Document ID: SEC-2017-0645-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX LLC
Posted Date: 2017-04-21T04:00Z

[Federal Register Volume 82, Number 76 (Friday, April 21, 2017)]
[Notices]
[Pages 18784-18790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08056]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80466; File No. SR-Phlx-2017-29]

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating To 
Customer Rebates and Pricing for Multiply Listed Options

April 17, 2017.
    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 3, 2017, NASDAQ 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: (i) Amend Section B of the Exchange's 
Pricing Schedule to create a new Category D and make other amendments 
to this section; and (ii) amend Section II of the Exchange's Pricing 
Schedule entitled ``Multiply Listed Options Fees,'' \3\ to assess a 
surcharge related to Complex Orders.\4\
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    \3\ These fees include options overlying equities, ETFs, ETNs 
and indexes which are Multiply Listed.
    \4\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or ETF coupled with the purchase or sale of 
options contract(s). See Rule 1098.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com, at the principal 
office of the Exchange,

[[Page 18785]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Pricing 
Schedule: (i) At Section B to create an additional incentive to 
encourage market participants to send Customer Complex Order flow to 
Phlx; and (ii) at Section II to adopt certain surcharges for 
electronically-delivered Complex Orders so that the Exchange may pay 
increased Customer Rebates. Each of the proposed amendments is 
discussed in greater detail below.
Customer Rebate Program
    The Exchange proposes to amend Section B, entitled ``Customer 
Rebate Program,'' to amend Category C and add a new Category D to 
continue existing incentives to direct Customer Complex Order flow to 
the Exchange and create additional incentives. Currently, the Exchange 
has a Customer Rebate Program consisting of the following five tiers 
that pay Customer rebates on three Categories, A,\5\ B \6\ and C,\7\ of 
transactions:
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    \5\ The Category A Rebate is 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 symbols.
    \6\ The Category B Rebate is paid on Customer PIXL Orders in 
Section II symbols that execute against non-Initiating Order 
interest. In the instance where member organizations qualify for 
Tier 4 or higher in the Customer Rebate Program, Customer PIXL 
Orders that execute against a PIXL Initiating Order are paid a 
rebate of $0.14 per contract. Rebates on Customer PIXL Orders are 
capped at 4,000 contracts per order for Simple PIXL Orders.
    \7\ The Category C Rebate is paid to members executing 
electronically-delivered Customer Complex Orders in Penny Pilot 
Options and Non-Penny Pilot Options in Section II symbols. Rebates 
are paid on Customer PIXL Complex Orders in Section II symbols that 
execute against non-Initiating Order interest. Customer Complex PIXL 
Orders that execute against a Complex PIXL Initiating Order are not 
paid a rebate under any circumstances. The Category C Rebate is not 
paid when an electronically-delivered Customer Complex Order, 
including Customer Complex PIXL Order, executes against another 
electronically-delivered Customer Complex Order. Rebates on Customer 
PIXL Orders are capped at 4,000 contracts per order leg for Complex 
PIXL Orders.

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                                        Percentage thresholds of
                                        national customer volume
                                           in multiply-listed
         Customer rebate tiers           equity and ETF options     Category A      Category B      Category C
                                         classes, excluding SPY
                                            options (monthly)
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Tier 1................................  0.00%-0.60%.............           $0.00           $0.00           $0.00
Tier 2................................  Above 0.60%-1.10%.......            0.10            0.10            0.17
Tier 3................................  Above 1.10%-1.60%.......            0.15            0.12            0.17
Tier 4................................  Above 1.60%-2.50%.......            0.20            0.16            0.22
Tier 5................................  Above 2.50%.............            0.21            0.17            0.22
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    A Phlx member qualifies for a certain rebate tier based on the 
percentage of total national customer volume in multiply-listed options 
that it transacts monthly on Phlx. The Exchange calculates Customer \8\ 
volume in Multiply Listed Options by totaling electronically-delivered 
and executed volume, excluding volume associated with electronic 
Qualified Contingent Cross (``QCC'') Orders, as defined in Exchange 
Rule 1080(o).\9\
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    \8\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation which is not for 
the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
    \9\ In calculating electronically-delivered and executed 
Customer volume in Multiply Listed Options, the numerator of the 
equation includes all electronically-delivered and executed Customer 
volume in Multiply Listed Options. The denominator of that equation 
includes national customer volume in multiply-listed equity and ETF 
options volume, excluding SPY. See Section B of the Pricing 
Schedule.
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    The Exchange proposes to amend Category C by decreasing the Tier 2 
rebate from $0.17 to $0.16 per contract and increasing the Tier 3 
rebate from $0.17 to $0.18 per contract. The Category C rebates will 
continue to be paid on electronically-delivered Customer Complex Orders 
in Penny Pilot Options, but will no longer be paid on Non-Penny Pilot 
Options in Section II symbols, which are proposed to be subject to the 
proposed Category D rebate. For Category C, rebates will continue to be 
paid on Customer PIXL \10\ Complex Orders in Section II symbols that 
execute against non-Initiating Order interest.\11\ Customer Complex 
PIXL Orders that execute against a Complex PIXL Initiating Order will 
continue to not be paid a Category C rebate under any circumstances. 
The Category C rebate will continue to not be paid when an 
electronically-delivered Customer Complex Order, including Customer 
Complex PIXL Order, executes against another electronically-delivered 
Customer Complex Order. The Exchange proposes to no longer cap rebates 
on Customer PIXL Orders at 4,000 contracts per order leg for Complex 
PIXL Orders, but will continue to cap them for Simple PIXL Orders are 
[sic] noted in Category B.
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    \10\ PIXL\SM\ is the Exchange's price improvement mechanism 
known as Price Improvement XL or PIXL. See Rule 1080(n).
    \11\ With respect to PIXL functionality, a Phlx member may 
electronically submit for execution an order it represents as agent 
on behalf of a public customer, broker-dealer, or any other entity 
(``PIXL Order'') against principal interest or against any other 
order (except as provided in Rule 1080(n)(i)(E)) it represents as 
agent (``Initiating Order'') provided it submits the PIXL order for 
electronic execution into the PIXL Auction (``Auction'') pursuant to 
Rule 1080. Non-Initiating Order interest could be a PIXL Auction 
Responder or a resting order or quote that was on the Phlx book 
prior to the auction.
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    The Exchange will create a new Category D rebate which will pay: No 
rebate for Tier 1; a $0.21 per contract rebate for Tier 2; a $0.22 
rebate for Tier 3; a $0.26 rebate for Tier 4; and a $0.27 rebate for 
Tier 5. There [sic] rebates are per contract. The Category D Rebates 
will be paid to members executing electronically-delivered Customer 
Complex Orders in Non-Penny Pilot Options in Section II symbols. 
Rebates will be paid on Customer PIXL Complex Orders that execute 
against non-Initiating Order interest. A Customer Complex PIXL Order 
that executes against a Complex PIXL Initiating Order will not be paid 
a rebate under any circumstances. The Category D Rebate

[[Page 18786]]

will not be paid when an electronically-delivered Customer Complex 
Order, including a Customer Complex PIXL Order, executes against 
another electronically-delivered Customer Complex Order.
    The Exchange proposes to adopt a new Category D rebate which will 
be paid to members executing electronically-delivered Customer Complex 
Orders in Non-Penny Pilot Options in Section II symbols. Rebates will 
be paid on Customer PIXL Complex Orders in Section II symbols that 
execute against non-Initiating Order interest. Customer Complex PIXL 
Orders that execute against a Complex PIXL Initiating Order will not be 
paid a rebate under any circumstances. The Category D Rebate will not 
be paid when an electronically-delivered Customer Complex Order, 
including a Customer Complex PIXL Order, executes against another 
electronically-delivered Customer Complex Order. The Exchange will pay 
no Tier 1 Category D rebate. The Exchange will pay a $0.21 per contract 
Tier 2 Category D rebate. The Exchange will pay a $0.22 per contract 
Tier 3 Category D rebate. The Exchange will pay a $0.26 per contract 
Tier 4 Category D rebate. The Exchange will pay a $0.27 per contract 
Tier 5 Category D rebate. Today, rebates are not paid on NDX and MNX 
contracts in any Category, however NDX and MNX contracts count toward 
the volume requirements to qualify for a Customer Rebate Tier. This 
will be continue to be the case.
    Today, the Exchange pays a $0.02 per contract Category A and B 
rebate and a $0.03 per contract Category C rebate in addition to the 
applicable Tier 2 and 3 rebate, provided the Specialist,\12\ Market 
Maker \13\ or Appointed MM \14\ has reached the Monthly Market Maker 
Cap \15\ as defined in Section II, to: (1) A Specialist or Market Maker 
who is not under Common Ownership \16\ or is not a party of an 
Affiliated Entity; or (2) an OFP member or member organization 
affiliate under Common Ownership; or (3) an Appointed OFP \17\ of an 
Affiliated Entity. The Exchange proposes to pay an additional $0.03 
rebate in addition to the applicable Tier 2 and 3 Category D rebates, 
provided the Specialist, Market Maker or Appointed MM has reached the 
Monthly Market Maker Cap as defined in Section II, to: (1) A Specialist 
or Market Maker who is not under Common Ownership or is not a party of 
an Affiliated Entity; or (2) an OFP member or member organization 
affiliate under Common Ownership; or (3) an Appointed OFP of an 
Affiliated Entity.
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    \12\ The term ``Specialist'' shall apply to the account of a 
Specialist (as defined in Exchange Rule 1020(a)). A Specialist is an 
Exchange member who is registered as an options specialist pursuant 
to Rule 501(a). An options Specialist includes a Remote Specialist 
which is defined as an options specialist in one or more classes 
that does not have a physical presence on an Exchange floor and is 
approved by the Exchange pursuant to Rule 501.
    \13\ The term ``Market Maker'' describes fees and rebates 
applicable to Registered Options Traders (``ROTs''), Streaming Quote 
Traders (``SQTs''), Remote Streaming Quote Traders (``RSQTs''). An 
ROT is defined in Exchange Rule 1014(b) is a regular member or a 
foreign currency options participant of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. A ROT includes SQTs and RSQTs as 
well as on and off-floor ROTS. An SQT is defined in Exchange Rule 
1014(b)(ii)(A) as an ROT who has received permission from the 
Exchange to generate and submit option quotations electronically in 
options to which such SQT is assigned. An RSQT is defined in 
Exchange Rule in 1014(b)(ii)(B) as an ROT that is a member 
affiliated with an RSQTO with no physical trading floor presence who 
has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such RSQT has 
been assigned. A Remote Streaming Quote Trader Organization or 
``RSQTO,'' which may also be referred to as a Remote Market Making 
Organization (``RMO''), is a member organization in good standing 
that satisfies the RSQTO readiness requirements in Rule 507(a). 
RSQTs may also be referred to as Remote Market Markers (``RMMs'').
    \14\ An Appointed MM is a Phlx Market Maker or Specialist who 
has been appointed by an Order Flow Provider (``OFP'') for purposes 
of qualifying as an Affiliated Entity. An OFP is a member or member 
organization that submits orders, as agent or principal, to the 
Exchange.
    \15\ Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $500,000 for: (i) Electronic and floor Option 
Transaction Charges; (ii) QCC Transaction Fees (as defined in 
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)); 
and (iii) fees related to an order or quote that is contra to a PIXL 
Order or specifically responding to a PIXL auction. The trading 
activity of separate Specialist and Market Maker member 
organizations is aggregated in calculating the Monthly Market Maker 
Cap if there is Common Ownership between the member organizations. 
All dividend, merger, short stock interest, reversal and conversion, 
jelly roll and box spread strategy executions (as defined in Section 
II) are excluded from the Monthly Market Maker Cap.
    \16\ The term ``Common Ownership'' shall mean members or member 
organizations under 75% common ownership or control.
    \17\ An Appointed OFP is an Order Flow Provider who has been 
appointed by a Phlx Market Maker or Specialist for purposes of 
qualifying as an Affiliated Entity.
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    Today, the Exchange pays a $0.05 per contract Category C rebate in 
addition to the applicable Tier 2 and 3 rebates to members or member 
organizations or member or member organization affiliated under Common 
Ownership provided the member or member organization qualified for a 
Tier 1 or 2 MARS Payments in Section IV, Part E. The Exchange is 
proposing to expand this additional rebate to apply the $0.05 per 
contract rebate to Category D and also expand the applicable Tiers from 
2 and 3 to Tiers 2, 3, 4 or 5 rebate tiers for both Category C and D 
rebates. Finally the Exchange is expanding the MARS qualification from 
Tiers 1 and 2 to any MARS Payments \18\ for both Category C and D 
rebates. The new rule text would provide, ``The Exchange will pay a 
$0.05 per contract Category C and Category D rebate in addition to the 
applicable Tier 2, 3, 4 and 5 rebates to members or member 
organizations or member or member organization affiliated under Common 
Ownership provided the member or member organization qualified for any 
MARS Payments in Section IV, Part E.''
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    \18\ Today, Phlx members that have System Eligibility, as 
described in Section IV, Part E, and have executed the requisite 
number of Eligible Contracts, as described in Section IV, Part E, in 
a month will be paid per contract rebates based on a 4 tier 
structure which pays a certain MARS Payment based on Average Daily 
Volume.
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    The Exchange believes that the proposed amendments will attract a 
greater amount of Customer Complex Order liquidity to Phlx. Customer 
liquidity benefits all market participants by providing more order flow 
to the marketplace and more trading opportunities.
Multiply Listed Options
    The Exchange proposes to adopt certain surcharges for 
electronically-delivered Complex Orders in order that it may pay 
increased Customer Rebates. Customer liquidity benefits all market 
participants by providing more liquidity with which market participants 
may interact on Phlx. The Customer Rebates provide an additional 
incentive to encourage market participants to send Customer Complex 
Order flow to Phlx.
    The Exchange proposes to amend Section II to assess a surcharge of 
$0.03 per contract on electronic Complex Orders that remove liquidity 
from the Complex Order Book and auctions, excluding PIXL, in Penny 
Pilot Options, excluding SPY. The Exchange proposes to assess a 
surcharge of $0.10 per contract on electronic Complex Orders that 
remove liquidity from the Complex Order Book and auctions, excluding 
PIXL, in Non-Penny Pilot Options, excluding NDX and MNX.
    The Exchange notes that an order that is received by the trading 
system first in time shall be considered an order adding liquidity and 
an order that trades against that order shall be considered an order 
removing liquidity.
    The Exchange is amending the rule text to make clear that 
surcharges are not subject to the Monthly Market Maker Cap. Today, the 
Exchange assesses surcharges for BKX, NDX and MNX. Those charges are 
not included in the calculation of the Monthly Market

[[Page 18787]]

Maker Cap. The proposed surcharges will not be included in the Monthly 
Market Maker Cap.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act,\19\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the 
Act,\20\ 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 its facilities, and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(4), (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \21\
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    \21\ Securities Exchange Act Release No. 51808 (June 29, 2005), 
70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\22\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\23\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \24\
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    \22\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \23\ See id. at 534-535.
    \24\ See id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers' . . . .'' \25\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \25\ See id. at 539 (quoting Securities Exchange Act Commission 
at Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-74783 
(December 9, 2008) (SR-NYSEArca-2006-21)).
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Customer Rebates
    The Exchange's proposal to amend Section B, entitled ``Customer 
Rebate Program,'' to amend Category C and add a new Category D is 
reasonable because today the Exchange pays a Customer Complex Order 
rebate on both Penny and Non-Penny Pilot Options. The Exchange will 
continue to pay rebates for both Penny and Non-Penny Pilot Options, but 
will amend the rebates paid for Non-Penny Pilot Options as proposed for 
Category D. The Exchange notes that today it assesses different fees 
for Penny and Non-Penny Pilot Options.\26\
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    \26\ See Section II of the Pricing Schedule.
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    The Exchange's proposal to amend Section B, entitled ``Customer 
Rebate Program,'' to amend Category C and add a new Category D is 
equitable and not unfairly discriminatory because the Exchange will 
uniformly pay Customer rebates to all qualifying market participants. 
Any market participant may qualify for a Customer Rebate.
    With respect to the Tier 2 Category C rebate, which is decreased 
from $0.17 to $0.16 per contract, and the Tier 3 Category C rebate, 
which is increased from $0.17 to $0.18 per contract, the Exchange 
believes that these proposed changes are reasonable because the 
Exchange currently pays the same $0.17 per contract rebate for these 
two tiers. The Exchange desires to pay a lower rebate for Tier 2, which 
requires National Customer Volume \27\ of above 0.60%-1.10%, and a 
higher rebate for Tier 3, which requires National Customer Volume of 
above 1.10%-1.60%, because of the difference in the volume 
requirements. The Exchange believes that it is reasonable to pay a 
higher rebate for the Tier 3 Category C rebate because of the higher 
volume requirement.
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    \27\ The National Customer Volume would be in Multiply-Listed 
Equity and ETF Options Classes, excluding SPY Options, on a monthly 
basis.
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    With respect to the Tier 2 Category C rebate, which is decreased 
from $0.17 to $0.16 per contract, and the Tier 3 Category C rebate, 
which is increased from $0.17 to $0.18 per contract, the Exchange 
believes that these proposed changes are equitable and not unfairly 
discriminatory because the Exchange will uniformly pay Customer rebates 
to all qualifying market participants. Any market participant may 
qualify for a Customer Rebate.
    With respect to the proposed rebates for Category D, the Exchange 
believes that it is reasonable to pay no rebate for Tier 1, which has a 
National Customer Volume requirement between 0.00%-0.60%, because no 
other Category pays a rebate for this level of volume. The Exchange 
believes that it is reasonable to pay the proposed Tier 2 through 5 
rebates,\28\ progressively higher rebates which are commensurate with 
the increased National Customer Volume requirement for each Tier.
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    \28\ Category D pays: A $0.21 rebate for Tier 2 (National 
Customer Volume above 0.60%-1.10%); a $0.22 rebate for Tier 3 
(National Customer Volume above 1.10%-1.60%); a $0.26 rebate for 
Tier 4 (National Customer Volume above 1.60%-2.50%); and a $0.27 
rebate for Tier 5 (National Customer Volume above 2.50%).
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    With respect to the proposed rebates for Category D, the Exchange 
believes the proposed rebates are equitable and not unfairly 
discriminatory because the Exchange will uniformly pay Customer rebates 
to all qualifying market participants. Any market participant may 
qualify for a Customer Rebate.
    The Exchange's proposal to no longer cap rebates on Customer PIXL 
Orders at 4,000 contracts per order leg for Complex PIXL Orders is 
reasonable because the Exchange will potentially attract a greater 
amount of Customer liquidity to the Exchange without a cap. Customer 
orders bring valuable liquidity to the market which liquidity benefits 
other market participants. Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Specialists and Market Makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants.
    The Exchange's proposal to no longer cap rebates on Customer PIXL 
Orders at 4,000 contracts per order leg for Complex PIXL Orders is 
equitable and not unfairly discriminatory because the Exchange will 
uniformly not cap Category C rebates for any market participant.
    The Exchange's proposal to structure the Category D rebate similar 
to the Category C rebate is reasonable because today, electronically-
delivered Customer Complex Orders in Non-Penny Pilot Options in Section 
II symbols, will be [sic] subject to the same terms. Rebates will 
continue to be paid on Customer PIXL Complex Orders in Section II 
symbols that execute

[[Page 18788]]

against non-Initiating Order interest. Customer Complex PIXL Orders 
that execute against a Complex PIXL Initiating Order will continue to 
not be paid a rebate under any circumstances. The Category D Rebate 
will continue to not be paid when an electronically-delivered Customer 
Complex Order, including a Customer Complex PIXL Order, executes 
against another electronically-delivered Customer Complex Order. Also, 
the Exchange is proposing to remove the 4,000 contracts per order cap, 
as noted above, for the Category C rebates and the cap will not be 
applicable for the Category D rebates.
    The Exchange's proposal to structure the Category D rebate similar 
to the Category C rebate is equitable and not unfairly discriminatory 
because the Exchange will uniformly apply the Category D rebates to all 
market participants.
    The Exchange's proposal to pay a $0.03 per contract Category D 
rebate, in addition to the applicable Tier 2 and 3 rebates, provided 
the Specialist, Market Maker or Appointed MM has reached the Monthly 
Market Maker Cap as defined in Section II, to: (1) A Specialist or 
Market Maker who is not under Common Ownership or is not a party of an 
Affiliated Entity; or (2) an OFP member or member organization 
affiliate under Common Ownership; or (3) an Appointed OFP of an 
Affiliated Entity is reasonable. Today, market participants sending 
electronically-delivered Customer Complex Orders in Non-Penny Pilot 
Options in Section II symbols are paid the $0.03 per contract rebate in 
addition to the Tier 2 and 3 rebate in Category C, provided the 
requirements are met. The Exchange believes it is reasonable to 
continue to pay this additional rebate provide [sic] the requirements 
are met.
    The Exchange's proposal to pay a $0.03 per contract Category D 
rebate, in addition to the applicable Tier 2 and 3 rebates, provided 
the Specialist, Market Maker or Appointed MM has reached the Monthly 
Market Maker Cap as defined in Section II, to: (1) A Specialist or 
Market Maker who is not under Common Ownership or is not a party of an 
Affiliated Entity; or (2) an OFP member or member organization 
affiliate under Common Ownership; or (3) an Appointed OFP of an 
Affiliated Entity is equitable and not unreasonably discriminatory. The 
Exchange will uniformly pay the additional $0.03 rebate in addition to 
the Tier 2 and 3 Category D rebates to all qualifying market 
participants. Any market participant may qualify for a Customer Rebate.
    The Exchange's proposal to amend the manner in which the Exchange 
pays the $0.05 per contract rebate on electronically-delivered Customer 
Complex Orders in Non-Penny Pilot Options is reasonable. Today, 
electronically-delivered Customer Complex Orders in Non-Penny Pilot 
Options are paid a $0.05 per contract rebate in addition to the 
applicable Tier 2 and 3 rebates to members or member organizations or 
member or member organization affiliated under Common Ownership, 
provided the member or member organization qualified for a Tier 1 or 2 
MARS Payment in Section IV, Part E. The Exchange proposes, with respect 
to both Category C and D, to expand the applicable tiers from only 
Tiers 2 and 3 to Tiers 2, 3, 4 or 5. This is reasonable because it will 
allow additional market participants to take advantage of the 
additional rebate, provided the requirements are met. Also, the 
Exchange's proposal to expand the MARS qualification from Tiers 1 and 2 
to any MARS Payments \29\ is reasonable because it will allow 
additional market participants to take advantage of the additional 
rebate.
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    \29\ Today, Phlx members that have System Eligibility, as 
described in Section IV, Part E, and have executed the requisite 
number of Eligible Contracts, as described in Section IV, Part E, in 
a month will be paid per contract rebates based on a 4 tier 
structure which pays a certain MARS Payment based on Average Daily 
Volume.
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    The Exchange's proposal to amend the manner in which the Exchange 
pays the $0.05 per contract rebate on electronically-delivered Customer 
Complex Orders in Non-Penny Pilot Options is equitable and not 
unreasonably discriminatory because the Exchange will uniformly pay the 
additional $0.05 rebate to the applicable expanded rebate tiers and 
MARS tiers provided the market participant qualifies. Any market 
participant may qualify for a Customer Rebate.
Multiply Listed Options
    The Exchange's proposal to adopt a surcharge of $0.03 per contract 
on electronic Complex Orders that remove liquidity from the Complex 
Order Book and auctions, excluding PIXL, in Penny Pilot Options, 
excluding SPY and a surcharge of $0.10 per contract on electronic 
Complex Orders that remove liquidity from the Complex Order Book and 
auctions, excluding PIXL, in Non-Penny Pilot Options, excluding NDX and 
MNX is reasonable. The Exchange is adopting these surcharges, which 
will be applied on transactions that remove liquidity from the Complex 
Order Book, in order to help offset the increased rebates which are 
proposed to be given to Complex Orders in Section B. The Exchange 
believes that it is reasonable to only assess this surcharge to those 
orders which remove liquidity from the market because the Exchange 
wants to continue to encourage market participation and price 
improvement for those participants that seek to add liquidity on Phlx. 
The Exchange believes that not assessing the surcharge on PIXL and SPY 
orders is reasonable. PIXL has its own pricing,\30\ and the Exchange 
wants to continue to encourage price improvement within PIXL. SPY has 
its own rebate program separate and apart from Section B.\31\ Limiting 
the surcharges to electronically-delivered transactions is reasonable 
because the Section B rebates apply only to electronically-delivered 
Customer orders. Further, limiting the surcharge to orders entered 
electronically is equitable and not unfairly discriminatory because the 
Exchange has expended considerable resources to develop its electronic 
trading platforms and seeks to recoup the costs of such expenditures. 
Finally, excluding NDX and MNX is reasonable because these symbols are 
currently subject to a surcharge.\32\
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    \30\ See Section IV, Part A of the Pricing Schedule.
    \31\ See Section I of the Pricing Schedule.
    \32\ See Section II of the Pricing Schedule.
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    The Exchange's proposal to adopt a surcharge of $0.03 per contract 
on electronic Complex Orders that remove liquidity from the Complex 
Order Book and auctions, excluding PIXL, in Penny Pilot Options, 
excluding SPY and a surcharge of $0.10 per contract on electronic 
Complex Orders that remove liquidity from the Complex Order Book and 
auctions, excluding PIXL, in Non-Penny Pilot Options, excluding NDX and 
MNX is equitable and not unfairly discriminatory. The surcharges will 
be applied uniformly to all market participants.
    The Exchange's proposal to amend the rule text to make clear that 
surcharges are not subject to the Monthly Market Maker Cap is 
reasonable because today, the Exchange does not count surcharges for 
BKX, NDX and MNX toward the Monthly Market Maker Cap, only Options 
Transaction Charges.
    The Exchange's proposal to amend the rule text to make clear that 
surcharges are not subject to the Monthly Market Maker Cap is equitable 
and not unfairly discriminatory because all Specialists and Market 
Makers will be uniformly applied the cap. Specialists and Market Makers 
have obligations to the market and regulatory requirements, which 
normally do not

[[Page 18789]]

apply to other market participants.\33\ 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 differentiation as between 
Specialists and Market Makers and all other market participants 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by these market participants. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
For these reasons, the Exchange believes that it is equitable and not 
unfairly discriminatory for Specialists and Market Makers to cap fees.
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    \33\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
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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. 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, or rebate opportunities available at other venues to be more 
favorable. 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 sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.
Customer Rebates
    The Exchange's proposal to amend Section B, entitled ``Customer 
Rebate Program,'' to amend Category C and add a new Category D does not 
impose an undue burden on intra-market competition because the Exchange 
will uniformly pay Customer rebates to all qualifying market 
participants. Any market participant may qualify for a Customer Rebate.
    With respect to the Tier 2 Category C rebate, which is decreased 
from $0.17 to $0.16 per contract, and the Tier 3 Category C rebate, 
which is increased from $0.17 to $0.18 per contract, the Exchange 
believes that these proposed changes do not impose an undue burden on 
intra-market competition because the Exchange will uniformly pay 
Customer rebates to all qualifying market participants. Any market 
participant may qualify for a Customer Rebate.
    With respect to the proposed rebates for Category D, the Exchange 
believes the proposed rebates do not impose an undue burden on intra-
market competition because the Exchange will uniformly pay Customer 
rebates to all qualifying market participants. Any market participant 
may qualify for a Customer Rebate.
    The Exchange's proposal to no longer cap rebates on Customer PIXL 
Orders at 4,000 contracts per order leg for Complex PIXL Orders does 
not impose an undue burden on intra-market competition because the 
Exchange will uniformly not cap Category C rebates for any market 
participant.
    The Exchange proposal's to structure the Category D rebate similar 
to the Category C rebate does not impose an undue burden on intra-
market competition because the Exchange will uniformly apply the 
Category D rebates to all market participants.
    The Exchange's proposal to pay a $0.03 per contract Category D 
rebate addition to the applicable Tier 2 and 3 rebate, provided the 
Specialist, Market Maker or Appointed MM has reached the Monthly Market 
Maker Cap as defined in Section II, to: (1) A Specialist or Market 
Maker who is not under Common Ownership or is not a party of an 
Affiliated Entity; or (2) an OFP member or member organization 
affiliate under Common Ownership; or (3) an Appointed OFP of an 
Affiliated Entity does not impose an undue burden on intra-market 
competition. The Exchange will uniformly pay the additional $0.03 
rebate in addition to the Tier 2 and 3 Category D rebates to all 
qualifying market participants. Any market participant may qualify for 
a Customer Rebate.
    The Exchange's proposal to amend the manner in which the Exchange 
pays the $0.05 per contract rebate on electronically-delivered Customer 
Complex Orders in Non-Penny Pilot Options does not impose an undue 
burden on intra-market competition because the Exchange will uniformly 
pay the additional $0.05 rebate to the applicable expanded rebate and 
MARS tiers, provided the market participant qualifies. Any market 
participant may qualify for a Customer Rebate.
Multiply Listed Options
    The Exchange's proposal to adopt a surcharge of $0.03 per contract 
on electronic Complex Orders that remove liquidity from the Complex 
Order Book and auctions, excluding PIXL, in Penny Pilot Options, 
excluding SPY and a surcharge of $0.10 per contract on electronic 
Complex Orders that remove liquidity from the Complex Order Book and 
auctions, excluding PIXL, in Non-Penny Pilot Options, excluding NDX and 
MNX does not impose on intra-market competition because the surcharges 
will be applied uniformly to all market participants.
    The Exchange's proposal to amend the rule text to make clear that 
surcharges are not subject to the Monthly Market Maker Cap does not 
impose on intra-market competition because the all Specialists and 
Market Makers will be uniformly applied the cap. Specialists and Market 
Makers have obligations to the market and regulatory requirements, 
which normally do not apply to other market participants.\34\ 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 differentiation as 
between Specialists and Market Makers and all other market participants 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by these market participants. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
For these reasons, the Exchange believes that it is equitable and not 
unfairly discriminatory for Specialists and Market Makers to cap fees.
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    \34\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''

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[[Page 18790]]

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.\35\
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    \35\ 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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2017-29 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-2017-29. 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-2017-29, and should be 
submitted on or before May 12, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-08056 Filed 4-20-17; 8:45 am]
BILLING CODE 8011-01-P