Document ID: SEC-2016-0296-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2016-02-22T05:00Z

[Federal Register Volume 81, Number 34 (Monday, February 22, 2016)]
[Notices]
[Pages 8814-8818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03526]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77143; File No. SR-Phlx-2016-09]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to a 
Policy for Amending Billing Information and a Research Fee

February 16, 2016.
    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 3, 2016, NASDAQ PHLX LLC (``Phlx'' or the ``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 adopt a new policy entitled, ``Policy for 
Amending Billing Information.'' The Exchange also proposes to adopt a 
Research Fee.
    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.

[[Page 8815]]

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 adopt a ``Policy for Amending Billing 
Information'' and a Research Fee. The Exchange also proposes some minor 
amendments to clarify the Pricing Schedule. Each of these changes will 
be discussed in more detail below. Adopting a policy regarding amending 
billing information will clarify how the Exchange will treat such 
corrections. The Research Fee is intended to relieve the Exchange of 
administrative burdens associated with handling errors on the part of 
members and member organizations (hereinafter ``member(s)'') for proper 
billing with respect to strategy transactions.
Policy for Amending Billing Information
    The Exchange proposes to adopt a Policy for Amending Billing 
Information which would apply to corrections submitted to the Exchange 
after trade date and prior to the issuance of an invoice. These 
corrections are errors on the part of members with respect to executed 
orders that impact billing. These errors are not Exchange errors as no 
billing has occurred at this time for the transactions at issue.\3\ The 
Exchange notes that members may correct certain trade information on 
trade date, but not after the trade date without Exchange intervention. 
For example, today a member is required to mark transactions related to 
strategy trades \4\ by identifying the specific strategy. Members may 
need to correct a marking related to a strategy trade by amending the 
type of identified transactions or adding a missed marking throughout 
the trading day. Once the trade date passes, Exchange staff would need 
to be notified of such errors for billing purposes.\5\ Also, once an 
invoice is issued, the Exchange's Billing Dispute Policy \6\ is 
effective.
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    \3\ The Exchange bills one month in arrears.
    \4\ The Exchange permits dividend, merger, short stock interest, 
reversal or conversion, jelly roll or box spread strategies on the 
Exchange.
    \5\ Members may correct certain information at The Options 
Clearing Corporation (``OCC''). The Exchange is able to capture 
corrected information such as capacity changes for billing purposes 
through OCC records. The type of information that would need to be 
corrected at the Exchange by submitting a trade correction for 
billing purposes includes marking trades for strategy transactions, 
contra party information, account information or CMTA changes.
    \6\ The Exchange's billing dispute policy provides that all 
disputes must be submitted to the Exchange in writing and must be 
accompanied by supporting documentation. All disputes must be 
submitted no later than sixty (60) days after receipt of a billing 
invoice, except for disputes concerning NASDAQ OMX PSX fees, 
proprietary data feed fees and co-location service fees. After sixty 
calendar days, all fees assessed by the Exchange are final.
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    The Exchange proposes to require members to submit corrections 
impacting billing to the Exchange, in writing, and accompanied by 
supporting documentation. The Exchange believes that requiring members 
to support their corrections to the billing information is important to 
validate trades for billing purposes. Further, the Exchange proposes to 
require that only members may submit information related to billing 
corrections. This policy will eliminate the need for the Exchange to 
deal with Customers directly. Members are responsible for all trades 
submitted to the Exchange and should be responsible for handling 
related billing information corrections such as marking strategy 
transactions. The Exchange also proposes to clarify at this time that 
only members may submit billing disputes. The Exchange proposes to add 
this language to the rule text for clarity and to hold members 
responsible for also handling billing disputes.
    The Exchange's adoption of this Policy for Amending Billing 
Information will also amend a prior policy related to strategy 
transactions. Today, the Exchange requires members to designate on the 
trade ticket whether the trade involves a dividend,\7\ merger,\8\ short 
stock interest,\9\ reversal or conversion,\10\ jelly roll \11\ or box 
spread \12\ strategy by inserting a code on the trade ticket \13\ or 
requesting Exchange staff on the trading floor to input the code into 
the trading system.\14\ This marking must occur on the day the order 
was entered to receive the benefit of any trading cap \15\ for which 
they may qualify.\16\ This proposed policy will enable members to make 
corrections after the trade date and still qualify for the strategy fee 
cap. The Exchange's proposed Policy for Amending Billing Information 
does not impact the Exchange's Regulatory group's actions with respect 
to the proper marking of trades. Members must comply with Exchange 
rules in properly marking their trades and may be subject to 
disciplinary action in the event they fail to comply with Exchange 
Rules.
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    \7\ A dividend strategy is defined as transactions done to 
achieve a dividend arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class, executed the 
first business day prior to the date on which the underlying stock 
goes ex-dividend.
    \8\ A merger strategy is defined as transactions done to achieve 
a merger arbitrage involving the purchase, sale and exercise of 
options of the same class and expiration date, executed the first 
business day prior to the date on which shareholders of record are 
required to elect their respective form of consideration, i.e., cash 
or stock.
    \9\ A short stock interest strategy is defined as transactions 
done to achieve a short stock interest arbitrage involving the 
purchase, sale and exercise of in-the-money options of the same 
class.
    \10\ Reversal and conversion strategies are transactions that 
employ calls and puts of the same strike price and the underlying 
stock. Reversals are established by combining a short stock position 
with a short put and a long call position that shares the same 
strike and expiration. Conversions employ long positions in the 
underlying stock that accompany long puts and short calls sharing 
the same strike and expiration.
    \11\ A jelly roll strategy is defined as transactions created by 
entering into two separate positions simultaneously. One position 
involves buying a put and selling a call with the same strike price 
and expiration. The second position involves selling a put and 
buying a call, with the same strike price, but with a different 
expiration from the first position.
    \12\ A box spread strategy is a strategy that synthesizes long 
and short stock positions to create a profit. Specifically, a long 
call and short put at one strike is combined with a short call and 
long put at a different strike to create synthetic long and 
synthetic short stock positions, respectively.
    \13\ The Exchange has designated ``Z1'' for dividend strategies, 
``Z2'' for short stock interest and merger strategies, ``Z3'' for 
box spread strategies and ``Z4'' for reversal and conversion and 
jelly roll strategies.
    \14\ The Exchange's trading system on the trading floor is the 
Floor Broker Management System or FBMS.
    \15\ The Exchange offers members certain strategy caps at 
Section II of the Pricing Schedule. The buy and sell side of a 
transaction must originate from the Exchange floor to qualify for 
these caps. Also, reversal and conversion, jelly roll and box spread 
strategy executions are not included in the Monthly Strategy Cap for 
a Firm. Reversal and conversion, jelly roll and box spread strategy 
executions are included in the Monthly Firm Fee Cap. All dividend, 
merger, short stock interest, reversal and conversion, jelly roll 
and box spread strategy executions will be excluded from the Monthly 
Market Maker Cap. Firms are subject to a maximum fee of $75,000 
(``Monthly Firm Fee Cap'').
    \16\ See Securities Exchange Act Release No. 70850 (November 12, 
2013), 78 FR 69164 (November 18, 2013) (SR-Phlx-2013-109) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
Box Spread Strategies).
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    The Exchange believes that the Policy for Amending Billing 
Information will promote consistency in the treatment of all 
corrections submitted to the Exchange.
Research Fee
    The Exchange proposes to adopt a Research Fee of $1,000 applicable 
to members submitting corrections applicable to strategy transactions. 
The Exchange would assess this fee for each transaction correction 
presented to the Exchange. Assessing a fee to members to correct errors 
related to the marking of strategy trades caused by the member will 
relieve the administrative burden on the Exchange associated with 
reviewing and validating these trade corrections. Correcting mismarked 
strategy transactions requires Exchange personnel to review errors and 
make adjustments to its billing processes to ensure the corrected trade 
is properly

[[Page 8816]]

processed for billing. The Exchange believes that assessing a fee will 
promote increased accuracy in executing strategy transactions and 
proper marking of those trades among members who may wish to avoid the 
correction fee. The integrity of the audit trail is important to the 
Exchange and the fee will continue to reinforce the need to ensure that 
strategy trades are properly marked. The Research Fee will also 
compensate the Exchange for administrative resources utilized to 
research fees and promote accuracy for strategy transaction 
corrections.
Other Amendments
    The Exchange proposes to remove a historical date from the Billing 
Dispute policy as the origination date of the policy is no longer 
relevant. The Exchange also proposes to amend the Table of Contents to 
properly reflect sections which have been revised in the Pricing 
Schedule. Finally, the Exchange proposes to add the letter ``D'' before 
the Remote Specialist Fee to identify that section in the Table of 
Contents.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \17\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act \18\ 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 or system which the Exchange operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange further addresses its adoption of a 
Policy for Amending Billing Information and Research Fee below.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4) and (5).
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Policy for Amending Billing Information
    The Exchange's proposal to adopt a Policy for Amending Billing 
Information is reasonable because the corrections are related to member 
errors that are not yet ripe for treatment pursuant to the Billing 
Dispute Policy. This proposal will enable the Exchange to apply the 
proper pricing to each transaction in the event of an error. The 
Exchange believes that the Policy for Amending Billing Information will 
promote consistency in the treatment of all corrections submitted to 
the Exchange. Requiring members to support their corrections with 
documentation is reasonable to maintain the integrity of executed 
transactions on the Exchange by verifying that each trade should be 
corrected for billing purposes.
    The Exchange's amendment to corrections related to strategy 
transactions is reasonable because the Exchange will price all 
qualifying strategy transactions uniformly according to the Pricing 
Schedule, regardless of whether an error occurred when the trade was 
initially submitted, provided the member submits a trade correction. 
The Exchange will validate all trade corrections and apply the 
appropriate fees, rebates and caps to the transaction. All members will 
be able to qualify for the strategy cap even in the event of an error. 
Members remain responsible to comply with Exchange rules and properly 
mark their trades or be subject to disciplinary action in the event 
they fail to comply with Exchange Rules. Also, the proposed Research 
Fee should continue to promote the consistent marking of strategy 
trades.
    The Exchange's proposal to adopt a Policy for Amending Billing 
Information is equitable and not unfairly discriminatory because it 
will uniformly apply to all members. All members will be required to 
support their corrections with documentation. The Exchange's amendment 
to corrections related to strategy transactions is equitable and not 
unfairly discriminatory because the Exchange's Policy for Amending 
Billing Information will uniformly apply to all members submitting 
corrections for strategy transactions. All strategy transactions will 
be uniformly assessed the pricing in the Pricing Schedule for all 
qualifying strategy transactions, regardless of whether an error 
occurred when the trade was initially submitted, provided the member 
submits a correction. All members will be able to qualify for the 
strategy cap even in the event of an error.
    The Exchange's proposal to require members to submit corrections 
and billing disputes is reasonable because members should be 
responsible for all trades submitted to the Exchange and handling 
related corrections. The Exchange provides members with both daily and 
monthly fee reports in an effort to keep members apprised of executions 
and associated pricing. This practice also is intended to encourage 
members to review transactions so errors can be promptly identified. 
Errors identified prior to the invoice may be corrected pursuant to the 
Policy for Amending Billing Information. The Exchange's proposal to 
require members to submit corrections and billing disputes is equitable 
and not unfairly discriminatory because the Exchange has privity with 
its members and those members will uniformly be held responsible for 
all trades submitted to the Exchange and the handling of related 
corrections and billing disputes.
Research Fee
    The Exchange's proposal to adopt a Research Fee of $1,000 
applicable to member submitting corrections related to strategy 
transactions is reasonable because the Exchange expends resources to 
review a correction submitted by members and believes this fee will 
compensate the Exchange. For example, Exchange staff validates the 
corrections to ensure the accuracy of the correction as it relates to a 
specific strategy and reviews its internal billing to correct its 
records to properly bill the corrected transaction. The Exchange 
believes that assessing a Research Fee will also promote proper marking 
of strategy transactions. The Exchange believes that it is reasonable 
to only assess a Research Fee related to strategy transactions because 
these types of marking errors require Exchange staff intervention. 
Other types of marking errors may be handled at OCC. The Exchange 
believes assessing a Research Fee in the amount of $1,000 is reasonable 
because the Exchange believes that the fee level is appropriate given 
the amount of Exchange resources expended to correct the error. Further 
the fee is not egregious and similar fee levels are assessed by the 
Exchange for failures to mark certain transactions.\19\
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    \19\ See Options Floor Procedure Advices and Order & Decorum 
Regulations in Section F. These fines range from $250 to $2,500. See 
F-1, F-2 and F-4.
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    The Exchange's proposal to adopt a Research Fee of $1,000 
applicable to members submitting corrections related to strategy 
transactions is equitable and not unfairly discriminatory because the 
Exchange will uniformly assess this fee to all members submitting 
corrections related to strategy transactions. The Exchange believes 
that it is equitable and not unfairly discriminatory to only assess a 
Research Fee related to strategy transactions because the Exchange must 
intervene to correct the billing of these types of transactions when 
the member fails to mark a strategy transaction. Other types of 
information may be corrected at OCC and Exchange intervention is not 
required. The Exchange proposes this fee to recoup administrative costs 
associated with validating all trade corrections and applying the 
appropriate fees, rebates and caps to the transaction. The Exchange 
does not have the same administrative burdens with other types of 
corrections required by members with respect to executed transactions. 
The

[[Page 8817]]

Exchange believes assessing a Research Fee in the amount of $1,000 is 
equitable and not unfairly discriminatory because the Exchange would 
uniformly assess this fee to all members with strategy transaction 
corrections and this fee would serve to recoup the Exchange for the 
administrative time related to these corrections.
Other Amendments
    The Exchange's proposal to remove a historical date from the 
Billing Dispute policy, amend the Table of Contents to properly reflect 
sections, which have been revised, and add the letter ``D'' before the 
Remote Specialist Fee is reasonable, equitable and not unfairly 
discriminatory because the Exchange believes that removing unnecessary 
language, reflecting current sections and identifying sections in the 
Pricing Schedule brings clarity to Exchange's pricing and benefits 
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 believes that the 
adoption of a Policy for Amending Billing Information does not impose 
an undue burden on inter-market competition because the Exchange 
believes that other Exchanges have policies related to trade 
corrections. The Exchange believes that the adoption of a Research Fee 
does not impose an undue burden on inter-market competition because the 
purpose of the fee is to recover costs expended by the Exchange to 
review corrections related to strategy transactions.
Policy for Amending Billing Information
    The Exchange's proposal to adopt a Policy for Amending Billing 
Information, which would apply to billing corrections submitted to the 
Exchange after trade date and prior to the issuance of an invoice, does 
not impose an undue burden on intra-market competition because the 
policy will uniformly apply to all members. All members will be 
required to support their trade corrections by providing documentation. 
Only members will be permitted to submit corrections and billing 
disputes.
    The Exchange's amendment to the Policy for Amending Billing 
Information related to strategy transactions does not impose an undue 
burden on intra-market competition because all members will be able to 
submit errors related to strategy transactions for correction. All 
members will be able to qualify for the strategy cap even in the event 
of an error. These members will be assessed a Research Fee. The 
Exchange's proposal to require members to submit corrections and 
billing disputes does not impose an undue burden on intra-market 
competition because members have privity with the Exchange and those 
members will uniformly be held responsible for all trades submitted to 
the Exchange and the handling of related corrections and billing 
disputes.
Research Fee
    The Exchange's proposal to adopt a Research Fee of $1,000 
applicable to members submitting corrections related to strategy 
transactions does not impose an undue burden on intra-market 
competition because the purpose of the fee is to recoup costs 
associated with expending Exchange resources to review corrections 
submitted by members who inadvertently mismark or neglect to mark a 
strategy transaction. The Exchange will uniformly assess this fee to 
all members submitting strategy transaction corrections.
    The Exchange's proposal to only assess a Research Fee related to 
strategy transactions does not impose an undue burden on intra-market 
competition because the Exchange must intervene to correct the billing 
of these types of transactions when the member fails to mark a strategy 
transaction. Other types of information may be corrected at OCC and 
Exchange intervention is not required. The Exchange's proposal to 
assess a Research Fee in the amount of $1,000 does not impose an undue 
burden on intra-market competition because the Exchange would uniformly 
assess this fee to all members with strategy transaction corrections 
and this fee would serve to recoup the Exchange for the administrative 
time related to these corrections.
Other Amendments
    The Exchange's proposal to remove a historical date from the 
Billing Dispute policy, amend the Table of Contents to properly reflect 
sections, which have been revised, and add the letter ``D'' before the 
Remote Specialist Fee does not impose an undue burden on intra-market 
competition because the proposed changes are non-substantive.

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-2016-09 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-2016-09. 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.,

[[Page 8818]]

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 offices 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-2016-09, 
and should be submitted on or before March 14, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Brent J. Fields,
Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-03526 Filed 2-19-16; 8:45 am]
 BILLING CODE 8011-01-P