Document ID: SEC-2014-1030-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-06-20T04:00Z

[Federal Register Volume 79, Number 119 (Friday, June 20, 2014)]
[Notices]
[Pages 35391-35396]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14421]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72395; File No. SR-Phlx-2014-38]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Pricing in Multiply Listed Options

June 16, 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 June 2, 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 Section II of the Pricing Schedule 
which pertains to Multiply Listed Options fees.\3\
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    \3\ Multiply Listed Options fees includes options overlying 
equities, ETFs, ETNs and indexes which are multiply listed.
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    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 amend Section II of the Exchange's 
Pricing Schedule entitled ``Multiply Listed Options'' to: (i) Amend 
Options Transaction Charges in Penny Pilot Options \4\ and Non-Penny 
Pilot Options; (ii) amend certain Complex Order \5\ fees;

[[Page 35392]]

(iii) amend incentives related to achieving certain Customer Rebate 
Tiers; \6\ (iv) amend the Monthly Market Maker Cap; and (v) remove 
outdated rule text related to the Qualified Contingent Cross \7\ Bonus.
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    \4\ The Penny Pilot was established in January 2007 and was last 
extended in May 2014. See Securities and Exchange Release No. 72245 
(May 23, 2014), 79 FR 31164 (May 30, 2014) (SR-Phlx-2014-37).
    \5\ 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).
    \6\ The Exchange offers Customer Rebates in 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 Regulation NMS). 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; 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).
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Options Transaction Charges
    The Exchange proposes to increase the electronic Professional,\8\ 
Broker-Dealer \9\ and Firm \10\ Options Transaction Charges in Penny 
Pilot Options to $0.48 per contract. Currently, a Professional is 
assessed an electronic Options Transaction Charge of $0.30 per contract 
and a Broker-Dealer and Firm are assessed an electronic Options 
Transaction Charge of $0.45 per contract.
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    \8\ 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).
    \9\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \10\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation.
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    The Exchange also proposes to increase the electronic Specialist 
\11\ and Market Maker \12\ Options Transaction Charge in Non-Penny 
Pilot Options from $0.23 to $0.25 per contract. The Exchange believes 
that these fee increases will permit the Exchange to incentivize market 
participants by offering other incentives to lower prices as described 
herein.
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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)). Directed Participants are also market makers.
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Complex Order Fees
    The Exchange currently assesses Professionals an electronic Complex 
Order fee of $0.30 per contract in Penny Pilot Options.\13\ The 
Exchange will continue to offer Professionals this $0.30 per contract 
fee for electronic Penny Pilot Complex Orders, which will represent a 
lower fee as compared to the proposed Professional electronic Options 
Transaction Charge of $0.48 per contract. The Exchange will also offer 
Broker-Dealers and Firms the opportunity to lower the proposed $0.48 
per contract electronic Penny Pilot Options Transaction Charges to 
$0.30 per contract with respect to Complex Orders.
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    \13\ See current note 13 of the Pricing Schedule.
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    With respect to Non-Penny Pilot Options, the Exchange currently 
assesses Professionals an electronic Complex Order fee of $0.30 per 
contract in Non-Penny Pilot Options.\14\ The Exchange will continue to 
offer Professionals this $0.30 per contract fee for electronic Non-
Penny Pilot Complex Orders. The Exchange will also offer Broker-Dealers 
and Firms the opportunity to lower the current electronic Options 
Transaction Charges of $0.70 to $0.30 per contract with respect to 
Complex Orders.
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    \14\ See current note 14 of the Pricing Schedule.
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    The Exchange believes that offering these market participants the 
opportunity to lower Complex Order fees will encourage the transaction 
of these types of orders on Phlx.
Customer Rebate Tier Incentives
    Today the Exchange offers Professionals, Broker-Dealers and Firms 
the opportunity to reduce electronic Options Transaction Charges in 
Non-Penny Pilot Options from $0.70 to $0.60 per contract if the member 
or member organization under Common Ownership with another member or 
member organization qualifies, in a given month, for Customer Rebate 
Tiers 2, 3, 4, or 5 in Section B of the Pricing Schedule.\15\ The 
Exchange will continue to offer these market participants the 
opportunity to qualify for the Customer Rebate Tiers and reduce these 
electronic fees to $0.60 per contract.\16\
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    \15\ See current note 14 of the Pricing Schedule as related to a 
Professional and current note 15 of the Pricing Schedule as related 
to Broker-Dealers and Firms.
    \16\ See revised note 14 of the Pricing Schedule which is being 
applied to Broker-Dealers and Firms as well as Professionals within 
the Pricing Schedule. Note 14 of the Pricing Schedule is being added 
to the electronic Broker-Dealer and Firm Non-Penny Pilot Options 
Transaction Charge.
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    The Exchange also proposes to offer Specialists and Market Makers 
an opportunity to lower the electronic Non-Penny Pilot Options 
Transaction Charge from the proposed $0.25 per contract to $0.23 per 
contract.\17\ Any Specialist or Market Maker member or member 
organization under Common Ownership with another member or member 
organization that qualifies for Customer Rebate Tiers 2, 3, 4 or 5 in 
Section B of the Pricing Schedule will be assessed a $0.23 per contract 
electronic Non-Penny Pilot Option Transaction Charge.
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    \17\ The Exchange is adding note 15 of the Pricing Schedule to 
the electronic Specialist and Market Maker Non-Penny Pilot Options 
Transaction Charge.
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    The Exchange believes that these incentives will encourage 
Specialists and Market Makers to transact a greater number of orders on 
the Exchange.
Monthly Market Maker Cap
    Today, Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $550,000 for: (i) Electronic and floor Option 
Transaction Charges; (ii) QCC Transaction Fees (as defined in Exchange 
Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)); and (iii) 
fees related to an order or quote that is contra to a PIXL Order or 
specifically responding to a PIXL auction. The trading activity of 
separate Specialist and Market Maker member organizations is aggregated 
in calculating the Monthly Market Maker Cap if there is Common 
Ownership between the member organizations.
    All dividend, merger, short stock interest, reversal and 
conversion, jelly roll and box spread strategy executions (as defined 
in Section II) are excluded from the Monthly Market Maker Cap. In 
addition, Specialists or Market Makers that (i) are on the contra-side 
of an electronically-delivered and executed Customer order; and (ii) 
have reached the Monthly Market Maker Cap are assessed a $0.17 per 
contract fee.
    The Exchange proposes to continue to assess Specialists or Market 
Makers that (i) are on the contra-side of an electronically-delivered 
and executed Customer order; and (ii) have reached the Monthly Market 
Maker Cap a $0.17

[[Page 35393]]

per contract fee in both Penny and Non-Penny Pilot Options, as is the 
case today. The Exchange proposes to assess no fee to Specialists or 
Market Makers that (i) are on the contra-side of an electronically-
delivered and executed Customer order; and (ii) have reached the 
Monthly Market Maker Cap in the following symbols: Apple, Inc. 
(``AAPL''), Bank of American Corporation (``BAC''), Facebook, Inc. 
(``FB''), iShares Russell 2000 (``IWM'') and PowerShares QQQ (``QQQ''). 
The Exchange believes that assessing Specialists and Market Makers no 
fee in these symbols if they are on the contra-side of an 
electronically-delivered and executed Customer order; and have reached 
the Monthly Market Maker Cap will incentivize Specialists and Market 
Makers to offer improved bids and offers on the Exchange.
QCC Bonus
    The Exchange previously filed an immediately effective rule change 
\18\ to offer an additional rebate applicable to both electronic QCC 
Orders (``eQCC'') \19\ and Floor QCC Orders \20\ (collectively ``QCC 
Orders''). The Exchange currently offers an additional rebate of 
$35,000 if the member organization transacts 1,750,000 of qualifying 
QCC contracts (``QCC Bonus'').\21\ The QCC Bonus was only available 
during the month of May 2014. The Exchange proposes to delete the rule 
text applicable to the QCC Bonus as that bonus is no longer applicable.
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    \18\ See Securities Exchange Act Release No. 72136 (May 9, 
2014), 79 FR 27968 (May 15, 2004) (SR-Phlx-2014-31).
    \19\ See Rule 1080(o).
    \20\ See Rule 1064(e).
    \21\ The QCC Bonus was in addition to the maximum QCC Rebate of 
$375,000 and did not count toward the maximum QCC Rebate of 
$375,000.
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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 \22\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act 
\23\ 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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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(4), (5).
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Options Transaction Charges
    The Exchange's proposal to increase the electronic Professional, 
Broker-Dealer and Firm Options Transaction Charges in Penny Pilot 
Options to $0.48 per contract is reasonable because the Exchange's fees 
will remain competitive with fees at other options markets.\24\ Today, 
a Professional is assessed an electronic Options Transaction Charge in 
Penny Pilot Options of $0.30 per contract and a Broker-Dealer and Firm 
are assessed an electronic Options Transaction Charge in Penny Pilot 
Options of $0.45 per contract. Despite the fee increase, the proposal 
will allow the Exchange to incentivize market participants by offering 
the opportunity to lower Options Transaction Charges as described 
herein.
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    \24\ See the NASDAQ Options Market LLC's (``NOM'') pricing at 
Chapter XV of NOM's Rulebook.
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    The Exchange's proposal to increase the electronic Professional, 
Broker-Dealer and Firm Options Transaction Charges in Penny Pilot 
Options to $0.48 per contract is equitable and not unfairly 
discriminatory because the Exchange will assess Professionals, Broker-
Dealers and Firms the same electronic Options Transaction Charges in 
Penny Pilot Options. The Exchange does not assess Customers an 
electronic Options Transaction Charge in Penny Pilot Options because 
Customer order flow enhances liquidity on the Exchange for the benefit 
of all 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. Specialists and Market Makers are assessed lower 
electronic Options Transaction Charges in Penny Pilot Options as 
compared to Professionals, Broker-Dealers and Firms because they have 
obligations to the market and regulatory requirements, which normally 
do not apply to other market participants.\25\ They have obligations to 
make continuous markets, engage in a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and not make bids or offers or enter into transactions that are 
inconsistent with a course of dealings. The proposed differentiation as 
between Customers, Specialists and Market Makers and other market 
participants recognizes the differing contributions made to the 
liquidity and trading environment on the Exchange by these market 
participants.
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    \25\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
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    The Exchange's proposal to increase the electronic Specialist and 
Market Maker Options Transaction Charge in Non-Penny Pilot Options from 
$0.23 to $0.25 per contract is reasonable because the Exchange will 
continue to offer Specialists and Market Makers other incentives such 
as the Monthly Market Maker Cap, which incentive is not offered to 
other market participants. The Exchange believes that despite the fee 
increase, the fee remains competitive with other market participant 
fees. Also, the Exchange is offering Specialists and Market Makers a 
means to reduce the Options Transaction Charge to $0.23 per contract in 
Non-Penny Pilot Options as described in more detail below.\26\
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    \26\ Specialists and Market Makers could reduce the Options 
Transaction Charge in Non-Penny Pilot Options from $0.25 to $0.23 
per contract by qualifying for Customer Rebate Tiers 2, 3, 4 or 5 in 
Section B of the Pricing Schedule, as proposed herein. See proposed 
note 15 of the Pricing Schedule.
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    The Exchange's proposal to increase the electronic Specialist and 
Market Maker Options Transaction Charge in Non-Penny Pilot Options from 
$0.23 to $0.25 per contract is equitable and not unfairly 
discriminatory because the Exchange will continue to assess Specialists 
and Market Makers the lowest electronic Options Transaction Charge in 
Non-Penny Pilot Options as compared to the $0.70 per contract 
electronic Options Transaction Charge assessed to Professionals, 
Broker-Dealers and Firms.\27\ Specialists and Market Makers are 
assessed lower electronic Options Transaction Charges in Penny Pilot 
Options as compared to Professionals, Broker-Dealers and Firms because 
they have obligations to the market and regulatory requirements, which 
normally do not apply to other market participants.\28\
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    \27\ Customers are not assessed a Non-Penny Pilot Options 
Transaction Charge.
    \28\ See note 25.
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Complex Order Fees
    The Exchange's proposal to continue to offer Professionals, and now 
Broker-Dealers and Firms, the opportunity to reduce electronic Complex 
Orders to a fee of $0.30 per contract in Penny Pilot Options is 
reasonable because the Exchange is increasing fees for these market 
participants with this proposal. Professionals will have the 
opportunity to lower the proposed $0.48 per contract electronic Options 
Transaction Charge in Penny Pilot Options to $0.30 per contract with 
respect to Complex Orders. This will represent a lower fee as compared 
to the proposed electronic

[[Page 35394]]

Professional Options Transaction Charge of $0.48 per contract that will 
apply to Simple Orders in Penny Pilot Options. Broker-Dealers and Firms 
will likewise be offered the opportunity to reduce the proposed 
increased electronic Penny Pilot Options Transaction Charges of $0.48 
to $0.30 per contract with respect to Complex Orders. Therefore, these 
market participants that are assessed the highest electronic fees will 
have an opportunity to lower these rlectronic [sic] fees in Penny Pilot 
Complex Orders.
    The Exchange's proposal to offer Broker-Dealers and Firms the same 
opportunity as a Professional to reduce electronic Complex Orders to a 
fee of $0.30 per contract in Penny Pilot Options is equitable and not 
unfairly discriminatory because the Exchange will assess Professionals, 
Broker-Dealers and Firms the same electronic Options Transaction Charge 
in Penny Pilot Options of $0.30 per contract. The Exchange does not 
assess Customers an electronic Options Transaction Charge in Penny 
Pilot Options because Customer order flow enhances liquidity on the 
Exchange for the benefit of all market participants. Specialists and 
Market Makers are assessed lower electronic Options Transaction Charges 
in Penny Pilot Options as compared to Professionals, Broker-Dealers and 
Firms because they have obligations to the market and regulatory 
requirements, which normally do not apply to other market 
participants.\29\ They have obligations to make continuous markets, 
engage in a course of dealings reasonably calculated to contribute to 
the maintenance of a fair and orderly market, and not make bids or 
offers or enter into transactions that are inconsistent with a course 
of dealings.
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    \29\ See note 25.
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    The Exchange's proposal to continue to offer Professionals, and now 
Broker-Dealers and Firms, the opportunity to reduce electronic Complex 
Orders from $0.70 to $0.30 per contract in Non-Penny Pilot Options is 
reasonable because the Exchange desires to provide these market 
participants the opportunity to lower Complex Order fees in Penny and 
Non-Penny Pilot Options alike. This opportunity to lower electronic 
Complex Order fees, which is currently offered only to Professionals, 
will be extended to Broker-Dealers and Firms in Non-Penny Pilot 
Options. Professionals, Broker-Dealers and Firms are assessed the 
highest electronic Options Transactions Charges in Non-Penny Pilot 
Options of $0.70 per contract, as compared to other market 
participants. The Exchange believes that offering these market 
participants the opportunity to lower Non-Penny Pilot electronic 
Complex Order fees will encourage the transaction of these types of 
orders on Phlx.
    The Exchange's proposal to offer Broker-Dealers and Firms the same 
opportunity as Professionals to reduce electronic Complex Orders to a 
fee of $0.30 per contract in Non-Penny Pilot Options is equitable and 
not unfairly discriminatory because the Exchange will assess 
Professionals, Broker-Dealers and Firms the same electronic Options 
Transaction Charge in Non-Penny Pilot Options of $0.30 per contract. 
The Exchange does not assess Customers an electronic Options 
Transaction Charge in Non-Penny Pilot Options because Customer order 
flow enhances liquidity on the Exchange for the benefit of all market 
participants. Specialists and Market Makers are assessed lower 
electronic Options Transaction Charges in Non-Penny Pilot Options as 
compared to Professionals, Broker-Dealers and Firms because they have 
obligations to the market and regulatory requirements, which normally 
do not apply to other market participants.\30\
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    \30\ See note 25.
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Customer Rebate Tier Incentives
    The Exchange's proposal to offer Specialists and Market Makers an 
opportunity to lower electronic Options Transaction Charges in Non-
Penny Pilot Options from $0.25 to $0.23 per contract, provided certain 
criteria are met, is reasonable because the Exchange desires to offer 
all market participants \31\ an opportunity to lower Non-Penny Pilot 
Options Transaction Fees. The electronic Options Transaction Charges in 
Non-Penny Pilot Options are higher as compared to electronic Options 
Transaction Charges in Penny Pilot Options. The Exchange believes that 
offering all market participants the opportunity to lower electronic 
Options Transaction Charges in Non-Penny Pilot Options by incentivizing 
them to transact Customer order flow in turn benefits all market 
participants.
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    \31\ Today, Professionals, Broker-Dealers and Firms have an 
opportunity to reduce fees to $0.60 per contract in Non-Penny Pilot 
Options provided certain criteria are met Professionals, Broker-
Dealers and Firms are offered the opportunity to reduce electronic 
Non-Penny Pilot Options Transaction Charges to $0.60 per contract if 
the member or member organization under Common Ownership with 
another member or member organization qualifies, in a given month, 
for Customer Rebate Tiers 2, 3, 4, or 5 in Section B of the Pricing 
Schedule.
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    The Exchange's proposal to offer Specialists and Market Makers the 
opportunity to lower electronic Options Transaction Charges in Non-
Penny Pilot Options from $0.25 to $0.23 per contract is equitable and 
not unfairly discriminatory because the Exchange will offer all market 
participants, excluding Customers,\32\ a means to reduce Options 
Transaction Charges by qualifying for a Customer Rebate in Section B of 
the Pricing Schedule. Even with the reduced rate for Professionals, 
Broker-Dealers and Firms of $0.60 per contract, Specialist and Market 
Makers will continue to be assessed the lowest electronic Options 
Transaction Charge in Non-Penny Pilot Options because they have 
obligations to the market and regulatory requirements, which normally 
do not apply to other market participants.\33\
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    \32\ Customers are not assessed a Non-Penny Pilot Options 
Transaction Charge.
    \33\ See note 25.
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Monthly Market Maker Cap
    The Exchange's proposal to not assess a fee to Specialists or 
Market Makers that (i) are on the contra-side of an electronically-
delivered and executed Customer order; and (ii) have reached the 
Monthly Market Maker Cap in AAPL, BAC, FB, IWM and QQQ is reasonable 
because the Exchange desires to incentivize Specialists and Market 
Makers to transact more options in these symbols and bring additional 
liquidity to the Exchange. All market participants will benefit from 
the increased Customer liquidity brought to the Exchange. The Exchange 
today differentiates pricing by option symbols.\34\ Specialists and 
Market Makers will continue to pay the same fee of $0.17 per contract 
in Penny and Non-Penny Pilot Options, when the cap is satisfied, except 
for the symbols noted above.
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    \34\ See Section I of the Pricing Schedule which differentiates 
pricing in SPDR S&P 500 (``SPY'') options. See also Securities 
Exchange Release No. 66757 (April 6, 2012), 77 FR 22034 (April 12, 
2012) (SR-Phlx-2012-45).
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    The Exchange's proposal to not assess a fee to Specialists or 
Market Makers that (i) are on the contra-side of an electronically-
delivered and executed Customer order; and (ii) have reached the 
Monthly Market Maker Cap in AAPL, BAC, FB, IWM and QQQ is equitable and 
not unfairly discriminatory. Specialists and Market Makers have 
burdensome quoting obligations \35\ to the market that do not apply to 
Customers, Professionals, Firms and Broker-Dealers. Specialists and 
Market Makers serve an important role on the Exchange with regard to 
order interaction and they provide liquidity in the marketplace.

[[Page 35395]]

Additionally, Specialists and Market Makers incur costs unlike other 
market participants including, but not limited to, Payment for Order 
Flow (``PFOF'') \36\ and other costs associated with market making 
activities, which results in a higher average cost per execution as 
compared to Firms, Broker-Dealers and Professionals. The proposed 
differentiation as between Specialists and Market Makers as compared to 
other market participants recognizes the differing contributions made 
to the trading environment on the Exchange by these market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attract 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. 
The Exchange believes that offering Specialists and Market Makers the 
opportunity to cap fees in certain highly liquidity Penny Pilot Options 
is equitable and not unfairly discriminatory for the reasons noted 
above.
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    \35\ See note 25.
    \36\ Specialists and Market Makers, as compared to other market 
participants, are assessed PFOF when transacting Customer electronic 
orders.
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QCC Bonus
    The Exchange's proposal to remove rule text related to the QCC 
Bonus is reasonable because removing the outdated rule text will add 
clarity to the Pricing Schedule. The Exchange's proposal to remove rule 
text related to the QCC Bonus is equitable and not unfairly 
discriminatory because the QCC Bonus is no longer in effect and 
therefore not available to any market participant.

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's proposal to 
increase electronic Options Transaction Charges for Professionals, 
Broker-Dealers and Firms in Penny Pilot Options conforms pricing for 
these market participants. Customers continue not be assessed Penny 
Pilot Options Transaction Charges and Specialists and Market Makers 
continue to be assessed the lowest electronic Options Transaction 
Charges in Penny Pilot Options due to the obligations they bear in the 
market.\37\
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    \37\ See note 25.
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    With respect to Non-Penny Pilot Options, the increase to 
Specialists and Market Makers for electronic orders is offset by the 
ability to reduce those fees by qualifying for certain Customer Rebates 
in Section B of the Pricing Schedule and also the ability to cap 
certain fees. The Exchange is offering all market participants that are 
assessed Non-Penny Pilot Options Transaction Charges the opportunity to 
reduce those fees by qualifying for certain Customer Rebates in Section 
B of the Pricing Schedule.
    Professionals, as is the case today, as well as Broker-Dealers and 
Firms alike will be offered the opportunity to reduce electronic 
Complex Order fees in both Penny and Non-Penny Pilot Options as these 
market participants are assessed the highest Penny and Non-Penny Pilot 
Options Transaction Charges.
    Specialists and Market Makers will be offered the opportunity to 
pay no fees, after they have satisfied the obligations related to the 
Monthly Market Maker Cap, in the following symbols: AAPL, BAC, FB, IWM 
and QQQ. Specialists and Market Makers have burdensome quoting 
obligations \38\ to the market that do not apply to Customers, 
Professionals, Firms and Broker-Dealers. Specialists and Market Makers 
serve an important role on the Exchange with regard to order 
interaction and they provide liquidity in the marketplace. 
Additionally, Specialists and Market Makers incur costs unlike other 
market participants including, but not limited to, PFOF and other costs 
associated with market making activities, which results in a higher 
average cost per execution as compared to Firms, Broker-Dealers and 
Professionals. The proposed differentiation as between Specialists and 
Market Makers as compared to other market participants recognizes the 
differing contributions made to the trading environment on the Exchange 
by these market participants. Customer liquidity benefits all market 
participants by providing more trading opportunities, which attract 
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. For these reasons noted above, the Exchange does 
not believe that offering Specialists and Market Makers the opportunity 
to cap fees in certain symbols imposes an undue burden on competition.
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    \38\ Id.
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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 described in the above proposal are 
influenced by these robust market forces and therefore must remain 
competitive with fees charged d [sic] 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.\39\ 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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    \39\ 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-2014-38 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-2014-38. This file

[[Page 35396]]

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-2014-38, and should be 
submitted on or before July 11, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14421 Filed 6-19-14; 8:45 am]
BILLING CODE 8011-01-P