Transaction Charges 
for certain facilitation orders.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on August 1, 2017.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.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 make three changes to Section II of its 
Pricing Schedule. First, the Exchange proposes to increase its Options 
Transaction Charge for Specialists and Market Makers that engage in NDX 
transactions on the Exchange Floor. Last March, the Exchange increased 
its Options Transaction Charges from $0.25 to $0.75 per contract for 
all categories of market participants transacting in NDX, except for 
Specialists and Market Makers which transact in NDX on the Floor and

[[Page 38731]]

Customers.\3\ At that time, the Exchange decided not to raise its $0.35 
per contract Option Transaction Charge for Specialists and Market 
Makers transacting in NDX on the Floor because it sought to incentivize 
Specialists and Market Makers to continue to make markets in the NDX 
product on the Floor. However, the Exchange has decided to discontinue 
this incentive program and, as such, the Exchange now seeks to increase 
the Transaction Charge to $0.75 per contract. This proposal will 
harmonize the schedule of NDX Options Transaction Charges for all non-
Customer market participants in all circumstances in which they trade 
in NDX on the Exchange in that it will charge them the same per 
contract fee and will do so for both Floor-based and electronic 
transactions (except that the Exchange will continue to refrain from 
imposing an Options Transaction Charge on Customers that engage in NDX 
transactions). Moreover, the fee increase will permit the Exchange to 
recoup its operational costs for listing NDX, which is a proprietary 
product of the Exchange.
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    \3\ See Securities Exchange Act Release No. 34-80244 (March 13, 
2017), 82 FR 14388 (March 20, 2017). The categories of market 
participants that incur an Options Transaction Charge of $0.75 per 
contract when they transact in NDX include Professionals (both 
electronic and Floor trading), Specialists and Market Makers 
(electronic trading only), Broker-Dealers (both electronic and Floor 
Trading), and Firms (both electronic and Floor trading).
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    Second, the Exchange proposes to exempt NDX Options Transaction 
Charges from the $75,000 Monthly Firm Fee Cap that it otherwise applies 
to member organizations that trade on the Exchange in their own 
proprietary accounts. The Exchange bases this proposal upon a similar 
exemption that CBOE applies from its $75,000 monthly transaction fee 
cap for its proprietary options index products, including VIX and 
SPX.\4\
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    \4\ See Chicago Board Options Exchange, Inc., Fees Schedule 
(July 11, 2017), at n.22 (``For all non-facilitation business 
executed in AIM or open outcry, or as a QCC or FLEX transaction, 
transaction fees for Clearing Trading Permit Holder Proprietary and/
or their Non-Trading Permit Holder Affiliates (as defined in 
footnote 11) in all products except Underlying Symbol List A (34), 
excluding binary options, in the aggregate, are capped at $75,000 
per month per Clearing Trading Permit Holder. As CBOE assesses no 
Clearing Trading Permit Holder Proprietary transaction fees for 
facilitation orders (other than Underlying Symbol List A (34), 
excluding binary options) (as described in footnote 11), such trades 
will not count towards the cap. Surcharge fees do not count towards 
the cap.''); id. at n.34 (defining ``Underlying Symbol List A'' to 
include SPX and VIX).
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    Third, the Exchange proposes to exclude NDX Options Transactions 
from several waivers that it otherwise grants to certain categories of 
market participants of its Floor Options Transaction Charges. 
Specifically, the Exchange will not waive Firm Floor Options 
Transaction Charges for members that execute NDX facilitation orders 
when such members trade in their own proprietary account (including 
Cabinet Options Transaction Charges). Also, the Exchange will not waive 
Firm Floor Options Transaction Charges for the buy side of an NDX 
transaction if the same member or its affiliates under Common Ownership 
represents both sides of a Firm transaction when such members are 
trading in their own proprietary account. Lastly, the Exchange will not 
waive the Broker-Dealer Floor Options Transaction Charge (including 
Cabinet Options Transaction Charges) for members that execute NDX 
facilitation in their own proprietary account contra to a Customer 
(``BD-Customer Facilitation''), where the member's BD-Customer 
Facilitation average daily volume (including both FLEX and non-FLEX 
transactions) exceeds 10,000 contracts per day in a given month. The 
Exchange intends for these exclusions to help it recoup its costs of 
developing and maintaining NDX as a proprietary product. Again, 
moreover, this proposal is consistent with an exclusion for proprietary 
products that CBOE applies to fee waivers involving facilitation 
orders.\5\
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    \5\ See id. (noting that CBOE excludes its proprietary products 
from its $0.00 charge for facilitation orders).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\7\ 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, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \8\
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    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission \9\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\10\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \11\
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    \9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \10\ See NetCoalition, at 534-535.
    \11\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \12\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \12\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    The Exchange believes that its proposal to increase its Option 
Transaction Charges for Specialists and Market Makers transacting in 
NDX on the Floor is reasonable because the Exchange already charges 
Specialists and Market Makers $0.75 per contract for electronic 
transactions involving NDX as well the same amount for Professionals, 
Broker-Dealers, and Firms that engage in NDX transactions both 
electronically and on the Floor. The proposal, in other words, will 
bring the Exchange's Pricing Schedule for Option Transaction Charges 
into harmony, except for Customers. The Exchange also believes that its 
proposal is an equitable allocation and is not unfairly discriminatory 
because the Exchange will apply the same Options Transaction Charges to 
all similarly situated market participants, except for Customers.

[[Page 38732]]

    The Exchange believes that its decision to refrain from assessing 
to Customers Options Transaction Charges for NDX is equitable and not 
unfairly discriminatory because Customer orders bring valuable 
liquidity to the market, which benefits other market participants. 
Customer liquidity benefits all market participants by providing more 
trading opportunities, which attracts Specialists and Market Makers. An 
increase in these 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 also believes that its proposal to exempt NDX from the 
Monthly Firm Fee Cap on Options Transaction Charges is reasonable 
because CBOE employs a similar exemption from its monthly option 
transaction fee cap for transactions in its proprietary products.\13\ 
This proposal is an equitable allocation and is not unfairly 
discriminatory because the Exchange will apply the same fee to all 
similarly situated members.
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    \13\ See Chicago Board Options Exchange, Inc., Fees Schedule, 
supra.
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    Finally, the Exchange believes that its proposal is reasonable to 
exclude NDX from the waivers of Options Transaction Charges that it 
otherwise grants in certain circumstances involving the execution of 
facilitation orders. Again, the Exchange's proposal is similar to that 
which CBOE employs with respect to facilitation orders involving its 
proprietary products. The Exchange also believes this proposal is 
reasonable insofar as the Exchange incurs costs associated with the 
development and maintenance of NDX as a proprietary product and the 
exclusion from the fee waiver will help it to recoup those costs. 
Furthermore, the Exchange believes that this proposal is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
apply the same fee waiver exclusion to all similarly situated members.

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. In terms of inter-market 
competition, the Exchange 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, the Exchange must continually adjust 
its fees to remain competitive with other 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, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed increase to the Options Transaction 
Charge for Specialists and Market Makers engaging in Floor-based MDX 
transactions does not impose a burden on competition because the 
increase will result in the Exchange uniformly assessing a $0.75 per 
contract Options Transaction charge for all market participants, except 
Customers, regardless of whether the transaction is submitted 
electronically or on the Floor.
    The Exchange believes that assessing Customers no transaction fees 
for NDX does not impose an undue burden on intramarket competition 
because Customer orders bring valuable liquidity to the market, which 
benefits other market participants. Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attracts Specialists and Market Makers. An increase in these 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 does not believe that its proposals to exempt NDX from 
its Monthly Firm Fee Cap and to exclude NDX transactions from its fee 
waivers for certain facilitation transactions will impose a burden 
competition. These proposals are similar to CBOE's practices with 
respect to its proprietary products.

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.\14\
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    \14\ 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: (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-Phlx-2017-61 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-2017-61. 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

[[Page 38733]]

submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
Phlx-2017-61 and should be submitted on or before September 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17170 Filed 8-14-17; 8:45 am]
 BILLING CODE 8011-01-P