Document ID: SEC-2016-1522-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ PHLX, LLC
Posted Date: 2016-08-30T04:00Z

[Federal Register Volume 81, Number 168 (Tuesday, August 30, 2016)]
[Notices]
[Pages 59693-59696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20734]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78665; File No. SR-Phlx-2016-85)

Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Amend the 
Exchange's Connectivity Fees at Chapter VIII of the NASDAQ PHLX LLC 
Pricing Schedule

August 24, 2016.
    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 12, 2016, NASDAQ 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 Exchange's connectivity fees at 
Chapter VIII of the NASDAQ PHLX LLC Pricing Schedule to: (i) limit the 
total monthly fee a PSX Participant may be assessed for connectivity 
under the rule; and (ii) provide a waiver of all connectivity fees to 
new PSX Participants for a limited time; (iii) eliminate prorated 
billing; and (iv) change the name of the fees assessed under the rule.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.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. 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 the proposed rule change is to amend the Exchange's 
connectivity fees under ``Access Services Fees'' at Chapter VIII of the 
NASDAQ PHLX LLC Pricing Schedule to: (i) limit the total monthly fee a 
PSX Participant may be assessed for connectivity under the rule; (ii) 
provide a waiver of all connectivity fees to new PSX Participants for a 
limited time; (iii) eliminate prorated billing; and (iv) change the 
name of the fees assessed

[[Page 59694]]

under the rule from ``Access Services Fees'' to ``Port Fees,'' as 
described further below. Access Services Fees include the choices for 
connecting to PSX and receipt of data therefrom, together with the fees 
assessed for that connectivity.
First Change
    The purpose of the first change is to limit the overall costs to 
Participants for connecting to the Exchange by capping the total 
monthly fee a Participant may be assessed at $30,000. The Exchange 
believes that the proposed fee cap will make PSX a more attractive 
venue for Participants, and help PSX both retain and attract new 
Participants. The proposed fee cap will apply to all Access Services 
\3\ fees assessed under the rule, in aggregate and per Participant. 
Thus, a Participant may meet the $30,000 per month fee cap with any 
combination of subscriptions provided under the rule.
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    \3\ As discussed below, the Exchange is proposing to rename 
``Access Services Fees'' under the rule as ``Port Fees.''
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Second Change
    Similar to the first change, the purpose of the second change is to 
reduce the costs of connecting to the Exchange for market participants 
that are not currently Participants on PSX by providing a waiver of all 
connectivity fees under the rule to new PSX Participants for a limited 
time. Specifically, the Exchange is proposing to waive all Access 
Services Fees for every Participant that is a ``new PSX Participant'' 
through August 1, 2017. The Exchange is defining a ``new PSX 
Participant'' as a Participant that was not a Participant after July 1, 
2016. The Exchange believes that the proposed fee waiver will make PSX 
a more attractive venue for prospective Participants.
Third Change
    The purpose of the third change is to harmonize the billing 
practices for subscription to PSX ports under Access Services Fees with 
those of the Exchange's Options Market by no longer applying a prorated 
fee for subscriptions that are effective other than the first of any 
given month.\4\ The Exchange does not prorate options market 
connectivity subscriptions; thus, options participants would be 
assessed a full month's fee for a connectivity subscription if they 
direct the Exchange to make the subscribed connectivity live on any day 
of the month, including the last day thereof.\5\
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    \4\ See NASDAQ PHLX LLC Pricing Schedule, Chapters VI.A, VI.B, 
VI.C, VII.A and VII.B. Chapter VII.B. is titled ``Port Fees'' and 
sets forth the connectivity choices for the Phlx Options market.
    \5\ For example, in a filing increasing an Order Entry Port Fee 
the Exchange noted:
    The Exchange currently assesses an Order Entry Port Fee per 
month, per mnemonic of $500. This fee is assessed on members 
regardless of whether the order entry mnemonic is active during the 
billing month. The fee is assessed regardless of usage, and solely 
on the number of order entry ports assigned to each member 
organization.
    See Securities Exchange Act Release No. 68473 (December 19, 
2012), 77 FR 76128 (December 26, 2012) (SR-Phlx-2012-140).
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    Currently, connectivity on PSX under the rule is prorated based on 
the day that it is activated, with the PSX Participant only fee liable 
for the remaining days of the partial month. The Exchange has found 
that prorating billing has inserted complexity into the billing 
process. As a consequence, the Exchange is harmonizing the billing 
process with that of the Exchange's Options market and not permitting 
prorated billing.
Fourth Change
    The purpose of the fourth change is to rename the title of the 
section from ``Access Services Fees'' to ``Port Fees,'' which the 
Exchange believes is a more accurate description of the connectivity 
provided by the rule. In this regard, the Exchange notes that each 
connectivity option under the rule provides the Participant with a 
specific port, which is noted in the rule. The proposed name change in 
no way alters what is offered under the rule.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\7\ 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 designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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First Change
    The Exchange believes that the first change is reasonable because 
it will limit the overall costs to Participants for connecting to the 
Exchange and may, in turn, attract new Participants and retain existing 
Participants. Attracting and retaining Participants will benefit all 
market participants on PSX by ensuring that the market remains deep and 
liquid. The fee cap may also provide incentive to Participants to 
subscribe to additional ports, potentially for the purpose of 
increasing their activity on PSX. Moreover, the proposed fee cap is set 
a level that will allow the Exchange to continue to cover costs 
associated with providing connectivity to PSX. For these reasons, the 
Exchange believes that the proposed fee cap is reasonable.
    The Exchange believes that the first change is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
uniformly apply the same fee to all similarly situated members. In this 
regard, all Participants have the opportunity to take advantage of the 
fee cap to the extent their subscriptions exceed the $30,000 per month 
level. Participants that are unwilling to subscribe to connectivity at 
a level that exceeds the fee cap will still benefit from the liquidity 
provided by Participants that have increased their connectivity and 
participation in the PSX market.
Second Change
    The Exchange believes that the second change is reasonable because 
it will limit the overall costs incurred by new Participants in 
connecting to the Exchange, which may as a consequence attract new 
Participants. Attracting new Participants will benefit all market 
participants on PSX by ensuring that PSX remains deep and liquid. The 
Exchange believes that the second change is an equitable allocation and 
is not unfairly discriminatory because the Exchange will uniformly 
apply the same fee to all similarly situated Participants. In this 
regard, the Exchange is proposing to apply the fee waiver to new PSX 
Participants, which the Exchange proposes to define as a Participant 
that was not a Participant prior to July 1, 2016.
    Limiting eligibility for the fee waiver, as described, will ensure 
that the waiver is only available to market participants that were not 
already considering becoming a Participant imminently, thus limiting 
the incentive to attracting truly new Participants. Waiving the fees 
for new Participants will ease the

[[Page 59695]]

burden of participating on PSX, which may be a significant reason that 
such market participants have historically declined to become 
Participants. Thus, to the extent this waiver is successful, the 
proposed change will broaden participation on PSX, which will benefit 
all Participants by providing more liquidity.
Third Change
    The Exchange believes that the third change is reasonable because 
it will reduce a complexity in the billing process and will harmonize 
it with the process applied to Exchange Options market participants. As 
noted above, Participants choose when they want a new connectivity 
subscription to begin and thus may make the determination of when they 
wish to be fee liable. Participants will continue to choose when they 
become fee liable under the proposed change, but now the Exchange will 
assess the full month's fee regardless of when the port is subscribed.
    The Exchange believes that the third change is an equitable 
allocation and is not unfairly discriminatory because it will apply the 
same fee to all similarly situated Participants. Moreover, the Exchange 
believes the proposed change is an equitable allocation and is not 
unfairly discriminatory because it will harmonize the billing process 
with that of the Exchange's Options market. Thus, the Exchange will 
apply the same process to both its Options and Equities market 
Participants.
Fourth Change
    The Exchange believes that the proposed renaming of the fee section 
under the rule further perfects the mechanism of a free and open market 
and a national market system, and, in general, promotes the public 
interest because the proposed new name is more reflective of the type 
of connectivity provided under the rule. Therefore, the Exchange 
believes that the proposed change will promote better market 
participant understanding over the scope and nature of the fees.

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. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed changes generally reduce the fee 
burdens on Participants in an effort to attract and retain 
Participants, which benefits all market participants on PSX to the 
extent the incentives are effective. Although eliminating prorated fees 
for subscriptions under the rule will result in an increase in fees for 
new subscriptions, the Exchange notes that it is doing so to both 
simplify the process and harmonize it with the process applied to the 
Exchange's Options Participants.
    The Exchange notes that participation on PSX is completely 
voluntary and subject to extensive competition both from other 
exchanges and from off-exchange venues. Thus, to the extent that the 
proposed changes to the connectivity fees proposed herein are 
unattractive to market participants, it is likely that the Exchange 
will lose market share and Participants as a result. Accordingly, the 
Exchange does not believe that the proposed changes will impair the 
ability of members or competing order execution venues to maintain 
their competitive standing in the financial markets.

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.\8\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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.

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-2016-85 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2016-85. 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-2016-85 and 
should

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be submitted on or before September 20, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20734 Filed 8-29-16; 8:45 am]
 BILLING CODE 8011-01-P