Document ID: SEC-2014-1186-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-07-15T04:00Z

[Federal Register Volume 79, Number 135 (Tuesday, July 15, 2014)]
[Notices]
[Pages 41327-41330]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16498]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72572; File No. SR-Phlx-2014-43]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule Under Section VIII With Respect to 
Execution and Routing of Orders in Securities Priced at $1 or More Per 
Share

July 9, 2014.
    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 27, 2014, 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 and II 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 
under Section VIII, entitled ``NASDAQ OMX PSX FEES,'' with respect to 
execution and routing of orders in securities priced at $1 or more per 
share.
    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 purpose of the proposed rule change is to amend the certain 
fees and rebates for order execution and routing applicable to the use 
of the order execution and routing services of the NASDAQ OMX PSX 
System (``PSX'') by member organizations for all securities traded at 
$1 or more per share.
    The Exchange is proposing to eliminate the distinction in the fees 
assessed for order execution and routing based on security type. 
Currently, the Exchange has three separate rule sections \3\ that 
provide charges and credits for securities that execute on PSX, which 
are divided by whether the executed security is listed on The Nasdaq 
Stock Market (``Nasdaq''), New York Stock Exchange (``NYSE''), or an 
exchange other than Nasdaq or NYSE (collectively, ``Exchange-Listed 
Securities''). The three sections are largely identical in terms of the 
categories for which charges are assessed and credits given, with the 
differences noted in the discussion below. The Exchange is combining 
all three sections into one section, which will result in a single 
category of credits provided and charges assessed on executions in 
quotes/orders on PSX.
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    \3\ NASDAQ OMX PHLX LLC Pricing Schedule, Section VIII(a)(1)-
(3).
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Amended Fees for Execution of Quotes/Orders
    The Exchange proposes to eliminate the $0.0030 per share charge 
currently assessed for orders in Exchange-Listed Securities entered 
through a PSX market participant identifier (``MPID'') through which 
the member organization provides an average daily volume of 10,000 or 
more shares of liquidity during the month. The Exchange is also 
proposing to reduce the charge assessed for an order that is designated 
as eligible for routing in Exchange-Listed Securities from $0.0030 per 
share to $0.0026 per share. Similarly, the Exchange is proposing to 
reduce the charge assessed for all other orders in Exchange-Listed 
Securities from $0.0030 per share to $0.0026 per share.
Amended Credits for Execution of Quotes/Orders: Displayed Orders
    The Exchange is proposing to provide a new credit for the execution 
of displayed quotes and orders in securities listed on Nasdaq, and to 
reduce the related credits currently provided for execution of 
displayed quotes and orders in securities listed on NYSE and other 
exchanges. Currently, for a security listed on NYSE or other exchanges, 
the Exchange provides a credit of $0.0030 per share executed for 
Quotes/Orders entered by a member organization that provides an average 
daily volume of 6 million or more shares of liquidity during the month; 
provided that (i) the Quote/Order is entered through a MPID through 
which the member organization displays, on average over the course of 
the month, 100 shares or more at the national best bid and/or national 
best offer at least 25% of the time during regular market hours in the 
security that is the subject of the Quote/Order, or (ii) the member 
organization displays, on average over the course of the month, 100 
shares or more at the national best bid and/or national best offer at 
least 25% of the time during regular market hours in 500 or more 
securities. The Exchange is proposing to reduce this credit to $0.0025 
per share executed. In addition, the Exchange is extending eligibility 
for this credit to execution of securities listed on Nasdaq. As a 
consequence, the $0.0025 per share credit will apply to all Exchange-
Listed Securities.

[[Page 41328]]

    The Exchange is also proposing to reduce the credits provided in 
Exchange-Listed Securities for Quotes/Orders entered by a member 
organization that provides an average daily volume of 2 million or more 
shares of liquidity during the month; provided that (i) the Quote/Order 
is entered through a MPID through which the member organization 
displays, on average over the course of the month, 100 shares or more 
at the national best bid and/or national best offer at least 25% of the 
time during regular market hours in the security that is the subject of 
the Quote/Order, or (ii) the member organization displays, on average 
over the course of the month, 100 shares or more at the national best 
bid and/or national best offer at least 25% of the time during regular 
market hours in 500 or more securities. Currently, the Exchange 
provides a credit of $0.0028 per share executed for Nasdaq-listed 
securities, and a credit of $0.0029 per share executed for NYSE listed 
and securities listed on other exchanges, under the applicable rules. 
The Exchange is proposing to reduce the credit provided for all 
Exchange-Listed Securities under the consolidated rule to $0.0024 per 
share executed.
    The Exchange is also proposing to reduce the credits provided in 
Exchange-Listed Securities for Quotes/Orders entered through a MPID 
through which the member organization provides an average daily volume 
of 100,000 or more shares of liquidity during the month. Currently, the 
Exchange provides a credit of the $0.0026 per share executed for 
Exchange-Listed Securities. The Exchange is proposing to reduce the 
credit provided for Exchange-Listed Securities under the consolidated 
rule to $0.0021 per share executed.
    Lastly, the Exchange is proposing to reduce the credit provided for 
all other displayed Quotes/Orders in Exchange-Listed Securities from 
$0.0020 per share executed to $0.0015 per share executed.
Amended Credits and New Charges for Execution of Quotes/Orders: Non-
Displayed Orders
    The Exchange is proposing to change the title of the rule section 
under Section VIII(a) of the Pricing Schedule concerning the credits 
provided for the execution of non-displayed quotes and orders to 
reflect that it no longer provides only credits, but also charges.
    The Exchange is proposing to eliminate the credit provided to 
member organizations for the execution of a midpoint pegged order or a 
midpoint peg post-only order (a ``midpoint order'') and instead assess 
a charge for such an execution. Currently, the Exchange provides a 
credit of $0.0010 per share executed in Exchange-Listed Securities. The 
Exchange is proposing to replace the credit and instead assess a charge 
of $0.0003 per share executed.
    In light of the amended title of the rule, the Exchange is also 
proposing to add clarifying rule text concerning the $0.0005 per share 
executed credit provided for other non-displayed orders in Exchange-
Listed Securities. Specifically, the Exchange is adding the word 
``credit'' to the rule. The Exchange is also adding language that makes 
it clear that the credit is intended for non-displayed orders that 
provide liquidity.
    Lastly, the Exchange is proposing to add a new charge of $0.0003 
per share executed for orders that execute against resting midpoint 
order liquidity in Exchange-Listed Securities.
2. Statutory Basis
    The Exchange believes that its proposal to amend 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 (b)(5) of the Act \5\ 
in particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities, and it does not unfairly discriminate between customers, 
issuers, brokers or dealers. The proposed changes are reasonable 
because they reflect a modest decrease in the credits provided in the 
execution of certain orders and a modest increase in the fees assessed 
for others, which will allow the Exchange to reduce costs and increase 
revenue.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed change with respect to consolidating the three fee 
schedules under Section VIII(a) is reasonable because it will simplify 
the presentation of the fees, which are similar in many respects 
currently and will be identical under the proposed changes. The change 
is consistent with an equitable allocation of fees and not unfairly 
discriminatory because it presents the harmonized charges and credits 
in a single schedule of charges and credits.
    The proposed change with respect to the elimination of the $0.0030 
per share charge assessed for quotes and orders entered through a MPID 
through which the member organization provides an average daily volume 
of 10,000 or more shares of liquidity during the month is reasonable 
because it eliminates a fee assessed on providers of liquidity in order 
to encourage further participation on PSX by these market participants. 
The Exchange believes that the proposed change is consistent with an 
equitable allocation of fees and is not unfairly discriminatory because 
it applies to all market participants who formally met the requirements 
of the fee who will now be assessed the same fee assessed other market 
participants that enters orders that execute orders on PSX. The 
Exchange notes that the current rule assesses a fee that is identical 
to the other rates that are assessed for entering orders that execute 
in PSX.
    The proposed change with respect to the reduction of fees assessed 
for execution of an order that is designated as eligible for routing 
and for other orders executed on PSX are reasonable because they create 
a single, lower charge assessed for orders that execute on PSX designed 
to further attract liquidity to the market. The Exchange believes that 
the proposed changes are consistent with an equitable allocation of 
fees and is not unfairly discriminatory because they will result in the 
same fee assessed on all member organizations that enter orders that 
execute on PSX.
    The proposed change with respect to the new credit for Quotes/
Orders entered by a member organization that provides an average daily 
volume of 6 million or more shares of liquidity during the month; 
provided that (i) the Quote/Order is entered through a MPID through 
which the member organization displays, on average over the course of 
the month, 100 shares or more at the national best bid and/or national 
best offer at least 25% of the time during regular market hours in the 
security that is the subject of the Quote/Order, or (ii) the member 
organization displays, on average over the course of the month, 100 
shares or more at the national best bid and/or national best offer at 
least 25% of the time during regular market hours in 500 or more 
securities is reasonable because it provides a new credit designed to 
incentivize member organizations to provide displayed liquidity in 
Nasdaq-listed securities. The Exchange notes that it currently provides 
identical categories of incentive for liquidity provided in NYSE-listed 
securities and securities listed on other exchanges. The Exchange 
believes that the proposed changes are consistent with an equitable 
allocation of fees and are not unfairly discriminatory because they 
extend the credits currently provided to member organizations for the 
same liquidity in NYSE-listed securities and securities listed on other 
exchanges. Accordingly, all member organizations will receive

[[Page 41329]]

the same credit for providing liquidity that meets the requirements of 
the rules.
    The Exchange notes that it is reducing all of the credits under the 
rule for providing liquidity in displayed quotes and orders, regardless 
of the listing venue of the security. The Exchange believes that the 
proposed reduction in these credits is reasonable because it reflects a 
modest reduction in the credits provided. Phlx notes that the credits 
provided by the rule are given in lieu of assessing normal fees, and 
accordingly provide incentive to market participants to enter such 
orders. The proposed change balances the Exchange's desire to provide 
certain incentives to market participants with the costs the Exchange 
incurs in providing such incentives, which ultimately affect the 
ability to sustain them. The Exchange believes that the proposed 
changes are consistent with an equitable allocation of fees and is not 
unfairly discriminatory because they will provide the same credits to 
member organizations for the same levels of liquidity provided, 
regardless of the listing venue of the security.
    The Exchange believes that the proposed changes to the credits 
concerning non-displayed orders are also consistent with the Act. 
Specifically, the believes that the proposed change from a credit 
provided for non-displayed midpoint orders to a charge is reasonable 
because it reflects the Exchange's need to adjust its credits and fees 
in response to the costs and benefits provided. As discussed above, 
credits provided by the Exchange are given in lieu of assessing normal 
fees, and accordingly provide incentive to market participants to enter 
such orders. The proposed change balances the Exchange's desire to 
provide certain incentives to market participants with the costs the 
Exchange incurs in providing such incentives, which, in the case of the 
proposed change, have outweighed the Exchange's desire to incentivize 
member organizations to provide such liquidity. The Exchange believes 
that the proposed changes are consistent with an equitable allocation 
of fees and is not unfairly discriminatory because they result in a 
uniform charge to member organizations that provide such non-displayed 
liquidity.
    The change with respect to the new charge assessed for orders that 
remove liquidity in resting midpoint orders is reasonable because it 
imposes a modest charge for removing midpoint liquidity from PSX. As 
discussed above, the Exchange currently assesses charges for removing 
liquidity from PSX and the proposed new charge is less than the 
standard removal charge, which is reflective of the price improvement 
such orders provide to the market. The Exchange believes that the 
proposed change is consistent with an equitable allocation of fees and 
is not unfairly discriminatory because it applies the charge for 
removing liquidity from PSX in midpoint orders to all member 
organizations that remove such liquidity, regardless of the listing 
venue of the security of the order.
    Lastly, the clarifying changes to the title of the rule section 
concerning credits for non-displayed orders and the text of the credit 
for other non-displayed orders are reasonable because they more 
accurately reflect the nature of the rule section and the credit 
provided, in light of the changes discussed above. The Exchange 
believes that the proposed changes are consistent with an equitable 
allocation of fees and are not unfairly discriminatory because the 
changes apply to all member organizations that use PSX.

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, as amended.\6\ 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 changes to the credits 
provided and charges assessed are intended to reduce the Exchange's 
costs, while still continuing to provide an incentive for members to 
execute shares on PSX and make use of its optional routing 
functionality. Because there are numerous competitive alternatives to 
PSX, it is likely the Exchange will lose market share as a result of 
the changes if they are unattractive to market participants. 
Accordingly, the Exchange does not believe the proposed changes will 
impair the ability of members or competing order execution venues to 
maintain their competitive standing in the financial markets.
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    \6\ 15 U.S.C. 78f(b)(8).
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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) of the Act \7\ and paragraph (f) of Rule 19b-4 
thereunder.\8\ 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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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f).
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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-2014-43 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-2014-43. 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

[[Page 41330]]

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-2014-43 and should be 
submitted on or before August 5, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16498 Filed 7-14-14; 8:45 am]
BILLING CODE 8011-01-P