Document ID: SEC-2013-1672-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-09-27T04:00Z

[Federal Register Volume 78, Number 188 (Friday, September 27, 2013)]
[Notices]
[Pages 59738-59740]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23540]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70472; File No. SR-PHLX-2013-93]

Self-Regulatory Organizations; The NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Make a 
Minor Modification To Pricing Incentive Programs

September 23, 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 September 10, 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 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to make a minor modification to pricing 
incentive programs under PHLX's schedule of fees and credits applicable 
to options trading on PHLX. Specifically, PHLX is proposing to exclude 
from volume-based pricing calculations any trading day on which PHLX is 
closed for trading due to early closing or a market-wide trading halt. 
This exclusion exists today for the trading of equities on PSX, the 
equities trading facility of PHLX.
    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
    PSX, the PHLX facility for trading equities, offers pricing for the 
trading of equities that is based on average daily volume of trading. 
The applicable fee schedule for equities trading on PSX contains 
language excluding from such volume calculations any day on which the 
market is not open the entire trading day. PHLX Pricing Schedule, 
Section VIII, entitled ``Order Routing and Execution,'' footnote to 
subsection (a)(4) states that ``For purposes of determining average 
daily volume hereunder, any day that the market is not open for the 
entire trading day will be excluded from such calculation.'' As a 
result, when trading ends early, as for trading days preceding certain 
federal holidays, or when there is a material market-wide disruption, 
PHLX excludes that day from the calculation of average daily volume.
    The PHLX pricing schedule for options also contains pricing 
programs based on average daily volume. PHLX has determined to make 
this practice uniform for both equities and options trading on PHLX by 
moving the relevant language to the preamble of the PHLX Fee Schedule. 
In other words, for purposes of calculating any pricing based on 
average daily volumes for both equities and options trading any day 
that the market is not open for the entire trading day should be 
excluded from such calculation. As it currently does for equities, this 
formulation would exclude days on which the market closes early for 
holiday observance. It would also exclude days where PHLX declares a 
trading halt in all securities or honors a market-wide trading halt 
declared by another market. This would apply to the market-wide trading 
halt of approximately three hours on August 22, 2013, which PHLX plans 
to exclude from Customer Rebate Tiers for the month of August.
    This change will affect several fees described in PHLX Pricing 
Schedule, Section B, which contains pricing incentive programs that are 
designed to encourage member participation in PHLX options trading by 
increasing rebates or reducing fees for firms that trade on PHLX in 
increasingly higher volumes. For example, PHLX currently has four 
Customer Rebate Tiers by which it determines the rebate per share for 
Customer \3\ orders in Multiply Listed Options (including SPY) that are 
electronically-delivered and executed. The Customer Rebate Tier 
thresholds are based upon a percentage of national volume of Customer 
Orders in certain options on a monthly basis. The rebates range from 
$0.00 to $0.15 per contract for Simple Orders \4\ and from $0.00 to

[[Page 59739]]

$0.17 per contract for Complex Orders as follows \5\
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    \3\ 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 (``OCC'') which 
is not for the account of broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
    \4\ These ``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. 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 will be paid a rebate regardless of the 
contra-party to the transaction.
    \5\ These ``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. Rebates 
are paid on Customer PIXL Complex Orders in Section II symbols 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 
will be paid a rebate regardless of the contra-party to the 
transaction.

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                                           Percentage thresholds of national
                                              customer volume in multiply-
          Customer rebate tiers              listed equity and ETF options       Category A        Category B
                                             classes, excluding SPY options
                                                       (monthly)
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Tier 1...................................  0.00-0.75........................             $0.00             $0.00
Tier 2...................................  Above 0.75-1.60..................              0.12              0.17
Tier 3...................................  Above 1.60-2.60..................              0.14              0.17
Tier 4...................................  Above 2.60.......................              0.15              0.17
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    If the Exchange did not exclude aberrant low volume days when 
calculating ADV for the month, as a result of the decreased trading 
volume, the numerator for the calculation (e.g., trading volume) would 
be correspondingly lower, but the denominator for the threshold 
calculations (e.g., the number of trading days) would not be decreased. 
This would result in an effective cost increase.
    [sic] Addition to the Customer Rebate Tiers, the proposed change 
will also impact additional volume based options pricing related to the 
Electronic Firm Fee Discount,\6\ the QCC Rebate Schedule \7\ and a 
discount related to PIXL Initiating Orders (Section II) \8\ The 
proposed change does not impact the calculation of fees and rebated 
[sic] set forth under Section VIII., Order Routing and Execution, 
subsection (a)(1); the exclusion currently applies to those fees and it 
will continue to apply unchanged. Nor does the proposal does not [sic] 
apply to other transaction fees or rebates that do not include an 
average daily volume component.
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    \6\ Firm electronic Options Transaction Charges in Penny Pilot 
and non-Penny Pilot Options are reduced to $0.17 per contract for a 
given month provided that a Firm has volume greater than 500,000 
electronically-delivered contracts in a month (``Electronic Firm Fee 
Discount''). The Electronic Firm Fee Discount applies per member 
organization when such members are trading in their own proprietary 
account.
    \7\ The QCC Rebate Schedule comprises 5 tiers as follows: Tier 1 
(0 to 299,999 contracts in a month) receives $0.00 rebate per 
contract; Tier 2 (300,000 to 499,999 contracts in a month) receives 
$0.07 rebate per contract; Tier 3 (500,000 to 699,999 contracts in a 
month) receives $0.08 rebate per contract; Tier 4 (700,000 to 
999,999 contracts in a month) receives $0.09 rebate per contract; 
and Tier 5 (Over 1,000,000 contracts in a month) receives $0.11 
rebate per contract. The maximum QCC Rebate to be paid in a given 
month will not exceed $375,000.
    \8\ The PIXL Initiating Order (Section II) pricing is as 
follows: $0.07 per contract or $0.05 per contract if Customer Rebate 
Program Threshold Volume defined in Section B is greater than 
100,000 contracts per day in a month. Any member or member 
organization under Common Ownership with another member or member 
organization that qualifies for a Customer Rebate Tier discount in 
Section B will receive the PIXL Initiating Order discount as 
described above. The Initiating Order Fee for Professional, Firm, 
Broker-Dealer, Specialist and Market Maker orders that are contra to 
a Customer PIXL Order will be reduced to $0.00 if the Customer PIXL 
Order is greater than 999 contracts.
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    Absent the authority to exclude days that the market is not open 
for the entire trading day, members will experience an effective 
increase in fees or decrease in rebates. The artificially low volumes 
of trading on such days reduce the average daily activity of PHLX 
members both daily and monthly. Accordingly, excluding such days from 
the monthly calculation will diminish the likelihood of an effective 
increase in the cost of trading on PHLX, a result that is unintended 
and undesirable to PHLX and to PHLX members.
2. Statutory Basis
    PHLX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\9\ in general, and with Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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 PHLX operates or controls, and is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    PHLX believes that the proposed change provides for equitable and 
reasonable allocation of fees because it simply extends to options 
trading a rule that currently applies in equities trading. Moreover, it 
is equitable and reasonable to eliminate from the calculation days on 
which the market is not open the entire trading day because it 
preserves PHLX's full intent behind adopting volume-based pricing. The 
proposed change is non-discriminatory because it applies equally to all 
members and to all volume tiers on all asset classes traded on PHLX. 
PHLX will continue to monitor the operation of the proposed rule change 
and, in the event that PHLX identifies a disparate impact on one or 
another volume tier in the future, PHLX may determine to modify that 
volume tier via an additional proposed rule change.

B. Self-Regulatory Organization's Statement on Burden on Competition

    PHLX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. PHLX 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, PHLX 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, PHLX believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    PHLX does not believe the proposed rule change will have an adverse 
impact on competition because there has been no adverse impact from 
imposing this rule in the context of equities treading. Moreover, in 
this instance, the proposed rule change should not impact competition 
because it merely preserves the full intent of PHLX's already-filed 
prices, which have not been deemed inconsistent with the Exchange Act 
or been found to impose an undue burden on competition. Moreover, the 
proposed rule change regarding days on which the

[[Page 59740]]

market is not open the entire trading day will result in an effective 
reduction of fees or increase in rebates such that the total cost of 
trading on PHLX should decline. This is evidence that a proposed rule 
change is pro-competitive rather than anti-competitive.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Waiver will allow the 
Exchange to immediately implement the proposed change, thereby reducing 
the potential for confusion among member organizations and the public 
about how the Exchange will calculate thresholds related to billing for 
activity on the Exchange during August 2013. Therefore, the Commission 
hereby waives the 30-day operative delay and designates the proposal 
operative upon filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 15 U.S.C. 78s(b)(2)(B).

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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-2013-93 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-2013-93. 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 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-2013-93, and should be submitted on or before 
October 18, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23540 Filed 9-26-13; 8:45 am]
BILLING CODE 8011-01-P