Document ID: SEC-2014-0771-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2014-05-09T04:00Z

[Federal Register Volume 79, Number 90 (Friday, May 9, 2014)]
[Notices]
[Pages 26787-26789]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-10651]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72094; File No. SR-Phlx-2014-28]

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

May 5, 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 May 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, 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 its Pricing Schedule to assess joint 
back office (``JBO'') \3\ participants pricing the same as Broker-
Dealers \4\ and require JBO participants to utilize a new origin code 
to identify JBO orders.
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    \3\ A JBO participant is a member, member organization or non-
member organization that maintains a JBO arrangement with a clearing 
broker-dealer (``JBO Broker'') subject to the requirements of 
Regulation T Section 220.7 of the Federal Reserve System. See also 
Exchange Rule 703.
    \4\ 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 proposes that the amendments become operative on July 
1, 2014.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
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 Exchange proposes to introduce a new origin code to its Pricing 
Schedule which will be used to indicate orders for a JBO account to be 
cleared into the Firm range at The Options Clearing Corporation 
(``OCC'') for purposes of pricing only. Further, the Exchange proposes 
to assess fees and pay rebates to JBO Orders the same as Broker-
Dealers.
    Currently, JBO orders clear in the Firm \5\ range at OCC as do Firm 
orders. The Exchange is proposing to introduce an origin code for 
members and member organizations to identify orders for a JBO account. 
Today, the Exchange requires members and member organizations to notify 
the Exchange in writing and indicate which accounts are used to 
segregate orders of JBO participants from other Firm orders.\6\
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    \5\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at OCC.
    \6\ See Securities Exchange Act Release No. 62661 (August 13, 
2010), 75 FR 49544 (August 6, 2010) (SR-Phlx-2010-110).
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    The origin code will simplify the process of identifying JBO orders 
for purposes of pricing only. Members and member organizations would be 
required to mark their JBO orders in accordance with the technical 
specifications definitions which are provided by the Exchange. This 
rule change will not impact the manner in which JBO orders are treated 
for purposes of other Exchange Rules including but not limited to 
priority in the Exchange's trading system. With this proposal, JBO 
orders will continue to be cleared in the Firm range at OCC. Today, JBO 
orders are assessed

[[Page 26788]]

transaction fees and paid rebates the same as Firms.
    Non-member JBO orders are excluded from the Monthly Firm Fee Cap 
\7\ and firm facilitation waiver.\8\ While member JBO Orders are 
eligible for the Monthly Firm Fee Cap and firm facilitation waiver 
today, there are currently no members who send JBO orders that have met 
the qualifications for and have been afforded the benefit of either the 
Monthly Firm Fee Cap or Firm facilitation waiver. With this proposal, 
the Exchange proposes to exclude all JBO orders, member or non-member, 
from the Monthly Firm Fee Cap and Firm facilitation waiver. JBO 
participants would be assessed fees and paid rebates the same as 
Broker-Dealers as of July 1, 2014.
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    \7\ Firms are subject to a maximum fee of $75,000 (``Monthly 
Firm Fee Cap''). Firm Floor Option Transaction Charges and QCC 
Transaction Fees, in the aggregate, for one billing month may not 
exceed the Monthly Firm Fee Cap per member organization when such 
members are trading in their own proprietary account. All dividend, 
merger, and short stock interest strategy executions (as defined in 
Section II) are excluded from the Monthly Firm Fee Cap. Reversal and 
conversion, jelly roll and box spread strategy executions (as 
defined in Section II) are included in the Monthly Firm Fee Cap. QCC 
Transaction Fees are included in the calculation of the Monthly Firm 
Fee Cap. Member organizations must notify the Exchange in writing of 
all accounts in which the member is not trading in its own 
proprietary account. The Exchange does not make adjustments to 
billing invoices where transactions are commingled in accounts which 
are not subject to the Monthly Firm Fee Cap. JBO participant charges 
are not included in the Monthly Firm Fee Cap. See Securities 
Exchange Act Release No. 63780 (January 6, 2011), 76 FR 5846 
(February 2, 2011) (SR-Phlx-2011-07).
    \8\ A facilitation occurs when a floor broker holds an option 
order for a public customer and a contra-side order for the same 
options series and, after providing an opportunity for all persons 
in the trading crowd to participate in the transaction, executes 
both orders as a facilitation cross. See Exchange Rule 1064. The 
Firm Floor Options Transaction Charges is waived for members 
executing facilitation orders pursuant to Exchange Rule 1064 when 
such members are trading in their own proprietary account (including 
Cabinet Options Transaction Charges). The Firm Floor Options 
Transaction Charges is waived for the buy side of a transaction if 
the same member or its affiliates under Common Ownership represents 
both sides of a Firm transaction when such members are trading in 
their own proprietary account. In addition, the Broker-Dealer Floor 
Options Transaction Charge (including Cabinet Options Transaction 
Charges) is waived for members executing facilitation orders 
pursuant to Exchange Rule 1064 when such members would otherwise 
incur this charge for trading in their own proprietary account 
contra to a Customer (``BD-Customer Facilitation''), if the member's 
BD-Customer Facilitation average daily volume (including both FLEX 
and non-FLEX transactions) exceeds 10,000 contracts per day in a 
given month.
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    The Exchange proposes to amend the Exchange's Pricing Schedule to 
define the term JBO in the preface as follows: ``The term ``Joint Back 
Office'' or ``JBO'' applies to any transaction that is identified by a 
member or member organization for clearing in the Firm range at OCC and 
is identified with an origin code as a JBO. A JBO will be priced the 
same as a Broker-Dealer.'' Further a footnote describing a JBO is 
included in the Preface to the Pricing Schedule. JBO Orders may be 
entered electronically or on the Exchange's trading floor.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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. Adding an origin code to JBO orders is a more efficient 
manner in which to identify those orders separate and apart from other 
orders entered on Phlx. In addition, JBO orders will continue to clear 
in the Firm range at OCC as is the case today. The Exchange will more 
easily be able to discern the pricing associated with clearly 
identified JBO orders. This will eliminate any potential confusion, 
thereby removing a potential impediment to and perfecting the mechanism 
for a free and open market and a national market system, and, in 
general, protecting investors and the public interest. The Exchange 
believes that automating this process of manually identifying JBO 
Orders will promote just and equitable principles of trade by creating 
an identifiable method of distinguishing JBO orders entered into the 
Exchange's Trading System. The Exchange believes that automating this 
process is a more efficient manner in which to identify and bill these 
type of orders.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\11\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\12\ 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. The Exchange believes that its proposal to assess 
pricing for JBO orders the same as for Broker-Dealers is reasonable 
because the Exchange believes that the business of a JBO is similar to 
that of an away market maker and other Broker-Dealers. A JBO 
participant maintains a JBO arrangement with a JBO Broker pursuant to 
Section 220.7 of Regulation T. A JBO participant could be a member, 
member organization or non-member organization. The transactions at 
issue are not being done for the member or member organization's 
proprietary account. Similarly, an away market maker is a member of 
another national securities exchange registered as a market maker in an 
options class(es). An away marker maker is considered to be a Broker-
Dealer as the market maker is not subject to market making obligations 
on the Exchange similar to other Phlx Market Makers. The Chicago Board 
Options Exchange, Incorporated (``CBOE'') assesses manual equity option 
JBO orders fees the same as broker-dealer and electronic equity option 
JBO orders fees the same as a Professional.\13\
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4) and (5).
    \13\ See CBOE's Fees Schedule.
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    The Exchange believes that it is reasonable to assess the same fees 
and pay the same rebates on JBO orders as are paid and assessed to a 
Broker-Dealer because the Exchange believes a JBO participant's 
business is similar to that of a Broker-Dealer and should therefore be 
priced the same. The Exchange believes that its proposal to assess JBO 
orders pricing the same as Broker-Dealers is equitable and not unfairly 
discriminatory because the Exchange will uniformly assess JBO orders 
the same fees and pay the same rebates as today are assessed and paid 
to a Broker-Dealer.
    The Exchange believes that it is reasonable to exclude all JBO 
orders (member and non-member) from the Monthly Firm Fee Cap and 
facilitation waiver because JBO Orders will be assessed fees and paid 
rebates the same as Broker-Dealers and therefore should not able to 
benefit from Firm pricing. The Exchange believes that it is equitable 
and not unfairly discriminatory to exclude all JBO orders (member and 
non-member) from the Monthly Firm Fee Cap and facilitation waiver 
because the Exchange will uniformly assess JBO orders the same fees and 
pay the same rebates as today are assessed and paid to a Broker-Dealer. 
All JBO Orders would be excluded from the Monthly Firm Fee Cap and 
facilitation waiver uniformly.

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

[[Page 26789]]

necessary or appropriate in furtherance of the purposes of the Act. The 
Exchange is assessing fees to all JBOs (member and non-member) in a 
similar manner with this proposal. JBO participants would be assessed 
fees and paid rebates the same as Broker-Dealers. The Exchange believes 
that assessing JBO Orders the same as Broker-Dealers does not impose a 
burden on competition because a JBO participant's business is similar 
to that of a Broker-Dealer and should therefore be priced the same. JBO 
Orders are not being transacted for the member or member organization's 
proprietary account. Rather, JBO participants maintain JBO arrangements 
with a JBO Broker pursuant to Section 220.7 of Regulation T. Also, 
today Firms and Broker-Dealer fees are the same.
    Further, utilizing an origin code to identify JBO Orders does not 
impose an unfair burden on competition. The Exchange believes that 
automating the process of manually identifying JBO Orders by creating 
an identifiable method of distinguishing JBO orders entered into the 
Exchange's Trading System would assist the Exchange in regulating its 
market. In addition, CBOE utilizes an origin code today to identify JBO 
Orders.
    The Exchange's proposal would exclude both member and non-member 
JBO Orders from the Monthly Firm Fee Cap and firm facilitation waiver. 
Today, member JBO Orders are eligible for the Monthly Firm Fee Cap and 
firm facilitation waiver, although there are currently no members who 
send JBO orders that have met the qualifications for and have been 
afforded the benefit of either the Monthly Firm Fee Cap or Firm 
facilitation waiver. The Exchange believes this proposal does not 
create an undue burden on competition because both member and non-
member JBO Orders would be treated equally.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \15\ 17 CFR 240.19b-4(f)(6).
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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.

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-2014-28 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-2014-28. 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 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-2014-28, 
and should be submitted on or before May 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10651 Filed 5-8-14; 8:45 am]
BILLING CODE 8011-01-P