Document ID: SEC-2015-1202-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2015-07-17T04:00Z

[Federal Register Volume 80, Number 137 (Friday, July 17, 2015)]
[Notices]
[Pages 42590-42593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17496]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75438; File No. SR-Phlx-2015-57]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Section II of the Pricing Schedule

 July 13, 2015.
    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 30, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to

[[Page 42591]]

solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
section II, entitled ``Multiply Listed Options Fees,'' \3\ to: (1) 
Increase the maximum Qualified Contingent Cross (``QCC'') orders rebate 
which will be paid in a given month; and (2) amend a strategy fee cap 
related to dividend,\4\ merger,\5\ short stock interest,\6\ reversal 
and conversion,\7\ jelly roll \8\ and box spread \9\ floor option 
transaction strategies.
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    \3\ These fees include options overlying equities, ETFs, ETNs 
and indexes which are Multiply Listed.
    \4\ 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.
    \5\ 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.
    \6\ 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.
    \7\ 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.
    \8\ 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.
    \9\ 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.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on July 1, 
2015.
    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 this filing is to: (1) Increase the maximum QCC 
rebate that will be paid by the Exchange in a given month; and (2) 
increase the per member organization Monthly Strategy Cap applicable to 
dividend, merger, short stock interest, reversal and conversion, jelly 
roll and box spread strategies.
QCC Rebate
    Today, the Exchange pays rebates on QCC Orders based on the 
following five tier rebate schedule:

QCC Rebate Schedule

------------------------------------------------------------------------
                                                              Rebate per
            Tier                        Threshold              contract
------------------------------------------------------------------------
Tier 1.....................  0 to 299,999 contracts in a           $0.00
                              month.
Tier 2.....................  300,000 to 499,999 contracts           0.07
                              in a month.
Tier 3.....................  500,000 to 699,999 contracts           0.08
                              in a month.
Tier 4.....................  700,000 to 999,999 contracts           0.09
                              in a month.
Tier 5.....................  Over 1,000,000 contracts in a          0.11
                              month.
------------------------------------------------------------------------

The Exchange pays a rebate on all qualifying executed QCC Orders, 
including QCC Orders as defined in Exchange Rule 1080(o) \10\ and Floor 
QCC Orders, as defined in 1064(e),\11\ (collectively ``QCC Orders'') 
except where the transaction is either: (i) Customer-to-Customer; or 
(ii) a dividend, merger, short stock interest or reversal or conversion 
strategy execution. Today, the maximum rebate the Exchange will pay in 
a given month for QCC Orders is $375,000. Today, QCC Transaction Fees 
for a Specialist,\12\ Market Maker,\13\ Professional,\14\ Firm \15\ and 
Broker-Dealer \16\ are $0.20 per contract.
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    \10\ A QCC Order is comprised of an order to buy or sell at 
least 1000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The QCC Order must be executed at a price at or between 
the National Best Bid and Offer and be rejected if a Customer order 
is resting on the Exchange book at the same price. A QCC Order shall 
only be submitted electronically from off the floor to the PHLX XL 
II System. See Rule 1080(o). See also Securities Exchange Act 
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate 
the execution of stock/option Qualified Contingent Trades (``QCTs'') 
that satisfy the requirements of the trade through exemption in 
connection with Rule 611(d) of Regulation NMS).
    \11\ A Floor QCC Order must: (i) Be for at least 1,000 
contracts, (ii) meet the six requirements of Rule 1080(o)(3) which 
are modeled on the QCT Exemption, (iii) be executed at a price at or 
between the National Best Bid and Offer (``NBBO''); and (iv) be 
rejected if a Customer order is resting on the Exchange book at the 
same price. In order to satisfy the 1,000-contract requirement, a 
Floor QCC Order must be for 1,000 contracts and could not be, for 
example, two 500-contract orders or two 500-contract legs. See Rule 
1064(e). See also Securities Exchange Act Release No. 64688 (June 
16, 2011), 76 FR 36606 (June 22, 2011) (SR-Phlx-2011-56).
    \12\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \13\ A ``Market Maker'' includes Registered Options Traders 
(Rule 1014(b)(i) and (ii)), which includes Streaming Quote Traders 
(see Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see 
Rule 1014(b)(ii)(B)). Directed Participants are also Market Makers.
    \14\ The term ``Professional'' means 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). See Rule 
1000(b)(14).
    \15\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC.
    \16\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
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    The Exchange will continue to pay rebates on QCC Orders as 
described above. The Exchange proposes to amend the QCC Rebate Schedule 
to increase the maximum QCC Rebate of $375,000 to $450,000 per month. 
The Exchange believes that the proposed amendment to its pricing for 
QCC Orders will enable the Exchange to attract additional QCC Orders.
Monthly Strategy Cap
    Today, the Exchange applies certain strategy caps \17\ to dividend, 
merger, short stock interest, reversal and conversion, jelly roll and 
box spread floor option transaction strategy executions in Multiply 
Listed

[[Page 42592]]

Options.\18\ The Exchange further separately caps each member 
organization for dividend, merger, short stock interest, reversal and 
conversion, jelly roll and box spread strategy executions in Multiply 
Listed Options, combined in a month when trading in their own 
proprietary accounts (``Monthly Strategy Cap'') at $60,000.\19\ The 
Exchange proposes to increase the Monthly Strategy Cap from $60,000 to 
$65,000 per member organization, per month.
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    \17\ To qualify for a strategy cap, the buy and sell side of a 
transaction must originate from the Exchange floor.
    \18\ Fees paid by a Specialist, Market Maker, Professional, Firm 
and Broker-Dealer for floor option transaction in Multiply Listed 
Options are capped at $1,500 for dividend, merger and short stock 
interest strategies executed on the same trading day in the same 
options class when such members are trading in their own proprietary 
accounts. The Exchange will continue to cap at $700 the fees paid by 
Specialist, Market Maker, Professional, Firm and Broker-Dealer for 
reversal and conversion, jelly roll and box spread floor option 
transaction strategies that are executed on the same trading day in 
the same options class.
    \19\ 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 are excluded from the Monthly 
Market Maker Cap. Firms are subject to a maximum fee of $75,000 
(``Monthly Firm Fee Cap''). Specialists and Market Makers are 
subject to a ``Monthly Market Maker Cap'' of $500,000 for: (i) 
Electronic and floor Option Transaction Charges; and (ii) QCC 
Transaction Fees.
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    Despite increasing the cap, the Exchange believes that offering 
members and member organizations the opportunity to continue to cap 
transaction fees will benefit Phlx members and the Phlx market by 
encouraging members to transact greater liquidity.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with section 6(b) of the Act \20\ in general, 
and furthers the objectives of section 6(b)(4) and (b)(5) of the Act 
\21\ 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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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(4), (5).
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QCC Rebates
    The Exchange believes that it is reasonable to increase the maximum 
amount of the QCC Rebate the Exchange would pay a market participant in 
a given month from $375,000 to $450,000 because the Exchange believes 
it will attract additional QCC Orders to the Exchange.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to increase the maximum amount of the QCC Rebate the 
Exchange would pay a market participant in a given month from $375,000 
to $450,000 because all qualifying market participants are entitled to 
obtain this rebate if they transact a qualifying number of QCC Orders. 
All market participants are eligible to transact QCC Orders.
Monthly Strategy Cap
    The Exchange's proposal to increase the Monthly Strategy Cap from 
$60,000 to $65,000 is reasonable because, despite the increase to the 
cap, the Exchange will continue to offer members an opportunity to 
lower their fees related to the execution of strategy transactions. For 
example, when a member incurs transaction fees in the amount of $65,000 
in a given month related to strategy executions, the member will not 
pay for additional strategy executions for the remainder of that month 
as a result of the fee cap.
    The Exchange's proposal to increase the Monthly Strategy Cap from 
$60,000 to $65,000 is equitable and not unfairly discriminatory because 
the Exchange would continue to offer members the opportunity to cap 
their floor equity options transaction in Multiply Listed Options fees 
for all strategies. Customers are excluded because they are not 
assessed a floor Options Transaction Charge.\22\ Excluding Firm floor 
Options Transaction Charges in Multiply Listed Options related to 
reversal and conversion, jelly roll and box spread strategies from the 
Monthly Strategy Cap is reasonable, equitable and not unfairly 
discriminatory because these fees would continue to be capped as part 
of the Monthly Firm Fee Cap, which applies only to Firms. The Exchange 
believes that the exclusion of Firm floor Options Transaction Charges 
in Multiply Listed Options related to reversal and conversion, jelly 
roll and box spread strategies from the Monthly Strategy Cap is 
equitable and not unfairly discriminatory because Firms, unlike other 
market participants, have the ability to cap transaction fees up to 
$75,000 per month.\23\ The Exchange would include floor option 
transaction charges related to reversal and conversion, jelly roll and 
box spread strategies in the Monthly Strategy Cap for Professionals, 
and Broker Dealers, when such members are trading in their own 
proprietary accounts, because these market participants are not subject 
to the Monthly Firm Fee Cap or other similar cap. While Specialists and 
Market Makers are subject to a Monthly Market Maker Cap on both 
electronic and floor options transaction charges, reversal and 
conversion, jelly roll and box spread transactions are excluded from 
the Monthly Market Maker Cap [sic].\24\ For the reasons described 
above, the Exchange believes continuing to include reversal and 
conversion, jelly roll and box spread strategies in the Monthly Firm 
Fee Cap is reasonable, equitable and not unfairly discriminatory 
because the cap provides an incentive for Firms to transact floor 
transactions on the Exchange, which brings increased liquidity and 
order flow to the floor for the benefit of all market participants.\25\
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    \22\ See Section II of the Pricing Schedule.
    \23\ Firms are subject to a maximum fee of $75,000 (``Monthly 
Firm Fee Cap''). Firm Floor Option Transaction Charges and QCC 
Transaction Fees, in the aggregate, for one billing month will not 
exceed the Monthly Firm Fee Cap per member organization when such 
members are trading in their own proprietary account. All dividend, 
merger, and short stock interest strategy executions will be 
excluded from the Monthly Firm Fee Cap. Reversal and conversion, 
jelly roll and box spread strategy executions (as defined in this 
Section II) will be included in the Monthly Firm Fee Cap. QCC 
Transaction Fees are included in the calculation of the Monthly Firm 
Fee Cap.
    \24\ Id.
    \25\ Firms are eligible to cap floor options transactions 
charges and QCC Transaction Fees as part of the Monthly Firm Fee 
Cap. QCC Transaction Fees apply to QCC Orders as defined in Exchange 
Rule 1080(o) and Floor QCC Orders as defined in 1064(e). See Section 
II of the Pricing Schedule.
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    The Exchange believes that its proposal to continue to apply 
strategy fee caps to orders originating from the Exchange floor is 
reasonable because certain members pay floor brokers to execute trades 
on the Exchange floor, thereby incurring costs related to this business 
model. The Exchange believes that offering fee caps to members 
executing floor transactions would defray brokerage costs associated 
with executing strategy transactions and continue to incentivize 
members to utilize the floor for certain executions.\26\ The Exchange 
believes that its proposal to continue to apply the fee cap to Multiply 
Listed Options orders originating from the Exchange floor is equitable 
and not unfairly discriminatory because today, the fee caps are only 
applicable for floor transactions. The Exchange believes that a 
requirement that both the buy and sell sides of the order originate 
from the

[[Page 42593]]

floor to qualify for the fee cap constitutes equal treatment of 
members.
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    \26\ The fee cap is applied to options transaction charges where 
buy and sell sides originate from the Exchange floor. See proposed 
rule text in section II of the Pricing Schedule.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that its 
proposal to increase the maximum QCC Rebate does not impose a burden on 
competition. The Exchange's proposal should encourage market 
participants to transact a greater number of QCC Orders in order to 
obtain QCC Rebates. All market participants are eligible to transact 
QCC Orders.
    The Exchange does not believe that the proposed rule change to the 
Monthly Strategy Cap will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act 
because the proposed changes apply uniformly to all members that incur 
transaction charges, except Firms.\27\ Excluding Firm floor options 
transactions in Multiply Listed Options related to reversal and 
conversion, jelly roll and box spread strategies from the Monthly 
Strategy Cap does not create an undue burden on competition because 
these fees would continue to be capped as part of the Monthly Firm Fee 
Cap. The Exchange believes the proposal is consistent with robust 
competition and does not provide any unnecessary burden on competition. 
Further, certain floor members pay floor brokers to execute trades on 
the Exchange floor, thereby incurring costs related to this business 
model. The Exchange believes that offering fee caps to members 
executing floor transactions and not electronic executions does not 
create an unnecessary burden on competition because the fee caps defray 
brokerage costs associated with executing strategy transactions. Also, 
requiring that both the buy and sell sides of the order originate from 
the floor to qualify for the fee cap constitutes equal treatment of 
members.
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    \27\ Customers are not assessed options transaction charges in 
section II of the Pricing Schedule.
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    The Exchange operates in a highly competitive market, comprised of 
twelve options exchanges, in which market participants can easily and 
readily direct order flow to competing venues if they deem fee levels 
at a particular venue to be excessive or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange described in the above proposal are influenced by these robust 
market forces and therefore must remain competitive with fees charged 
and rebates paid by other venues and therefore must continue to be 
reasonable and equitably allocated to those members that opt to direct 
orders to the Exchange rather than competing venues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor 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\ 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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    \28\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
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-2015-57 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-2015-57. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of 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-2015-57, 
and should be submitted on or before August 7, 2015.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-17496 Filed 7-16-15; 8:45 am]
 BILLING CODE 8011-01-P