Document ID: SEC-2013-1187-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2013-07-01T04:00Z

[Federal Register Volume 78, Number 126 (Monday, July 1, 2013)]
[Notices]
[Pages 39426-39429]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15615]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69842; File No. SR-Phlx-2013-68]

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

June 25, 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 June 21, 2013, 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 Exchange's Pricing Schedule at 
Section B, entitled ``Customer Rebate Program'' to amend the various 
defined categories associated with Customer rebates.
    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 Section B of the Pricing Schedule, 
entitled ``Customer Rebate Program,'' to provide members and member 
organizations the ability to achieve greater Customer rebates by 
transacting PIXL \3\ Orders.
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    \3\ PIXL is the Exchange's price improvement mechanism known as 
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
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    Currently, the Exchange has in place a four tier structure Customer 
Rebate Program at Section B of the Pricing Schedule which pays Customer 
rebates on four Categories, A, B, C and D, of transactions. The four 
tier structure pays rebates based on percentage thresholds of national 
customer multiply-listed options volume by month based on four 
Categories (A, B, C and D) of transactions. Specifically, the Exchange 
bases a market participant's qualification for a certain Rebate Tier on 
the percentage of total national customer volume in multiply-listed 
options which are transacted monthly on Phlx as follows:

[[Page 39427]]

 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Percentage thresholds of national
                                                  customer volume in multiply-listed
              Customer rebate tiers                 equity and ETF options classes,      Category A       Category B       Category C       Category D
                                                    excluding SPY options (monthly)
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Tier 1..........................................  0.00%-0.75%.......................           $0.00            $0.00            $0.00            $0.00
Tier 2..........................................  Above 0.75%-1.60%.................            0.12             0.17             0.17             0.08
Tier 3..........................................  Above 1.60%-2.60%.................            0.14             0.17             0.17             0.08
Tier 4..........................................  Above 2.60%.......................            0.15             0.17             0.17             0.09
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The Exchange totals Customer volume in Multiply Listed Options 
(including Select Symbols and options overlying Standard and Poor's 
Depositary Receipts/SPDRs (``SPY'')); \4\ that are electronically-
delivered and executed, except volume associated with electronic 
Qualified Contingent Cross (``QCC'') Orders,\5\ as defined in Exchange 
Rule 1080(o).\6\ Members and member organizations under Common 
Ownership \7\ may aggregate their Customer volume for purposes of 
calculating the Customer Rebate Tiers and receiving rebates.
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    \4\ SPY options are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 500 
Index.
    \5\ 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 Regulation NMS). A Floor QCC Order 
must: (i) Be for at least 1,000 contracts, (ii) meet the six 
requirements of Rule 1080(o)(3) which are modeled on the QCT 
Exemption, (iii) be executed at a price at or between the National 
Best Bid and Offer; and (iv) be rejected if a Customer order is 
resting on the Exchange book at the same price. In order to satisfy 
the 1,000-contract requirement, a Floor QCC Order must be for 1,000 
contracts and could not be, for example, two 500-contract orders or 
two 500-contract legs. See Rule 1064(e). See also Securities 
Exchange Act Release No. 64688 (June 16, 2011), 76 FR 36606 (June 
22, 2011) (SR-Phlx-2011-56).
    \6\ The Exchange calculates volume and pays rebates based on a 
member's or member organization's Phlx house account number.
    \7\ Common ownership means 75% common ownership or control.
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    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.\8\ 
Rebates are paid on Customer PIXL Orders in Section II symbols that 
execute against non-Initiating Order \9\ interest, except in the case 
of Customer PIXL Orders that are greater than 999 contracts. All 
Customer PIXL Orders that are greater than 999 contracts are paid a 
rebate regardless of the contra-party to the transaction.
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    \8\ Section II of the Pricing Schedule includes Multiply Listed 
Options Fees, including options overlying equities, ETFs, ETNs and 
indexes which are Multiply Listed.
    \9\ A member may electronically submit for execution an order it 
represents as agent on behalf of a public customer, broker-dealer, 
or any other entity (``PIXL Order'') against principal interest or 
against any other order (except as provided in Rule 1080(n)(i)(E)) 
it represents as agent (``Initiating Order'') provided it submits 
the PIXL order for electronic execution into the PIXL Auction 
(``Auction'') pursuant to Rule 1080. See Exchange Rule 1080(n). Non-
Initiating Order interest could be a PIXL Auction Responder or a 
resting order or quote that was on the Phlx book prior to the 
auction.
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    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.
    Category C rebates are paid to members executing electronically-
delivered Customer Complex Orders \10\ in Select Symbols \11\ in 
Section I.
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    \10\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i).
    \11\ The Select Symbols are listed in Section I of the Pricing 
Schedule.
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    Category D rebates are paid to members executing electronically-
delivered Customer Simple Orders in Select Symbols in Section I. 
Rebates are paid on PIXL Orders in Section I symbols that execute 
against non-Initiating Order interest.
    The Exchange is proposing to amend Categories B and C to offer 
rebates on qualifying \12\ Customer PIXL Complex Orders in Section II 
symbols for Category B and Section I symbols for Category C that 
execute against non-Initiating Order interest, except in the case of 
Customer PIXL Complex Orders that are greater than 999 contracts. All 
Customer PIXL Complex Orders that are greater than 999 contracts would 
be paid a rebate regardless of the contra-party to the transaction.
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    \12\ The Exchange pays rebates on certain Customer volumes as 
specified in Section B of the Pricing Schedule.
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    The Exchange filed a proposed rule change to amend its Rules to 
permit Complex Orders in PIXL.\13\ Specifically, the Exchange filed a 
proposal to amend Rule 1080 to allow Complex Orders in the Exchange's 
price-improving electronic auction, PIXL.\14\ The Exchange proposes to 
permit members to receive a Customer rebate, pursuant to Section B of 
the Exchange's Pricing Schedule, by transacting qualifying Customer 
PIXL Complex Orders in Multiply Listed Section I and II symbols 
provided the transactions are against non-Initiating Order interest and 
not greater than 999 contracts. If the Customer PIXL Complex Order is 
greater than 999 contracts, that transaction will be paid a rebate 
regardless of the contra-party to the transaction. The Exchange 
proposes for this rule change to become immediately effective, however 
a member would not be able to transact PIXL Complex Orders, and thereby 
receive Customer rebates, until SR-Phlx-2013-46 is approved by the 
Commission.\15\
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    \13\ Securities Exchange Act Release No. 69550 (May 9, 2013), 78 
FR 28654 (May 15, 2013) (SR-Phlx-2013-46) (notice of filing of 
proposed rule change to accommodate Complex Orders in PIXL).
    \14\ The PIXL mechanism is a process whereby members and member 
organizations electronically submit orders they represent as agent 
against principal interest or other interest that they represent as 
agent. The submitted orders are stopped at a price and are 
subsequently entered into an auction seeking price improvement. 
Currently, the PIXL mechanism accepts only simple orders. Securities 
Exchange Act Release No. 69550 (May 9, 2013), 78 FR 28654 (May 15, 
2013) (SR-Phlx-2013-46).
    \15\ The functionality to transact PIXL Complex Orders will not 
be available unless and until such time as the Commission approves 
SR-Phlx-2013-46. The purpose of this filing is to offer members the 
opportunity to achieve certain rebates related to PIXL Complex 
Orders when the functionality to transact such orders is approved by 
the Commission.
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    The Exchange proposes to amend Category D to offer members a 
similar

[[Page 39428]]

rebate opportunity. The Exchange proposes to pay rebates on qualifying 
Customer PIXL Orders in Select Symbols in Section I that execute 
against non-Initiating Order interest, except in the case of Customer 
PIXL Order that are greater than 999 contracts. All Customer PIXL 
Orders that are greater than 999 contracts would be paid a rebate 
regardless of the contra-party to the transaction.
    The Exchange believes that offering members the opportunity to 
obtain rebates from PIXL transactions, whether in Simple or Complex 
Orders, will incentivize members to transact a greater number of PIXL 
Orders.
    The Exchange also proposes to make technical amendments to the text 
of Category A to clarify rule text and conform the text to the new 
language which the Exchange proposes to add pursuant to this rule 
change.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \16\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \17\ in 
particular, in that it provides for an equitable allocation of 
reasonable fees and other charges among Exchange members and member 
organizations and other persons using its facilities.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal to amend Categories B and C of the Customer 
Rebate Program to pay rebates on qualifying Customer PIXL Complex 
Orders in Section I (Category C) and II (Category B) symbols, provided 
those transactions are contra to non-Initiating Order interest,\18\ and 
also pay Customer PIXL Complex Order rebates on all orders greater than 
999 contracts regardless of the contra-party is reasonable because the 
Exchange desires to incentivize members to transact Complex Orders in 
PIXL. Today, the Exchange incentivizes members to transact Simple 
Orders in PIXL by offering similar rebates under Category A \19\ of the 
Customer Rebate Program.
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    \18\ For example, a PIXL Responder or a resting order or quote 
that was on the Phlx book prior to the auction.
    \19\ Category A rebates are paid to members and member 
organizations executing electronically-delivered Customer Simple 
Orders in Penny Pilot Options and Customer Simple Orders in Non-
Penny Pilot Options in Section II. Rebates are paid on Customer PIXL 
Orders in Section II symbols that execute against non-Initiating 
Order interest, except in the case of Customer PIXL Orders that are 
greater than 999 contracts. All Customer PIXL Orders that are 
greater than 999 contracts are paid a rebate regardless of the 
contra-party to the transaction.
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    The Exchange's proposal to amend Category D of the Customer Rebate 
Program to pay rebates on qualifying Customer PIXL Orders in Section I 
Select Symbols provided those transactions are contra to non-Initiating 
Order interest and also pay Customer PIXL Order rebates on all orders 
greater than 999 contracts regardless of the contra-party is reasonable 
because the Exchange desires to incentivize members to transact a 
greater number of Simple Orders in PIXL. Today, the Exchange offers a 
rebate for Simple Orders in PIXL under Category A of the Customer 
Rebate Program.
    The Exchange believes that the proposals to amend Categories B, C 
and D of the Customer Rebate Program to pay rebates on Customer Simple 
and Complex Orders in PIXL, respectively, in Section I and II symbols, 
provided those transactions are contra to non-Initiating Order 
interest,\20\ and also pay Customer PIXL Complex Order rebates on all 
orders greater than 999 contracts regardless of the contra-party are 
equitable and not unfairly discriminatory because the Exchange will pay 
Customer rebates to any market participant that transacts a qualifying 
Customer PIXL Order in a Simple or Complex Order that executes against 
non-Initiating Order interest and will also pay Customer rebates to any 
market participant that transacts a qualifying Customer Simple or 
Complex Order in PIXL which is greater than 999 contracts regardless of 
the contra-party in Section I and II symbols. The Exchange will apply 
the Category B, C and D rebates uniformly with respect to market 
participants transacting qualifying PIXL Orders.
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    \20\ For example, a PIXL Auction Responder or a resting order or 
quote that was on the Phlx book prior to the auction.
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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.
    The Exchange believes that its proposal to amend Category B, C and 
D of the Customer Rebate Program does not impose an undue burden on 
competition because the Exchange is offering to pay Customer rebates on 
qualifying PIXL Simple and Complex Orders in Section I and II symbols, 
respectively, provided those transactions are contra to non-Initiating 
Order interest, to all participants. The Exchange is also offering to 
pay Customer rebates on PIXL Simple and Complex Orders in Section I and 
II symbols, respectively, on all qualifying orders greater than 999 
contracts regardless of the contra party for all market participants. 
These rebates should attract Customer PIXL Simple and Complex Order 
flow to the Exchange and benefit all market participants through the 
increased liquidity such order flow will bring to the PIXL auction in 
terms of order interaction. Today, the Exchange pays rebates on PIXL 
Simple Orders only in Category A of the Customer Rebate Program. With 
this proposal, the Exchange is providing an opportunity to obtain 
Customer rebates by transacting both Simple and Complex Orders in PIXL, 
respectively, in all categories of the Customer Rebate Program.
    The Exchange operates in a highly competitive market, comprised of 
eleven 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.\21\ 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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    \21\ 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

[[Page 39429]]

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-2013-68 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-2013-68. 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-2013-68 and 
should be submitted on or before July 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15615 Filed 6-28-13; 8:45 am]
BILLING CODE 8011-01-P