Document ID: SEC-2013-1935-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-11-15T05:00Z

[Federal Register Volume 78, Number 221 (Friday, November 15, 2013)]
[Notices]
[Pages 68895-68897]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27323]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70840; File No. SR-Phlx-2013-110]

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

November 8, 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 October 31, 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.
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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 the Customer Rebate Program in 
Section B of the Pricing Schedule.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on November 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 Exchange proposes to lower certain rebate tier percentage 
thresholds in the ``Customer Rebate Program,'' in Section B of the 
Pricing Schedule to provide members a greater opportunity to receive 
Customer rebates.
    Currently, the Exchange has a Customer Rebate Program consisting of 
four tiers which pays Customer rebates

[[Page 68896]]

on two Categories, A \3\ and B,\4\ of transactions.\5\ A Phlx member 
qualifies for a certain rebate tier based on the percentage of total 
national customer volume in multiply-listed options which it transacts 
monthly on Phlx. The Exchange calculates Customer volume in Multiply 
Listed Options by totaling electronically-delivered and executed 
volume, except volume associated with electronic Qualified Contingent 
Cross (``QCC'') Orders,\6\ as defined in Exchange Rule 1080(o).\7\ The 
Exchange pays the following rebates:\8\
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    \3\ Category A rebates are paid to members executing 
electronically-delivered Customer Simple Orders in Penny Pilot 
Options and Customer Simple Orders in Non-Penny Pilot Options in 
Section II of the Pricing Schedule. Rebates are paid on Customer 
PIXL Orders in Section II symbols that execute against non-
Initiating Order interest, except in the case of Customer PIXL 
Orders that are greater than 999 contracts. All Customer PIXL Orders 
that are greater than 999 contracts are paid a rebate regardless of 
the contra party to the transaction.
    \4\ Category B rebates are paid to members executing 
electronically-delivered Customer Complex Orders in Penny Pilot 
Options and Non-Penny Pilot Options in Section II. Rebates are paid 
on Customer PIXL Complex Orders in Section II symbols that execute 
against non-Initiating Order interest, except in the case of 
Customer PIXL Complex Orders that are greater than 999 contracts. 
All Customer PIXL Complex Orders that are greater than 999 contracts 
are paid a rebate regardless of the contra-party to the transaction.
    \5\ See Section B of the Pricing Schedule.
    \6\ A QCC Order is comprised of an order to buy or sell at least 
1000 contracts that is identified as being part of a qualified 
contingent trade, as that term is defined in Rule 1080(o)(3), 
coupled with a contra-side order to buy or sell an equal number of 
contracts. The QCC Order must be executed at a price at or between 
the National Best Bid and Offer and be rejected if a Customer order 
is resting on the Exchange book at the same price. A QCC Order shall 
only be submitted electronically from off the floor to the PHLX XL 
II System. See Rule 1080(o). See also Securities Exchange Act 
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate 
the execution of stock/option Qualified Contingent Trades (``QCTs'') 
that satisfy the requirements of the trade through exemption in 
connection with Rule 611(d) of the Regulation NMS).
    \7\ Members and member organizations under common ownership may 
aggregate their Customer volume for purposes of calculating the 
Customer Rebate Tiers and receiving rebates. Common ownership means 
members or member organizations under 75% common ownership or 
control.
    \8\ SPY is included in the calculation of Customer volume in 
Multiply Listed Options that are electronically-delivered and 
executed for purposes of the Customer Rebate Program, however, the 
rebates do not apply to electronic executions in SPY.

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                                           Percentage thresholds of national
                                          customer volume in Multiply-Listed
          Customer Rebate Tiers             Equity and ETF Options Classes,      Category A        Category B
                                            excluding SPY Options (Monthly)
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Tier 1..................................  0.00%-0.75%.......................              0.00              0.00
Tier 2..................................  Above 0.75%-1.60%.................              0.12              0.17
Tier 3..................................  Above 1.60%-2.60%.................              0.14              0.17
Tier 4..................................  Above 2.60%.......................              0.15              0.17
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    The Exchange is proposing to amend the percentage threshold of 
national customer volume in multiply-listed options in Tier 3 from 
``Above 1.60%--2.60%'' to ``Above 1.60%--2.50%.'' The Exchange also 
proposes to amend the Tier 4 percentage threshold from ``Above 2.60%'' 
to ``Above 2.50%.'' The Exchange believes that by lowering the 
percentage threshold in Tier 4 to 2.50%, as well as shortening the Tier 
3 rebate at 2.50%, a greater number of market participants may qualify 
for Tier 4 Customer rebates and this will encourage market participants 
to direct a greater number of Customer orders to the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\9\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\10\ 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 the Exchange operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that its proposal to lower the Tier 4 
percentage threshold is reasonable because a greater number of market 
participants may qualify for the Tier 4 rebates. Tier 4 pays higher 
Category A rebates as compared to Tier 3 Category A rebates. Today, a 
Phlx member that qualified for a Tier 3 rebate would receive a Customer 
rebate of $0.14 per contract in Category A. That same member would 
receive a $0.15 per contract Category A rebate with this proposal if 
the member were to transact volume greater than 2.50% of total national 
customer volume in multiply-listed options in a month. The Exchange 
believes that lowering the Tier 4 rebate, thereby shortening the Tier 3 
rebate at 2.50%, would cause members to direct an even greater number 
of Customer orders to the Exchange to qualify for the higher Tier 4 
Category A rebate. The proposal would not impact a market participant 
that currently qualifies for a Tier 3 Category B rebate because both 
Tiers 3 and 4 pay a Category B Customer rebate of $0.17 per contract.
    The Exchange believes that its proposal to lower the Tier 4 
percentage threshold, thereby shortening the Tier 3 rebate at 2.50%, is 
equitable and not unfairly discriminatory because it will be applied to 
all market participants in a uniform matter. Any market participant is 
eligible to receive the rebate provided they transact a qualifying 
amount of electronic Customer volume.

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

    The Exchange does not believe that the proposed rule change will 
impose an undue burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
Customer Rebate Program will continue to encourage Customer order flow 
to be directed to the Exchange. By incentivizing members to route 
Customer orders, the Exchange desires to attract liquidity to the 
Exchange, which in turn benefits all market participants. All market 
participants are eligible to qualify for a Customer Rebate.
    The Exchange believes the proposed amendment would allow a greater 
number of market participants to qualify for Tier 4 Customer rebates. 
The Exchange believes this pricing amendment does not impose a burden 
on competition but rather that the proposed rule change will continue 
to promote competition on the Exchange.
    The Exchange operates in a highly competitive market, comprised of 
twelve options exchanges, in which market participants can easily and 
readily direct order flow to competing venues if they deem fee levels 
at a particular venue to be excessive or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange described in the above proposal are influenced by these

[[Page 68897]]

robust market forces and therefore must remain competitive with fees 
charged and rebates paid by other venues and therefore must continue to 
be reasonable and equitably allocated to those members that opt to 
direct orders to the Exchange rather than competing venues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\11\ 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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    \11\ 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-2013-110 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-2013-110. 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-2013-110 and should be 
submitted on or before December 6, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27323 Filed 11-14-13; 8:45 am]
BILLING CODE 8011-01-P