Document ID: SEC-2015-0759-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2015-05-05T04:00Z

[Federal Register Volume 80, Number 86 (Tuesday, May 5, 2015)]
[Notices]
[Pages 25749-25755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10403]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74833; File No. SR-Phlx-2015-36]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Phlx Permit Fee, Order Entry Port Fee, Clearing Trade Interface 
Port Fee, and Active Specialized Quote Feed Port Fee

April 29, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 20, 2015, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the Phlx Pricing Schedule (``Pricing 
Schedule'') at Section VI pertaining to the Phlx Permit Fee and at 
Section VII pertaining to the Order Entry Port Fee, the Clearing Trade 
Interface (``CTI'') Port Fee, and the Active Specialized Quote Feed 
(``SQF'') Port Fee.\3\ The Exchange also proposes technical changes to 
the language of the Pricing Schedule.
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    \3\ References in the proposal are to the Exchange's Pricing 
Schedule, unless otherwise noted.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated the amendments become operative on May 1, 2015.
    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.

[[Page 25750]]

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 amend the Exchange's Pricing Schedule at 
Section VI pertaining to the Phlx Permit Fee and at Section VII 
pertaining to the Order Entry Port Fee, the CTI Port Fee, and the 
Active SQF Port Fee. The Exchange also proposes technical changes to 
the language of the Pricing Schedule. The proposed changes are 
discussed below.
Phlx Permit Fee--Section VI A. of the Pricing Schedule
    The Exchange currently has a Permit Fee for Phlx members, which is 
$2,150 for Specialists \4\ and Market Makers \5\ and $2,150 for Floor 
Brokers \6\ per month. The Exchange proposes to increase the Permit Fee 
for Specialist and Market Makers, as well as for Floor Brokers, to 
$2,300.\7\
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    \4\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Exchange Rule 1020(a).
    \5\ A ``Market Maker'' includes Registered Options Traders 
(Exchange Rule 1014(b)(i) and (ii)), which includes Streaming Quote 
Traders (Exchange Rule 1014(b)(ii)(A)) and Remote Streaming Quote 
Traders (Exchange Rule 1014(b)(ii)(B)).
    \6\ A ``Floor Broker'' is defined in Exchange Rule 1060 as an 
individual who is registered with the Exchange for the purpose, 
while on the Options Floor, of accepting and handling options orders 
received from members and member organizations.
    \7\ In addition, a member or member organization will pay an 
additional Permit Fee for each sponsored options participant, which 
fee will be the Permit Fee that is assessed to the member or member 
organization sponsoring the options participant. See note 16 to 
section VI A. of the Pricing Schedule.
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    Phlx Permit Fees for all other member and member organizations are 
currently $4,000 in a given month, unless the member or member 
organization or member organizations under Common Ownership \8\ 
executes at least 100 options in a Phlx house account that is assigned 
to one of the member organizations in a given month, in which case the 
Permit Fee will be $2,150 for that month. Commensurate with the 
increased Permit Fees for Specialists, Market Makers, and Floor 
Brokers, the Exchange proposes to increase to $2,300 the Permit Fee for 
all other Common Ownership members or member organizations that execute 
a large number of options on the Exchange.\9\
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    \8\ The term ``Common Ownership'' means members or member 
organizations under 75% common ownership or control. See Preface to 
Pricing Schedule.
    \9\ No change is proposed to Permit Fees for PSX only members 
and member organizations. These fees would continue to be $4,000 
unless the member or member organization averages at least 1,000 
shares executed per day in a given month, in which case the Permit 
Fee will be $0.00 in a given month. This volume will be calculated 
by averaging the shares over a one month period. The Exchange 
believes 1,000 shares per day in a given month is a reasonable level 
given the lower volume of business transacted on PSX as compared to 
other mature equities markets such as The NASDAQ Stock Market LLC.
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    The Exchange is seeking to recoup costs incurred from the 
membership administration function while continuing to encourage 
bringing options liquidity to the Exchange.
Order Entry Port Fee--Section VII B. of the Pricing Schedule
    The Exchange currently has an Order Entry Port Fee that is $600 per 
month per mnemonic.\10\ The Exchange proposes to modestly increase the 
Order Entry Port Fee to $650 per month per mnemonic.
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    \10\ Mnemonics are codes that identify member organization order 
entry ports.
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    The Order Entry Port Fee is a connectivity fee related to routing 
orders to the Exchange via an external order entry port. Phlx members 
access the Exchange's network through order entry ports. A Phlx member 
may have more than one order entry port. Today, the Exchange assesses 
members an Order Entry Port Fee of $600 per month per mnemonic. The 
Exchange proposes to increase the Order Entry Port Fee to $650 per 
month per mnemonic. The current practice will continue whereby the 
Order Entry Port Fee will be waived for mnemonics that are used 
exclusively for Complex Orders \11\ where one of the components of the 
Complex Order is the underlying security.\12\ In addition, the current 
practice will continue whereby member organizations are not being 
assessed an Order Entry Port Fee for additional ports acquired for only 
ten business days for the purpose of transitioning technology.\13\
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    \11\ 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 exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .07(a)(i).
    \12\ See note 25 to section VII B. of the Pricing Schedule.
    \13\ Similarly, member organizations will continue to be 
required to provide the Exchange with written notification of the 
transition and all additional ports which were provided at no cost 
will be removed at the end of the ten business days. See Order Entry 
Port Fee in section VII B. of the Pricing Schedule.
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CTI Port Fees--Section VII B. of the Pricing Schedule
    The Exchange currently has a CTI Port Fee that is $600 per port per 
month for each of the first 5 CTI ports, and $100 per port for each 
port thereafter. The Exchange proposes to modestly increase the CTI 
Port Fee from $600 to $650 and to continue to charge a smaller amount 
for the subsequent ports in order to encourage use of CTI ports on the 
Exchange.
    CTI offers real-time clearing trade updates. A real-time clearing 
trade update is a message that is sent to a member after an execution 
has occurred and contains trade details. The message containing the 
trade details is also simultaneously sent to The Options Clearing 
Corporation (``OCC''). The trade messages are routed to a member's 
connection containing certain information. The administrative and 
market event messages include, but are not limited to: System event 
messages to communicate operational-related events; options directory 
messages to relay basic option symbol and contract information for 
options traded on the Exchange; complex strategy messages to relay 
information for those strategies traded on the Exchange; trading action 
messages to inform market participants when a specific option or 
strategy is halted or released for trading on the Exchange; and an 
indicator which distinguishes electronic and non-electronically 
delivered orders. This information will be available to members on a 
real-time basis.\14\
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    \14\ Other data that is available includes: (1) Options Auction 
Notifications (e.g., opening imbalance, market exhaust, PIXL or 
other information); (2) Options Symbol Directory Messages; (3) 
System Event Messages (e.g., start of messages, start of system 
hours, start of quoting, start of opening); (4) Complex Order 
Strategy Auction Notifications (``COLA''); (5) Complex Order 
Strategy messages; (6) Option Trading Action Messages (e.g., trading 
halts, resumption of trading); and (7) Complex Strategy Trading 
Action Message (e.g., trading halts, resumption of trading).
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    The Exchange assesses port fees for similar ports, namely the Order 
Entry Ports, CTI Ports and Active SQF Ports,

[[Page 25751]]

discussed below. The Exchange desires to continue assessing the fees on 
Phlx in order to recoup costs associated with these ports while 
encouraging members to participate in the market.
Active SQF Port Fee--Section VII B. of the Pricing Schedule
    SQF is an interface that enables Specialists, Streaming Quote 
Traders (``SQTs'') \15\ and Remote Streaming Quote Traders (``RSQTs'') 
\16\ to connect and send quotes into Phlx XL.\17\ Active SQF ports are 
ports that receive inbound quotes at any time within that month. Active 
SQF Ports allow member organizations to access, information such as 
execution reports, execution report messages, auction notifications, 
and administrative data through a single feed.
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    \15\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as a 
Registered Options Trader (``ROT'') who has received permission from 
the Exchange to generate and submit option quotations electronically 
in options to which such SQT is assigned.
    \16\ An RSQT is defined in Exchange Rule in 1014(b)(ii)(B) as an 
ROT that is a member or member organization 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. An RSQT may only submit such 
quotations electronically from off the floor of the Exchange.
    \17\ See Securities Exchange Act Release No. 63034 (October 4, 
2010), 75 FR 62441 (October 8, 2010) (SR-Phlx-2010-124).
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    Last year, as discussed below, the Exchange underwent a technology 
refresh (``refresh'' or ``technology refresh''), which is completed. 
During the technology refresh, Exchange members had to use old Active 
SQF Ports and new Active SQF Ports as these were being developed, 
tested, and implemented. Where the Exchange had been offering Active 
SQF Ports in sets of four to accommodate the connections necessary to 
access the match engine, as a result of the refresh (discussed below) 
firms could use fewer ports for a connection.
    To help Exchange members through the refresh period, the Exchange 
last year filed an immediately effective proposal regarding Active SQF 
Port Fees (the ``prior SQF filing'').\18\ In the prior SQF filing, the 
Exchange added language into Section VII B. of the Pricing Schedule to 
help avoid things such as double charging during the refresh transition 
period (``refresh accommodation language''). First, Section VII B. of 
the Pricing Schedule currently states that Specialists and Market 
Makers that are subject to the Active SQF Port Fee as of December 1, 
2014 will be subject to an Active SQF Port Fee that reflects the 
average of fees assessed to them for the months of August, September 
and October 2014 (known as the ``Fixed Active SQF Port Fee''). This 
Fixed Active SQF Port Fee will be assessed to these Specialists and 
Market Makers from December 1, 2014 through March 31, 2015. Second, 
Section VII B. of the Pricing Schedule currently states that 
Specialists and Market Makers will not be assessed a fee for their use 
of the new version of the Active SQF Port through March 31, 2015. And 
third, a Specialist or Market Maker who was not subject to Fixed Active 
SQF Port Fees prior to December 1, 2014 will be provided new ports and 
assessed the above [sic] Active SQF Port Fees as of December 1, 2014. 
These instances of the refresh accommodation language are no longer 
needed (e.g., the timing has expired) and are therefore being deleted.
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    \18\ See Securities Exchange Act Release No. 73687 (November 25, 
2014), 79 FR 71485 (December 2, 2014) (SR-Phlx-2014-73) (notice of 
filing and immediate effectiveness regarding Active SQF Port Fee).
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    Currently, Section VII B. of the Pricing Schedule states that as of 
April 1, 2015 all Specialists and Market Makers are subject to the 
following tiered Active SQF Port Fee (``variable Active SQF Port 
Fee''):

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                                                            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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Instead of continuing implementation of the variable Active SQF Port 
Fees that were put into place during the refresh, the Exchange proposes 
to assess Specialists and Market Makers an Active SQF Port Fee of 
$1,250 per port per month (``Active SQF Port Fee''). This Active SQF 
Port Fee replaces the variable Active SQF Port Fee and is applicable to 
all that would be assessed for the Active SQF Port.\19\ Thus, with the 
proposal, the Active SQF Port Fee would be a set fee of $1,250 per port 
per month, capped at $42,000.\20\
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    \19\ The Exchange notes that the variable Active SQF Fee could, 
in fact, be more expensive that the proposed Active SQF Fee. For 
example, where the fixed Active SQF Port Fee for one port per month 
would be $1,250, the variable Active SQF Port Fee (as applicable to 
Specialists and Market Makers) would be $2,500; and where the fixed 
Active SQF Port Fee for 3 ports per month would be $3,750, the 
variable Active SQF Port Fee would be $4,000 per port.
    \20\ Currently, per note 26 to Section VII of the Pricing 
Schedule, the Active SQF Port Fee is capped at $42,000, but includes 
language that the fee is capped at $41,000 per month through March 
31, 2015 (``Active SQF Port Fee Cap''). The Exchange proposes to 
delete the unnecessary language referring to March 31, 2015.
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    At the time that the variable Active SQF Port Fees were put into 
current Section VII B. of the Pricing Schedule during the technology 
refresh, four ports were needed to connect to the matching engine; 
after the refresh, only one port is needed. As noted in the prior SQF 
filing, the technology refresh was instituted last year in order that 
the Exchange may provide an equal opportunity to Specialists and Market 
Makers to access SQF data at a lower cost. The goal was to deploy 
state-of-the-art hardware and software architecture for a more 
efficient and robust infrastructure that would support the growing 
needs of market participants. The refresh changed the previously-needed 
multi-port connection to the matching engine to only one port. The 
functionality did not change as a result of the concluded refresh. As 
the Exchange had anticipated,\21\ Specialists and Market Makers 
certainly benefitted from the efficiency of the service that would be 
available to them as a result of the refresh. While Specialists and 
Market Makers were required to make network and other technical changes 
in order to connect to the Phlx system via SQF, the Exchange believes 
that member costs declined overall as a result of the more efficient 
connectivity offered by the refresh.\22\ During the technology refresh, 
the Exchange provided Specialists and Market Makers with new SQF ports 
for connectivity and functionality testing so that Specialists and 
Market Makers could migrate from the old Active SQF Ports to the new 
Active SQF Ports over a reasonable period of time.\23\ As discussed, 
during the refresh period the Exchange implemented refresh 
accommodation language and a variable Active SQF Port Fee. The refresh 
is successfully completed and the Exchange is therefore deleting the 
refresh accommodation language and the variable Active SQF Port Fee, 
and proposing the above-described Active SQF Port Fee changes. The 
Exchange believes, as discussed in more detail below, that the Active 
SQF Port Fee changes, like the Order Entry Port Fee

[[Page 25752]]

and CTI Port Fee changes, are reasonable.\24\
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    \21\ See prior SQF filing.
    \22\ As discussed, the increased efficiency in connectivity did 
not require the same infrastructure on the part of members to 
connect to the Exchange; members have not need to have the same 
level of connectivity after the conversion to the new ports per the 
refresh, and this has provided an overall cost reduction.
    \23\ The Exchange migrated on a symbol by symbol basis thereby 
requiring the use of both new and old Active SQF Ports for a period 
of time. Post refresh only new ports are utilized.
    \24\ For example, just as the Exchange believes that it was 
reasonable to allow Specialists and Market Makers to utilize new 
ports at no cost for a period of time to transition their current 
SQF ports to the new ports that were offered as a result of the 
technology refresh, so the Exchange believes that it is reasonable 
to delete such provisions when no longer needed.
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    In addition, the Exchange proposes some technical housekeeping 
changes. First, the Exchange proposes to delete a bullet point in note 
26 to Section VII B. of the Pricing Schedule, which is applicable to 
the Active SQF Port Fee section; the bullet point is not necessary. 
Second, the Exchange proposes to fix a typographical error by adding an 
``l'' in the word ``wil'' in note 26.
    The Exchange proposes to amend the Phlx Permit Fee, Order Entry 
Port Fee and CTI Port Fee. This proposal reflects a modest price 
increase to members and member organizations while allowing the 
Exchange to recoup a certain portion of costs associated with permits 
and ports, namely the Order Entry Port and the CTI Port. The Exchange 
proposes to also delete the variable Active SQF Port Fee that is 
applicable to Specialists and Market Makers as of April 1, 2015, and 
the refresh accommodation language that is no longer necessary. The 
Exchange believes that the proposed changes are in conformity with the 
Act.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\25\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\26\ 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. The proposal regarding Phlx Permit Fees allows the 
Exchange to recoup costs incurred from the membership administration 
function. The proposals regarding the Order Entry Port Fee and CTI Port 
Fee allow the Exchange to recoup costs associated with these ports 
while encouraging members to participate in the market. The proposals 
regarding deleting the variable Active SQF Port Fee and using the 
proposed new Active SQF Port Fee instead,\27\ and deleting the refresh 
accommodation language that is no longer necessary, are made while 
continuing to encourage members to bring options liquidity to the 
Exchange.
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    \25\ 15 U.S.C. 78f.
    \26\ 15 U.S.C. 78f(b)(4) and (5).
    \27\ The concept of a fixed fee for the Active SQF Port is not 
novel. A fixed monthly fee was previously adopted, for example, in 
connection with a specialist unit fee on Phlx. See Securities 
Exchange Act Release No. 48459 (September 8, 2003), 68 FR 54034 
(September 15, 2003) (SR-Phlx-2003-61) (notice of filing and 
immediate effectiveness).
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Phlx Permit Fee
    The Exchange's proposal to amend Phlx Permit Fees is reasonable 
because the Exchange is seeking to recoup costs that are incurred by 
the Exchange.
    The Exchange believes it is reasonable to assess different market 
participants different Permit Fees because each market participant has 
a different business model and, as a result, pays various other fees to 
the Exchange to maintain his or her business. Certain market 
participants such as Floor Brokers, Specialists and Market Makers pay 
other types of fees. For example, a Floor Broker requires space on the 
Exchange's trading floor, and infrastructure to support floor 
trading.\28\ A Specialist and Market Maker will similarly incur costs 
for certain data feeds, remote specialist fees, RSQT Fees and SQF Port 
Fees, amongst other charges.\29\ Taking into account the overall costs 
incurred by Floor Brokers, Specialists and Market Makers to simply 
access and conduct their business on the Exchange, it is reasonable to 
assess these market participants a proposed Permit Fee of $2,300 
(rather than $2,150) per month as compared to market participants other 
than Floor Brokers, Specialists and Market Makers (``Other Market 
Participants''). The Exchange believes that it is reasonable to assess 
Other Market Participants a higher Permit Fee of $4,000 in a given 
month unless they transact a certain volume on the Exchange because 
these market participants do not incur the higher costs to conduct 
their business as do Floor Brokers, Specialists and Market Makers. The 
Exchange also believes that it is reasonable to provide Other Market 
Participants an opportunity to lower Permit Fees from $4,000 to the 
same proposed effective rate of $2,300 (rather than $2,150) if they 
transact a certain volume on Phlx in a given month. The Exchange 
believes this volume brings revenue to the Exchange, which in turn 
benefits other market participants because they are able to interact 
with that volume. The Exchange believes that the continued 100 options 
threshold in a given month is an achievable hurdle for a majority of 
options participants on Phlx today, who are capable of meeting this 
threshold. Finally, assessing different Permit Fee rates to different 
types of market participants is not novel among options markets.\30\
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    \28\ Floor Brokers are subject to a Floor Facility Fee in 
Section VII of the Pricing Schedule.
    \29\ See Section VI and VII of the Pricing Schedule.
    \30\ The Chicago Board Options Exchange, Incorporated 
(``CBOE''), the International Securities Exchange, LLC (``ISE'') and 
Miami International Securities Exchange LLC (``MIAX'') assess 
different Trading Permit Fees to different market participants. See 
CBOE's Fees Schedule, ISE's Fee Schedule and MIAX's Fee Schedule.
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    The Exchange's proposal to amend Phlx Permit Fees is equitable and 
not unfairly discriminatory for the reasons which follow. The Exchange 
believes that continuing to assess Floor Brokers, Specialists and 
Market Participants effectively the same proposed rate of $2,300 
(rather than $2,150) for a Permit Fee recognizes the overall total fee 
structure of these market participants on Phlx. As mentioned herein, 
Floor Brokers, Specialists and Market Makers incur fees which are not 
borne by other market participants.\31\ The Exchange believes that the 
proposed fee structure recognizes the costs that are incurred by these 
market participants in determining the Permit Fee for Floor Brokers, 
Specialists and Market Makers. The Exchange believes that Floor 
Brokers, Specialists and Market Makers serve an important function on 
the Exchange and already pay a significant portion of the non-
transaction fees assessed by the Exchange today. Specialists and Market 
Makers serve an important role on the Exchange with regard to order 
interaction and they provide liquidity in the marketplace. Floor 
Brokers are registered with the Exchange for the purpose, while on the 
options floor, of accepting and executing options orders received from 
members and member organizations.\32\ These market participants incur 
greater costs as compared to Professionals, Firms and Broker-Dealers 
because the type of business they conduct requires them to incur more 
cost to access the Exchange as compared to others. Other Market 
Participants (Professionals, Firms and Broker-Dealers) do not incur the 
same fees as Floor Brokers, Specialists and Market Makers and 
therefore, in order to allocate fees, the Exchange continues to assess 
these Other Market Participants an increased fee of $4,000, unless they 
are able to transact at least 100 options in a given month. The 
Exchange believes that

[[Page 25753]]

assessing Other Market Participants the higher fee of $4,000 and 
offering the opportunity to lower the Permit Fee by executing a certain 
amount of volume is equitable and not unfairly discriminatory because 
transacting volume on Phlx brings liquidity to the Exchange, which in 
turn benefits other market participants. The Exchange believes that 
Other Market Participant members, member organizations and those under 
Common Ownership that add liquidity to the market place also bring 
revenue to the Exchange by incurring transaction fees.
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    \31\ Floor Brokers require space on the Exchange's trading 
floor, and infrastructure to support floor trading. Floor Brokers 
are subject to a Floor Facility Fee in Section VII of the Pricing 
Schedule. Specialists and Market Makers similarly incur costs for 
certain data feeds, remote specialist fees, RSQT Fees and SQF Port 
Fees amongst other charges. See, e.g., Sections VI and VII of the 
Pricing Schedule.
    \32\ See Exchange Rule 1060.
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    The Exchange believes it is equitable and not unfairly 
discriminatory to assess effectively the same proposed Permit Fee of 
$2,300 (rather than $2,150) to Other Market Participants, equivalent to 
the fee assessed on Floor Brokers, Specialists and Market Makers, in 
any given month in which the Other Market Participants achieve the 
requisite volume because of the liquidity and revenue they bring to 
Phlx. The opportunity to lower Permit Fees affords Other Market 
Participants the opportunity to lower their fees by offering a means to 
benefit the Exchange by bringing liquidity to the marketplace.\33\
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    \33\ As discussed, the Exchange continuation to assess PSX only 
members no Permit Fee provided they transact an average of at least 
1,000 shares executed per day in a given month is reasonable because 
the Exchange seeks to continue to attract market participants to the 
PSX market by assessing no fee.
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CTI Port Fee and Order Entry Port Fee
    The Exchange's proposal to amend CTI Port Fees and Order Entry Port 
Fees is reasonable because the Exchange is seeking to recoup costs that 
are incurred by the Exchange.
    The Exchange believes that continuing to assess a CTI Port Fee on 
the Exchange at a proposed $650 (rather that $600) per port per month 
for each of the first 5 CTI ports, and $100 per port for each port 
thereafter, is reasonable because it would allow the Exchange to recoup 
costs associated with offering the CTI ports. The Exchange notes that 
until recently it had a Real-Time Risk Management Fee,\34\ but this fee 
was deleted in favor of using Port Fees.\35\ The Exchange has found 
that the use of Port Fees is an effective way to recoup costs. This 
proposal reflects a modest price increase to members and member 
organizations while allowing the Exchange to recoup a certain portion 
of costs associated with ports, namely the Order Entry Port and CTI 
Port. Members and member organizations will be able to continue to 
obtain real-time information via CTI and SQF as discussed.
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    \34\ The Real-Time Risk Management Fee was adopted well over a 
decade ago for members receiving option trading information on-line 
(i.e., electronically) from the Exchange. See Securities Exchange 
Act Release No. 43719 (December 13, 2000), 65 FR 80975 (December 22, 
2000) (SR-Phlx-00-97) (notice of filing and immediate 
effectiveness).
    \35\ See Securities Exchange Act Release No. 74000 (January 6, 
2015), 80 FR 1570 (January 12, 2015) (SR-Phlx-2014-83) (notice of 
filing and immediate effectiveness).
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    As with other port fees in subsection Section VII B. of the Pricing 
Schedule, the CTI Port Fees reflect a portion of the costs that the 
Exchange bears with respect to offering and maintaining the CTI ports. 
The CTI Port Fees are reasonable because they enable the Exchange to 
offset, in part, its connectivity costs associated with making such 
ports available, including costs based on gateway software and hardware 
enhancements and resources dedicated to gateway development, quality 
assurance, and support. The proposal to modestly increase the fees is 
reasonable to continue to recoup costs while encouraging members to 
connect to the Exchange.
    The Exchange believes that continuing to assess an Order Entry Port 
Fee on the Exchange at a proposed $650 per port per mnemonic is, 
similarly to the CTI Port Fee, reasonable because it would allow the 
Exchange to recoup costs associated with offering the Order Entry 
Ports. As noted, until recently the Exchange had a Real-Time Risk 
Management Fee that was deleted in favor of using Port Fees, which the 
Exchange has found is an effective way to recoup costs. This proposal 
reflects a modest price increase while allowing the Exchange to recoup 
a certain portion of costs associated with ports, namely the Order 
Entry Port and CTI Port.\36\ Members and member organizations will be 
able to continue to obtain real-time information via CTI and SQF.
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    \36\ As noted, the current practice will continue whereby the 
Order Entry Port Fee will be waived for mnemonics that are used 
exclusively for Complex Orders where one of the components of the 
Complex Order is the underlying security. Similarly, member 
organizations will continue to be required to provide the Exchange 
with written notification of the transition and all additional ports 
which were provided at no cost will be removed at the end of the ten 
business days. See note 25 to section VII B. of the Pricing 
Schedule.
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    The Exchange believes that the CTI Port Fees for the CTI ports at a 
proposed $650 per port per month for each of the first 5 CTI ports, and 
$100 per port for each port thereafter, is equitable and not unfairly 
discriminatory because the Exchange will assess the same fees for all 
CTI ports to all members.
    The Exchange believes that the Order Entry Fees for the Order Entry 
Ports at a proposed $650 per month per mnemonic is similarly equitable 
and not unfairly discriminatory because the Exchange will assess the 
same fees for all Order Entry Ports to all members.
    As with other port fees in Section VII B. of the Pricing Schedule, 
the CTI Port Fee and the Order Entry Port Fee reflect a portion of the 
costs that the Exchange bears with respect to offering and maintaining 
the ports; such fees allow the Exchange to keep pace with increasing 
technology costs. These fees enable the Exchange to offset, in part, 
its connectivity costs associated with making such ports available, 
including costs based on gateway software and hardware enhancements.
Active SQF Port Fee
    The Exchange believes that it is reasonable to delete the variable 
Active SQF Port Fees. The variable Active SQF Port Fees were, as 
discussed, put into current Section VII B. of the Pricing Schedule 
during the technology refresh of the Phlx trading system, which, among 
other things, allowed the use of one port to connect to the match 
engine as compared to a set of four ports. The functionality did not 
change as a result of the refresh. The Exchange properly anticipated 
that Specialists and Market Makers would benefit from the efficiency of 
the service that will be available to them as a result of the 
refresh.\37\ While Specialists and Market Makers were required to make 
network and other technical changes in order to connect to the Phlx 
system via SQF, the Exchange believes that members costs declined 
overall as a result of the more efficient connectivity offered by the 
refresh.\38\
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    \37\ See prior SQF filing.
    \38\ As noted, and as discussed in the prior SQF filing, the 
increased efficiency in connectivity did not require the same 
infrastructure on the part of members to connect to the Exchange; 
members did not need to have the same level of connectivity after 
the conversion to the new ports and this provided an overall cost 
reduction.
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    Currently, as of April 1, 2015, Specialists and Market Makers are 
subject to a variable Active SQF Port Fee based on the number of active 
ports per month as follows: $2,500 for 1 port, $4,000 for 2-6 ports and 
$15,000 for 7 or more ports. The Exchange believes that it is 
reasonable to delete the variable Active SQF Port Fee applicable to 
Specialists and Market Makers, and replace it with the proposed $1,250 
per port per month Active SQF Port Fee applicable to all.\39\ The 
Exchange believes that it is reasonable to assess all firms the same 
Active SQF Port Fee as opposed to a variable fee because, as

[[Page 25754]]

discussed, the variable Active SQF Port Fee could, in fact, be more 
expensive.\40\
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    \39\ The Active SQF Port Fee is capped at $42,000.
    \40\ For example, where the fixed Active SQF Port Fee for one 
port per month would be $1,250, the variable Active SQF Port Fee (as 
applicable to Specialists and Market Makers) would be $2,500; and 
where the fixed Active SQF Port Fee for 3 ports per month would be 
$3,750, the variable Active SQF Port Fee would be $4,000 per port.
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    The Exchange believes it is equitable and not unfairly 
discriminatory to delete the variable Active SQF Port Fee, and replace 
it with the proposed Active SQF Port Fee because all Specialists and 
Market Makers would be subject to the same Active SQF Port Fee.
    Because of the technology refresh, the Exchange added refresh 
accommodation language into Section VII B. of the Pricing Schedule to 
avoid double charging and to enable firms to get through the refresh 
transition period.\41\ Because the refresh is now completed and the 
refresh accommodation language is no longer needed, the Exchange 
believes that it is reasonable to delete the refresh accommodation 
language. The Exchange believes that just as it was reasonable to allow 
Specialists and Market Makers to utilize new ports at no cost for a 
period of time to transition their current SQF ports to the new ports 
that were offered as a result of the technology refresh, so it is 
reasonable to delete such provisions when no longer needed. In order to 
ease the transition during the refresh from the old SQF ports to new 
SQF ports, Specialists and Market Makers were given an extended period 
to test functionality and connectivity and resolve any issues that may 
arise during the testing phase with the new ports. With the refresh 
completed, and because of the time periods in the refresh accommodation 
language as discussed, there is no longer any need for the language and 
the Exchange believes that it is reasonable to delete it.
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    \41\ The refresh accommodation language in Section VII B. of the 
Pricing Schedule states that Specialists and Market Makers that are 
subject to the Active SQF Port Fee as of December 1, 2014 will be 
subject to an Active SQF Port Fee that reflects the average of fees 
assessed to them for the months of August, September and October 
2014. This Fixed Active SQF Port Fee will be assessed to these 
Specialists and Market Makers from December 1, 2014 through March 
31, 2015. Specialists and Market Makers will not be assessed a fee 
for their use of the new version of the Active SQF Port through 
March 31, 2015. In addition, a Specialist or Market Maker who was 
not subject to Fixed Active SQF Port Fees prior to December 1, 2014 
will be provided new ports and assessed the above Active SQF Port 
Fees as of December 1, 2014. See also prior SQF filing.
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    The Exchange believes that deletion of the refresh accommodation 
language is equitable and not unfairly discriminatory because with the 
deleted refresh accommodation language, the Exchange will assess all 
current users of Active SQF Ports a fee based on the same criteria.
    Currently, per note 26 to Section VII of the Pricing Schedule, the 
Active SQF Port Fee is capped at $42,000, but includes language that 
the fee is capped at $41,000 per month through March 31, 2015. The 
Exchange proposes to delete the unnecessary language referring to March 
31, 2015. The Exchange believes that this is reasonable because the 
$42,000 Active SQF Port Fee Cap is currently in effect and the Exchange 
is just taking the unneeded language out the Active SQF Port Fee Cap 
provision.
    The Exchange believes that deleting the unnecessary language 
referring to March 31, 2015 is equitable and not unfairly 
discriminatory because the Exchange is simply cleaning up the language 
and will apply the Active SQF Port Fee Cap to all Specialists and 
Market Makers uniformly.
    Finally, the Exchange proposes two technical housekeeping changes. 
First, the Exchange proposes to delete a bullet point in note 26 to 
Section VII of the Pricing Schedule, which is applicable to the Active 
SQF Port Fee section; the bullet point is not necessary. Second, the 
Exchange proposes to fix a typographical error by adding an ``l'' in 
the word ``wil'' in note 26; the word is misspelled. The Exchange 
believes that the changes are reasonable because they will delete 
unneeded language and clarify it.
    The Exchange believes that the technical housekeeping changes are 
equitable and not unfairly discriminatory because the Exchange will 
apply them equally per 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 an undue burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    The Exchange believes that offering Specialists and Market Makers 
the opportunity to utilize certain Active SQF ports, during this 
transition with XL, at no cost ensured that the transition was done 
smoothly. Specialists and Market Makers continued to be assessed the 
Active SQF Port Fees for current ports at a rate that is representative 
of their typical usage. The Exchange allowed these market participants 
to utilize new ports at no cost without limit. As discussed, the 
Exchange used certain refresh accommodation language to help the 
refresh go forward. The Exchange believes that deletion of these 
unneeded provisions will not impose an undue burden on competition. 
Similarly, the modest proposed increases in fees and establishing that 
all are liable for the proposed Active SQF Port Fee will not impose an 
undue burden on competition. Moreover, deleting the unnecessary 
language that the Active SQF Port Fee is capped at $41,000 per month 
through March 31, 2015 will not impose an undue burden on competition 
because the Active SQF Port Fee is already capped at $42,000 per month 
and the Exchange is merely taking out the unneeded language; moreover, 
the Active SQF Port Fee Cap would be applied uniformly to all market 
participants. Finally, the CTI Port Fee and the Order Entry Port Fee 
reflect a portion of the costs that the Exchange bears with respect to 
offering and maintaining the Order Entry Ports. Such fees allow the 
Exchange to keep pace with increasing technology costs, and will not 
impose an undue burden on competition because the fees would be applied 
uniformly to all market participants.
    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 above-described fees that are assessed by the Exchange 
(as also the rebates paid by the Exchange) are influenced by these 
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.\42\ 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

[[Page 25755]]

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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    \42\ 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-2015-36 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-2015-36. 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 such 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-2015-36, and should be 
submitted on or before May 26, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-10403 Filed 5-4-15; 8:45 am]
 BILLING CODE 8011-01-P