Document ID: SEC-2014-0805-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2014-05-15T04:00Z

[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Notices]
[Pages 27968-27970]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11154]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72136; File No. SR-Phlx-2014-31]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Qualified Contingent Cross Rebates

May 9, 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 April 30, 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to offer an additional rebate applicable to 
Qualified Contingent Cross (``QCC'') orders.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on May 1, 
2014.
    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 offer an additional rebate 
applicable to both electronic QCC Orders (``eQCC'') \3\ and

[[Page 27969]]

Floor QCC Orders \4\ (collectively ``QCC Orders''). The Exchange 
believes that the proposed amendment to its pricing for QCC Orders will 
enable the Exchange to attract additional QCC Orders by increasing the 
amount of rebates paid for certain increased thresholds.
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    \3\ 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 Regulation NMS).
    \4\ A Floor QCC Order must: (i) Be for at least 1,000 contracts, 
(ii) meet the six requirements of Rule 1080(o)(3) which are modeled 
on the QCT Exemption, (iii) be executed at a price at or between the 
National Best Bid and Offer (``NBBO''); and (iv) be rejected if a 
Customer order is resting on the Exchange book at the same price. In 
order to satisfy the 1,000-contract requirement, a Floor QCC Order 
must be for 1,000 contracts and could not be, for example, two 500-
contract orders or two 500-contract legs. See Rule 1064(e). See also 
Securities Exchange Act Release No. 64688 (June 16, 2011), 76 FR 
36606 (June 22, 2011) (SR-Phlx-2011-56).
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    Today, the Exchange pays rebates on QCC Orders based on the 
following five tier rebate schedule:

                           QCC Rebate Schedule
------------------------------------------------------------------------
                                                            Rebate per
               Tier                       Threshold          contract
------------------------------------------------------------------------
Tier 1............................  0 to 299,999                   $0.00
                                     contracts in a
                                     month.
Tier 2............................  300,000 to 499,999              0.07
                                     contracts in a
                                     month.
Tier 3............................  500,000 to 699,999              0.08
                                     contracts in a
                                     month.
Tier 4............................  700,000 to 999,999              0.09
                                     contracts in a
                                     month.
Tier 5............................  Over 1,000,000                  0.11
                                     contracts in a
                                     month.
------------------------------------------------------------------------

    Today, the Exchange pays a rebate on all qualifying executed QCC 
Orders, including eQCC Orders as defined in Exchange Rule 1080(o) and 
Floor QCC Orders, as defined in 1064(e), except where the transaction 
is either: (i) Customer-to-Customer; or (ii) a dividend,\5\ merger,\6\ 
short stock interest \7\ or reversal or conversion strategy \8\ 
execution. Today, the maximum rebate the Exchange will pay in a given 
month for QCC Orders is $375,000. Today, QCC Transaction Fees for a 
Specialist,\9\ Market Maker,\10\ Professional,\11\ Firm \12\ and 
Broker-Dealer \13\ are $0.20 per contract.
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    \5\ A dividend strategy is defined as transactions done to 
achieve a dividend arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class, executed the 
first business day prior to the date on which the underlying stock 
goes ex-dividend. See Section II of the Pricing Schedule.
    \6\ A merger strategy is defined as transactions done to achieve 
a merger arbitrage involving the purchase, sale and exercise of 
options of the same class and expiration date, executed the first 
business day prior to the date on which shareholders of record are 
required to elect their respective form of consideration, i.e., cash 
or stock. See Section II of the Pricing Schedule.
    \7\ A short stock interest strategy is defined as transactions 
done to achieve a short stock interest arbitrage involving the 
purchase, sale and exercise of in-the-money options of the same 
class. See Section II of the Pricing Schedule.
    \8\ Reversal and conversion strategies are types of transactions 
that employ calls and puts of the same strike price and the 
underlying stock. Reversals are established by combining a short 
stock position with a short put and a long call position that shares 
the same strike and expiration. Conversions employ long positions in 
the underlying stock that accompany long puts and short calls 
sharing the same strike and expiration. See Section II of the 
Pricing Schedule.
    \9\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \10\ 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.
    \11\ 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). See Rule 
1000(b)(14).
    \12\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC.
    \13\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
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    The Exchange will continue to pay rebates on QCC Orders as 
described above. The Exchange proposes to amend the QCC Rebate Schedule 
to offer an additional rebate of $35,000 for that month if the member 
organization transacts 1,750,000 of qualifying QCC contracts (``QCC 
Bonus''). The QCC Bonus will only be available during the month of May 
2014 and will be in addition to the maximum QCC Rebate of $375,000, if 
the $375,000 maximum is reached in May 2014. The QCC Bonus will not 
count toward the maximum QCC Rebate of $375,000.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \14\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act 
\15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that it is reasonable to offer market 
participants a QCC Bonus because the additional incentive will further 
incentivize market participants to transact a greater number of QCC 
Orders on the Exchange during the month of May 2014. With this 
proposal, a market participant would be entitled to the current QCC 
Rebates and would have the ability to earn an even greater rebate, 
during the month of May 2014, if the qualifying volume is transacted.
    The Exchange believes that the QCC Bonus is equitable and not 
unfairly discriminatory because all qualifying market participants are 
entitled to the added rebate if they transact a qualifying number of 
QCC Orders during the month of May 2014. All market participants are 
eligible to transact QCC Orders.

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 believes that its 
proposal to offer the QCC Bonus does not impose a burden on 
competition. The Exchange's proposal should continue to encourage 
market participants to transact a greater number of QCC Orders in order 
to obtain the QCC Bonus during the month of May 2014. All market 
participants are eligible to transact QCC Orders.
    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

[[Page 27970]]

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 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-2014-31 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-2014-31. 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 
a.m. and 3 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-2014-31, and should be 
submitted on or before June 5, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11154 Filed 5-14-14; 8:45 am]
BILLING CODE 8011-01-P