Document ID: SEC-2014-0418-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, LLC
Posted Date: 2014-03-14T04:00Z

[Federal Register Volume 79, Number 50 (Friday, March 14, 2014)]
[Notices]
[Pages 14553-14556]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05597]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71674; File No. SR-Phlx-2014-13]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Routing Fees

March 10, 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 March 4, 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 amend Section V of the Pricing Schedule 
entitled ``Routing Fees.''
    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 purpose of this filing is to amend the Routing Fees in Section 
V of the Pricing Schedule in order to recoup costs incurred by the 
Exchange to route orders to away markets.
    Today, the Exchange assesses a Non-Customer a $0.95 per contract 
Routing Fee to any options exchange. The Customer \3\ Routing Fee for 
option orders routed to The NASDAQ Options Exchange LLC (``NOM'') is a 
$0.05 per contract Fixed Fee in addition to the actual transaction fee 
assessed. The Customer Routing Fee for option orders routed to NASDAQ 
OMX BX, Inc. (``BX Options'') is $0.00 per contract. The Customer 
Routing Fee for option orders routed to all other options exchanges \4\ 
(excluding NOM and BX Options) is a fixed fee of $0.20 per contract 
(``Fixed Fee'') in addition to the actual transaction fee assessed. If 
the away market pays a rebate, the Routing Fee is $0.00 per contract.
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    \3\ 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 (``OCC'') which 
is not for the account of broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
    \4\ Including BATS Exchange, Inc. (``BATS''), BOX Options 
Exchange LLC (``BOX''), the Chicago Board Options Exchange, 
Incorporated (``CBOE''), C2 Options Exchange, Incorporated (``C2''), 
International Securities Exchange, LLC (``ISE''), the Miami 
International Securities Exchange, LLC (``MIAX''), NYSE Arca, Inc. 
(``NYSE Arca''), NYSE MKT LLC (``NYSE Amex'') and Topaz Exchange, 
LLC (``Gemini'').
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    With respect to the fixed costs, the Exchange incurs a fee when it 
utilizes Nasdaq Options Services LLC (``NOS''),\5\ a member of the 
Exchange and the Exchange's exclusive order router. Each time NOS 
routes an order to an away market, NOS is charged a clearing fee \6\ 
and, in the case of certain exchanges, a transaction fee is also 
charged in certain symbols, which fees are passed through to the 
Exchange. The Exchange currently recoups clearing and transaction 
charges incurred by the Exchange as well as certain other costs 
incurred by the Exchange when routing to away markets, such as 
administrative and technical costs associated with operating NOS, 
membership fees at away markets, Options Regulatory Fees (``ORFs''), 
staffing and technical costs associated with routing options. The 
Exchange assesses the actual away market fee at the time that the order 
was entered into the Exchange's trading system. This transaction fee is 
calculated on an order-by-order basis

[[Page 14554]]

since different away markets charge different amounts.
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    \5\ The Exchange filed a proposed rule change to utilize Nasdaq 
Execution Services, LLC (``NES'') for outbound order routing. See 
Securities Exchange Act Release No. 71417 (January 28, 2014), 79 FR 
6253 (February 3, 2014) (SR-Phlx-2014-04). This filing has not yet 
been implemented. The Exchange intends to implement this filing in 
mid-March 2014.
    \6\ The Options Clearing Corporation (``OCC'') assesses $0.01 
per contract side.
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    The Exchange is proposing to assess market participants routing 
Customer orders to NOM a $0.10 per contract Fixed Fee in addition to 
the actual transaction fee assessed. Today the Exchange assesses a 
$0.05 per contract Fixed Fee in addition to the actual transaction fee 
assessed with respect to Customer orders routed to NOM. The Exchange 
would increase the Fixed Fee for Customer orders routed to NOM from 
$0.05 to $0.10 per contract to recoup an additional portion of the 
costs incurred by the Exchange for routing these orders.
    Today the Exchange does not assess a fee with respect to Customer 
orders routed to BX Options. The Exchange noted in a previous rule 
change routing proposal that it would not assess a fee for Customer 
orders routed to BX Options because the Exchange retains the rebate 
that is paid by that market.\7\ In order words, the Exchange today does 
not assess a Routing Fee when routing Customer orders to BX Options 
because that exchange pays a rebate and instead of netting the customer 
rebate paid by BX Options against a fixed fee, the Exchange simply does 
not assess a fee. The Exchange is proposing to assess a $0.10 per 
contract Fixed Fee when routing Customer orders to BX Options in order 
to recoup a portion of the costs incurred by the Exchange for routing 
these orders. The Exchange does not assess the actual transaction fee 
assessed by BX Options, rather the Exchange only assesses the Fixed 
Fee, because the Exchange would continue to retain the rebate to offset 
the cost to route orders to BX Options. This is the not the case for 
all orders routed to BX Options because not all Customer orders receive 
a rebate.\8\
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    \7\ See Securities Exchange Act Release No. 69253 (March 28, 
2013), 78 FR 20709 (April 5, 2013) (SR-Phlx-2013-23).
    \8\ BX Options pays a Customer Rebate to Remove Liquidity as 
follows: Customers are paid $0.32 per contract in All Other Penny 
Pilot Options (excluding BAC, IWM, QQQ, SPY and VXX) and $0.70 per 
contract in Non-Penny Pilot Options. See BX Options Rules at Chapter 
XV, Section 2(1).
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    Similarly, the Exchange is proposing to amend the Customer Routing 
Fee assessed when routing to all other options exchanges, if the away 
market pays a rebate, from a $0.00 to a $0.10 per contract Fixed Fee, 
in order to recoup an additional portion of the costs incurred by the 
Exchange for routing these orders. The Exchange does not assess the 
actual transaction fee assessed by the away market, rather the Exchange 
only assesses the Fixed Fee, because the Exchange would continue to 
retain the rebate to offset the cost to route orders to these away 
markets. Today, the Exchange incurs certain costs when routing to away 
markets that pay rebates. The Exchange desires to recoup additional 
costs at this time.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \9\ in general, and 
furthers the objectives of Section 6(b)(4) and (b)(5) of the Act \10\ 
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 Phlx operates or 
controls, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that amending the Customer Routing Fee for 
orders routed to NOM from a Fixed Fee of $0.05 to $0.10 per contract, 
in addition to the actual transaction fee, is reasonable because the 
Exchange desires to recoup an additional portion of the cost it incurs 
when routing Customer orders to NOM. Today, the Exchange assesses 
orders routed to NOM a lower Fixed Fee for routing Customer orders as 
compared to the Fixed Fee assessed to other options exchanges. The 
Exchange is proposing to increase the Fixed Fee to recoup additional 
costs that are incurred by the Exchange in connection with routing 
these orders on behalf of its members.
    The Exchange believes that amending the Customer Routing Fee for 
orders routed to BX Options from a Fixed Fee of $0.00 to $0.10 per 
contract is reasonable because the Exchange desires to recoup an 
additional portion of the cost it incurs when routing Customer orders 
to BX Options, similar to the amount of Fixed Fee it proposes to assess 
for orders routed to NOM. The Exchange is proposing to assess a Fixed 
Fee to recoup additional costs that are incurred by the Exchange in 
connection with routing these orders on behalf of its members. While 
the Exchange would continue to retain any rebate paid by BX Options, 
the Exchange does not assess the actual transaction fee that is charged 
by BX Options for Customer orders.
    The Exchange believes that continuing to assess lower Fixed Fees to 
route Customer orders to NOM and BX Options, as compared to other 
options exchanges, is reasonable as the Exchange is able to leverage 
certain infrastructure to offer those markets lower fees as explained 
further below. Similarly, the Exchange believes that amending the 
Customer Routing Fee to other away markets, other than NOM and BX 
Options, in the instance the away market pays a rebate from a Fixed Fee 
of $0.00 to $0.10 per contract is reasonable because the Exchange 
desires to recoup an additional portion of the cost it incurs when 
routing orders to these away markets. While the Exchange would continue 
to retain any rebate paid by these away markets, the Exchange does not 
assess the actual transaction fee that is charged by the away market 
for Customer orders. The Fixed Fee for Customer orders is an 
approximation of the costs the Exchange will be charged for routing 
orders to away markets. As a general matter, the Exchange believes that 
the proposed fees for Customer orders routed to markets which pay a 
rebate, such as BX Options and other away markets, would allow it to 
recoup and cover a portion of the costs of providing optional routing 
services for Customer orders because it better approximates the costs 
incurred by the Exchange for routing such orders. While each 
destination market's transaction charge varies and there is a cost 
incurred by the Exchange when routing orders to away markets, 
including, OCC clearing costs, administrative and technical costs 
associated with operating NOS, membership fees at away markets, ORFs 
and technical costs associated with routing options, the Exchange 
believes that the proposed Routing Fees will enable it to recover the 
costs it incurs to route Customer orders to away markets.
    The Exchange believes that amending the Customer Routing Fee for 
orders routed to NOM from a Fixed Fee of $0.05 to $0.10 per contract, 
in addition to the actual transaction fee, is equitable and not 
unfairly discriminatory because the Exchange would assess the same 
Fixed Fee to all orders routed to NOM in addition to the transaction 
fee assessed by that market. With respect to BX Options, the Exchange 
would uniformly assess a $0.10 per contract Fixed Fee for all orders 
routed to BX Options and would continue to uniformly not assess the 
actual transaction fee, as is the case today. The Exchange would 
uniformly assess a $0.10 per contract Fixed Fee to orders routed to 
NASDAQ OMX exchanges because the Exchange is passing along the saving 
realized by leveraging NASDAQ OMX's infrastructure and scale to market 
participants when those orders are routed to NOM or BX Options and is 
providing those savings to all market participants. Furthermore, PHLX

[[Page 14555]]

XL routes orders to away markets where the Exchange's disseminated bid 
or offer is inferior to the national best bid (best offer) (``NBBO'') 
price and based on price first.\11\ The Exchange believes that it is 
equitable and not unfairly discriminatory to assess a fixed cost of 
$0.10 per contract to route orders to NOM and BX Options because the 
cost, in terms of actual cash outlays, to the Exchange to route to 
those markets is lower. For example, costs related to routing to NOM 
and BX Options are lower as compared to other away markets because NOS 
is utilized by all three exchanges to route orders.\12\ NOS and the 
three NASDAQ OMX options markets have a common data center and staff 
that are responsible for the day-to-day operations of NOS. Because the 
three exchanges are in a common data center, Routing Fees are reduced 
because costly expenses related to, for example, telecommunication 
lines to obtain connectivity are avoided when routing orders in this 
instance. The costs related to connectivity to route orders to other 
NASDAQ OMX exchanges are lower than the costs to route to a non-NASDAQ 
OMX exchange. When routing orders to non-NASDAQ OMX exchanges, the 
Exchange incurs costly connectivity charges related to 
telecommunication lines, membership and access fees, and other related 
costs when routing orders.
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    \11\ See Rule 1080(m). The Phlx XL II system will 
contemporaneously route an order marked as an Intermarket Sweep 
Order (``ISO'') to each away market disseminating prices better than 
the Exchange's price, for the lesser of: (a) The disseminated size 
of such away markets, or (b) the order size and, if order size 
remains after such routing, trade at the Exchange's disseminated bid 
or offer up to its disseminated size. If contracts still remain 
unexecuted after routing, they are posted on the book. Once on the 
book, should the order subsequently be locked or crossed by another 
market center, the Phlx XL II system will not route the order to the 
locking or crossing market center, with some exceptions noted in 
Rule 1080(m).
    \12\ See Chapter VI, Section 11 of the BX Options and NOM Rules.
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    The Exchange believes that amending the Customer Routing Fee to 
other away markets, other than NOM and BX Options, in the instance the 
away market pays a rebate from a Fixed Fee of $0.00 to $0.10 per 
contract is equitable and not unfairly discriminatory because the 
Exchange would assess a lower Routing Fee, as compared to away markets 
that do not pay a rebate, because the Exchange retains the rebate that 
is paid by the away market. The Exchange would assess the same Fixed 
Fee when routing Customer orders to a NASDAQ OMX exchange that pays a 
rebate as it would to route an order to an away market (non-NASDAQ OMX 
exchange) that pays a rebate. These proposals would apply uniformly to 
all market participants when routing to an away market that pays a 
rebate, other than NOM and BX Options. Market participants may submit 
orders to the Exchange as ineligible for routing or ``DNR'' to avoid 
Routing Fees.\13\ It is important to note that when orders are routed 
to an away market they are routed based on price first.\14\
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    \13\ See Rule 1066(h) (Certain Types of Orders Defined) and 
1080(b)(i)(A) (PHLX XL and PHLX XL II).
    \14\ PHLX XL will route orders to away markets where the 
Exchange's disseminated bid or offer is inferior to the national 
best bid (best offer) (``NBBO'') price. See also note 11.
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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. The Exchange does not believe 
that the proposal creates a burden on intra-market competition because 
the Exchange is applying the same Routing Fees to all market 
participants in the same manner dependent on the routing venue, with 
the exception of Customers. The Exchange will continue to assess 
separate Customer Routing Fees. Customers will continue to receive the 
lowest fees as compared to non-Customers when routing orders, as is the 
case today. Other options exchanges also assess lower Routing Fees for 
customer orders as compared to non-customer orders.\15\
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    \15\ BATS assesses lower customer routing fees as compared to 
non-customer routing fees per the away market. For example BATS 
assesses ISE customer routing fees of $ 0.30 per contract and an ISE 
non-customer routing fee of $ 0.57 per contract. See BATS BZX 
Exchange Fee Schedule.
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    The Exchange's proposal would allow the Exchange to continue to 
recoup its costs when routing Customer orders to NOM or BX Options as 
well as away markets that pay a rebate when such orders are designated 
as available for routing by the market participant. The Exchange 
continues to pass along savings realized by leveraging NASDAQ OMX's 
infrastructure and scale to market participants when Customer orders 
are routed to NOM and BX Options and is providing those savings to all 
market participants. Today, other options exchanges also assess fixed 
routing fees to recoup costs incurred by the exchange to route orders 
to away markets.\16\ Market participants may submit orders to the 
Exchange as ineligible for routing or ``DNR'' to avoid Routing 
Fees.\17\ It is important to note that when orders are routed to an 
away market they are routed based on price first.\18\
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    \16\ See CBOE's Fees Schedule and ISE's Fee Schedule.
    \17\ See note 13.
    \18\ See note 14.
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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.\19\ 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 whether the 
proposed rule should be approved or disapproved.
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    \19\ 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-2014-13 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-2014-13. 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

[[Page 14556]]

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-2014-13, and should be submitted on or before April 
4, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05597 Filed 3-13-14; 8:45 am]
BILLING CODE 8011-01-P