Document ID: SEC-2018-0649-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2018-04-26T04:00Z

[Federal Register Volume 83, Number 81 (Thursday, April 26, 2018)]
[Notices]
[Pages 18360-18362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08729]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83080; File No. SR-18-31]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule at Section II To Clarify Fees Applicable To 
Correcting ``As/of'' or ``Reversal'' Trades

April 20, 2018.
    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 17, 2018, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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 Exchange's Pricing Schedule at 
Section II to clarify fees applicable to correcting ``as/of'' or 
``reversal'' trades, as described below. The text of the proposed rule 
change is available on the Exchange's website at http://nasdaqphlx.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 II of 
the Exchange's Pricing Schedule to clarify that when the Exchange 
processes an ``as/of'' or ``reversal'' trade at the request of a member 
to correct clearing, the new trade will incur the ``Floor'' category of 
Options Transaction Charges for the correction, even if the underlying 
trade that the Exchange is correcting was electronic, because the 
Exchange must process all corrections manually and in accordance with 
procedures applicable to Floor trades.
    Pursuant to its Policy for Amended Billing Information, which is 
set forth in the introduction to the Pricing Schedule, the Exchange 
entertains written requests (with supporting documentation) that its 
members submit

[[Page 18361]]

to correct or reverse erroneous trades after the date when such trades 
clear. The corrections that the Exchange makes in response to such 
requests are to errors that the requesting member or other members 
associated with the trade have made with respect to executed orders. 
These errors are not Exchange errors.
    Provided that the Exchange determines that the correction or 
reversal request is valid, the Exchange must process the correction or 
reversal manually, using a paper trade ticket, even if the underlying 
trade that the Exchange is correcting or reversing was electronic in 
nature. The Exchange presently does not possess a means of 
electronically correcting or reversing a trade after settlement date of 
the trade. Accordingly, even if the Exchange originally charged a 
member the ``Electronic'' rate for the Options Transaction Charge that 
applied to the underlying trade, the Exchange will charge the member 
the ``Floor'' rate to correct or reverse the trade. Although this is 
the existing practice of the Exchange, the Exchange now proposes to 
make this practice explicit in its Pricing Schedule. Specifically, the 
Exchange proposes adding a footnote 8 to Section II of the Pricing 
Schedule stating that ``Floor transaction fees will apply to any `as 
of' or `reversal' adjustments for manually processed trades originally 
submitted electronically or through FBMS.'' \3\
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    \3\ For the avoidance of doubt, the Exchange notes that the 
transaction fee that the Exchange charges to reverse or correct a 
trade is in addition to, rather than in lieu of, the transaction fee 
charged to execute the underlying trade that is subject to reversal 
or correction.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that it is reasonable to charge members an 
Options Transactions Charge to correct or reverse erroneous trades 
because processing such corrections and reversals requires the Exchange 
to execute additional options transactions. Moreover, the trade 
corrections and reversals at issue occur at the request of members and 
pursuant to errors for which members, rather than the Exchange, are 
responsible. Additionally, it is reasonable for the Exchange to charge 
members the ``Floor'' rate to correct or reverse trades--including to 
correct or reverse both Floor-based and electronic trades--because the 
Exchange must process all such requests manually, using trade tickets, 
and in accordance with its Floor-based procedures.
    The Exchange believes that its proposal is an equitable allocation 
and is not unfairly discriminatory because the ``Floor'' rate that the 
Exchange charges for corrections or reversals is reflective of the 
Exchange's manual process of correcting or reversing a trade rather 
than the nature of the underlying trade that the Exchange is correcting 
or reversing. Moreover, the Exchange notes that it will assess the same 
fee to all similarly situated members that request corrections or 
reversals.

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. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed changes to the Pricing Schedule 
compensate the Exchange for effecting transactions, using a manual 
process, that are necessary to correct or reverse trades at a member's 
request. The proposals also clarify and render more transparent the 
existing practices of the Exchange with respect to its fees for 
processing member requests for corrections and reversals. The Exchange 
does not intend or expect that the proposals will have any impact on 
inter-market or intra-market competition.

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.\6\
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    \6\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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.

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 [email protected]v. Please include 
File Number SR-Phlx-2018-31 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-2018-31. 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 website (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

[[Page 18362]]

those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website 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. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2018-31 and should be 
submitted on or before May 17, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08729 Filed 4-25-18; 8:45 am]
 BILLING CODE 8011-01-P