Document ID: SEC-2017-0353-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2017-03-06T05:00Z

[Federal Register Volume 82, Number 42 (Monday, March 6, 2017)]
[Notices]
[Pages 12671-12673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04203]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80119; File No. SR-Phlx-2017-19]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Related to 
Qualified Contingent Cross Orders

February 28, 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 February 21, 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 at 
Section II, entitled ``Multiply Listed Options Fees,'' \3\ to increase 
the maximum Qualified Contingent Cross (``QCC'') orders rebate which 
will be paid in a given month.
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    \3\ These fees include 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 March 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.

[[Page 12672]]

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 increase the maximum QCC rebate that will 
be paid by the Exchange in a given month. The Exchange believes that 
this increase will incentivize participants to transact additional QCC 
Orders on Phlx.
    Today, the Exchange assesses a $.20 per contract QCC Transaction 
Fee for a Specialist,\4\ Market Maker,\5\ Firm \6\ and Broker-
Dealer.\7\ Customers \8\ and Professionals \9\ are not assessed a QCC 
Transaction Fee. QCC Transaction Fees apply to QCC Orders \10\ and 
Floor QCC Orders.\11\ Rebates are paid on all qualifying executed QCC 
Orders based on the following six tier rebate schedule:
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    \4\ The term ``Specialist'' applies to transactions for the 
account of a Specialist (as defined in Exchange Rule 1020(a)).
    \5\ The term ``Market Maker'' includes Registered Options 
Traders (``ROT''). See Exchange Rule 1014(b)(i) and (ii). A ROT 
includes a Streaming Quote Trader or ``SQT,'' a Remote Streaming 
Quote Trader or ``RSQT'' and a Non-SQT, which by definition is 
neither a SQT nor a RSQT. A ROT is defined in Exchange Rule 1014(b) 
as a regular member of the Exchange located on the trading floor who 
has received permission from the Exchange to trade in options for 
his own account. An SQT is defined in Exchange Rule 1014(b)(ii)(A) 
as an ROT who has received permission from the Exchange to generate 
and submit option quotations electronically in options to which such 
SQT is assigned. An RSQT is defined in Exchange Rule in 
1014(b)(ii)(B) as an ROT that is a member affiliated with an RSQTO 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in options to which such RSQT has been assigned. A 
Remote Streaming Quote Trader Organization or ``RSQTO,'' which may 
also be referred to as a Remote Market Making Organization 
(``RMO''), is a member organization in good standing that satisfies 
the RSQTO readiness requirements in Rule 507(a). RSQTs may also be 
referred to as Remote Market Markers (``RMMs'').
    \6\ 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.
    \7\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \8\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation which is not for 
the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
    \9\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Exchange Rule 1000(b)(14).
    \10\ Electronic QCC Orders are described in Rule 1080(o).
    \11\ Floor QCC Orders are described in Rule 1064(e).

                                               QCC Rebate Schedule
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                                                                                                    Rebate per
                     Tier                                           Threshold                        contract
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Tier 1........................................  0 to 99,999 contracts in a month................           $0.00
Tier 2........................................  100,000 to 299,999 contracts in a month.........            0.05
Tier 3........................................  300,000 to 499,999 contracts in a month.........            0.07
Tier 4........................................  500,000 to 699,999 contracts in a month.........            0.08
Tier 5........................................  700,000 to 999,999 contracts in a month.........            0.09
Tier 6........................................  Over 1,000,000 contracts in a month.............            0.11
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    The Exchange will not pay a QCC Rebate where the transaction is 
either: (i) Customer-to-Customer; (ii) Customer-to-Professional, (iii) 
Professional-to-Professional or (iv) a dividend, merger, short stock 
interest or reversal or conversion strategy execution.\12\
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    \12\ Dividend, merger, short stock interest or reversal or 
conversion strategy execution are described in Section II of the 
Pricing Schedule.
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    The Exchange will continue to pay rebates on QCC Orders as 
described above. The Exchange proposes to amend the QCC Rebate Schedule 
to increase the maximum QCC Rebate of $450,000 per month to $550,000 
per month.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of 
Sections 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, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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.'' \15\
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    \15\ 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 
\16\ (``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.\17\ 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.'' \18\
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    \16\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \17\ See NetCoalition, at 534-535.
    \18\ 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' . . . .'' \19\ 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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    \19\ 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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QCC Rebates
    The Exchange believes that it is reasonable to increase the maximum 
amount of the QCC Rebate the Exchange would pay a market participant in 
a

[[Page 12673]]

given month from $450,000 to $550,000 because the Exchange believes it 
will attract additional QCC Orders to the Exchange because the amount 
of rebates they may be eligible for has increased.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to increase the maximum amount of the QCC Rebate the 
Exchange would pay a market participant in a given month from $450,000 
to $550,000 because all qualifying market participants are eligible to 
obtain this maximum amount of QCC rebates provided they transact a 
qualifying number of QCC Orders. All market participants are eligible 
to transact QCC Orders.

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 
sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
change will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets 
or will impose any inter-market burden on competition for the reasons 
stated above.
    The Exchange does not believe that the proposed rule change will 
impose any intra-market burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that its proposal to increase the maximum QCC Rebate does not 
impose a burden on competition, rather the increased cap should 
encourage market participants to transact a greater number of QCC 
Orders in order to obtain the maximum QCC Rebate. All market 
participants are eligible to transact QCC Orders.

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\
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    \20\ 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-2017-19 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-2017-19. 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-2017-19, and should be 
submitted on or before March 27, 2017.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04203 Filed 3-3-17; 8:45 am]
BILLING CODE 8011-01-P