Document ID: SEC-2014-1377-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2014-08-15T04:00Z

[Federal Register Volume 79, Number 158 (Friday, August 15, 2014)]
[Notices]
[Pages 48289-48291]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-19334]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72807; File No. SR-Phlx-2014-52]

 Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Customer Rebate Program

August 11, 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 August 1, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the Customer Rebate Program in 
Section B of the Pricing Schedule.
    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 Exchange proposes to amend the ``Customer Rebate Program,'' in 
Section B of the Pricing Schedule to provide that the Category B rebate 
will not be paid when an electronically-delivered Customer Complex 
Order \3\ executes against another electronically-delivered Customer 
Complex Order. The Exchange believes that Customer Complex Order to 
Customer Complex Order transactions are rare and no longer believes 
that offering rebates pursuant to Section B for this scenario is 
necessary to attract Customer Complex Orders to the Exchange.
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    \3\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at 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. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i).
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    Currently, the Exchange has a Customer Rebate Program consisting of 
five tiers that pays Customer rebates on two Categories, A \4\ and 
B,\5\ of transactions.\6\ A Phlx member qualifies for a certain rebate 
tier based on the percentage of total national customer volume in 
multiply-listed options that it transacts monthly on Phlx. The Exchange 
calculates Customer volume in Multiply Listed Options by totaling 
electronically-delivered and executed volume, exclude volume associated 
with electronic Qualified Contingent Cross (``QCC'') Orders,\7\ as 
defined in

[[Page 48290]]

Exchange Rule 1080(o).\8\ The Exchange pays the following rebates: \9\
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    \4\ 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. In the instance where member organizations qualify for 
Tier 4 or higher in the Customer Rebate Program, Customer PIXL 
Orders that execute against a PIXL Initiating Order will be paid a 
rebate of $0.14 per contract.
    \5\ 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. In the instance where 
member organizations qualify for Tier 4 or higher in the Customer 
Rebate Program, Customer Complex PIXL Orders that execute against a 
Complex PIXL Initiating Order will be paid a rebate of $0.17 per 
contract.
    \6\ See Section B of the Pricing Schedule.
    \7\ 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 the Regulation NMS).
    \8\ Members and member organizations under common ownership may 
aggregate their Customer volume for purposes of calculating the 
Customer Rebate Tiers and receiving rebates. Common ownership means 
members or member organizations under 75% common ownership or 
control.
    \9\ SPY is included in the calculation of Customer volume in 
Multiply Listed Options that are electronically-delivered and 
executed for purposes of the Customer Rebate Program, however, the 
rebates do not apply to electronic executions in SPY.

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                                                    Percentage thresholds of
                                                   national customer volume in
             Customer rebate tiers               Multiply-Listed Equity and ETF     Category A      Category B
                                                 options Classes, excluding SPY
                                                       options  (monthly)
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Tier 1........................................  0.00%-0.60%.....................           $0.00           $0.00
Tier 2........................................  Above 0.60%-1.10%...............          * 0.10          * 0.17
Tier 3........................................  Above 1.10%-1.60%...............          * 0.12          * 0.17
Tier 4........................................  Above 1.60%-2.50%...............            0.16            0.19
Tier 5........................................  Above 2.50%.....................            0.17            0.19
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    Today, the Exchange pays Category B rebates to members executing 
electronically-delivered Customer Complex Orders in Penny Pilot Options 
and Non-Penny Pilot Options in Section II symbols. The Exchange 
proposes to exclude electronically-delivered Customer Complex Orders 
that execute against another electronically-delivered Customer Complex 
Orders from the Category B rebates.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\10\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\11\ 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 that the Exchange operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposal to not pay a Category B rebate when an 
electronically-delivered Customer Complex Order executes against 
another electronically-delivered Customer Complex Order is reasonable 
because the Exchange does not believe it is necessary to pay rebates on 
Customer orders in the above scenario to attract Customer Complex 
Orders to the Exchange for execution. Further, the instances of 
electronically-delivered Customer Complex Orders that execute against 
other electronically-delivered Customer Complex Orders is rare and the 
Exchange believes it is reasonable to not incur negative revenue 
scenarios for Complex Orders as would be the case with the above 
described transaction. Also, the Exchange does not feel that the 
Customer rebate incentive brings a greater number of Customer orders as 
a result of this incentive and therefore desires to exclude these types 
of transactions from the Category B rebate.
    The Exchange's proposal to not pay a Category B rebate when an 
electronically-delivered Customer Complex Order executes against 
another electronically-delivered Customer Complex Order is equitable 
and not unfairly discriminatory because no market participant would be 
entitled to a Category B rebate for these type of transactions.

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

    The Exchange does not believe that the proposed rule change will 
impose an undue burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
Customer Rebate Program will continue to encourage Customer order flow 
to be directed to the Exchange. While market participants will be 
encouraged to transact a greater number of Customer orders to qualify 
for a rebate, the Exchange does not believe the current rebate 
incentivizes a greater number of Customer Complex Orders executing 
against other electronically-delivered Customer Complex Orders on Phlx. 
The Exchange's proposal to not pay a Category B rebate on Customer 
Complex Orders executing against other electronically-delivered 
Customer Complex Orders will not impose an undue burden on competition 
because no market participant would be entitled to a Category B rebate 
for these type of transactions.
    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

    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.\12\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).

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[[Page 48291]]

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-2014-52 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-2014-52. 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 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-2014-52, and should be 
submitted on or before September 5, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19334 Filed 8-14-14; 8:45 am]
BILLING CODE 8011-01-P