Document ID: SEC-2013-0912-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-05-16T04:00Z

[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28908-28911]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11624]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69555; File No. SR-Phlx-2013-45]

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

May 10, 2013.
    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 April 29, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') a 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 Section A of the Exchange's Pricing 
Schedule entitled ``Mini Options Fees''. While changes to the Pricing 
Schedule pursuant to this proposal are effective upon filing, the 
Exchange has designated that they become operative on May 1, 2013.
    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 Section A of 
the Pricing Schedule by updating various existing transaction fees for 
Non-Customers for both adding and removing liquidity. Additionally, the 
proposed rule change will also establish fees and rebates applicable 
for order executions that are part of PIXL.\3\
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    \3\ PIXL is the Exchange's price improvement mechanism known as 
Price Improvement XL or (PIXL\SM\). See Rule 1080(n) and Section IV 
of the Pricing Schedule.
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    Specifically, the Exchange is proposing to assess market 
participants on a per trade basis the following fees and rebates on 
Mini Options:

----------------------------------------------------------------------------------------------------------------
                                                                  Specialist and
                                     Customer      Professional    market maker    Broker-dealer       Firm
----------------------------------------------------------------------------------------------------------------
Mini Options Transaction Fee--             $0.00           $0.03           $0.02           $0.03           $0.03
 Electronic Adding Liquidity....
Mini Options Transaction Fee--              0.00            0.09            0.04            0.09            0.09
 Electronic Removing Liquidity..
Mini Options Transaction Fee--              0.00            0.09            0.09            0.09            0.09
 Floor and QCC..................
----------------------------------------------------------------------------------------------------------------

    Additionally, for executions that occur as part of PIXL, the 
following fees and rebates will apply: (i) Initiating Order: $0.015 per 
contract; (ii) PIXL Order (contra-party to the Initiating Order): 
Customer is $0.00 and all others will be assessed will be assessed a 
transaction fee of $0.03 per contract; and (iii) PIXL Order (contra-
party to other than the Initiating Order): Customer will be assessed a 
transaction fee of $0.00 and all others will be assessed a transaction 
fee of $0.03 per contract (the contra-party will be assessed a 
transaction fee of $0.03 per contract).
    PFOF fees will be as follows: (i) Penny Pilot Options: $0.02; and 
(ii) all Other Options: $0.06. Also, Routing Fees set forth in Section 
V will now apply to Mini Options. Other options transaction fee caps, 
discounts or rebates, in addition to the Monthly Market Maker Cap and 
the Monthly Firm Fee Cap set forth in Section II that already do not 
apply to transactions in Mini Options, also now will not apply to 
transactions in Mini Options. Finally, Mini Options volume will now be 
included in the calculations for the Customer Rebate Program 
eligibility, but will not be eligible to receive the rebates associated 
with the Customer Rebate Program.
    Transaction Fees. Section A provides for a ``Mini Options 
Transaction Fee--Electronic'' and for a ``Mini-Options Transaction 
Fee--Floor and QCC'', both of which apply in the Customer, 
Professional, Specialist and Market Maker, Broker-Dealer and Firm fee 
categories. As noted in a previous filing, ``the Exchange is currently 
setting these fees at $0.00 but may in the future file

[[Page 28909]]

proposed rule changes to amend the transaction fee level in one or more 
categories.'' \4\ The Exchange now seeks to amend the transaction fee 
level in several categories and, specifically, separate the ``Mini 
Options Transaction Fee--Electronic'' into two distinct fee categories, 
``Mini Options Transaction Fee--Electronic Adding Liquidity'' and 
``Mini Options Transaction Fee--Electronic Removing Liquidity''.
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    \4\ See Securities Exchange Act Release No. 69351 (April 9, 
2013), 78 FR 22353 (April 15, 2013) at 22353 (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Relating to Pricing 
of Mini Options).
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    The ``Mini Options Transaction Fee--Electronic Adding Liquidity'' 
for Professionals, Broker-Dealers, and Firms will increase from $0.00 
to $0.03 per contract. This same transaction fee for Specialists and 
Market Makers will increase from $0.00 to $0.02 per contract, while for 
Customers it will remain $0.00.
    The ``Mini Options Transaction Fee--Electronic Removing Liquidity'' 
for Professionals, Broker-Dealers, and Firms will increase from $0.00 
to $0.09 per contract. This same transaction fee for Specialists and 
Market Makers will increase from $0.00 to $0.04 per contract, while for 
Customers it will remain $0.00.
    The ``Mini Options Transaction Fee--Floor and QCC'' for 
Professionals, Specialists and Market Makers, Broker-Dealers, and Firms 
will increase from $0.00 to $0.09 per contract. This same transaction 
fee for Customers will remain $0.00.
    PIXL Executions. For order executions that are part of PIXL, 
certain new fees will apply. Initiating Orders will be $0.15 per 
contract [sic]. PIXL Orders (contra-party to the Initiating Order) will 
be $0.00 for Customers and all others will be assessed a transaction 
fee of $0.03 per contract. For PIXL Orders (contra-party to other than 
the Initiating Order) Customers will be assessed a transaction fee of 
$0.00 and all others will be assessed a transaction fee of $0.03 per 
contract. The contra-party will be assessed a transaction fee of $0.03 
per contract.
    Payment for Order Flow. PFOF will now apply to Mini Options and 
will be $0.02 per contract for Penny Pilot Options and $0.06 for all 
other options.\5\
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    \5\ The Payment for Order Flow program started on July 1, 2005 
as a pilot and after a series of orders extending the pilot became 
effective on April 29, 2012. See Securities Exchange Act Release No. 
52114 (July 22, 2005), 70 FR 44138 (August 1, 2005) (SR-Phlx-2005-
44); 57851 (May 22, 2008), 73 FR 31177 (May 20, 2008) (SR-Phlx-2008-
38); 55891 (June 11, 2007), 72 FR 333271 (June 15, 2007) (SR-Phlx-
2007-39); 53754 (May 3, 2006), 71 FR 27301 (May 10, 2006) (SR-Phlx-
2006-25); 53078 (January 9, 2006), 71 FR 2289 (January 13, 2006) 
(SR-Phlx-2005-88); 52568 (October 6, 2005), 70 FR 60120 (October 14, 
2005) (SR-Phlx-2005-58); and 59841 (April 29, 2009), 74 FR 21035 
(May 6, 2009) (SR-Phlx-2009-38).
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    Routing Fees. Routing fees set forth in Section V will now apply to 
Mini Options.
    Fee Caps. In addition to the Monthly Market Maker Cap and the 
Monthly Firm Fee Cap set forth in Section II that do not apply to 
transactions in Mini Options, neither will other transaction fee caps, 
discounts or rebates.
    Customer Rebate Program. Also, Mini Options volume will now be 
included in the calculations for the Customer Rebate Program 
eligibility, but will not be eligible to receive the rebates associated 
with the Customer Rebate Program. However, by including Mini Options 
volume in the calculations for the Customer Rebate Program eligibility, 
members have the ability to earn additional rebates because they can 
add this volume to other eligible volume for purposes of qualifying for 
a rebate tier in Section B of the Pricing Schedule.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \6\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4).
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    Transaction Fees. The Exchange believes that for Customers the 
proposed Mini Options Transaction Fee-Electronic Adding Liquidity, Mini 
Options Transaction Fee-Electronic Removing Liquidity, and Mini Options 
Transaction Fee--Floor and QCC, as well as the fees and rebates 
applicable for executions that occur as part of PIXL, are reasonable 
because those fees are set at zero in order to encourage Customers to 
transact Mini Options.
    The Exchange also believes that the Mini Options Transaction Fee-
Electronic Adding Liquidity, the Mini Options Transaction Fee-
Electronic Removing Liquidity, and the Mini Options Transaction Fee--
Floor and QCC are reasonable, equitable and not unfairly discriminatory 
because while all Customers will be able to take advantage of the zero 
fee level, all Professionals, Broker-Dealers, and Firms will all pay 
the identical per contract transaction fees ($0.03, $0.09 and $0.09, 
respectively) and will therefore be treated in a uniform manner. 
Specialists and Market Makers will also pay the identical Mini Options 
Transaction Fee--Floor and QCC of $0.09 per contract and will therefore 
also be treated in a uniform manner.
    Specialists and Market Makers will pay a lower Mini Options 
Transaction Fee-Electronic Adding Liquidity and a lower Mini Options 
Transaction Fee-Electronic Removing Liquidity fees of $0.02 and $0.04 
per contract, respectively. These lower fees are reasonable, equitable 
and not unfairly discriminatory because Specialists and Market Makers 
have obligations to the market and regulatory requirements, which 
normally do not apply to other market participants. 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 Specialists and Market Makers, Customers and 
other market participants recognizes the differing contributions made 
to the liquidity and trading environment on the Exchange by these 
market participants.
    The fees are also reasonable in light of the fact that the Mini 
Options do have a smaller exercise and assignment value, specifically 
1/10th that of a standard contract, and, as such, levying fees that are 
approximately 10% of what a market participant pays today is reasonable 
and equitable. The Exchange's cost to process quotes, orders and trades 
in Mini Options is the same as for standard options, supporting the 
proposed floor and remove liquidity transaction fees for other than 
Customer. However, the Exchange believes it is necessary to keep fees 
to provide liquidity lower than the fees for removing liquidity to 
create appropriate economics to ensure there is ample liquidity for 
market participants to execute against.
    PIXL Executions. The Exchange's proposal to charge the following 
new fees for order executions that are part of PIXL is reasonable. 
Specifically, Initiating Orders will be $0.015 per contract. PIXL 
Orders (contra-party to the Initiating Order) will be $0.00 for 
Customers and all others will be assessed a transaction fee of $0.03 
per contract. For PIXL Orders (contra-party to other than the 
Initiating Order) Customers will be assessed a transaction fee of $0.00 
and all others will be assessed a transaction fee of $0.03 per 
contract. The contra-party will be assessed a transaction fee of $0.03 
per contract.
    Generally, these fees range from slightly more than, to slightly 
less than,

[[Page 28910]]

10% of what the various market participants pay today. Charging all 
market participants the same fee for Initiating Orders is equitable and 
not unfairly discriminatory because it applies to all market 
participants equally. The transaction fee for PIXL Orders (contra-party 
to the Initiating Order) and for PIXL Orders (contra-party to other 
than the Initiating Order) are equitable and not unfairly 
discriminatory because they apply to all market participants, other 
than Customers, equally and uniformly.
    It is equitable and not unfairly discriminatory to not charge 
Customers a transaction fee for PIXL Orders (contra-party to the 
Initiating Order) or for PIXL Orders (contra-party to other than the 
Initiating Order) because the Exchange believes it helps attract 
Customers, which is beneficial to all other market participants on the 
Exchange who generally seek to trade with Customer order flow.
    Payment for Order Flow Fees. The Exchange believes that it is 
reasonable that the PFOF fees will now apply to Mini Options at a rate 
of $0.02 per contract for Penny Pilot Options and $0.06 for all other 
options. The Exchange also believes that this proposal is equitable and 
not unfairly discriminatory as it applies to all of market participants 
equally. Further, the proposed PFOF fees are similar to those already 
established at other market centers.\8\
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    \8\ See Chicago Board Options Exchange, MIAX Options Exchange 
and NYSE AMEX fee schedules.
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    The fees are also reasonable in light of the fact that the Mini 
Options do have a smaller exercise and assignment value, specifically 
1/10th that of a standard contract, and, as such, levying fees that are 
approximately 10% of what a market participant pays today is reasonable 
and equitable. The Exchange's cost to process quotes, orders and trades 
in Mini Options is the same as for standard options.
    Routing Fees. The Exchange believes that it is reasonable, 
equitable and not unfairly discriminatory that the routing fees set 
forth in Section V will now apply to Mini Options. These fees are 
reasonable because they will allow the Exchange to recoup and cover its 
costs of providing routing services for Customer orders in Mini Options 
just as it does for other standard equity options for which it incurs 
the same costs.
    The Exchange believes that Routing Fees are equitable and not 
unfairly discriminatory because the Exchange would uniformly assess the 
same Routing Fees to all Customers and Non-Customers, and because 
market participants have the ability to directly route orders in Mini 
Options to an away market and avoid the Routing Fee. Market 
participants may submit orders to the Exchange as ineligible for 
routing or ``DNR'' to avoid Routing Fees.
    Finally, the Exchange believes that it is reasonable, equitable and 
not unfairly discriminatory to assess different fees for Customers 
orders as compared to non-Customer orders because the Exchange has 
traditionally assessed lower fees to Customers as compared to non-
Customers. Customers will continue to receive the lowest fees or no 
fees when routing orders, as is the case today. Other options exchanges 
also assess lower Routing Fees for customer orders as compared to non-
customer orders in standard options.\9\
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    \9\ BATS assesses lower customer routing fees as compared to 
non-customer routing fees per the away market. For example BATS 
assesses ISE customer routing fees of $0.30 per contract and an ISE 
non-customer routing fee of $0.57 per contract. See BATS BZX 
Exchange Fee Schedule.
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    Fee Caps. The Exchange has previously stated that it believes that 
it is reasonable, equitable and not unfairly discriminatory to not 
apply the Monthly Market Maker Cap or Monthly Firm Fee Cap to Mini 
Options transaction fees \10\ and now seeks to clarify that other 
options transaction fee caps, discounts or rebates will also not apply 
to transactions in Mini Options and that this equitable and not 
unfairly discriminatory because this applies to all market participants 
equally and uniformly.
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    \10\ Supra note 4.
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    Customer Rebate Program. The Customer Rebate Program was 
established to incentivize market participants to increase the amount 
of Customer order flow they transact on the Exchange.\11\ The Exchange 
believes that it is reasonable, equitable and not unfairly 
discriminatory that Mini Options volume will be included in, but will 
not be eligible for the Customer Rebate Program defined in Section B of 
the Pricing Schedule. However, by including Mini Options volume in the 
calculations for the Customer Rebate Program eligibility, members have 
the ability to earn additional rebates from standard contracts because 
they can add this volume to other eligible volume for purposes of 
qualifying for a rebate tier in Section B of the Pricing Schedule. It 
is reasonable, equitable and not unfairly discriminatory since any 
market participant is eligible for a tier, which means that more 
eligible volume equals more ways for a market participant to earn a 
rebate.
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    \11\ See Securities Exchange Act Release No. 68924 (February 13, 
2013), 78 FR 11916 (February 20, 2013).
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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 operates in a highly competitive market, comprised of 
eleven 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.
    The Mini Options are a new product that will commence trading on 
the Exchange on March 28, 2013. The Exchange believes that 
incentivizing market participants to transact Mini Options by not 
assessing transaction fees and certain other fees encourages 
competition in these products. There is no intra-market competition as 
the Exchange will treat all market participants in a like manner with 
respect to the transaction fees. Also, the Exchange believes that 
because other markets will also list Mini Options there is no undue 
burden on intermarket competition because market participants will be 
able to select the venue where they will trade these products. In terms 
of Routing, the Exchange-believes that assessing Customers lower fees 
as compared to Non-Customers and assessing the same Routing Fees to all 
Non-Customers regardless of the venue does not create an undue burden 
on competition. The Exchange has traditionally assessed no or lower 
fees to Customers. Also, the Exchange believes that because Mini 
Options represent 1/10th of the size of a standard option contract, 
reduced Routing Fees will not misalign the cost to transact Mini 
Options.

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.

[[Page 28911]]

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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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-2013-45 on the subject line.

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-2013-45. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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-2013-45 and 
should be submitted on or before June 6, 2013.

    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).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11624 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P