Document ID: SEC-2018-0818-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2018-05-25T04:00Z

[Federal Register Volume 83, Number 102 (Friday, May 25, 2018)]
[Notices]
[Pages 24364-24367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11225]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83295; File No. SR-Phlx-2018-39]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Sections I 
and II of the Pricing Schedule

May 21, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on May 10, 2018, Nasdaq PHLX LLC (``Phlx'' or ``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\ 15 U.S.C. 78a.
    \3\ 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 Phlx's Pricing Schedule at Section 
I, entitled ``Rebates and Fees for Adding and Removing Liquidity in 
SPY,'' and Section II, entitled ``Multiply Listed Options Fees 
(Includes options overlying equities, ETFs, ETNs and indexes which are 
Multiply Listed).''
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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 Phlx's Pricing Schedule at Section 
I, entitled ``Rebates and Fees for Adding and Removing Liquidity in 
SPY,'' and Section II, entitled ``Multiply Listed Options Fees 
(Includes options overlying equities, ETFs, ETNs and indexes which are 
Multiply Listed).'' Specifically, the Exchange proposes to amend a 
surcharge in Section I, Part B, which applies to options overlying SPY 
as well as a surcharge in Section II related to Complex Orders in order 
to further reduce the costs to the Exchange of such transactions. Each 
surcharge amendment is described below in more detail.
Section I, Part B
    The Exchange proposes to amend Section I, Part B to amend Complex 
Order \4\ fees for SPY. The Exchange proposes to increase a surcharge 
of $0.05 per contract, which is currently assessed to Customers \5\ 
when executing the individual components of their Complex Orders in SPY 
against Market Maker \6\ or Specialist \7\ quotes that are resting on 
the Simple Order Book. Today, Customers submit Complex Orders to the 
Exchange because often, Customers are able to execute such Complex 
Orders immediately by executing the individual components thereof 
through interactions with Market Maker and Specialist quotes that rest 
on the Exchange's Simple Order Book. These Customers benefit from not 
having to wait for counterparties that are willing to execute against 
their Complex Orders in the Complex Order Book. The Exchange proposes 
to increase the surcharge from $0.05 to $0.15 per contract for 
Customers that execute Complex Orders against Market Maker or 
Specialist quotes resting on the Simple Order Book.\8\ The Exchange 
proposes this surcharge increase to reduce further the Exchange's costs 
for these transactions. Not only does the Exchange receive no fees from 
Customers for engaging in these transactions,\9\ but the Exchange also 
pays rebates to the Market Makers and Specialists whose quotes execute 
against the Customers' Complex Orders.\10\ Pursuant to Section I, Part 
A of the Exchange's Pricing Schedule, these rebates range from $0.15 to 
$0.35 per contact.
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    \4\ A Complex Order is an order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced as 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. See Phlx Rule 1098.
    \5\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation which is not for 
the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
    \6\ The term ``ROT, SQT and RSQT'' applies to transactions for 
the accounts of Registered Option Traders (``ROTs''), Streaming 
Quote Traders (``SQTs''), and Remote Streaming Quote Traders 
(``RSQTs''). For purposes of the Pricing Schedule, the term ``Market 
Maker'' will be utilized to describe fees and rebates applicable to 
ROTs, SQTs and RSQTs. RSQTs may also be referred to as Remote Market 
Markers (``RMMs''). See Preface to Phlx's Pricing Schedule.
    \7\ The term ``Specialist'' applies to transactions for the 
account of a Specialist (as defined in Exchange Rule 1020(a)). A 
Specialist is an Exchange member registered as an options specialist 
pursuant to Rule 1020(a). An options Specialist includes a Remote 
Specialist, which is defined as an options specialist in one or more 
classes that does not have a physical presence on an Exchange floor 
and is approved by the Exchange pursuant to Rule 501.
    \8\ A component of a Complex Order may ``leg'' against a resting 
order in the Simple Order Book.
    \9\ Non-Customer market participants pay fees for adding and 
removing liquidity in Complex Orders as noted in Section I, Part B 
of the Pricing Schedule, although Customers pay no such fees.
    \10\ See rebates in Section I, Part A of the Pricing Schedule.
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Section II
    The Exchange proposes to amend Section II to increase a surcharge 
assessed to electronic Complex Orders that remove liquidity \11\ from 
the Complex Order Book and auctions,

[[Page 24365]]

excluding PIXL,\12\ in Non-Penny Pilot Options (excluding NDX and 
NDXP).\13\ The Exchange proposes to increase this surcharge for 
electronically-delivered Complex Orders from $0.10 to $0.12 per 
contract to reduce further the Exchange's costs for these transactions. 
Today, Customers pay no Options Transaction Charges in Non-Penny Pilot 
Options.\14\ The Exchange pays Customer rebates for Complex Orders in 
Section B of the Pricing Schedule. The Exchange desires to continue to 
incentivize Customers to interact with Complex Order liquidity by 
offering those rebates in Section B of the Pricing Schedule. The 
Exchange believes that while the surcharge is being increased for the 
Options Transaction Charge in Non-Penny Pilot Options excluding NDX and 
NDXP, the fees remain competitive as the Exchange does not assess 
Customers a fee but offers Customers rebates. The surcharge is assessed 
to Non-Customers.\15\ The Exchange is proposing to add ``Non-
Customers'' to footnote 7 of Section II of the Pricing Schedule to make 
clear that today, Customers do not get assessed a surcharge. The 
Exchange assesses surcharges to market participants that pay Options 
Transaction Charges. In this case, only Non-Customer market 
participants pay an Options Transaction Charge for Non-Penny Pilot 
Options. Customers are not assessed a surcharge today because they pay 
no Options Transaction Charge. By [sic] adding the term ``Non-
Customer'' into this provision will amend the sentence to make clear 
that the surcharge is only being assessed to a Non-Customer.
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    \11\ The Exchange notes that an order that is received by the 
trading system first in time shall be considered an order adding 
liquidity and an order that trades against that order shall be 
considered an order removing liquidity.
    \12\ PIXL\SM\ is the Exchange's price improvement mechanism 
known as Price Improvement XL or PIXL. See Phlx Rule 1087.
    \13\ Today, this surcharge is not subject to the Monthly Market 
Maker Cap. Phlx Specialists and Market Makers are subject to a 
``Monthly Market Maker Cap'' of $500,000 for: (i) Electronic Option 
Transaction Charges, excluding surcharges and excluding options 
overlying NDX and NDXP; and (ii) QCC Transaction Fees (as defined in 
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)).
    \14\ Non-Customer market participants pay a $0.75 per contract 
Options Transaction Charge in Non-Penny Pilot Options excluding NDX 
and NDXP.
    \15\ The term ``Non-Customer'' applies to transactions for the 
accounts of Specialists, Market Makers, Firms, Professionals, 
Broker-Dealers and JBOs.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4) and (5).
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Section I, Part B
    The Exchange's proposal to amend Section I, Part B related to 
Complex Order fees for SPY to increase the surcharge from $0.05 to 
$0.15 per contract on Customers that execute Complex Orders against 
Market Maker or Specialist quotes resting on the Simple Order Book is 
reasonable because the surcharge would reduce the Exchange's costs 
associated with these transactions. Each such transaction costs the 
Exchange between $0.15 and $0.35 per contract in rebates to Market 
Makers and Specialists. Moreover, it is reasonable to impose this 
surcharge on Customers because Customers benefit the most from being 
able to achieve immediate executions of their Complex Orders in the 
relevant scenario. The Exchange believes that the surcharge is minimal 
and will not be substantial enough to eliminate or even significantly 
diminish the benefits to Customers of being able to achieve immediate 
executions in this manner. Finally, the Exchange notes that all other 
account categories, Professionals,\18\ Firms,\19\ Broker-Dealers,\20\ 
Specialists, and Market Makers, pay higher fees when the Complex Order 
removes liquidity from the Complex Order Book or the Simple Order Book 
\21\ than Customers would pay under the proposal when they execute 
their Complex Orders against Simple Orders of Market Makers and 
Specialists that are resting on the Simple Order Book.\22\
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    \18\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Exchange Rule 1000(b)(14) 
as any person or entity that (i) is not a broker or dealer in 
securities, and (ii) places more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s).
    \19\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC.
    \20\ The term ``Broker-Dealer'' applies to any transaction, 
which is not subject to any of the other transaction fees applicable 
within a particular category.
    \21\ A component of a Complex Order may ``leg'' against a 
resting order in the Simple Order Book.
    \22\ See Section I, Part B of the Pricing Schedule.
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    The Exchange's proposal to amend Section I, Part B to amend Complex 
Order fees for SPY to increase the surcharge from $0.05 to $0.15 per 
contract on Customers that execute Complex Orders against Market Maker 
or Specialist quotes resting on the Simple Order Book is equitable and 
not unfairly discriminatory because the Exchange will uniformly apply 
the fee to all similarly-situated Customers. Even with this increased 
surcharge, Customers are assessed the least amount per contract for 
executions in SPY. As noted herein, Customers are not assessed fees for 
adding and removing liquidity for SPY Complex Orders. With respect to 
the Simple Market, a Customer is assessed the lowest fee for removing 
liquidity.\23\ The Exchange believes that it is equitable and not 
unfairly discriminatory to assess Customers no fees or lower fees 
because Customer orders bring valuable liquidity to the market, which 
benefits other market participants. Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attracts Specialists and Market Makers. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants.
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    \23\ A component of a Complex Order may ``leg'' against a 
resting order in the Simple Order Book.
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Section II
    The Exchange's proposal to amend Section II to increase a surcharge 
assessed to electronic Complex Orders that remove liquidity from the 
Complex Order Book and auctions, excluding PIXL, in Non-Penny Pilot 
Options (excluding NDX and NDXP) from $0.10 to $0.12 per contract is 
reasonable because it will further offset the cost of paying rebates as 
provided for in Section I, Part A to Specialists and Market Makers. The 
Exchange believes that it is reasonable to only assess this surcharge 
to those orders which remove liquidity from the market because the 
Exchange wants to continue to encourage market participation and price 
improvement for those participants that seek to add liquidity on Phlx. 
The Exchange believes that not assessing the surcharge on PIXL and SPY 
orders is reasonable. PIXL has its own pricing,\24\ and the Exchange 
wants to continue to encourage price improvement within PIXL. SPY has 
its own rebate program separate and apart from Section B.\25\ Limiting 
the surcharges to electronically-delivered transactions is reasonable 
because the Section B rebates apply only to electronically-delivered 
Customer orders. Further, limiting the surcharge to orders entered 
electronically is

[[Page 24366]]

equitable and not unfairly discriminatory because the Exchange has 
expended considerable resources to develop its electronic trading 
platforms and seeks to recoup the costs of such expenditures. Finally, 
excluding NDX and NDXP is reasonable because these symbols are 
currently subject to a surcharge.\26\ The Exchange's proposal to add 
``Non-Customers'' to footnote 7 of Section II of the Pricing Schedule 
is reasonable because today Customers do not get assessed a surcharge. 
The surcharge is assessed to Non-Customer market participants who pay 
an Options Transaction Charge for Non-Penny Pilot Options. Customers 
are not assessed a surcharge today because they pay no Options 
Transaction Charge. By [sic] adding the term ``Non-Customer'' into this 
provision will amend the sentence to make clear that the surcharge is 
only being assessed to a Non-Customer.
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    \24\ See Section IV, Part A of the Pricing Schedule.
    \25\ See Section I of the Pricing Schedule. SPY Pricing is only 
in Section I. Section II pricing applies to Multiply-Listed Options 
excluding SPY options.
    \26\ See Section II of the Pricing Schedule.
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    The Exchange's proposal to amend Section II to increase a surcharge 
assessed to electronic Complex Orders that remove liquidity from the 
Complex Order Book and auctions, excluding PIXL, in Non-Penny Pilot 
Options (excluding NDX and NDXP) from $0.10 to $0.12 per contract is 
equitable and not unfairly discriminatory because the Exchange will 
uniformly apply this surcharge to all Non-Customer or [sic] market 
participants that pay an Options Transaction Charge. The Exchange's 
proposal to add ``Non-Customers'' to footnote 7 of Section II of the 
Pricing Schedule is equitable and not unfairly discriminatory because 
Customers are not assessed a surcharge today because they pay no 
Options Transaction Charge. By [sic] adding the term ``Non-Customer'' 
into this provision will amend the sentence to make clear that the 
surcharge is only being assessed to a Non-Customers. The Exchange 
believes that it is equitable and not unfairly discriminatory to assess 
no Options Transaction Charge for Non-Penny Pilot Options or surcharge 
fee because Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other 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. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
Section I, Part B
    The Exchange's proposal to amend Section I, Part B to amend Complex 
Order fees for SPY to increase the surcharge from $0.05 to $0.15 per 
contract on Customers that execute Complex Orders against Market Maker 
or Specialist quotes resting on the Simple Order Book does not impose 
an undue burden on competition because the Exchange will uniformly 
apply the fee to all similarly-situated Customers. Even with this 
increased surcharge, Customers are assessed the least amount per 
contract for executions in SPY. As noted herein, Customers are not 
assessed fees for adding and removing liquidity for SPY Complex Orders. 
With respect to the Simple Market, a Customer is assessed the lowest 
fee for removing liquidity.\27\ The Exchange believes that it is 
equitable and not unfairly discriminatory to assess Customers no fees 
or lower fees because Customer orders bring valuable liquidity to the 
market, which benefits other market participants. Customer liquidity 
benefits all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
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    \27\ A component of a Complex Order may ``leg'' against a 
resting order in the Simple Order Book.
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Section II
    The Exchange's proposal to amend Section II to increase a surcharge 
assessed to electronic Complex Orders that remove liquidity from the 
Complex Order Book and auctions, excluding PIXL, in Non-Penny Pilot 
Options (excluding NDX and NDXP) from $0.10 to $0.12 per contract does 
not impose an undue burden on competition because the Exchange will 
uniformly apply this surcharge to all Non-Customer or [sic] market 
participants that pay an Options Transaction Charge. The Exchange's 
proposal to add ``Non-Customers'' to footnote 7 of Section II of the 
Pricing Schedule does not impose an undue burden on competition because 
Customers are not assessed a surcharge today because they pay no 
Options Transaction Charge. By [sic] adding the term ``Non-Customer'' 
into this provision will amend the sentence to make clear that the 
surcharge is only being assessed to a Non-Customers. The Exchange 
believes that assessing no Options Transaction Charge for Non-Penny 
Pilot Options and not assessing a surcharge fee does not impose an 
undue burden on competition because Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attracts Specialists and Market Makers. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants.

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.\28\
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    \28\ 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,

[[Page 24367]]

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 [email protected]. Please include 
File Number SR-Phlx-2018-39 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-2018-39. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly.
    All submissions should refer to File Number SR-Phlx-2018-39 and 
should be submitted on or before June 15, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11225 Filed 5-24-18; 8:45 am]
BILLING CODE 8011-01-P