Document ID: SEC-2015-0076-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2015-01-12T05:00Z

[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1570-1572]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00225]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74000; File No. SR-Phlx-2014-83]

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

January 6, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 24, 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 modify Section VII entitled ``Other Member 
Fees'' of the Phlx Pricing Schedule (``Pricing Schedule''). 
Specifically, the Exchange proposes to amend the Port Fees in Section 
VII of the Pricing Schedule in order to increase the Order Entry Port 
Fee, establish a CTI Port Fee, and delete the Real-Time Risk Management 
Fee.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments 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 Port Fees in Section VII 
of the Pricing Schedule in order to increase the Order Entry Port Fee, 
establish a CTI Port Fee, and remove the Real-Time Risk Management 
Fee.\3\
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    \3\ The Real-Time Risk Management Fee was adopted well over a 
decade ago for members receiving option trading information on-line 
(i.e., electronically) from the Exchange. See Securities Exchange 
Act Release No. 43719 (December 13, 2000), 65 FR 80975 (December 22, 
2000) (SR-Phlx-00-97) (notice of filing and immediate 
effectiveness). This fee is, as discussed, being deleted as the CTI 
Port Fee, which is also used on other exchanges, is added.
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    Today, all Port Fees on the Exchange are located in subsection B of 
Section VII of the Pricing Schedule. These Port Fees include Order 
Entry Port Fees, Real-time Risk Management Fees, and Active SQF Port 
Fees, which are not amended by this proposal. Each of the amended fees 
is discussed below.
Order Entry Port Fee
    The Order Entry Port Fee is a connectivity fee related to routing 
orders to the Exchange via an external order entry port. Phlx members 
access the Exchange's network through order entry ports. A Phlx member 
may have more than one order entry port. Today, the Exchange assesses 
members an Order Entry Port Fee of $550 per month, per mnemonic.\4\ The 
current practice will continue whereby the Order Entry Port Fee will be 
waived for mnemonics that are used exclusively for Complex Orders \5\ 
where one of the components of the Complex Order is the underlying 
security. Member organizations will continue not being assessed an 
Order Entry Port Fee for additional ports acquired for only ten 
business days for the purpose of transitioning technology.\6\
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    \4\ Mnemonics are codes that identify member organization order 
entry ports.
    \5\ A Complex Order is any order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced at a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. Furthermore, a Complex Order can also be a stock-option 
order, which is an order to buy or sell a stated number of units of 
an underlying stock or exchange-traded fund (``ETF'') coupled with 
the purchase or sale of options contract(s). See Exchange Rule 1080, 
Commentary .08(a)(i).
    \6\ Similarly, member organizations will continue to be required 
to provide the Exchange with written notification of the transition 
and all additional ports which were provided at no cost will be 
removed at the end of the ten business days.
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    The Exchange proposes to increase the Order Entry Port Fee of $550 
per month, per mnemonic to $600 per month, per mnemonic, as described 
below. This is exactly the same as a rule change filed by NASDAQ 
Options Market (``NOM'') proposing to assess $600 for Order Entry Port 
Fees as of January 2, 2015.\7\
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    \7\ See Securities Exchange Act Release No. 73843 (December 16, 
2014) (SR-NASDAQ-2014-122) (not yet published).
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Real-Time Risk Management Fee
    The Exchange is eliminating the Real-time Risk Management Fee from 
subsection B of Section VII of the Pricing Schedule, entitled ``Port 
Fees.'' The proposal to delete the Real-Time Risk Management Fee 
results in a price reduction to member organizations and members 
(clearing firms,\8\ Specialists,\9\ and Market Makers \10\),

[[Page 1571]]

which market participants are assessed the Real-Time Risk Management 
Fees.
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    \8\ A ``clearing firm'' is a member organization that meets the 
requirements of Rule 165(c).
    \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 
(Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (Rule 
1014(b)(ii)(B)).
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    The Real-time Risk Management Fee was established more than a 
decade ago to assess a fee to members and member organizations that 
receive electronic option trading information on-line from the 
Exchange. The purpose of the fee was to provide members and member 
organizations (e.g. clearing firms, Specialists, and Market Makers) 
with option trade information, electronically, on a real-time basis. 
Members and member organizations were able to log on to an interface 
through AUTOM \11\ to receive options (among other information) 
transaction information real-time. The Exchange limited the assessment 
of the Real-Time Risk Management Fee to two ports, a Specialized Quote 
Feed (``SQF'') \12\ Port and a CTI Port. As the Exchange has previously 
noted,\13\ it was always the intent of the Exchange to limit the Real-
Time Risk Management Fee to the SQF and CTI ports, and this has been 
the practice of the Exchange. The Exchange is eliminating the Real-Time 
Risk Management Fee and will instead only assess port fees.
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    \11\ AUTOM, now known as Phlx XL, is the Exchange's electronic 
order, execution, and trade system.
    \12\ SQF is an interface that allows specialists, streaming 
quote traders and remote streaming quote traders to connect and send 
quotes into Phlx XL. SQF 6.0 allows participants to access 
information in a single feed available to all participants, rather 
than through accessing multiple feeds. The information available 
includes execution reports and other relevant data. Non quoting 
firms may also receive relevant information available over SQF by 
connecting to the SQF interface, but they may not send quotes.
    \13\ See Securities Exchange Act Release No. 66208 (January 20, 
2012), 77 FR 4077 (January 26, 2012) (SR-Phlx-2012-06) (notice of 
filing and immediate effectiveness).
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CTI Port Fee
    The Exchange now proposes to establish a CTI Port Fee that is $600 
per port, per month for each of the first 5 CTI ports, and $100 per 
port for each port thereafter. The Exchange proposes to charge a 
smaller amount for the subsequent ports in order to continue to 
encourage use of ports on the Exchange.
    CTI offers real-time clearing trade updates. A real-time clearing 
trade update is a message that is sent to a member after an execution 
has occurred and contains trade details. The message containing the 
trade details is also simultaneously sent to The Options Clearing 
Corporation. The trade messages are routed to a member's connection 
containing certain information. The administrative and market event 
messages include, but are not limited to: System event messages to 
communicate operational-related events; options directory messages to 
relay basic option symbol and contract information for options traded 
on the Exchange; complex strategy messages to relay information for 
those strategies traded on the Exchange; trading action messages to 
inform market participants when a specific option or strategy is halted 
or released for trading on the Exchange; and an indicator which 
distinguishes electronic and non-electronically delivered orders. This 
information will be available to members on a real-time basis.
    The Exchange notes that the CTI Port Fee is currently available on 
NOM at $550 per port, per month.\14\ NOM assesses port fees for similar 
ports, namely the Order Entry and CTI Ports. The Exchange desires to 
continue assessing Order Entry Fees, and to access CTI Post [sic] Fees 
on Phlx in order to recoup costs associated with these ports while 
encouraging members to participate in the market.
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    \14\ See, e.g., Securities Exchange Act Release No. 68502 
(December 20, 2012), 77 FR 76572 (December 28, 2012) (SR-NASDAQ-
2012-139) (notice of filing and immediate effectiveness). NOM does 
not, however, tier its CTI Port Fees, as proposed herein. This port 
fee will increase to $600 as of January 2, 2015.
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    By increasing the Order Entry Port Fee and establishing a new CTI 
Port Fee,\15\ the Exchange will only assess port fees \16\ and no 
longer assess other types of fees, such as the Real-Time Risk 
Management Fees. This proposal reflects a modest price increase to 
members and member organizations while allowing the Exchange to recoup 
a certain portion of costs associated with ports, namely the Order 
Entry Port and CTI Port.\17\
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    \15\ Today, members utilize CTI Ports at no cost.
    \16\ The Pricing Schedule also notes an Active SQF Port Fee, 
which fee remains unchanged by this proposal. SQF is an interface 
that enables specialists, Streaming Quote Traders (``SQTs'') and 
Remote Streaming Quote Traders (``RSQTs'') to connect and send 
quotes into Phlx XL, the options trading system. Active SQF ports 
are ports that receive inbound quotes at any time within that month. 
SQTs and RSQTs are defined in Rule 1014(b)(ii)(A) and Rule 
1014(b)(ii)(B), respectively.
    \17\ The Exchange does not, by this proposal, expect to fully 
offset the Real-Time Risk Management Fee. Rather, the goal of the 
Exchange is to eliminate the Real-Time Risk Management Fee and 
assess only port fees. Members and member organizations will be able 
to continue to obtain real-time information via CTI and SQF as 
discussed herein.
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2. Statutory Basis
    The Exchange believes that its proposal to amend the Pricing 
Schedule is consistent with Section 6(b) of the Act \18\ in general, 
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act 
\19\ 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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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that eliminating the Real-Time Risk 
Management Fee and proposing a new CTI Port Fee on the Exchange \20\ at 
$600 per port per month for each of the first 5 CTI ports, and $100 per 
port for each port thereafter, is reasonable because it would allow the 
Exchange to recoup costs associated with offering the CTI ports. The 
proposal to delete the Real-Time Risk Management Fee results in a price 
reduction to member organizations and members (clearing firms, 
Specialists, and Market Makers), which market participants are assessed 
the Real-Time Risk Management Fee. By increasing the Order Entry Port 
Fee and establishing new CTI Port Fee, the Exchange will only assess 
port fees and no longer assess other types of fees, such as the Real-
Time Risk Management Fee. This proposal reflects a modest price 
increase to members and member organizations while allowing the 
Exchange to recoup a certain portion of costs associated with ports, 
namely the Order Entry Port and CTI Port. The Exchange does not, by 
this proposal, expect to fully offset the Real-Time Risk Management 
Fee. Rather, the goal of the Exchange is to eliminate the Real-Time 
Risk Management Fee and apply only port fees. Members and member 
organizations will be able to obtain real-time information via CTI and 
SQF as discussed.
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    \20\ The Exchange has determined that the Real-Time Risk Fee is 
no longer necessary in light of the new CTI Port Fee and the 
increased Order Entry Port Fee.
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    As with other port fees in subsection B of Section VII of the 
Pricing Schedule, the CTI Port Fees reflect a portion of the costs that 
the Exchange bears with respect to offering and maintaining the CTI 
ports. The CTI Port Fees are reasonable because they enable the 
Exchange to offset, in part, its connectivity costs associated with 
making such ports available, including costs based on gateway software 
and hardware enhancements and resources dedicated to gateway 
development, quality assurance, and support. Charging less for 
additional fees is reasonable to continue to recoup costs while 
encouraging members to connect to the Exchange.

[[Page 1572]]

    The Exchange believes that assessing CTI Port Fees for the CTI 
ports at $600 per port per month for each of the first 5 CTI ports, and 
$100 per port for each port thereafter, is equitable and not unfairly 
discriminatory because the Exchange will assess the same fees for all 
CTI ports to all members.
    The Exchange believes that continuing the Order Entry Port Fee at 
$600 per month, per mnemonic on the Exchange is reasonable because it 
will allow the Exchange to continue to recoup fees associated with 
offering the Order Entry Port. As with other port fees in subsection B 
of Section VII of the Pricing Schedule, including the CTI Port Fee, the 
Order Entry Port Fee reflects a portion of the costs that the Exchange 
bears with respect to offering and maintaining the Order Entry Ports. 
The Order Entry Port Fees are reasonable because they enable the 
Exchange to offset, in part, its connectivity costs associated with 
making such ports available, including costs based on gateway software 
and hardware enhancements and resources dedicated to gateway 
development, quality assurance, and support.
    The Exchange believes that Order Entry Fees for the Order Entry 
Ports at $600 per month, per mnemonic is equitable and not unfairly 
discriminatory because the Exchange will assess the same fees for all 
Order Entry Ports to all members.

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 the 
proposed Order Entry Fees and CTI Port Fees are fair and equitable, and 
therefore, will not unduly burden any particular group of market 
participants trading on the Exchange. The Exchange's proposal to adopt 
CTI Port and continue Order Entry Fees would be applied in a uniform 
manner to all Exchange members. The proposed fees are designed to 
ensure a fair and reasonable use of Exchange resources by allowing the 
Exchange to recoup a certain portion of connectivity costs, while 
continuing to offer connectivity at competitive rates to Exchange 
members.
    The Exchange will not assess the Real-Time Risk Management Fee with 
respect to any member.

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.\21\ 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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    \21\ 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-2014-83 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-2014-83. 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-2014-83, and should be 
submitted on or before February 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00225 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P