Document ID: SEC-2014-1361-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2014-08-13T04:00Z

[Federal Register Volume 79, Number 156 (Wednesday, August 13, 2014)]
[Notices]
[Pages 47506-47509]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-19093]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72784; File No. SR-Phlx-2014-45]

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

August 7, 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 August 1, 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 and II, 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 Pricing Schedule at Section VI 
entitled ``Membership Fees'' to amend Permit 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 Permit Fees in Section 
VI of the Pricing Schedule in order that the Exchange can allocate 
costs to various options market participants which are incurred by the 
Exchange.
    Today, the Exchange assesses members and member organizations 
transacting business on the Exchange a monthly Permit Fee of $2,150. 
The Exchange assesses members and member organizations not transacting 
business on the Exchange a monthly Permit Fee of $7,500. PSX only 
members \3\ and member organizations are not assessed a Permit Fee.\4\ 
Today, options members or member organizations pay an additional Permit

[[Page 47507]]

Fee for each sponsored options participant.
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    \3\ PSX only members are not engaged in an options business at 
Phlx in a particular month.
    \4\ Today, applicants that apply for membership solely to 
participate in the NASDAQ OMX PSX equities market are not assessed a 
Permit Fee, Application Fee, Initiation Fee, or Account Fee. Should 
such approved member or member organization subsequently elect to 
engage in business on Phlx XL II, the Exchange's options platform, 
the monthly Permit Fee, Initiation Fee and Account Fee will apply. 
See note 14 in the Pricing Schedule.
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    The Exchange proposes to eliminate the current Permit Fees for 
members and member organizations transacting and not transacting a 
business and instead assess options Permit Fees by market participant. 
The Exchange proposes to assess a monthly Permit Fee of $2,150 to Floor 
Brokers,\5\ Specialists \6\ and Market Makers,\7\ effectively assessing 
these market participants the same rate of $2,150 a month for a permit. 
All other market participants (Professionals, Firms and Broker-Dealers, 
collectively ``Other Market Participants'') will be assessed a Permit 
Fee of $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. Option members and member 
organizations will continue to 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, either $2,150 or $4,000.\9\ The Exchange believes that 100 
options in a given month is a reasonable level given the volume of 
options transacted on Phlx.
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    \5\ A Floor Broker is defined in Phlx Rule 1060 as ``[a]n 
individual who is registered with the Exchange for the purpose, 
while on the Options Floor, of accepting and executing options 
orders received from members and member organizations.''
    \6\ A Specialist is an Exchange member who is registered as an 
options specialist pursuant to Rule 1020(a).
    \7\ A ``market maker'' includes Registered Options Traders (Rule 
1014(b)(i) and (ii)), which includes Streaming Quote Traders (see 
Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see Rule 
1014(b)(ii)(B)). Directed Participants are also market makers.
    \8\ The term ``Common Ownership'' shall mean members or member 
organizations under 75% common ownership or control. See Preface to 
Exchange's Pricing Schedule.
    \9\ The Exchange is amending note 16 in the Pricing Schedule to 
add clarity to the pricing for sponsored participants. See Exchange 
Rule 1094 titled Sponsored Participants. A Sponsored Participant may 
obtain authorized access to the Exchange only if such access is 
authorized in advance by one or more Sponsoring Member 
Organizations. Sponsored Participants must enter into and maintain 
participant agreements with one or more Sponsoring Member 
Organizations establishing a proper relationship(s) and account(s) 
through which the Sponsored Participant may trade on the Exchange.
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    Permit Fees for PSX only members and member organizations would 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.
    Finally, the Exchange proposes to eliminate various notes in the 
Pricing Schedule. The Exchange proposes to eliminate note 15 in the 
Pricing Schedule which states that, ``[a] member or member organization 
will be assessed the $2,150 monthly Permit Fee if that member or member 
organization: (1) Transacts its option orders in its assigned Phlx 
house account in a particular month; or (2) is a clearing member of The 
Options Clearing Corporation or a Floor Broker; or (3) for those member 
organizations which are under Common Ownership, transacts at least one 
options trade in a Phlx house account that is assigned to one of the 
member organizations under Common Ownership.'' This note, which 
describes the qualifications for transacting business on Phlx, is 
therefore no longer necessary. The Exchange is also eliminating note 17 
in the Pricing Schedule which states that, ``a member or member 
organization will be assessed a $7,500 monthly fee if that member is 
(i) not a PSX Only Participant; or (ii) not engaged in an options 
business at Phlx in a particular month.'' This note is no longer 
necessary as this fee would be eliminated. The Exchange is amending 
note 14 in the Pricing Schedule to remove references to the Permit Fee 
as the Exchange proposes to assess certain PSX only members a Permit 
Fee.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \10\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act 
\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange's proposal to amend options Permit Fees to assess the 
fee by market participant 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 different fees to 
the Exchange to maintain their 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.\12\ A 
Specialist and Market Maker similarly incur costs for certain data 
feeds, remote specialist fees, RSQT Fees and SQF Port Fees amongst 
other charges.\13\ 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 Permit Fee of $2,150 per month as compared 
to 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 effective rate they pay today of $2,150 if they 
transact a certain volume on Phlx in a given month because 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 offers that the 100 options threshold in 
a given month is an achievable hurdle for a majority of options 
participants on Phlx today. A majority of Other Market Participants are 
capable of meeting this threshold. Finally, assessing different Permit 
Fee rates to different types of market participants is not novel.\14\
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    \12\ Floor Brokers are subject to a Floor Facility Fee in 
Section VII of the Pricing Schedule.
    \13\ See Section VI of the Pricing Schedule.
    \14\ 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 options Permit Fees to assess the 
fee by market participant is equitable and not unfairly discriminatory 
for the reasons which follow. The Exchange believes that continuing to 
assess Floor Brokers,

[[Page 47508]]

Specialists and Market Participants effectively the same rate of $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.\15\ 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 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.\16\ 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 other market participants. 
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 proposes to 
assess these 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 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 they do not pay higher costs and the Exchange 
believes that 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. The Exchange believes it is equitable and not 
unfairly discriminatory to continue to assess effectively the same 
Permit Fee as today of $2,150 to these Other Market Participants, 
equivalent to Floor Brokers, Specialists and Market Makers, in any 
given month in which they 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.
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    \15\ 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 Section VI of the Pricing Schedule.
    \16\ See Exchange Rule 1060.
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    The Exchange believes that continuing 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. The Exchange believes 1,000 shares per day is a 
reasonable level given the volume of transactions which take place on 
PSX as compared to mature equities markets.\17\ The Exchange has waived 
the Permit Fee \18\ for several years and desires to continue to 
incentivize PSX only members provided these members and member 
organizations transact a certain volume on PSX in a given month. The 
Exchange's proposal to assess a $4,000 fee to PSX only members that do 
not transact the requisite volume in a given month is reasonable 
because the Exchange desires to distribute costs to operate the 
Exchange among its options and equities market participants.
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    \17\ The Exchange offers that today, the majority of PSX members 
transacting an equities business meet the threshold.
    \18\ Today, applicants that apply for membership solely to 
participate in the NASDAQ OMX PSX equities market are not assessed a 
Permit Fee, Application Fee, Initiation Fee, or Account Fee. See 
Securities Exchange Act Release No. 61863 (April 7, 2010), 75 FR 
20021 (April 16, 2010) (SR-Phlx-2010-54).
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    The Exchange believes that continuing 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 equitable and not unfairly 
discriminatory because PSX is a growing market and not as robust as the 
options market on Phlx. PSX only members and member organizations that 
transact the requisite volume on PSX bring liquidity to the Exchange, 
which in turn benefits other market participants. The Exchange believes 
that assessing PSX only members that do not transact the requisite 
volume of business in a given month, a $4,000 monthly Permit Fee is 
equitable and not unfairly discriminatory because this fee properly 
allocates costs to PSX only members and member organizations not 
conducting a business on PSX, similar to options members and member 
organizations.
    The Exchange's proposal to amend the Pricing Schedule to remove 
certain notes (15 and 17) which are irrelevant and amend note 14 is 
reasonable, equitable and not unfairly discriminatory because the 
Exchange believes that these amendments will clarify the Exchange's 
Pricing Schedule.

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 is maintaining 
options Permit Fees at the same rate for Floor Brokers, Specialists and 
Market Makers because these participants pay other fees to the Exchange 
which are not incurred by Other Market Participants and therefore their 
overall costs is higher to transact business on Phlx. In addition, 
Other Market Participants are afforded an opportunity to lower Permit 
Fees by transacting business on Phlx. Phlx options members and member 
organizations that do not transact the requisite volume of business on 
Phlx to achieve the lower Permit Fee of $2,150 will be assessed a 
higher Permit Fee of $4,000. Some of these options members and member 
organizations are currently being assessed the $7,500 Permit Fee today 
for transacting no business on Phlx, so the fee will be lower in those 
cases. For options members and member organizations today that transact 
some volume, but not the requisite volume specified for the lower fee, 
the Permit Fee will increase. The Exchange believes that this fee 
differential ($2,150 versus $4,000) does not create an undue burden on 
competition because: (i) The requisite volume is not unreasonable given 
the volume of contracts traded in a day on Phlx; (ii) the Exchange 
believes that a majority of options members are capable of achieving 
the requisite volume; and (iii) those options members and member 
organizations that trade the requisite volume bring revenue to the 
Exchange, which in turn benefits other market participants because they 
are able to interact with that volume.
    The Exchange believes that providing PSX only members the 
opportunity to transact a certain amount of volume to be assessed no 
Permit Fee and assessing other PSX members the same $4,000 monthly 
Permit Fee as Other Market

[[Page 47509]]

Participants conducting an options business on Phlx because they do not 
transact the requisite volume of business does not create an undue 
burden on competition because the pricing is being allocated evenly 
among all options and equity members and member organizations that do 
not transact a certain level of specified volume on Phlx. As far as not 
assessing PSX only members and member organizations that transact the 
requisite volume on PSX in a given month a Permit Fee, the Exchange 
believes this does not create an unfair burden on competition because 
the Exchange seeks to encourage market participants to connect to PSX, 
a relatively new market, to encourage order flow and grow this market. 
New markets typically offer market participants incentives, such as 
reduced fees, to attract order flow.
    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 described in the above proposal are 
influenced by these robust market forces and therefore must remain 
competitive with fees charged 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.\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-2014-45 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-2014-45. 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-2014-45 and should be 
submitted on or before September 3, 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. 2014-19093 Filed 8-12-14; 8:45 am]
BILLING CODE 8011-01-P