Document ID: SEC-2013-2148-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-12-17T05:00Z

[Federal Register Volume 78, Number 242 (Tuesday, December 17, 2013)]
[Notices]
[Pages 76358-76360]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29895]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71040; File No. SR-Phlx-2013-118]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Routing Fees

December 11, 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 December 2, 2013, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Section V of the Pricing Schedule 
entitled ``Routing Fees.''
    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 the Routing Fees in Section 
V of the Pricing Schedule in order to recoup costs the Exchange incurs 
for routing and executing certain orders in equity options to away 
markets. Today, the Exchange assesses a Non-Customer a $0.95 per 
contract Routing Fee to any options exchange. The Customer Routing Fee 
for option orders routed to The NASDAQ Options Exchange LLC (``NOM'') 
is a $0.05 per contract Fixed Fee in addition to the actual transaction 
fee assessed. The Customer Routing Fee for option orders routed to 
NASDAQ OMX BX, Inc. (``BX Options'') is $0.00. The Customer Routing Fee 
for option orders routed to all other options exchanges \3\ (excluding 
NOM and BX Options) is a fixed fee of $0.15 per contract (``Fixed 
Fee'') in addition to the actual transaction fee assessed. If the away 
market pays a rebate, the Routing Fee is $0.00 per contract.\4\
---------------------------------------------------------------------------

    \3\ Including BATS Exchange, Inc. (``BATS''), BOX Options 
Exchange LLC (``BOX''), the Chicago Board Options Exchange, 
Incorporated (``CBOE''), C2 Options Exchange, Incorporated (``C2''), 
International Securities Exchange, LLC (``ISE''), the Miami 
International Securities Exchange, LLC (``MIAX''), NYSE Arca, Inc. 
(``NYSE Arca''), NYSE MKT LLC (``NYSE Amex'') and Topaz Exchange, 
LLC (``Gemini'').
    \4\ For all Routing Fees, the transaction fee will continue to 
be based on the away market's actual transaction fee or rebate for 
particular market participants and in the case that there is no 
transaction fee or rebate assessed by the away market, the Fixed 
Fee. A member organization qualifying for a Tier 2, 3 or 4 rebate in 
the Customer Rebate Program in Section B of the Pricing Schedule is 
entitled to receive a credit equal to the applicable Fixed Fee plus 
$0.05 per contract, unless the away market transaction fee is $0.00 
or the away market pays a rebate, in which case the member 
organization is entitled to receive a credit equal to the applicable 
Fixed Fee.
---------------------------------------------------------------------------

    The Exchange proposes to increase the Customer Routing Fixed Fee of 
$0.15 per contract when an option order is routed to all other 
exchanges to $0.20 per contract. With respect to the fixed costs, the 
Exchange incurs a fee when it utilizes Nasdaq Options Services LLC 
(``NOS''), a member of the Exchange and the Exchange's exclusive order 
router.\5\ Each time NOS routes an order to an away market, NOS is 
charged a clearing fee \6\ and, in the case of certain exchanges, a 
transaction fee is also charged in certain symbols, which fees are 
passed through to the Exchange. The Exchange currently recoups clearing 
and transaction charges incurred by the Exchange as well as certain 
other costs incurred by the Exchange when routing to away markets, such 
as administrative and technical costs associated with operating NOS, 
membership fees at away markets, Options Regulatory Fees (``ORFs'') and 
technical costs associated with routing options. The Exchange assesses 
the actual away market fee at the time that the order was entered into 
the Exchange's trading system. This transaction fee would be calculated 
on an order-by-order basis since different away markets charge 
different amounts.
---------------------------------------------------------------------------

    \5\ In May 2009, the Exchange adopted Rule 1080(m)(iii)(A) to 
establish Nasdaq Options Services LLC (``NOS''), a member of the 
Exchange, as the Exchange's exclusive order router. See Securities 
Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 
2009) (SR-Phlx-2009-32). NOS is utilized by the Exchange's fully 
automated options trading system, PHLX XL[supreg].
    \6\ The Options Clearing Corporation (``OCC'') assesses $0.01 
per contract side.
---------------------------------------------------------------------------

    A new market entrant recently adopted an ORF.\7\ The Exchange 
proposes to increase its Fixed Fee from $0.15 to $0.20 per contract to 
recoup costs associated with increased costs.
---------------------------------------------------------------------------

    \7\ Gemini adopted an ORF of $0.0010 per contract. See 
Securities Exchange Act Release No. 70200 (August 14, 2013), 78 FR 
51242 (August 20, 2013) (SR-Topaz-2013-01).
---------------------------------------------------------------------------

    The Exchange also proposes to correct a reference in the Routing 
Fees to the Customer Rebate Program which was relocated from Section A 
to Section B.

[[Page 76359]]

The Exchange believes that amending the Routing Fees to reflect the 
correct location of the Customer Rebate Program will add clarity to the 
Routing Fees.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \8\ in general, and 
furthers the objectives of Section 6(b)(4) and (b)(5) of the Act \9\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed Routing Fees are reasonable 
because they seek to recoup costs that are incurred by the Exchange 
when routing orders to away markets on behalf of members. Each 
destination market's transaction charge varies and there is a cost 
incurred by the Exchange when routing orders to away markets. The costs 
to the Exchange include clearing costs, administrative and technical 
costs associated with operating NOS, membership fees at away markets, 
ORFs and technical costs associated with routing options. The Exchange 
believes that the proposed Routing Fees would enable the Exchange to 
recover the costs it incurs to route orders to away markets in addition 
to transaction fees assessed to market participants for the execution 
of orders by the away market. Specifically, new entrants have added 
costs associated with routing.\10\ The Exchange believes that it is 
reasonable to recoup these costs borne by the Exchange on each 
transaction. The proposed $0.20 per contract Customer Routing Fixed 
Fee, which would be assessed when an option order is routed to all 
other exchanges, represents the overall cost to the Exchange for 
technical, administrative, clearing, regulatory, compliance and other 
costs, in addition to the transaction fee assessed by the away market.
---------------------------------------------------------------------------

    \10\ See note 7.
---------------------------------------------------------------------------

    In addition, the Exchange believes that it is equitable and not 
unfairly discriminatory to assess a $0.20 per contract Customer Routing 
Fixed Fee when an option order is routed to all other exchanges because 
this fee would be assessed uniformly on all market participants in 
addition to the actual transaction fees on all orders routed to non-
NASDAQ OMX markets.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess a fixed cost of $0.05 per contract to route 
orders to NOM and no cost to route orders to BX Options because the 
cost, in terms of actual cash outlays, to the Exchange to route to 
those markets is lower. For example, costs related to routing to NOM 
and BX Options are lower as compared to other away markets because NOS 
is utilized by all three exchanges to route orders.\11\ NOS and the 
three NASDAQ OMX options (PHLX, BX Options and NOM) markets have a 
common data center and staff that are responsible for the day-to-day 
operations of NOS. Because the three exchanges are in a common data 
center, Routing Fees are reduced because costly expenses related to, 
for example, telecommunication lines to obtain connectivity are avoided 
when routing orders in this instance. The costs related to connectivity 
to route orders to other NASDAQ OMX exchanges are de minimis. When 
routing orders to non-NASDAQ OMX exchanges, the Exchange incurs costly 
connectivity charges related to telecommunication lines and other 
related costs. The Exchange believes it is reasonable, equitable and 
not unfairly discriminatory to pass along savings realized by 
leveraging NASDAQ OMX's infrastructure. Market participants may submit 
orders to the Exchange as ineligible for routing or ``DNR'' to avoid 
Routing Fees.\12\ It is important to note that when orders are routed 
to an away market they are routed based on price first.\13\
---------------------------------------------------------------------------

    \11\ See Chapter VI, Section 11 of the NASDAQ and BX Options 
Rules and PHLX Rule 1080(m)(iii)(A).
    \12\ See Rule 1066(h) (Certain Types of Orders Defined) and 
1080(b)(i)(A) (PHLX XL and PHLX XL II).
    \13\ PHLX XL will route orders to away markets where the 
Exchange's disseminated bid or offer is inferior to the national 
best bid (best offer) (``NBBO'') price. See Rule 1080(m). The PHLX 
XL II system will contemporaneously route an order marked as an 
Intermarket Sweep Order (``ISO'') to each away market disseminating 
prices better than the Exchange's price, for the lesser of: (a) The 
disseminated size of such away markets, or (b) the order size and, 
if order size remains after such routing, trade at the Exchange's 
disseminated bid or offer up to its disseminated size. If contracts 
still remain unexecuted after routing, they are posted on the book. 
Once on the book, should the order subsequently be locked or crossed 
by another market center, the PHLX XL II system will not route the 
order to the locking or crossing market center, with some exceptions 
noted in Rule 1080(m).
---------------------------------------------------------------------------

    The Exchange believes its proposal to correct the reference to the 
Customer Rebate Program at Section B is reasonable, equitable and not 
unfairly discriminatory because it will add clarity to the Pricing 
Schedule.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
rule change would allow the Exchange to recoup its costs when routing 
orders designated as available for routing by the market participant. 
Market participants may submit orders to the Exchange as ineligible for 
routing or ``DNR'' to avoid Routing Fees.\14\ It is important to note 
that when orders are routed to an away market they are routed based on 
price first.\15\ Today, other options exchanges also assess similar 
fees to recoup costs incurred when routing orders to away markets.\16\
---------------------------------------------------------------------------

    \14\ See note 12.
    \15\ See note 13.
    \16\ See Chicago Board of Options Exchange, Incorporated's Fee 
Schedule. See NYSE Amex's Fee Schedule.
---------------------------------------------------------------------------

    With respect to continuing to route orders to NOM and PHLX at a 
lower cost as compared to other away markets, the Exchange does not 
believe that the proposed amendments to increase those fees, while 
maintaining the same fee differential imposes a burden because all 
market participants would be assessed the same fees depending on the 
away market. Also, the Exchange is proposing to recoup costs incurred 
only when members request the Exchange route their orders to an away 
market. The Exchange is passing along savings realized by leveraging 
NASDAQ OMX's infrastructure and scale to market participants when those 
orders are routed to NOM and PHLX and is providing those savings to all 
market participants.

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.\17\ 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

[[Page 76360]]

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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2013-118 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-2013-118. 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-2013-118 and should be 
submitted on or before January 7, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29895 Filed 12-16-13; 8:45 am]
BILLING CODE 8011-01-P