Document ID: SEC-2014-0305-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-02-19T05:00Z

[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9545-9547]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03560]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71529; File No. SR-Phlx-2014-08]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Monthly Strategy Cap

February 12, 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 January 30, 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, II, 
and III, below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the fee caps applicable to certain 
strategies on Multiply Listed Options in Section II, entitled 
``Multiply Listed Options Fees.'' \3\
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    \3\ Section II Multiply Listed Options Fees include options 
overlying equities, ETFs, ETNs and indexes that are multiply listed.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on February 3, 
2014.
    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 fee caps 
relating to dividend,\4\ merger,\5\ short stock interest,\6\ reversal 
and conversion,\7\ jelly roll \8\ and box spread \9\ strategies in 
Section II of the Pricing Schedule \10\ (together the ``Monthly 
Strategy Cap''). The Exchange believes the proposed amendment would 
continue to incentivize market participants to trade on the Exchange by 
capping floor option transaction charges related to various strategies.
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    \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\ A reversal and conversion strategy is defined as 
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.
    \10\ While the fee caps are noted in Section II of the Pricing 
Schedule, the caps apply to all Multiply Listed Options in Sections 
I and II.
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    Today, Specialist,\11\ Market Maker,\12\ Professional,\13\ Firm and 
Broker-Dealer floor option transaction charges are capped at $1,250 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. Specialist, Market Maker, 
Professional, Firm and Broker-Dealer floor option transaction charges 
executed on the same trading day in the same options class are capped 
at $700 each for reversal and conversion, jelly roll and box spread 
strategies. In addition, the Monthly Strategy Cap for floor option 
transaction charges for dividend, merger and short stock interest, 
reversal and conversion, jelly roll and box spread strategies are 
capped at $35,000 per member organization for combined executions in

[[Page 9546]]

a month when such members are trading in their own proprietary account. 
The Exchange is proposing to modify only the Monthly Strategy Cap per 
member organization. The remaining caps are not changed.
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    \11\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \12\ 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)).
    \13\ The term ``Professional'' is a 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).
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    The Exchange proposes to increase the Monthly Strategy Cap for 
dividend, merger, short stock interest, reversal and conversion, jelly 
roll and box spread strategies from $35,000 per member organization per 
month to $50,000 per member organization for combined executions in a 
month provided that such member organizations are trading in their own 
proprietary account.\14\
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    \14\ The requirement that such member organizations trade in 
their own proprietary account would not be amended by this proposal.
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    For purposes of clarity, the Exchange also proposes to make a 
technical correction to Section II of the Pricing Schedule to remove a 
reference the term ``short stock, interest'' and replace it with the 
correct term ``short stock interest''.\15\ The clarification makes the 
use of ``short stock interest'' consistent throughout the Pricing 
Schedule.
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    \15\ See Securities Exchange Act Release No. 68406 (December 11, 
2012), 77 FR 74715 (December 17, 2012) (SR-Phlx-2012-138) 
(discussing, among other things, Monthly Strategy Cap on ``short 
stock interest'').
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \16\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \17\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
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    The Exchange's proposal to increase the Monthly Strategy Cap on 
floor option transaction charges for dividend, merger, short stock 
interest, reversal and conversion, jelly roll and box spread strategies 
from $35,000 to $50,000 per month, provided the strategy is executed on 
the same trading day in the same options class when such members are 
trading in their own proprietary account, is reasonable because the 
Exchange seeks to continue to incentivize member organizations to 
transact a greater number of strategies on the Exchange to benefit from 
the fee cap. Also, this proposal is similar in nature to caps on other 
exchanges, namely NYSE Arca, Inc. (``NYSE Arca''),\18\ NYSE Amex, Inc. 
(``NYSE Amex'') \19\ and the Chicago Board Options Exchange, 
Incorporated (``CBOE'') \20\ for strategies. The Exchange also believes 
that the increased fee cap is equitable and not unfairly discriminatory 
because the Exchange is offering all members, except for Customers,\21\ 
the same opportunity to cap their floor option transaction charges in 
Multiply Listed Options.
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    \18\ See NYSE Arca General Options and Trading Permit (OTP) 
Fees.
    \19\ See NYSE Amex Options Fee Schedule.
    \20\ See CBOE's Fees Schedule.
    \21\ Customers are not assessed options transaction charges in 
Section II of the Pricing Schedule.
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    The Exchange believes that its proposal to amend the amount of the 
Monthly Strategy Cap to orders originating from the Exchange floor is 
reasonable because members continue to pay floor brokers to execute 
trades on the Exchange floor. The Exchange believes that offering fee 
caps to member organizations executing multiply listed floor options 
transactions in their own proprietary accounts would defray brokerage 
costs associated with executing strategy transactions and continue to 
incentivize members to utilize the floor for certain executions.\22\ 
The Exchange believes that its proposal to amend the Monthly Strategy 
Cap originating from the Exchange floor is equitable and not unfairly 
discriminatory because today, the fee caps are only applicable for 
floor transactions. Moreover, the Exchange believes that a requirement 
that both the buy and sell sides of the order originate from the floor 
to qualify for applicability of the Monthly Strategy Cap would 
constitute equal treatment of members.
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    \22\ The Exchange's proposal would only apply the fee cap to 
options transaction charges where buy and sell sides originate from 
the Exchange floor. See text in Section II of the Pricing Schedule.
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    The Exchange believes that making clarifying changes to the Pricing 
Schedule, such as that the reference in respect of the Monthly Strategy 
Cap is to ``short stock interest'' rather than ``short stock, 
interest'', is a reasonable, equitable and not unfairly discriminatory 
amendment because this technical amendment would clarify the Pricing 
Schedule and make its terms consistent throughout.

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. To the contrary, the proposed 
fees would continue to encourage members to transact strategies on the 
exchange because the proposed fee caps are competitive with fee caps at 
other options exchanges, and would clarify the use of ``short stock 
interest'' in respect of the Monthly Strategy Cap to make it consistent 
throughout the Pricing Schedule to the benefit of members, member 
organizations, and traders.
    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 as 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

    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.\23\ 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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    \23\ 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-2014-08 on the subject line.

[[Page 9547]]

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-2014-08. 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-2014-08, 
and should be submitted on or before March 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03560 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P