Document ID: SEC-2014-0887-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2014-05-29T04:00Z

[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Notices]
[Pages 30917-30920]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12421]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72225; File No. SR-Phlx-2014-34]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change To Delete From Section IX of the 
Exchange's Options Fee Schedule the PHOTO Historical Data Product

May 22, 2014.
    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 May 9, 2014, 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 delete from Section IX of the Exchange's 
Options Fee Schedule the PHOTO Historical data product.
    The text of the proposed rule change is below; proposed new 
language is italicized.
* * * * *
NASDAQ OMX PHLX LLC Pricing Schedule
* * *
IX. Proprietary Data Feed Fees
Top of PHLX Options (``TOPO'')
    No change.
TOPO Plus Orders
    No change.
PHLX Orders
    No change.
PHLX Depth Data
    No change.
PHLX Options Trade Outline (``PHOTO'')

------------------------------------------------------------------------
                                                                Monthly
                         Account type                            charge
------------------------------------------------------------------------
End of Day Product Subscriber................................       $500
Intra-Day Product Subscriber.................................      1,500
------------------------------------------------------------------------

[PHOTO Historical Data

------------------------------------------------------------------------
                                                                 Charge
                                                                  per
                         Account type                           calendar
                                                                 month
                                                               requested
------------------------------------------------------------------------
End of Day Product Subscriber................................       $400
Intra-Day Product Subscriber.................................        750
------------------------------------------------------------------------

    \9\ For example, a subscriber who requests End of Day PHOTO 
Historical Data for the Month of March, 2009 would be charged $400. A 
subscriber who requests End of Day PHOTO Historical Data for the months 
of March, 2009 and April, 2009 would be charged $400 for the March, 
2009 End of Day data and $400 for the April, 2009 End of day data, for 
a total of $800, etc. A subscriber who requests Intra-Day PHOTO 
Historical Data for the Month of March, 2009 would be charged $750.00. 
A subscriber who requests Intra-Day PHOTO Historical Data for the 
months of March, 2009 and April, 2009 would be charged $750 for the 
March, 2009 Intra-Day data and $750 for the April, 2009 Intra-Day data, 
for a total of $1,500, etc.]
* * * * *
    (b) Not applicable.
    (c) Not applicable.
* * * * *

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 modify Section IX of the Exchange's 
Options Pricing Schedule to delete references to the PHOTO Historical 
data product. PHOTO Historical is a stored data product and not a real 
time data feed. NASDAQ OMX stores the data on a server within a 
technology subsidiary that functions like any vendor that receives and 
stores real time data feed. PHOTO Historical is not a facility of the 
Exchange and fees associated with it do not belong in the Exchange Rule 
Manual.
    Background. In September 2010, the Exchange established fees for 
its PHOTO market data product.\3\ PHOTO is a market data product 
offered by the Exchange that provides proprietary electronic trade data 
to subscribers. PHOTO is available as either an ``Intra-Day'' or ``End-
of-Day'' product. PHOTO Historical, as the name implies, is not a real-
time product; it is a stored product that permits a subscriber to 
select a particular prior calendar month or months and receive the 
``End of Day'' or ``Intra-Day'' data for each trading session conducted 
during the calendar month(s) selected.
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    \3\ See Securities Exchange Act Release No. 62887 (September 10, 
2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121).
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    Like PHOTO subscribers, PHOTO Historical subscribers receive the 
following data:

[[Page 30918]]

     Aggregate number of buy and sell transactions in the 
affected series for each trading session conducted during the specified 
calendar month(s);
     Aggregate volume traded electronically on the Exchange in 
the affected series for each trading session conducted during the 
specified calendar month(s);
     Aggregate number of trades effected on the Exchange to 
open a position \4\ for each trading session conducted during the 
specified calendar month(s);
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    \4\ PHOTO Historical Data provides subscribers with the 
aggregate number of ``opening purchase transactions'' in the 
affected series for each trading session conducted during the 
calendar month(s) selected. An opening purchase transaction is an 
Exchange options transaction in which the purchaser's intention is 
to create or increase a long position in the series of options 
involved in such transaction. See Exchange Rule 1000(b)(24). PHOTO 
Historical Data also provides subscribers with the aggregate number 
of ``opening writing transactions'' in the affected series for each 
trading session conducted during the calendar month(s) selected. An 
opening writing transaction is an Exchange options transaction in 
which the seller's (writer's) intention is to create or increase a 
short position in the series of options involved in such 
transaction. See Exchange Rule 1000(b)(25).
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     Aggregate number of trades effected on the Exchange to 
close a position \5\ for each trading session conducted during the 
specified calendar month(s);
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    \5\ PHOTO Historical Data provides subscribers with the 
aggregate number of ``closing purchase transactions'' in the 
affected series for each trading session conducted during the 
calendar month(s) selected. A closing purchase transaction is an 
Exchange options transaction in which the purchaser's intention is 
to reduce or eliminate a short position in the series of options 
involved in such transaction. See Exchange Rule 1000(b)(27). PHOTO 
Historical Data will also provide subscribers with the aggregate 
number of ``closing sale transactions'' in the affected series for 
each trading session conducted during the calendar month(s) 
selected. A closing sale transaction is an Exchange options 
transaction an Exchange options transaction in which the seller's 
intention is to reduce or eliminate a long position in the series of 
options involved in such transaction. See Exchange Rule 1000(b)(26).
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     Origin of the orders involved in trades on the Exchange in 
the affected series for each trading session conducted during the 
specified calendar month(s), specifically aggregated in the following 
categories of participants: Customers, broker-dealers, market makers 
(including specialists, Registered Options Traders (``ROTs''), 
Streaming Quote Traders (``SQTs'') \6\ and Remote Streaming Quote 
Traders (``RSQTs'') \7\), and professionals.\8\
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    \6\ An SQT is an Exchange 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. See Exchange Rule 1014(b)(ii)(A).
    \7\ An RSQT is 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. See Exchange Rule 1014(b)(ii)(B).
    \8\ The term ``professional'' means any person or entity that 
(i) is not a broker or dealer in securities, and (ii) places more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). A professional 
will be treated in the same manner as an off-floor broker-dealer for 
purposes of Rules 1014(g) (except with respect to all-or-none 
orders, which will be treated like customer orders), 1033(e), 
1064.02 (except professional orders will be considered customer 
orders subject to facilitation), and 1080.08 as well as Options 
Floor Procedure Advices B-6, B-11 and F-5. Member organizations must 
indicate whether orders are for professionals. See Exchange Rule 
1000(b)(14).
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    The fee for the PHOTO Historical Data End of Day product for 
subscribers is $400.00 per calendar month selected. The fee for the 
PHOTO Historical Data Intra-day product subscribers is $750.00 per 
calendar month selected.
    Proposal. NASDAQ believes that PHOTO Historical is not a facility 
of the Exchange within the meaning of the Act, and that previous 
proposed rule changes with respect to such PHOTO Historical were 
unnecessary under the Act. Congress enacted the Exchange Act to impose 
federal regulation on stock exchanges, and included in its definition 
of ``exchange'' ``the market facilities maintained by such exchange.'' 
\9\ The Exchange Act separately defines ``facility,'' providing that 
``[t]he term `facility' when used with respect to an exchange includes 
[1] its premises, [2] tangible or intangible property whether on the 
premises or not, [3] any right to the use of such premises or property 
or any service thereof for the purpose of effecting or reporting a 
transaction on an exchange (including among other things, any system of 
communication to or from the exchange, by ticker or otherwise, 
maintained by or with the consent of the exchange), and [4] any right 
of the exchange to the use of any property or service.'' Id. The 
Commission has not separately interpreted the definition of 
``facility.'' \10\
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    \9\ 15 U.S.C. Sec.  78c(a)(1).
    \10\ Securities Exchange Act Release No. 26708, at 4 n.28 (1989) 
(recognizing that the definition of the term ``facility'' has not 
changed since it was originally adopted and that no hearing 
testimony referred to it because ``the Committee felt that the 
definition was `self-explanatory''') (citation omitted).
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    PHOTO Historical does not satisfy any of the four prongs set forth 
in the statutory definition of ``facility.'' First, it is not the 
``premises'' of the Exchange. The term ``premises'' is generally 
understood to refer to a building, its land, and appurtenances. Second, 
PHOTO Historical is not tangible or intangible property of the 
Exchange. While the Exchange initially distributes the PHOTO product as 
a facility; NASDAQ OMX stores and distributes PHOTO Historical as any 
vendor would do. Third, PHOTO Historical is not used on the Exchange's 
premises ``for the purpose of effecting or reporting a transaction'' on 
an exchange.\11\ Fourth, PHLX, in its capacity as an exchange, does not 
hold any right to PHOTO Historical other than as the original 
distributor of such data for which it receives applicable, filed fees.
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    \11\ 15 U.S.C. 78c(a)(2).
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    The Exchange's proposal is consistent with past precedent regarding 
the distribution of historical data. Specifically, in 2010, the NASDAQ 
Stock Market submitted a proposed rule change to eliminate from the 
NASDAQ rule manual references to Historical TotalView.\12\ In that 
case, TotalView was a real-time data product that was stored in a non-
exchange subsidiary that then redistributed the stored data in the same 
manner and capacity as any market data vendor. The proposal was 
designated as an immediately effective proposal and was not acted upon 
by the Commission.
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    \12\ Securities Exchange Act Release No. 61416 (Jan. 25, 2010) 
(SR-NASDAQ-2010-010).
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    Conversely, there is no Commission precedent for considering the 
historical data of an exchange to be considered a facility when re-
distributed by a market data vendor. For example, when NASDAQ separated 
from NASD, the Commission was asked to determine whether TRF LLC, which 
would operate NASD's Trade Reporting Facility, was a facility of NASD 
or the Nasdaq Exchange, which together owned TRF LLC.\13\ The Nasdaq 
Exchange was to be ``primarily responsible for the management of the 
TRF LLC's business affairs,'' and all ``profits and losses from the TRF 
LLC [were] allocated to NASDAQ.'' Id. at 15; see also id. at 18 
(``[T]he Nasdaq Exchange's parent company controls the board of the TRF 
LLC, directs all business decisions, provides technology, and will reap 
the economic benefits of the TRF LLC.''). Nevertheless, the Commission 
concluded that the TRF LLC was a facility of NASD, not the Nasdaq 
Exchange, because the ``Trade Reporting Facility is not a service `for 
the purpose of effecting or reporting a transaction' on the Nasdaq 
Exchange.'' Id. at 18. The

[[Page 30919]]

TRF LLC was instead ``a service for the purpose of reporting 
transactions to the NASD.'' Id.
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    \13\ Securities Exchange Act Release No. 54084 (June 30, 2006).
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    Similarly, the Commission concluded that the ACES System, ``a 
neutral communications service that allows NASDAQ members and non-
members to route orders to one another,'' is not a facility of the 
NASDAQ Exchange.\14\ The Commission deemed it significant that the ACES 
System does not route orders to NASDAQ and does not report executed 
trades on the Exchange. Id. The Commission emphasized that, because the 
ACES System is ``not linked to the Exchange's core systems, including 
the NASDAQ Market Center,'' it ``is not possible for an order to be 
routed to the NASDAQ Market Center via the ACES system.'' Id. 
Accordingly, the Commission concluded that ACES does not have ``the 
purpose of effecting or reporting a transaction on an exchange'' within 
the meaning of the Exchange Act. Id. The Commission has also permitted 
NASDAQ to remove from its rule book fees related to the Mutual Fund 
Quotation Service and the NASDAQ Index Dissemination Service, both of 
which disseminated market data not properly considered ``facilities'' 
of NASDAQ within the meaning of the Exchange Act.\15\
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    \14\ Securities Exchange Act Release No. 56237 (August 9, 2007).
    \15\ See Securities Exchange Act Release No. 58392 (August 20, 
2008) (removing MFQS from rule book); Securities Exchange Act 
Release No. 58897 (November 3, 2008) (removing NIDS from rule book).
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    Given the plain language of the Exchange Act and the above-
referenced precedents, there is no basis in the Act for determining 
that a real-time market data facility of an exchange retains that 
character when an affiliated vendor redistributes it on an historical 
basis. First, the affiliated vendor is not an exclusive processor of 
such data, unlike the data that PHLX produces directly. Second, 
historical data does not provide access or order entry capability to 
the Exchange's execution system; nor does it carry information from or 
about executions currently within the execution system. Third, the 
affiliated vendor receives the data via an arms-length agreement and it 
has no inherent advantage over any other recipient of such data. 
Moreover, historical data is available via multiple sources. It is a 
completely voluntary product in that PHLX makes it available on a 
voluntary basis, and clients purchase it from NASDAQ OMX (or another 
vendor) only if they voluntarily choose to do so.
    For all of these reasons, PHLX believes that its PHOTO Historical 
data service is not a facility of a national securities exchange within 
the meaning of the Act and that it is not required under Section 
19(b)(1) of the Act \16\ and Rule 19b-4 thereunder \17\ to file rules 
regarding the applicable charges.
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    \16\ 15 U.S.C. 78s(b)(1).
    \17\ 17 CFR 240.19b-4.
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2. Statutory Basis
    PHLX believes that PHOTO Historical is not a facility of a national 
securities exchange within the meaning of the Act and the terms of this 
service are not rules that must be filed with the Commission under 
Section 19(b)(1) of the Act \18\ and Rule 19b-4 thereunder.\19\ 
Therefore, removing the applicable provisions from the PHLX rule book 
would be consistent with the provisions of Section 6(b) of the Act.\20\
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    \18\ 15 U.S.C. 78s(b)(1).
    \19\ 17 CFR 240.19b-4.
    \20\ 15 U.S.C. 78f(b).
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    PHLX's proposal to remove PHOTO Historical from the rule manual is 
also consistent with the Exchange Act insofar as it will have no impact 
on PHLX's or its members' compliance with applicable regulations and 
rules. First, PHLX has no obligation under the Exchange Act, either as 
an exchange or a vendor, to offer PHOTO Historical to PHLX members. 
Having chosen to offer such data and to do so on non-discriminatory 
terms imposes no continuing obligation to do so. Second, even assuming 
PHLX did have an obligation to make PHOTO Historical available, it will 
continue to do so in the same manner if does now. Therefore, to the 
extent PHLX members utilize PHOTO Historical, that use will be 
uninterrupted. Third, there are multiple vendors of historical, many of 
whom are not subject to Commission oversight.

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

    PHLX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. To the contrary, 
PHLX believes that this proposed rule change removing from the PHLX 
rule manual a service improperly included, promotes competition by 
removing an impediment to PHLX's competition with unregulated market 
data providers with which PHLX competes for these services. Removing 
barriers to competition has the potential to promote innovation, reduce 
prices, and increase efficiency.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2014-34 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-2014-34. 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

[[Page 30920]]

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 offices 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-2014-34, 
and should be submitted on or before June 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12421 Filed 5-28-14; 8:45 am]
BILLING CODE 8011-01-P