Document ID: SEC-2014-2207-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2014-12-31T05:00Z

[Federal Register Volume 79, Number 250 (Wednesday, December 31, 2014)]
[Notices]
[Pages 78924-78927]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30588]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 73927; File No. SR-Phlx-2014-80]

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

December 23, 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 December 18, 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 Strategy Fee Caps which are 
currently located in the Exchange Fee Schedule at Section II, entitled 
``Multiply Listed Options.''
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated the proposed 
amendment to be operative on January 2, 2015.
    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 Strategy Fee Caps which 
are currently located in Section II, entitled ``Multiply Listed 
Options.'' \3\ Today, the Exchange caps transaction fees for certain 
dividend,\4\ merger,\5\ short stock

[[Page 78925]]

interest,\6\ reversal and conversion,\7\ jelly roll \8\ and box spread 
\9\ floor option transaction strategies.
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    \3\ This includes options overlying equities, ETFs, ETNs and 
indexes which are Multiply Listed.
    \4\ 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.
    \5\ 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.
    \6\ 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.
    \7\ Reversal and conversion strategies are 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.
    \8\ A jelly roll strategy is defined as transactions created by 
entering into two separate positions simultaneously. One position 
involves buying a put and selling a call with the same strike price 
and expiration. The second position involves selling a put and 
buying a call, with the same strike price, but with a different 
expiration from the first position.
    \9\ A box spread strategy is a strategy that synthesizes long 
and short stock positions to create a profit. Specifically, a long 
call and short put at one strike is combined with a short call and 
long put at a different strike to create synthetic long and 
synthetic short stock positions, respectively.
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    Today, fees paid by Specialist,\10\ Market Maker,\11\ 
Professional,\12\ Firm \13\ and Broker-Dealer \14\ for floor option 
transaction in Multiply Listed Options are capped at $1,250 for 
dividend, merger and short stock interest strategies executed on the 
same trading day in the same options class when such members are 
trading in their own proprietary accounts. The Exchange proposes to 
increase this cap from $1,250 to $1,500. The Exchange will continue to 
cap at $700 the fees paid by Specialist, Market Maker, Professional, 
Firm and Broker-Dealer for reversal and conversion, jelly roll and box 
spread floor option transaction strategies that are executed on the 
same trading day in the same options class.
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    \10\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \11\ 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.
    \12\ 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).
    \13\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC.
    \14\ 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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    Today, the Exchange further separately caps dividend, merger, short 
stock interest, reversal and conversion, jelly roll and box spread 
floor option transaction strategies in Multiply Listed Options, 
combined in a month when trading in their own proprietary accounts 
(``Monthly Strategy Cap''), at $50,000.\15\ The Exchange proposes to 
increase the Monthly Strategy Cap from $50,000 to $60,000.
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    \15\ Reversal and conversion, jelly roll and box spread strategy 
executions are not included in the Monthly Strategy Cap for a Firm. 
Reversal and conversion, jelly roll and box spread strategy 
executions (as defined in this Section II) are included in the 
Monthly Firm Fee Cap. 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. Firms are subject to a maximum fee of 
$75,000 (``Monthly Firm Fee Cap''). 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.
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    Despite the increased caps proposed herein, the Exchange believes 
that offering members and member organizations the opportunity to 
continue to cap transaction fees will benefit Phlx members and the Phlx 
market by encouraging members to transact greater liquidity.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\16\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that increasing the fee cap for dividend, 
merger and short stock interest strategies from $1,250 to $1,500 is 
reasonable because the Exchange desires to continue to incentivize 
market participants to transact dividend, merger and short stock 
interest floor option transactions in Multiply Listed Options and 
believes this proposal will continue to offer Specialists, Market 
Makers, Professionals, Firms and Broker-Dealers competitive fee caps.
    The Exchange believes that increasing the fee cap for dividend, 
merger and short stock interest strategies from $1,250 to $1,500 is 
equitable and not unfairly discriminatory because the Exchange is 
offering the fee cap for floor option transaction charges in Multiply 
Listed Options to all market participants that pay transaction fees for 
these strategies in a uniform manner. Customers are not assessed 
transaction fees for these types of strategies.
    The Exchange believes that continuing to offer a lower fee cap 
($700) for reversal and conversion, jelly roll and box spread 
strategies and not requiring that the transactions be executed in the 
member's own proprietary account, as compared to other dividend, merger 
and short stock interest strategy executions, which have a higher cap 
($1,500, as proposed) and require members execute transactions in their 
own proprietary accounts, is equitable and not unfairly discriminatory 
because the Exchange believes this incentive is necessary to create 
further trading opportunities for members on the Exchange's trading 
floor and is being offered uniformly to all floor members. The Exchange 
believes a similar incentive is not necessary for dividend, merger and 
short stock interest strategies. Also, today, the cap is higher for 
dividend, merger and short stock interest strategies ($1,250 as 
compared to $700). In addition, the Exchange believes that it is 
equitable and not unfairly discriminatory to continue to require that 
all fee cap strategies, which combine executions for purposes of the 
Monthly Strategy Cap, must be traded in a member's own proprietary 
account.
    The Exchange's proposal to increase the Monthly Strategy Cap from 
$50,000 to $60,000 is reasonable because the Exchange seeks to continue 
to incentivize members to transact a greater number of strategies on 
the Exchange to benefit from the fee cap, despite the increase to the 
cap. The Exchange's proposal to increase the Monthly Strategy Cap from 
$50,000 to $60,000 is equitable and not unfairly discriminatory because 
the Exchange would offer members the opportunity to cap their floor 
equity options transaction in Multiply Listed Options fees for all 
strategies. Customers are excluded because they are not assessed a 
floor Options Transaction Charge.\18\ Excluding Firm floor options 
transaction in Multiply Listed Options related to reversal and 
conversion, jelly roll and box spread strategies are from the Monthly 
Strategy Cap is reasonable, equitable and not unfairly discriminatory 
because these fees would continue to be capped as part of the Monthly 
Firm Fee Cap, which applies only to Firms. The Exchange believes that 
the exclusion of Firm floor options transaction charges in Multiply 
Listed Options related to reversal and

[[Page 78926]]

conversion, jelly roll and box spread strategies from the Monthly 
Strategy Cap is equitable and not unfairly discriminatory because 
Firms, unlike other market participants, have the ability to cap 
transaction fees up to $75,000 per month. The Exchange would include 
floor option transaction charges related to reversal and conversion, 
jelly roll and box spread strategies in the Monthly Strategy Cap for 
Professionals, and Broker Dealers, when such members are trading in 
their own proprietary accounts, because these market participants are 
not subject to the Monthly Firm Fee Cap or other similar cap. While 
Specialists and Market Makers are subject to a Monthly Market Maker Cap 
on both electronic and floor options transaction charges, reversal and 
conversion, jelly roll and box spread transactions are excluded from 
the Monthly Market Maker Cap.\19\ For the reasons described above, the 
Exchange believes continuing to include reversal and conversion, jelly 
roll and box spread strategies in the Monthly Firm Fee Cap is 
reasonable, equitable and not unfairly discriminatory because the cap 
provides an incentive for Firms to transact floor transactions on the 
Exchange, which brings increased liquidity and order flow to the floor 
for the benefit of all market participants.\20\
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    \18\ See Section II of the Pricing Schedule.
    \19\ Id.
    \20\ Firms are eligible to cap floor options transactions 
charges and QCC Transaction Fees as part of the Monthly Firm Fee 
Cap. QCC Transaction Fees apply to QCC Orders as defined in Exchange 
Rule 1080(o) and Floor QCC Orders as defined in 1064(e). See Section 
II of the Pricing Schedule.
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    The Exchange believes that its proposal to continue to apply 
strategy fee caps to orders originating from the Exchange floor is 
reasonable because members pay floor brokers to execute trades on the 
Exchange floor. The Exchange believes that offering fee caps to members 
executing floor transactions would defray brokerage costs associated 
with executing strategy transactions and continue to incentivize 
members to utilize the floor for certain executions.\21\ The Exchange 
believes that its proposal to continue to apply the fee caps to orders 
originating from the Exchange floor is equitable and not unfairly 
discriminatory because today, the fee caps are only applicable for 
floor transactions. The Exchange believes that a requirement that both 
the buy and sell sides of the order originate from the floor to qualify 
for the fee cap constitutes equal treatment of members.
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    \21\ The Exchange's proposal would only apply the fee cap to 
options transaction charges where buy and sell sides originate from 
the Exchange floor. See proposed rule text in Section II of the 
Pricing Schedule.
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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 because the proposed changes 
apply uniformly to all members that incur transaction charges.\22\ The 
Exchange believes the proposal is consistent with robust competition 
and does not provide any unnecessary burden on competition. Further, 
floor members pay floor brokers to execute trades on the Exchange 
floor. The Exchange believes that offering fee caps to members 
executing floor transactions and not electronic executions does not 
create an unnecessary burden on competition because the fee caps defray 
brokerage costs associated with executing strategy transactions. Also, 
requiring that both the buy and sell sides of the order originate from 
the floor to qualify for the fee cap constitutes equal treatment of 
members.
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    \22\ Customers are not assessed options transaction charges in 
Section II of the Pricing Schedule.
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    The Exchange operates in a highly competitive market, comprised of 
twelve 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, as described in the 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.\23\ 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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    \23\ 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-2014-80 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-2014-80. 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 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-2014-80, and should be 
submitted on or before January 21, 2015.

[[Page 78927]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2014-30588 Filed 12-30-14; 8:45 am]
BILLING CODE 8011-01-P