Document ID: SEC-2015-2002-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2015-11-30T05:00Z

[Federal Register Volume 80, Number 229 (Monday, November 30, 2015)]
[Notices]
[Pages 74828-74829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30332]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76513; File No. SR-Phlx-2015-79]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order 
Approving a Proposed Rule Change Relating to the Active Specialized 
Quote Feed Port Fee

November 24, 2015.

I. Introduction

    On September 23, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to pay eligible Specialists and Market Makers a 
refund for a portion of the monthly variable Active Specialized Quote 
Feed (``SQF'') Port Fees (``Variable Active SQF Port Fees'') that were 
in effect under Section VII.B. of the Phlx Pricing Schedule during the 
month of April 2015. The proposed rule change was published for comment 
in the Federal Register on October 13, 2015.\3\ The Commission did not 
receive any comments on the proposal. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76083 (October 6, 
2015), 80 FR 61537 (SR-Phlx-2015-79) (``Notice'').
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II. Description of the Proposal

    On April 2, 2015, the Exchange submitted a proposed rule change for 
immediate effectiveness pursuant to Section 19(b)(3)(A) \4\ of the Act 
and Rule 19b-4(f)(2) \5\ thereunder to, among other things, replace 
monthly Variable Active SQF Port Fees applicable to Specialists \6\ and 
Market Makers \7\ with a monthly fixed Active SQF Port Fee (``Fixed 
Active SQF Port Fee'').\8\ According to the Exchange, all Specialists 
and Market Makers on the Exchange were subject to the following 
Variable Active SQF Port Fees beginning in April 2015: \9\
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    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(2).
    \6\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Exchange Rule 1020(a).
    \7\ ``Market Makers'' include Registered Options Traders 
(Exchange Rule 1014(b)(i) and (ii)), which include Streaming Quote 
Traders (Exchange Rule 1014(b)(ii)(A)) and Remote Streaming Quote 
Traders (Exchange Rule 1014(b)(ii)(B)).
    \8\ See SR-Phlx-2015-33, available at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/pdf/phlx-filings/2015/SR-Phlx-2015-33.pdf.
    \9\ See Notice, supra note 3, at 61538.

------------------------------------------------------------------------
                                                           Monthly  fee
                Number of active SQF port                    per port
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1.......................................................          $2,500
2-6.....................................................          $4,000
7 and over..............................................         $15,000
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    The Variable Active SQF Port Fees were capped at $42,000 per 
month.\10\ Under the Fixed Active SQF Port Fees, Specialists and Market 
Makers would pay $1,250 per port per month and this fee would also be 
capped at $42,000 per month.\11\
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    \10\ See id. at 61537. See also Securities Exchange Act Release 
No. 73687 (November 25, 2014), 79 FR 71485 (December 2, 2014) (SR-
Phlx-2014-73) (implementing the Variable Active SQF Port Fees with a 
delayed operative date of April 1, 2015).
    \11\ See Notice, supra note 3, at 61538 (referencing note 26 in 
Section VII.B. of the Phlx Pricing Schedule).
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    The Exchange notes that the April 2015 submission proposing to 
replace the monthly Variable Active SQF Port Fees with a monthly Fixed 
Active SQF Port Fee was rejected.\12\ As a result, the Exchange 
assessed Specialists and Market Makers the applicable Variable Active 
SQF Port Fees that were in effect from April 1, 2015--April 30, 2015 
(``April 2015 Billing Period'') and not the comparably lower Fixed 
Active SQF Port Fee.\13\ The Exchange subsequently refiled another 
proposed rule change for immediate effectiveness pursuant to Section 
19(b)(3)(A) \14\ of the Act and Rule 19b-4(f)(2) \15\ thereunder to 
replace the monthly Variable Active SQF Port Fees with the monthly 
Fixed Active SQF Port Fee.\16\ This proposal became operative May 1, 
2015.
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    \12\ See id. at 61537.
    \13\ See id.
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ See Securities Exchange Act Release No. 74833 (April 29, 
2015), 80 FR 25749 (May 5, 2015) (SR-Phlx-2015-36) (proposed rule 
change that, among other things, instituted the Fixed Active SQF 
Port Fee in lieu of the Variable Active SQF Port Fees as of May 1, 
2015).
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    According to the Exchange, because the April 2015 submission to 
replace the Variable Active SQF Port Fees with the Fixed Active SQF 
Port Fee was rejected, the Exchange is proposing to pay a refund to 
eligible Specialists and Market Makers for a portion of the Variable 
Active SQF Port Fees that the Exchange assessed during the month of 
April 2015 and that these eligible Specialists and Market Makers paid 
to the Exchange.\17\ The Exchange states that it did not intend to 
impose the Variable Active SQF Port Fees in April 2015, but rather the 
Exchange intended to charge the less expensive Fixed Active SQF Port 
Fee for the April 2015 Billing Period.\18\ The Exchange notes that, 
because the Fixed Active SQF Port Fee did not become operative until 
May 1, 2015, and the fee reduction resulting from the Fixed Active SQF 
Port Fee did not occur as intended on April 1, 2015, Specialists and 
Market Makers were not able to take advantage of the cheaper Fixed 
Active SQF Port Fee for April 2015 and had to pay the more expensive 
Variable Active SQF Port Fees for the April 2015 Billing Period. The 
Exchange also states that Specialists and Market Makers paid more in 
April 2015 than was anticipated by the Exchange and the Specialists and 
Market Makers.\19\
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    \17\ See Notice, supra note 3, at 61537.
    \18\ See id.
    \19\ See Nasdaq Equity Trader Alert No. 2015-37 (March 25, 
2015), available at http://nasdaqtrader.com/TraderNews.aspx?id=ETA2015-37; and Nasdaq Options Trader Alert No. 
2015-9 (April 14, 2015), available at http://www.phlx.com/TraderNews.aspx?id=OTA2015-9 (the ``Alerts''). The Exchange notes 
that the Alerts show how some Exchange members may have anticipated 
the proposed lower Fixed Active SQF Port Fee in April 2015, but had 
to pay higher fees because the filing to delete the Variable Active 
SQF Port Fees was initially rejected by the Commission. See Notice, 
supra note 3, at 61537, n.6.

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[[Page 74829]]

    The fees that the Exchange proposes to refund to eligible 
Specialists and Market Makers represent the difference between the 
Variable Active SQF Port Fees and the Fixed Active SQF Port Fee that 
became operative on May 1, 2015, each subject to the $42,000 monthly 
cap.\20\ For example, according to the Exchange, if Specialist A was 
assessed and paid a Variable Active SQF Port Fee of $16,000 for the 
month of April 2015 (4 ports at $4,000 per port) whereas the Specialist 
would have paid only a $5,000 Fixed Active SQF Port Fee if this fee had 
been operative in April (4 ports at $1,250 per port), the Exchange 
would pay that member a refund amount of $11,000. In addition, if 
Market Maker B was assessed and paid a Variable Active SQF Port Fee of 
$42,000 for the month of April 2015 (8 ports at $15,000 per port for an 
uncapped total of $120,000, to which the cap was applied) whereas the 
Market Maker would have paid only a $10,000 Fixed Active SQF Port Fee 
if this fee had been operative in April (8 ports at $1,250 per port), 
the Exchange would pay that member a refund amount of $32,000.\21\ The 
Exchange notes that the payment of a refund to eligible Specialists and 
Market Makers is unique to April 2015 only and applies only to the 
April 2015 Billing Period.
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    \20\ The Exchange represents that a few members reached the cap 
of $42,000 for the Variable Active SQF Port Fees and would have also 
reached the cap of $42,000 for the Fixed Active SQF Port Fee. 
According to the Exchange, these members did not pay any overage and 
would not be eligible for a refund. See Notice, supra note 3, at 
61538, n.13.
    \21\ See Notice, supra note 3, at 61538.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\22\ In particular, approval of the retroactive application of 
the proposal is consistent with Section 6(b)(4) of the Act,\23\ which 
requires that the rules of a national securities exchange provide for 
the equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other parties using its facilities.
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    \22\ Additionally, in approving the proposed rule change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(4).
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    The Commission notes that the refund the Exchange proposes to pay 
would have a retroactive effect on eligible Specialists and Market 
Makers because these members of the Exchange would effectively be 
subject to the Fixed Active SQF Port Fee during the month of April 
2015, which was a month that the Variable Active SQF Port Fees were 
operative under the Exchange's rules. The Commission further notes that 
the proposed change from the Variable Active SQF Port Fees to the Fixed 
Active SQF Port Fee was contained in an April 2015 submission by the 
Exchange for immediate effectiveness pursuant to Section 19(b)(3)(A) 
\24\ of the Act and Rule 19b-4(f)(2) \25\ thereunder; however that 
submission was rejected by the Commission because it was not filed in 
accordance with the requirements of the Act and the rules and 
regulations thereunder.\26\ The proposed fee changes would otherwise 
qualify for immediate effectiveness pursuant to Section 19(b)(3)(A)\27\ 
of the Act and Rule 19b-4(f)(2) thereunder.\28\ However, because the 
proposed rule change seeks retroactive application of a fee change, the 
Exchange filed the proposed rule change pursuant to Section 19(b)(2) of 
the Act,\29\ seeking approval retroactive to April 1, 2015. Retroactive 
approval of this proposal allows the proposed rule change to take 
effect for the month of April 2015.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(2).
    \26\ See 17 CFR 240.19b-4 and 17 CFR 249.819 Appendix A.
    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(2).
    \29\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (File No. SR-Phlx-2015-79) be, 
and hereby is, approved.
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    \30\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Robert W. Errett,
Deputy Secretary.
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    \31\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-30332 Filed 11-27-15; 8:45 am]
 BILLING CODE 8011-01-P