[Federal Register Volume 77, Number 202 (Thursday, October 18, 2012)]
[Notices]
[Pages 64173-64178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25651]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68047; File No. SR-Phlx-2012-121]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
a Customer Rebate Program, Multiply Listed Options Transaction Charges
and PIXL
October 12, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that, on October 1, 2012, 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 the Exchange's Pricing Schedule to:
(i) Clarify the Monthly Market Maker Cap \3\ in Section II titled
``Multiply Listed Options Fees''; \4\ (ii) amend PIXL pricing \5\ in
Section IV titled ``Other Transaction Fees'', Section A titled ``PIXL
Pricing''; and amend and relocate the Customer Rebate Program in
Section II to a new Section A.
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\3\ Today, the Monthly Market Maker Cap is $550,000 for equity
option transaction fees and QCC Transaction Fees. The trading
activity of separate Specialist and Market Maker member
organizations is aggregated in calculating the Monthly Market Maker
Cap if there is at least 75% common ownership between the member
organizations. All dividend, merger, short stock interest and
reversal and conversion strategy executions are excluded from the
Monthly Market Maker Cap.
\4\ Section II includes options overlying equities, ETFs, ETNs,
indexes and HOLDRs which are Multiply Listed.
\5\ PIXL is the Exchange's price-improvement mechanism where a
member may electronically submit for execution an order it
represents as agent on behalf of a public customer, broker-dealer,
or any other entity (``PIXL Order'') against principal interest or
against any other order (except as provided in Rule 1080(n)(i)(E))
it represents as agent (``Initiating Order'') provided it submits
the PIXL order for electronic execution into the PIXL Auction
(``Auction'') pursuant to Rule 1080. See Exchange Rule 1080(n).
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The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXfilings, 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 the proposed rule change is to amend Sections II and
III of the Exchange's Pricing Schedule and create a new Section A.
Specifically, the Exchange is proposing to clarify its Pricing Schedule
with respect to fees related to an order or quote that is contra to a
PIXL Order and included in the Monthly Market Maker Cap calculation,
increase the fee for certain orders executed once the Monthly Market
Maker Cap has been exceeded and relocate the Customer Rebate Program
from Section II to Section A and amend various pricing for that
program. Also, the Exchange proposes to amend Section IV related to
PIXL Pricing. Each of the amendments will be described below in greater
detail.
Section II Amendments
The Exchange is proposing to amend the Monthly Market Maker Cap.
Currently, the Monthly Market Maker Cap is $550,000 for equity options
transaction fees and Qualified Contingent Cross (``QCC'') Transaction
Fees.\6\ The Exchange proposes to clarify the fees included in the
Monthly Market Maker Cap. Today, the Exchange includes fees related to
an order or quote that is contra to a PIXL Order or specifically
responding to a PIXL auction executed resting and responding orders \7\
that execute against a PIXL Initiating Order in the Monthly Market
Maker Cap calculation. The Exchange proposes to clarify the Pricing
Schedule by specifically delineating the various fees that are
calculated to arrive at the Monthly Market Maker Cap. The Exchange
proposes to amend the Pricing Schedule to note that in addition to
equity options transaction fees and QCC Transaction Fees, fee related
to an order or quote that is contra to a PIXL Order or specifically
responding to a PIXL Auction are included in the Monthly Market Maker
Cap calculation.
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\6\ QCC Transaction Fees are defined in Rules 1064(e) and
1080(o). The trading activity of separate Specialist and Market
Maker member organizations is aggregated in calculating the Monthly
Market Maker Cap if there is at least 75% common ownership between
the member organizations. All dividend, merger, short stock interest
and reversal and conversion strategy executions (as defined in this
Section II of the Pricing Schedule) are excluded from the Monthly
Market Maker Cap.
\7\ When the Exchange receives a PIXL Order for auction
processing, a PIXL Auction Notification (``PAN'') message is sent
over the Exchange's TOPO Plus Orders data feed detailing the side,
size, and the stop price of the PIXL Order. Any person or entity may
submit a PAN response, provided such response is properly marked
specifying the price, size, and side of the market. See Rule
1080(n).
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The Exchange also proposes to amend a fee which is assessed once a
Specialist \8\ or Market Maker \9\ has reached the Monthly Market Maker
Cap. Currently, Specialists and Market Makers that (i) are on the
contra-side of an electronically-delivered and executed Customer order;
and (ii) have reached the Monthly Market Maker Cap are assessed a $0.12
per contract fee, excluding PIXL Orders.\10\ The Exchange is proposing
to increase this fee from $0.12 per contract to $0.16 per contract and
also remove the exclusion for PIXL Orders. The proposal would assess
Specialists and Market Makers that (i) are on the contra-side of an
electronically-delivered and executed Customer order; and (ii) have
reached the Monthly Market Maker Cap a $0.16 per contract fee and this
would now include PIXL Orders. The Exchange
[[Page 64174]]
believes that this amendment will also permit the Exchange to pay
certain Customer Rebates which are described below.
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\8\ A Specialist is an Exchange member who is registered as an
options specialist pursuant to Rule 1020(a).
\9\ A ``market maker'' includes Specialists (see Rule 1020) and
ROTs (Rule 1014(b)(i) and (ii), which includes SQTs (see Rule
1014(b)(ii)(A)) and RSQTs (see Rule 1014(b)(ii)(B))). Directed
Participants are also market makers.
\10\ A member may electronically submit for execution an order
it represents as agent on behalf of a public customer, broker-
dealer, or any other entity (``PIXL Order'') against principal
interest or against any other order (except as provided in Rule
1080(n)(i)(E)) it represents as agent (``Initiating Order'')
provided it submits the PIXL order for electronic execution into the
PIXL Auction (``Auction'') pursuant to Rule 1080. See Exchange Rule
1080(n).
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The Exchange also proposes to amend and relocate its Customer
Rebate Program from Section II of the Pricing Schedule to a new
``Section A'' which would be located before Section I in the Pricing
Schedule.\11\ The Exchange is proposing to expand the three tier
Customer Rebate Program to a four tier Customer Rebate Program.
Currently, the Exchange pays rebates for the following Average Daily
Volume Thresholds: (i) 0 to 49,999 contracts in a month; (ii) 50,000 to
99,999 contracts in a month; and (iii) over 100,000 contracts in a
month. The Exchange is proposing to amend Tier 3 and adopt a Tier 4 so
as to have the following tiers: (i) 0 to 49,999 contracts in a month;
(ii) 50,000 to 99,999 contracts in a month; (iii) 100,000 to 274,999
contracts in a month; and (iii) over 275,000 contracts in a month. The
Exchange believes offering the opportunity to obtain higher rebates, as
described below, will incentivize market participants to send order
flow to the Exchange.
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\11\ The Exchange would also amend the Index to reflect the
relocation of the Customer Rebate Program.
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The Exchange is also proposing to amend Categories A, B, C and D,
which currently require the following:
Category A: Rebate will be paid to members executing
electronically-delivered Customer Simple Orders in Penny Pilot Options,
Simple Orders in Non-Penny Pilot Options that remove liquidity and
Complex Orders in Non-Penny Pilot Options.
Category B: Rebate will be paid to members executing
electronically-delivered Customer Complex Orders in Penny Pilot
Options.
Category C: Rebate will be paid to members executing
electronically-delivered Customer Simple Orders in Non-Penny Pilot
Options that add liquidity.
Category D: Rebate will be paid to members executing
electronically-delivered Customer Complex Orders in Select Symbols that
add liquidity.
The Exchange is proposing to amend these Categories as follows:
Category A: Rebate will be paid to members executing
electronically-delivered Customer Simple Orders in Penny Pilot Options
and Customer Simple Orders in Non-Penny Pilot Options in Section II.
Rebate will be paid on PIXL Orders in Section II symbols that execute
against non-Initiating Order interest.
Category B: Rebate will be paid to members executing
electronically-delivered Customer Complex Orders in Penny Pilot Options
and Non-Penny Pilot Options in Section II.
Category C: Rebate will be paid to members executing
electronically-delivered Customer Complex Orders in Select Symbols in
Section I.
In order to analyze the impact on rebates, it is relevant to note
how the various Categories were amended in addition to the actual
rebates. The proposed Customer Rebate Program \12\ table is as follows:
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\12\ The Customer Rebate Program only includes electronically-
delivered orders.
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Rebate per contract categories
Average daily volume threshold -----------------------------------------------
Category A Category B Category C
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0 to 49,999 contracts in a month................................ $0.00 $0.00 $0.00
50,000 to 99,999 contracts in a month........................... 0.07 0.10 0.00
100,000 to 299,999 contracts in a month......................... 0.10 0.14 0.05
over 300,000 contracts in a month............................... 0.12 0.15 0.06
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With respect to Category A, which today allows members who transact
electronically-delivered Customer Simple Orders in Penny Pilot Options,
Simple Orders in Non-Penny Pilot Options that remove liquidity and
Complex Orders in Non-Penny Pilot Options to earn Category A rebates,
the Exchange is amending this Category to now include all Simple Orders
in Non-Penny Pilot Options in Section II (not just orders that remove
liquidity). In addition, Complex Orders in Non-Penny Pilot Options will
no longer be part of Category A. The fees in Category A will increase
for volume over 100,000 contracts. Today, a rebate of $0.09 per
contract is paid for volume over 100,000 contracts. The new pricing in
Category A will pay a rebate of $0.10 per contract for volume between
100,000 and 274,999 contracts and a rebate of $0.12 per contract for
volume over 275,000 contracts.\13\ With respect to Simple Orders in
Non-Penny Pilot Options that add liquidity that are today included in
Category C, these will be included in Category A. These orders will now
be subject to a decreased rebate of $0.07 per contract for volume
between 50,000 to 99,999 contracts in a month. Today those orders
receive a rebate of $0.10 per contract.\14\ Finally, Category A will
now include PIXL Orders in Section II, except for contracts of PIXL
orders that execute against an Initiating Order.\15\ These types of
orders today are not subject to rebates in the Customer Rebate Program.
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\13\ Category A will continue to pay no rebate for volume
between 0 and 49,999 contracts and a rebate of $0.07 per contract
for volume between 50,000 and 99,999 contracts in a month.
\14\ Simple Orders in Non-Penny Pilot Options that add liquidity
will continue to receive no rebate for volume between 0 to 49,999
contracts. Also, the $0.10 per contract rebate will remain the same
for over 100,000 but the tier will now be amended to volume between
100,000 to 274,999 contracts. The $0.12 per contract rebate for
volume over 275,000 contracts will also apply to these orders.
\15\ A member may electronically submit for execution an order
it represents as agent on behalf of a public customer, broker-
dealer, or any other entity (``PIXL Order'') against principal
interest or against any other order (except as provided in Rule
1080(n)(i)(E)) it represents as agent (``Initiating Order'')
provided it submits the PIXL order for electronic execution into the
PIXL Auction (``Auction'') pursuant to Rule 1080. See Exchange Rule
1080(n).
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With respect to Category B, which today allows members executing
electronically-delivered Customer Complex Orders in Penny Pilot Options
in Section II to earn Category B rebates, the Exchange proposes to
amend this Category to now also include Complex Orders in Non-Penny
Pilot Options in Section II (not just Complex Orders in Penny Pilot
Options). The fees in Category B will increase for volume over 100,000
contracts. Today, a rebate of $0.10 per contract is paid for volume
over 100,000 contracts. The new pricing in Category B will pay a rebate
of $0.14 per contract for volume between 100,000 and 274,999 contracts
and a rebate of $0.15 per contract for volume over 275,000
contracts.\16\ With respect to Complex Orders in Non-Penny Pilot
Options that are today included in Category A, these will be included
in Category B. These orders will now be subject to an increased rebate
of $0.10
[[Page 64175]]
per contract for volume between 50,000 to 99,999 contracts in a month.
Today those orders receive a rebate of $0.07 per contract.
Additionally, today for volume over 100,000 contracts, Complex Orders
in Non-Penny Pilot Options receive a rebate of $0.09 per contract. This
rebate will be increased in the new category, between 100,000 and
274,999 contracts, to $0.14 per contract.\17\
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\16\ Category B will continue to pay no rebate for volume
between 0 and 49,999 contracts and a rebate of $0.10 per contract
for volume between 50,000 and 99,999 contracts in a month.
\17\ Complex Orders in Non-Penny Pilot Options will continue to
receive no rebate for volume between 0 to 49,999 contracts. The
$0.15 per contract rebate for volume over 275,000 contracts will
also apply to these orders.
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With respect to Category C, which today allows members executing
electronically-delivered Customer Simple Orders in Non-Penny Pilot
Options that add liquidity in Section II to earn Category C rebates,
the Exchange proposes to amend this Category to now include Complex
Orders in Select Symbols in Section I. The fees applicable to Complex
Orders in Select Symbols that remove liquidity today receive rebates in
Category D. These orders will continue to receive the same pricing,
except that volume over 100,000 contracts which today pays a $0.05 per
contract rebate will apply to contracts between 100,000 to 274,999 and
pay the same rebate. Additionally, a rebate of $0.06 per contract will
be paid for volume over 275,000 contracts.\18\ With respect to Complex
Orders in Non-Penny Pilot Options that are today included in Category
A, these will be included in Category B. These orders will now be
subject to an increased rebate of $0.10 per contract for volume between
50,000 to 99,999 contracts in a month. Today those orders receive a
rebate of $0.07 per contract. Additionally, today for volume over
100,000 contracts, Complex Orders in Non-Penny Pilot Options receive a
rebate of $0.09 per contract. This rebate will be increased in the new
category, between 100,000 and 274,999 contracts, to $0.14 per
contract.\19\ Complex Orders in Select Symbols for adding liquidity
today are not subject to rebates in the Customer Rebate Program. With
respect to proposed Category D, as noted above, those Complex Orders in
Select Symbols that add liquidity will become part of Category C.
Category D will be eliminated.
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\18\ Category C will continue to pay no rebate for volume
between 0 and 49,999 contracts and 50,000 and 99,999 contracts in a
month as is the case today for Complex Orders in Select Symbols that
remove liquidity.
\19\ Complex Orders in Non-Penny Pilot Options will continue to
receive no rebate for volume between 0 to 49,999 contracts. The
$0.15 per contract rebate for volume over 275,000 contracts will
also apply to these orders.
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Finally, the Exchange proposes to amend its Average Daily Volume
Threshold calculation. Currently, the Average Daily Volume Threshold is
calculated by totaling Customer volume in Multiply Listed Options \20\
that are electronically-delivered and executed, except electronic QCC
Orders as defined in Exchange Rule 1080(o), and including
electronically-delivered and executed Customer Complex Orders in Select
Symbols (``Threshold Volume''). Rebates are paid on Threshold Volume in
a given month, excluding electronically delivered Customer volume
associated with PIXL. The Exchange is proposing to amend the
calculation of the Average Daily Volume Threshold to total Customer
volume in Multiply Listed Options (including Select Symbols) that are
electronically-delivered and executed, except: (i) electronically-
delivered and executed Customer Simple Orders in Select Symbols that
remove liquidity; and (ii) electronic QCC Orders, as defined in
Exchange Rule 1080(o) (``Threshold Volume''). The Exchange would pay
the rebates on the Threshold Volume.\21\
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\20\ This includes all options classes defined in Sections I and
II. This excludes PHLX Semiconductor Sector\SM\ (SOX\SM\), PHLX
Housing Sector\TM\ (HGX\SM\) and PHLX Oil Service Sector\SM\
(OSX\SM\) which are assessed Singly Listed Options fees in Section
III of the Pricing Schedule despite the fact that these are
Multiply-Listed index options. See Securities Exchange Act Release
No. 66668 (April 3, 2012), 77 FR 20090 (March 28, 2012) (SR-Phlx-
2012-35).
\21\ Currently, the Customer Simple Orders in Select Symbols are
not part of the Average Daily Volume Calculation as the Customer
Rebate Program today is limited to the symbols subject to Section II
pricing and only Complex Orders that add liquidity in Section I. The
Exchange proposes to exclude electronically-delivered and executed
Customer Simple Orders in Select Symbols that remove liquidity from
the Average Daily Volume Threshold, along with electronic QCC
Orders. Today, these excluded orders are not included in the
Threshold Volume. The Exchange would pay a rebate on all Customer
volume included in the Threshold Volume. Today Customer volume
associated with PIXL is excluded from the Threshold Volume, this
would be amended and PIXL orders would be subject to a rebate. Today
Customer Simples Orders in Select Symbols that remove liquidity and
QCC Orders are not entitled to rebates under the Customer Rebate
program today and those orders will continue to be excluded.
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The Exchange believes that the proposed amendments to the Customer
Rebate Program will attract additional Customer order flow to the
Exchange to the benefit of all market participants.
Section III Amendments
The Exchange is proposing to amend its PIXL Pricing in Section IV
of the Pricing Schedule at Part A. Currently, the Exchange assesses
PIXL fees on Customers, Professionals,\22\ Specialists,\23\ Market
Makers,\24\ Firms and Broker-Dealers. All options traded on the
Exchange are eligible for PIXL. Today, the Exchange assesses a fee of
$0.07 per contract when an Initiating Order executes against a PIXL
Order in the symbols listed in Section I, Select Symbols, and the
symbols defined in Section II. The Exchange has different PIXL pricing
depending on whether the PIXL order execution was in a Select Symbol
(Section I) or Section II symbol.
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\22\ 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).
\23\ A Specialist is an Exchange member who is registered as an
options specialist pursuant to Rule 1020(a).
\24\ A ``market maker'' includes Specialists (see Rule 1020) and
ROTs (Rule 1014(b)(i) and (ii), which includes SQTs (see Rule
1014(b)(ii)(A)) and RSQTs (see Rule 1014(b)(ii)(B)).
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With respect to the Select Symbols, today, when a PIXL order is
contra to the Initiating Order the appropriate Multiply Listed Options
Transaction Charge in Section II in Section II of the Pricing Schedule
is assessed up to a maximum fee of $0.32 per contract. The Options
Transaction Charges are as follows: a Customer is not assessed an
Options Transaction Charge, a Professional is assessed a $0.25 per
contract Options Transaction Charge in both Penny Pilot and non-Penny
Pilot Options, a Specialist and Market Maker are assessed a $0.22 per
contract Options Transaction Charge in a Penny Pilot and a $0.23 per
contract Options Transaction Charge in a non-Penny Pilot Option, and a
Broker-Dealer and Firm are assessed $0.32 per contact because the
Options Transactions Charges are greater than the maximum fee.\25\
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\25\ The Broker-Dealer Options Transaction Charge in a Penny
Pilot is $0.45 per contract and $0.60 per contact in a non-Penny
Pilot. The Firm Options Transaction Charge in a Penny Pilot is $0.40
per contract and $0.45 per contact in a non-Penny Pilot. See Section
II in the Pricing Schedule.
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When a PIXL Order executes in an auction against a resting contra-
side order or quote that was present upon the initial receipt of the
PIXL Order, the Fee for Removing Liquidity in Section I is assessed on
the PIXL Order. The Fees for Removing Liquidity are as follows:
Customers are assessed $0.43 per contract, and all other market
participants are assessed $0.45 per contract, therefore all market
participants today are assessed the maximum fee of $0.32 per
contract.\26\ The resting contra-side order or quote in
[[Page 64176]]
that scenario is paid the Rebate for Adding Liquidity in Section I.\27\
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\26\ See Section I, Part A Simple Order Pricing in the Pricing
Schedule.
\27\ The Rebate for Adding Liquidity is $0.26 per contract for a
Customer, $0.23 per contract for a Specialist, Market Maker or
Professional. A Firm and Broker-Dealer do not receive a Rebate for
Adding Liquidity. See Section I, Part A of the Pricing Schedule.
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Today, if a PIXL Order executes in an auction against a Responder
or contra-side quotes and/or orders sent in during the auction, the
PIXL Order is paid the Rebate for Adding Liquidity in Section I.\28\
The Responders and contra-side orders and quotes which were entered
during the PIXL Auction, are assessed the Fee for Removing Liquidity in
Section I, which is greater than the maximum fee of $0.32 per contract,
therefore the PIXL Order is assessed $0.32 per contract.\29\
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\28\ Id.
\29\ The Fees for Removing Liquidity are as follows: Customers
are assessed $0.43 per contract, and all other market participants
are assessed $0.45 per contract, therefore all market participants
today are assessed the maximum fee of $0.32 per contract. See
Section I, Part A.
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With respect to Section II symbols, the PIXL Order and the contra-
side order or quote are assessed the appropriate Multiply Listed Option
Transaction Charge in Section II of the Pricing Schedule up to a
maximum fee of $0.32 per contract. Today, a Customer is not assessed an
Options Transaction Charge, a Professional is assessed a $0.25 per
contract Options Transaction Charge in both Penny Pilot and non-Penny
Pilot Options, a Specialist and Market Maker are assessed a $0.22 per
contract Options Transaction Charge in a Penny Pilot and a $0.23 per
contract Options Transaction Charge in a non-Penny Pilot Option, a
Broker-Dealer and Firm are assessed $0.32 per contact because the
Options Transactions Charges are greater than the maximum fee.\30\ With
respect to Section III pricing related to Singly Listed Options, the
fees for PIXL pricing are the Section III fees and this will remain the
same.
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\30\ The Broker-Dealer Options Transaction Charge for a Penny
Pilot Options is $0.45 per contract and $0.60 per contact in a non-
Penny Pilot Option. The Firm Options Transaction Charge in a Penny
Pilot Option is $0.40 per contract and $0.45 per contact in a non-
Penny Pilot Option. See Section II in the Pricing Schedule.
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The Exchange is proposing to amend the PIXL pricing. The Exchange
proposes to continue to assess a $0.07 per contract Initiating Order
fee, unless the market participant has greater than 275,000 contracts
per day in a month of Threshold Volume in the Customer Rebate Program,
in which case a reduced fee of $0.05 per contract fee would be assessed
for the Initiating Order. With respect to the PIXL Order, the Exchange
is amending the PIXL fees for Select Symbols (Section I) as follows:
When the PIXL Order is contra to the Initiating Order a
Customer PIXL Order will be assessed $0.00 and all non-Customer market
participant PIXL Orders will be assessed $0.30 per contract when contra
to the Initiating Order.
When a PIXL Order is contra to a PIXL Auction Responder,
the PIXL Order will either be paid the Rebate for Adding Liquidity or
assessed the Fee for Adding Liquidity in Section I and the Responder
will be assessed $0.30 per contract.
When the PIXL Order is contra to a resting order or quote
that was on the PHLX book prior to the auction, the PIXL Order will be
assessed $0.30 per contract and the resting order or quote will either
be paid the Rebate for Adding Liquidity or assessed the Fee for Adding
Liquidity in Section I. If the resting order or quote that was on the
PHLX was entered during the Auction, the PIXL Order will receive the
Rebate for Adding Liquidity or assessed the Fee for Adding Liquidity in
Section I and the resting order or quote will be assessed $0.30.
With respect to the PIXL Order, the Exchange is amending is
amending the PIXL fees for Section II symbols as follows:
When the PIXL Order is contra to the Initiating Order a
Customer PIXL Order will be assessed $0.00 and non-Customer PIXL Orders
will be assessed $0.30 per contract.
When a PIXL Order is contra to a PIXL Auction Responder, a
Customer PIXL Order will be assessed $0.00, other market participants
will be assessed $0.30 per contract, and a Responder will be assessed
$0.30 per contract, unless the Responder is a Customer, in which case
the fee will be $0.00 per contract.
When a PIXL Order is contra to a resting order or quote a
Customer PIXL Order will be assessed $0.00, other market participants
will be assessed $0.30 per contract and the resting order or quote will
be assessed the appropriate Options Transaction Charge in Section II.
In analyzing the impact of these amendments, the Exchange's
amendments to the Initiating Order provides market participants the
opportunity to lower the fee by transacting a greater number of
Customer Volume. With respect to the Select Symbols (Section I), the
Exchange today assesses a PIXL Order the Options Transaction Charges in
Section II with a maximum fee of $0.32 per contract. When a non-
Customer PIXL order is contra to the Initiating Order a non-Customer
PIXL Order that today is assessed the appropriate Options Transaction
Charge in Section II, which is capped at $0.32 per contract, would
instead pay $0.30 per contract. The Customer PIXL Order would not be
assessed a fee. When a PIXL Order is contra to a resting order or quote
that was on the PHLX book prior to the auction, the PIXL Order today is
assessed the Fee for Removing Liquidity in Section I, which is capped
at $0.32 per contract, would instead pay $0.30 per contract. The
resting contra-side order or quote on the book prior to the auction
will continue to be paid the Rebate/Fee for Adding Liquidity in Section
I as they are today.\31\ When a PIXL Order executes in an auction
against a Responder that responds with either a contra-side quote or
order sent in during the auction, the Responder is assessed the Fee for
Removing Liquidity in Section I and will be capped at $0.30 per
contract instead of the $0.32 cap that is assessed today. The PIXL
Order will continue to receive the Rebate for Adding Liquidity or
assessed the Fee for Adding Liquidity in Section I.
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\31\ The Fee for Adding Liquidity in Section I is $0.05 per
contact for Firms and Broker-Dealers. All other market participants
are not assessed a Fee for Adding Liquidity. See Section I, Part A
of the Pricing Schedule.
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With respect to Section II symbols, the PIXL Order and the contra-
side order or quote which today are assessed the appropriate Multiply
Listed Option Fee in Section II of the Pricing Schedule, up to a
maximum fee of $0.32 per contract, would be assessed $0.30 per
contract, except for Customers, who are not assessed a fee, when a PIXL
Order is contra an Initiating Order. When a PIXL Order is contra to a
PIXL Auction Responder a Customer PIXL Order would be assessed $0.00
(which is the case today), and other market participants would be
assessed $0.30 per contract as well as the Responder, unless the
Responder is a Customer, in which case there is no fee. When a PIXL
Order is contra to a resting order or quote the Customer would be
assessed no fee, all other market participants would be assessed $0.30
per contract and the resting order or quote would continue to be
assessed the Options Transaction Charges in Section II. The impact of
these amendments with regard to non-Customer market participants is
that a Professional which today is assessed a $0.25 per contract
Options Transaction Charge in both Penny Pilot and non-Penny Pilot
Options would pay an increased fee of $0.30 per contract, a Specialist
and Market Maker that today are assessed a
[[Page 64177]]
$0.22 per contract Options Transaction Charge in a Penny Pilot and a
$0.23 per contract Options Transaction Charge in a non-Penny Pilot
Option would pay an increased fee of $0.30 per contract, a Broker-
Dealer and Firm which today are assessed $0.32 per contact would pay
decreased fees of $0.30 per contract. In addition, the Exchange is
proposing to note that the Monthly Market Maker Cap will apply except
with respect to the Initiating Order fee which is not included in the
cap. PIXL Orders are proposed as part of the Monthly Market Maker Cap
as noted in this filing. The Exchange also proposes to specify in the
Pricing Schedule that all other fees discussed in Section II, including
Payment for Order Flow and surcharges will also apply as
appropriate.\32\ The Exchange believes that the PIXL fees which will be
the same for all market participants, except Customers, in each Section
I and II should encourage the initiation of price improvement auctions.
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\32\ Payment for Order Flow fees apply today as well.
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2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act \33\ in general,
and furthers the objectives of Section 6(b)(4) of the Act \34\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members and other persons using its
facilities.
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\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(4).
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Section II Amendments
Monthly Market Maker Cap
The Exchange's clarification to the Monthly Market Maker Cap is
reasonable, equitable and not unfairly discriminatory because it would
clarify in the Pricing Schedule that the fees related to an order or
quote that is contra to a PIXL Order or specifically responding to a
PIXL auction is included in the Monthly Market Maker Cap calculation.
In addition, all Specialists and Market Makers are afforded the
opportunity to cap their fees.
The Exchange's proposal to amend a fee which is assessed once a
Specialist or Market Maker has reached the Monthly Market Maker Cap is
reasonable because the Exchange is now including fees related to an
order or quote that is contra to a PIXL Order or specifically
responding to a PIXL auction in the Monthly Market Maker Cap. The
proposal to remove the exclusion for PIXL Orders and increase fee (from
$0.12 to $0.16 per contract) once the Monthly Market Maker Cap is
exceeded and a Specialist or Market Maker is contra an electronic
Customer order is reasonable because the Exchange is affording
Specialists and Market Makers the opportunity to reach the Monthly
Market Maker Cap earlier, by including PIXL orders. Also, the fee is
assessed only when the Monthly Market Maker Cap is exceeded and
Specialists and Market Makers are on the contra-side of an
electronically-delivered and executed Customer order.\35\ The Exchange
believes that this amendment will also permit the Exchange to pay
certain Customer Rebates based on tiers and average daily volume
thresholds which are described below and now also permits rebates for
PIXL Orders.
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\35\ The contra-side Customer is not assessed a fee in this
scenario.
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The Exchange's proposal to increase the fee (from $0.12 to $0.16
per contract) which is assessed once a Specialist or Market Maker has
reached the Monthly Market Maker Cap is equitable and not unfairly
discriminatory because all Specialist and Market Makers would be
uniformly assessed the fee as long as they have reached the cap and are
contra to an electronically-delivered Customer order.
Customer Rebate Program
The Exchange's proposal to amend the current three tier Customer
Rebate Program to a four tier program is reasonable, equitable and not
unfairly discriminatory because it will further incentivize a greater
number of market participants to take advantage of the Customer Rebate
Program because of the added categories of orders eligible for the
Customer Rebate Program and also because the Exchange is offering
market participants the opportunity to obtain higher rebates with the
addition of the new tier.
The Exchange also believes that the amendments to the Customer
Rebate Program are reasonable because the Customer liquidity that this
program attracts to the market benefits all market participants. The
program now includes new categories of orders that were not previously
included in the Average Daily Volume Threshold such as PIXL Orders in
Section II and Complex Orders in Select Symbols (Select I) that add
liquidity.
The Exchange also believes that the amendments to the Customer
Rebate Program are equitable because other than the Simple Orders in
Non-Penny Pilot Options that add liquidity, which today are included in
Category C, all other order types will receive the same or higher
rebates as described in the purpose section.\36\ With respect to the
Average Daily Volume calculation, the Exchange believes that the
amendments are reasonable, equitable and not unfairly discriminatory
because Select Symbols will now be included with the exception of
Simple Orders that remove liquidity (Simple Orders that add liquidity
will be included in Threshold Volume) \37\ and rebates will now be paid
on PIXL volume. The Exchange believes the amendments are reasonable
because the Exchange is offering market participants an opportunity to
earn rebates on order not subject to the Customer Rebate Program today
and market participants also have an opportunity to earn higher
rebates. The Exchange believes that the amendments are equitable and
not unfairly discriminatory because they will be uniformly applied to
all market participants.
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\36\ These orders will now be subject to a decreased rebate of
$0.07 per contract for volume between 50,000 to 99,999 contracts in
a month. Today those orders receive a rebate of $0.10 per contract.
Simple Orders in Non-Penny Pilot Options that add liquidity will
continue to receive no rebate for volume between 0 to 49,999
contracts. Also, the $0.10 per contract rebate will remain the same
for overs 100,000 but the tier will now be amended to volume between
100,000 to 274,999 contracts. The $0.12 per contract rebate for
volume over 275,000 contracts will also apply to these orders.
\37\ Complex Orders in Select Symbols are included in the
Threshold Volume today and will continue to be included with this
amendment.
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Section III Amendments--PIXL
The Exchange believes that the amendments to the PIXL pricing are
reasonable, because the Exchange is proposing to simplify the PIXL
pricing to assess no fees to Customers uniformly and to assess all non-
Customer market participants the same fees except with respect to
Section II when a PIXL Order is contra to a resting order or quote. In
this case the resting contra-side orders or quotes will continue to pay
the appropriate Options Transaction Charges in Section II. Also, while
there will be fee increases for Professionals, Specialists and Market
Makers in Section II, the Exchange is now proposing to include PIXL
Orders as orders that are eligible for rebates in the Customer Rebate
Program. The Exchange also believes that its fees are reasonable
because they are within the range of fees that are assessed by the
International Securities Exchange, LLC (``ISE'') for price improving
orders
[[Page 64178]]
(``Fees for Responses to Crossing Orders.'') \38\
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\38\ ISE assesses a range of Fees for Responses to Crossing
Orders from $0.18 to $0.40 per contract depending on the symbol.
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The Exchange also believes that it is reasonable to continue to
assess a $0.07 per contract Initiating Order fee, unless the market
participant has greater than 275,000 contracts per day in a month of
Threshold Volume in the Customer Rebate Program, in which case a
decreased $0.05 per contract fee would be assessed for the Initiating
Order, because this incentivizes market participants to send additional
Customer PIXL Order flow to the Exchange which reduces the market
participant's fees once a certain volume (275,000 contracts per day in
a month) is obtained and the Customer liquidity benefits all market
participants.
The Exchange believes that the amendments to PIXL pricing in Select
Symbols (Section I) are equitable and not unfairly discriminatory
because the fees will be lower for all market participants that today
pay $0.32 per contract and Customer PIXL Orders will remain free.
Responder fees will also be reduced from $0.32 to $0.30 per contract.
The Exchange believes that the amendments to the PIXL pricing in
Section II symbols are equitable and not unfairly discriminatory
because Customer PIXL Orders will remain free in all instances and all
non-Customer market participant PIXL Orders will be assessed a fee of
$0.30 per contract fee uniformly. The Exchange also believes that it is
equitable and not unfairly discriminatory to continue to assess a $0.07
per contract Initiating Order fee, unless the market participant has
greater than 275,000 contracts per day in a month of Threshold Volume
in the Customer Rebate Program, in which case a $0.05 per contract
Initiating Order fee would be assessed, because these fees would be
assessed uniformly on all market participants and would further
incentivize market participants to transact PIXL Orders. In addition,
the differential between the Initiating Order and the Responders to a
PIXL Order is $0.23 or $0.25 per contract as proposed, which is less
than or equal to the current differential.
The Exchange operates in a highly competitive market, comprised of
ten 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 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.
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 the
new Customer Rebate Program will attract additional Customer order flow
to the benefit of all market participants.
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.\39\ 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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\39\ 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 [email protected]. Please include
File Number SR-Phlx-2012-121 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2012-121. 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-2012-121 and should be
submitted on or before November 8, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25651 Filed 10-17-12; 8:45 am]
BILLING CODE 8011-01-P