Document ID: SEC-2013-0233-0001
Agency: sec
Document Type: Notice
Title: Self-RegulatoryOrganizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-02-06T05:00Z

[Federal Register Volume 78, Number 25 (Wednesday, February 6, 2013)]
[Notices]
[Pages 8633-8635]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02560]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68793; File No. SR-Phlx-2013-06]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
a Clarification to the Exchange's Pricing Schedule to Clarify When an 
Order is Adding or Removing Liquidity

January 31, 2013.
    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 18, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 clarify its Pricing Schedule by clarifying 
when an order or quote is adding or removing liquidity.
    The text of the proposed rule change is provided in Exhibit 5. The 
text of the proposed rule change is also 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 the proposed rule change is to amend Section I of 
the Pricing Schedule entitled ``Rebates for Adding and Removing 
Liquidity in Select Symbols'' to provide additional specificity with 
respect to the manner in which the Exchange assesses fees and pays 
rebates for adding and removing liquidity. Today, the Exchange 
determines whether to assess Fees for Removing Liquidity or Fees for 
Adding Liquidity and pay Rebates for Adding Liquidity based on the time 
the order or quote was received by Phlx XL.\3\ The order or quote that 
arrives into the trading system first in time is considered the order 
or quote adding liquidity and the order or quote which trades against 
the order or quote that added liquidity is considered the order or 
quote removing liquidity.
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    \3\ PHLX XL[supreg]'' is the Exchange's automated options 
trading system.
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    The Exchange proposes to clarify that, with respect to Section I of 
the Pricing Schedule, the order that is received by the trading system 
first in time is considered the order adding liquidity and the order 
that trades against that order is considered the order removing 
liquidity, except with respect to orders that trigger an order exposure 
alert. For purposes of pricing, the order that triggered an order 
exposure alert is considered the order removing liquidity only during 
the order exposure period and the order that executed against such 
order is considered the order adding liquidity only during the order 
exposure period. For purposes of the Pricing Schedule only, the ``order 
exposure period'' is a time period established by the Exchange not to 
exceed one second. Accordingly, after the end of the order exposure 
period, the Exchange reverts back to considering the order received 
first as the order adding liquidity. This is the case today.
    The Exchange seeks to clarify the manner in which it assesses its 
fees and pays rebates in Section I to clarify its Pricing Schedule and 
believes that defining the terms adding and removing liquidity in 
Section I of the Pricing Schedule should provide further clarity to 
market participants as well as transparency with respect to pricing. In

[[Page 8634]]

the ordinary sense of the terms ``adding'' and ``removing,'' the order 
or quote received first is considered to be adding liquidity to the 
Exchange. The Exchange believes that orders subject to an order 
exposure alert are different. During the order exposure period, those 
orders are, in effect, advertising in a certain way that they cannot be 
executed and therefore the Exchange is inviting liquidity to trade with 
them. The quotes and orders that respond to that advertisement are, 
therefore, considered to be adding liquidity, because they are adding 
liquidity to the advertised orders. Accordingly, the Exchange believes 
that considering those responsive orders to be adding liquidity is 
logical and fair, consistent with the Exchange's goal of attracting the 
other side of advertised orders. At the end of the order exposure 
period, the Exchange reverts back to treating the advertised orders as 
adding liquidity, because the Exchange no longer presumes that a 
responsive order is specifically responding to the advertisement and 
might be coincidental. In that case, the Exchange believes that it is 
more appropriate to restore to the advertised order the status of being 
the order adding liquidity.
2. Statutory Basis
    The Exchange believes that its proposal to clarify its Pricing 
Schedule is consistent with Section 6(b) of the Act \4\ in general, and 
furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act \5\ 
in particular. The Exchange's proposal to clarify its Pricing Schedule 
is intended to provide additional guidance to market participants with 
respect to the application of fees and rebates in Section I of the 
Pricing Schedule. The Exchange has added other clarifying rule text to 
its Pricing Schedule in the past to better address the applicability of 
its fees to certain transactions.\6\ At this time, the Exchange 
believes that providing clarification regarding the manner in which the 
Exchange applies fee and rebates for adding and removing liquidity will 
provide additional transparency regarding the Pricing Schedule. The 
Exchange only recently adopted the order exposure alert message \7\ and 
believes this filing will serve to clarify the distinction in applying 
add rebates and remove fees in Section I with respect to those types of 
alerts. The Exchange believes that this clarification is reasonable 
because it would provide market participants with clear guidance on the 
application of Section I fees and rebates.\8\
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
    \6\ See Securities Exchange Act. Release No. 62140 (May 20, 
2010), 75 FR 29788 (May 27, 2010) (SR-Phlx-2010-69) (an immediately 
effective rule change to address the applicability of its fees to 
certain transactions).
    \7\ See Securities Exchange Act. Release No. 68517 (December 21, 
2012), 77 FR 77134 (December 31, 2012) (SR-Phlx-2012-136).
    \8\ The order exposure alerts are only applicable to the Simple 
Orders in Section I.
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    The Exchange believes that the clarification is equitable and not 
unfairly discriminatory because it applies to all market participants 
in a uniform manner. With respect to Customer pricing, the Customer is 
not assessed a fee when adding or removing liquidity and therefore no 
fee advantage or disadvantage with respect to whether an order 
triggering the order exposure alert is considered to be adding or 
removing liquidity. With respect to Firms, Broker-Dealers and 
Professionals, the Fees for Adding Liquidity are $0.45 per contract and 
the Fees for Removing Liquidity are $0.44 per contract. There is no 
significant fee advantage or disadvantage with respect to whether an 
order triggering the order exposure alert is considered to be adding or 
removing liquidity. Finally, with respect to Specialists and Market 
Makers, the Exchange is seeking to encourage these market participants 
to trade against orders that generate an order exposure alert by paying 
the Rebate to Add Liquidity and assessing the lower Fee for Removing 
Liquidity when responding to an order exposure alert. Even though a 
market participant is assessed the Fee for Removing Liquidity, they are 
nevertheless avoiding any routing fees from other options exchanges on 
FIND and SRCH orders,\9\ because, potentially as a result of the order 
exposure alert, the order would not be routed, which lowers the overall 
cost of the transaction.
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    \9\ See Rule 1080(m).
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    The Exchange assesses similar fees and pays similar rebates, 
pursuant to Section I, on routable FIND and SRCH orders today and prior 
to the implementation of the order exposure alert, which are considered 
the remover of liquidity. This clarification seeks to make it clear 
that a DNR order \10\ is viewed in a similar manner as FIND and SRCH 
orders when the order exposure alert occurs; that is, such order is 
treated as the remover of liquidity. The Exchange treats all orders 
executed on the Exchange similarly for purposes of the order exposure 
alert, regardless of the market participant.
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    \10\ See Rule 1080(m).
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    The Exchange is filing this proposed rule change to define the 
terms adding and removing liquidity to provide member organizations 
with greater transparency in pricing Section I fees and rebates. 
Additionally, the Exchange does not believe that there is confusion 
among market participants with respect to the application of add 
rebates and remove fees with respect to Section I generally or the 
order exposure alert specifically.
    The Exchange believes that the proposal is consistent with of 
Section 6(b)(5) in that it is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in general 
to protect investors and the public interest, by clarifying what fees 
and rebate in Section I of the Exchange's Pricing Schedule apply to 
certain transactions. Moreover, the Exchange believes that treating 
orders subject to an order exposure period as removing liquidity during 
that period is consistent with this statutory standard, because the 
responding order can logically be considered adding liquidity. Thus, 
this rewards, in terms of fees, the order that responds and results in 
an execution on the Exchange. In clarifying how the Exchange applies 
certain fees and rebates, the Exchange believes that adding text to the 
Pricing Schedule to define the terms adding and removing liquidity 
provides transparency to market participants.

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 is merely filing 
this clarification to further specify how certain fees and rebates in 
Section I are applied to market participants. The Exchange believes 
that this clarification will provide greater transparency to market 
participants. The Exchange does not believe that this amendment creates 
intramarket competition among its members as it is applied uniformly to 
all members and there is no significant fee advantage or disadvantage 
with respect to orders triggering the order exposure alert.
    The Exchange believes that clarifying the applicability of certain 
fees and rebates for adding and removing liquidity within the Pricing 
Schedule provides market participants clear guidance. As mentioned 
herein, the Exchange has added similar guidance on the applicability of 
its pricing in the past in order that market participants can clearly 
determine the manner in

[[Page 8635]]

which the Exchange applies its pricing and to avoid any ambiguity.

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) of the Act \11\ and Rule 19b-
4(f)(1) \12\ thereunder, the Exchange has designated this proposal as 
one that constitutes a stated policy, practice or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule of the SRO, and therefore has become effective.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(1).
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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:

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-2013-06 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-2013-06. 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 such 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-2013-06 and should be 
submitted on or before February 27, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02560 Filed 2-5-13; 8:45 am]
BILLING CODE 8011-01-P