Document ID: SEC-2013-2075-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-12-09T05:00Z

[Federal Register Volume 78, Number 236 (Monday, December 9, 2013)]
[Notices]
[Pages 73907-73909]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29260]

[[Page 73907]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70969; File No. SR-Phlx-2013-114]

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

December 3, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on November 25, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Customer Rebate Program in 
Section B of the Pricing Schedule.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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                                                    Percentage thresholds of
                                                   national customer volume in
             Customer rebate tiers               multiply-listed equity and ETF     Category  A     Category  B
                                                 options classes, excluding SPY
                                                       options  (monthly)
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Tier 1........................................  0.00%-0.75%.....................           $0.00           $0.00
Tier 2........................................  Above 0.75%-1.60%...............            0.12            0.17
Tier 3........................................  Above 1.60%-2.50%...............            0.14            0.17
Tier 4........................................  Above 2.50%.....................            0.15            0.17
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    The Exchange is proposing to amend the Customer Rebates in both 
Categories A and B in Tiers 3 and 4 to increase the rebates by $0.02 
per contract. The proposed Tier 3 Category A rebate would be increased 
from $0.14 to $0.16 per contract. The proposed Tier 3 Category B rebate 
would be increased from $0.17 to $0.19 per contract. The proposed Tier 
4 Category A rebate would be increased from $0.15 to $0.17 per 
contract. The proposed Tier 4 Category B rebate would be increased from 
$0.17 to $0.19 per contract.
    The Exchange also proposes to amend Tier 2, Categories A and B, to 
pay a $0.02 per contract rebate in addition to the applicable Tier 2 
rebate to a Specialist or Market Maker, or its affiliate under Common 
Ownership,\9\ provided the Specialist or Market Maker has reached the 
Monthly Market Maker Cap \10\ as defined in Section II. The

[[Page 73908]]

Exchange believes that offering higher Tier 2, 3 and 4 rebates will 
encourage market participants to direct a greater number of Customer 
orders to the Exchange.
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    \9\ The term ``Common Ownership'' means members or member 
organizations under 75% common ownership or control.
    \10\ Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $550,000 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 this 
Section II) are excluded from the Monthly Market Maker Cap. In 
addition, Specialists or Market Makers that (i) are on the contra-
side of an electronically-delivered and executed Customer order; and 
(ii) have reached the Monthly Market Maker Cap are assessed a $0.17 
per contract fee.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\11\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\12\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility or system which the Exchange operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that its proposal to increase the Customer 
rebates in Tiers 3 and 4 in Categories A and B by $0.02 per contract is 
reasonable because it will attract a larger amount of Customer 
liquidity to the Exchange. Today, Phlx offers members certain Customer 
rebates to encourage Phlx member organizations to direct Customer order 
flow to the Exchange, and the proposal will provide an additional 
incentive for Customer order flow. Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attract 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 believes that its proposal to increase the Customer 
rebates in Tiers 3 and 4 in Categories A and B by $0.02 per contract is 
equitable and not unfairly discriminatory because it will be applied to 
all market participants in a uniform matter. All members are eligible 
to receive the rebate provided they submit a qualifying number of 
electronic Customer volume.
    The Exchange believes that its proposal to pay a $0.02 per contract 
rebate in addition to the applicable Tier 2 rebate to a Specialist or 
Market Maker, or its affiliate under Common Ownership, provided the 
Specialist or Market Maker has reached the Monthly Market Maker Cap is 
reasonable because the Exchange intends to encourage Specialists and 
Market Makers to transact Customer orders on the Exchange to receive 
the enhanced rebate.
    The Exchange believes that its proposal to pay a $0.02 per contract 
rebate in addition to the applicable Tier 2 rebate to a Specialist or 
Market Maker, or its affiliate under Common Ownership, provided the 
Specialist or Market Maker has reached the Monthly Market Maker Cap is 
equitable and not unfairly discriminatory because unlike other market 
participants, Specialists and Market Makers have burdensome quoting 
obligations \13\ to the market that do not apply to Customers, 
Professionals, Firms and Broker-Dealers. Specialists and Market Makers 
serve an important role on the Exchange with regard to order 
interaction and they provide liquidity in the marketplace. 
Additionally, Specialists and Market Makers incur costs unlike other 
market participants including, but not limited to, PFOF and other costs 
associated with market making activities,\14\ which results in a higher 
average cost per execution as compared to Firms, Broker-Dealers and 
Professionals. The proposed differentiation as between Specialists and 
Market Makers as compared to other market participants recognizes the 
differing contributions made to the trading environment on the Exchange 
by these market participants. The Exchange is continuing to offer the 
Tier 2 rebate to all market participants.
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    \13\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
    \14\ Specialists and Market Makers pay for certain data feeds 
including the SQF Port Fee. SQF Port Fees are listed in the 
Exchange's Pricing Schedule at Section VII. SQF is an interface that 
allows Specialists and Market Makers to connect and send quotes into 
Phlx XL and assists them in responding to auctions and providing 
liquidity to the market.
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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 an undue burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
Customer Rebate Program will continue to encourage Customer order flow 
to be directed to the Exchange. By incentivizing members to route 
Customer orders, the Exchange desires to attract liquidity to the 
Exchange, which in turn benefits all market participants. All market 
participants are eligible to qualify for a Customer Rebate. The 
Exchange believes this pricing amendment does not impose a burden on 
competition but rather that the proposed rule change will continue to 
promote competition on the Exchange.
    The Exchange does not believe that offering Specialists and Market 
Makers an enhanced rebate of $0.02 per contract in addition to the 
applicable Tier 2 rebate creates an undue burden on competition because 
Specialists and Market Makers have burdensome quoting obligations \15\ 
to the market that do not apply to Customers, Professionals, Firms and 
Broker-Dealers. Specialists and Market Makers serve an important role 
on the Exchange with regard to order interaction and they provide 
liquidity in the marketplace.
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    \15\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
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    The Exchange operates in a highly competitive market, comprised of 
twelve options exchanges, in which market participants can easily and 
readily direct order flow to competing venues if they deem fee levels 
at a particular venue to be excessive or rebates to be inadequate. 
Accordingly, the fees that are assessed and the rebates paid by the 
Exchange described in the above proposal are influenced by these 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.\16\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine

[[Page 73909]]

whether the proposed rule should be approved or disapproved.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2013-114 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2013-114. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2013-114 and should be 
submitted on or before December 30, 2013.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29260 Filed 12-6-13; 8:45 am]
BILLING CODE 8011-01-P