Document ID: SEC-2017-1391-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2017-08-16T04:00Z

[Federal Register Volume 82, Number 157 (Wednesday, August 16, 2017)]
[Notices]
[Pages 38979-38981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17276]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81374; File No. SR-Phlx-2017-63]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Chapter 
VI, Section A of Its Pricing Schedule Relating to the Exchange's 
Monthly Permit Fees for PSX Only Members

August 10, 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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[[Page 38980]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter VI, Section A of its Pricing 
Schedule relating to the Exchange's monthly permit fees for PSX only 
members. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Chapter VI, Section A of its Pricing 
Schedule to add a new exemption from the $4,000 per month ``PSX Only 
Permit Fee'' that the Exchange assesses to ``PSX only'' members and 
member organizations. A ``PSX only'' member or member organization is 
one that only does business only [sic] on PSX and not on the PHLX 
options market.
    Presently, the Exchange waives this Permit Fee if a PSX only member 
or member organization executes at least 1,000 shares per day, on 
average, in a given month. The Exchange proposes to also waive the 
Permit Fee during any month in which a PSX only member's or member 
organization's business on the Exchange is limited to ``clearing-
only.'' For the purpose of the proposal, the term ``clearing-only'' 
means that the PSX only member or member organization: (1) Does not 
execute any trades on PSX throughout a given month; (2) maintains no 
active connections to execute trades on PSX during that month (either 
through its own MPID or through a sponsored access relationship on 
behalf of another member or member organization); and (3) maintains PSX 
membership for the sole purpose of clearing trades on behalf of another 
member or member organization that is actively trading on PSX.
    The purpose of the proposal is to enhance its fee structure for 
members and member organizations that limit their business on the 
Exchange during a given month to only clearing trades on behalf of 
others. The Exchange has determined that assessing clearing-only 
members and member organizations a monthly PSX Only Permit Fee is 
unnecessary given that the PSX Only Permit Fee exists for two purposes 
that do not apply to those that engage in clearing-only. First, the PSX 
Only Permit Fee serves as the price that members and member 
organizations pay for the privilege of executing trades on PSX. 
However, unlike other PSX members and member organizations, clearing 
firms do not obtain their PSX membership to execute trades and they do 
not, in fact, execute trades on PSX. The PSX Only Permit Fee also 
exists to defray the costs that the Exchange incurs to examine and 
oversee those of its members and member organizations for which the 
Exchange acts as the Designated Examination Authority. Again, however, 
the Exchange does not serve as the Designated Examination Authority for 
clearing-only firms and it therefore does not incur these costs.
    Moreover, the Exchange believes that the assessment of the monthly 
PSX Only Permit Fee to clearing-only members and member organizations 
serves as a disincentive for clearing firms to provide their valuable 
services to other Exchange members and member organizations. The 
Exchange wishes to encourage, rather than discourage, clearing firms to 
participate on the Exchange. Indeed, the Exchange hopes that waiving 
the PSX Only Permit Fee for clearing-only members and member 
organizations will not only attract new clearing firms to PSX, but it 
will also more generally attract additional trading participation and 
trading on PSX. This proposal is part of an effort to nurture the 
growth of PSX.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\3\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\4\ 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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    \3\ 15 U.S.C. 78f(b).
    \4\ 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.'' \5\
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    \5\ 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 \6\ 
(``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.\7\ 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.'' \8\
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    \6\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \7\ See NetCoalition, at 534-535.
    \8\ 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' . . . .'' \9\ 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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    \9\ 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 waiving the monthly PSX Only Permit Fee 
for clearing-only members and member organization is reasonable because 
no justification exists for charging this Fee to members and member 
organizations that do not use their membership to execute trades on PSX 
and are not

[[Page 38981]]

subject to examination by the Exchange. The Exchange also believes that 
its definition of ``clearing-only'' is reasonable because it excludes 
those firms that are PSX members for purposes other than simply to 
clear transactions, those that execute even small volumes of trades 
during a given month, and even those that maintain an active capacity 
to execute trades during a month, either through its own MPID or 
through a sponsored access relationship. Finally, the Exchange proposes 
reasonable steps to ensure that those clearing firms that request 
waivers of the PSX Only Permit Fee in fact qualify for the waiver. It 
will require such firms to attest in writing to their ``clearing-only'' 
status as a condition of the Exchange granting them the waiver. The 
attestation form will also obligate firms to promptly notify the 
Exchange of any change in their statuses.
    The Exchange believes that the proposal is an equitable allocation 
and is not unfairly discriminatory because the Exchange will apply the 
same fee waiver to all similarly situated members and member 
organizations that utilize their membership on the Exchange only to 
engage in clearing activities. Moreover, the Exchange believes that its 
proposal does not discriminate against PSX only members and member 
organizations that execute trades on PSX because such members and 
member organizations can and typically do qualify for their own waivers 
of the monthly Permit Fee when, in a given month, they meet or exceed 
an average daily trading threshold of 1,000 shares. When PSX only 
members and member organizations do not meet or exceed this monthly 
trading threshold, the Exchange believes that it is justified in 
continuing to charge them the Permit Fee insofar as the transaction 
fees they generate for the Exchange are not sufficient to offset their 
shares of the Exchange's regulatory oversight costs.\10\
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    \10\ See also Securities Exchange Act Release No. 34-72784 (Aug. 
7, 2014), 79 FR 47506 (Aug. 13, 2014) (discussing the Exchange's 
rationale for its existing PSX Only Permit Fee waiver).
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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 waiver of the monthly PSX Only 
Permit Fee will not impose any burden on competition. To the contrary, 
the Exchange believes that its proposal is pro-competitive because it 
may encourage additional clearing firms to provide clearing services on 
the Exchange, which in turn may attract additional trading participants 
and trading activity.

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.\11\
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    \11\ 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-2017-63 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-2017-63. 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-2017-63, and should be 
submitted on or before September 6, 2017.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-17276 Filed 8-15-17; 8:45 am]
 BILLING CODE 8011-01-P