[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Notices]
[Pages 28908-28911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11624]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69555; File No. SR-Phlx-2013-45]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Pricing for Mini Options
May 10, 2013.
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 April 29, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') a 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 Section A of the Exchange's Pricing
Schedule entitled ``Mini Options Fees''. While changes to the Pricing
Schedule pursuant to this proposal are effective upon filing, the
Exchange has designated that they become operative on May 1, 2013.
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 the proposed rule change is to amend Section A of
the Pricing Schedule by updating various existing transaction fees for
Non-Customers for both adding and removing liquidity. Additionally, the
proposed rule change will also establish fees and rebates applicable
for order executions that are part of PIXL.\3\
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\3\ PIXL is the Exchange's price improvement mechanism known as
Price Improvement XL or (PIXL\SM\). See Rule 1080(n) and Section IV
of the Pricing Schedule.
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Specifically, the Exchange is proposing to assess market
participants on a per trade basis the following fees and rebates on
Mini Options:
----------------------------------------------------------------------------------------------------------------
Specialist and
Customer Professional market maker Broker-dealer Firm
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Mini Options Transaction Fee-- $0.00 $0.03 $0.02 $0.03 $0.03
Electronic Adding Liquidity....
Mini Options Transaction Fee-- 0.00 0.09 0.04 0.09 0.09
Electronic Removing Liquidity..
Mini Options Transaction Fee-- 0.00 0.09 0.09 0.09 0.09
Floor and QCC..................
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Additionally, for executions that occur as part of PIXL, the
following fees and rebates will apply: (i) Initiating Order: $0.015 per
contract; (ii) PIXL Order (contra-party to the Initiating Order):
Customer is $0.00 and all others will be assessed will be assessed a
transaction fee of $0.03 per contract; and (iii) PIXL Order (contra-
party to other than the Initiating Order): Customer will be assessed a
transaction fee of $0.00 and all others will be assessed a transaction
fee of $0.03 per contract (the contra-party will be assessed a
transaction fee of $0.03 per contract).
PFOF fees will be as follows: (i) Penny Pilot Options: $0.02; and
(ii) all Other Options: $0.06. Also, Routing Fees set forth in Section
V will now apply to Mini Options. Other options transaction fee caps,
discounts or rebates, in addition to the Monthly Market Maker Cap and
the Monthly Firm Fee Cap set forth in Section II that already do not
apply to transactions in Mini Options, also now will not apply to
transactions in Mini Options. Finally, Mini Options volume will now be
included in the calculations for the Customer Rebate Program
eligibility, but will not be eligible to receive the rebates associated
with the Customer Rebate Program.
Transaction Fees. Section A provides for a ``Mini Options
Transaction Fee--Electronic'' and for a ``Mini-Options Transaction
Fee--Floor and QCC'', both of which apply in the Customer,
Professional, Specialist and Market Maker, Broker-Dealer and Firm fee
categories. As noted in a previous filing, ``the Exchange is currently
setting these fees at $0.00 but may in the future file
[[Page 28909]]
proposed rule changes to amend the transaction fee level in one or more
categories.'' \4\ The Exchange now seeks to amend the transaction fee
level in several categories and, specifically, separate the ``Mini
Options Transaction Fee--Electronic'' into two distinct fee categories,
``Mini Options Transaction Fee--Electronic Adding Liquidity'' and
``Mini Options Transaction Fee--Electronic Removing Liquidity''.
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\4\ See Securities Exchange Act Release No. 69351 (April 9,
2013), 78 FR 22353 (April 15, 2013) at 22353 (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Relating to Pricing
of Mini Options).
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The ``Mini Options Transaction Fee--Electronic Adding Liquidity''
for Professionals, Broker-Dealers, and Firms will increase from $0.00
to $0.03 per contract. This same transaction fee for Specialists and
Market Makers will increase from $0.00 to $0.02 per contract, while for
Customers it will remain $0.00.
The ``Mini Options Transaction Fee--Electronic Removing Liquidity''
for Professionals, Broker-Dealers, and Firms will increase from $0.00
to $0.09 per contract. This same transaction fee for Specialists and
Market Makers will increase from $0.00 to $0.04 per contract, while for
Customers it will remain $0.00.
The ``Mini Options Transaction Fee--Floor and QCC'' for
Professionals, Specialists and Market Makers, Broker-Dealers, and Firms
will increase from $0.00 to $0.09 per contract. This same transaction
fee for Customers will remain $0.00.
PIXL Executions. For order executions that are part of PIXL,
certain new fees will apply. Initiating Orders will be $0.15 per
contract [sic]. PIXL Orders (contra-party to the Initiating Order) will
be $0.00 for Customers and all others will be assessed a transaction
fee of $0.03 per contract. For PIXL Orders (contra-party to other than
the Initiating Order) Customers will be assessed a transaction fee of
$0.00 and all others will be assessed a transaction fee of $0.03 per
contract. The contra-party will be assessed a transaction fee of $0.03
per contract.
Payment for Order Flow. PFOF will now apply to Mini Options and
will be $0.02 per contract for Penny Pilot Options and $0.06 for all
other options.\5\
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\5\ The Payment for Order Flow program started on July 1, 2005
as a pilot and after a series of orders extending the pilot became
effective on April 29, 2012. See Securities Exchange Act Release No.
52114 (July 22, 2005), 70 FR 44138 (August 1, 2005) (SR-Phlx-2005-
44); 57851 (May 22, 2008), 73 FR 31177 (May 20, 2008) (SR-Phlx-2008-
38); 55891 (June 11, 2007), 72 FR 333271 (June 15, 2007) (SR-Phlx-
2007-39); 53754 (May 3, 2006), 71 FR 27301 (May 10, 2006) (SR-Phlx-
2006-25); 53078 (January 9, 2006), 71 FR 2289 (January 13, 2006)
(SR-Phlx-2005-88); 52568 (October 6, 2005), 70 FR 60120 (October 14,
2005) (SR-Phlx-2005-58); and 59841 (April 29, 2009), 74 FR 21035
(May 6, 2009) (SR-Phlx-2009-38).
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Routing Fees. Routing fees set forth in Section V will now apply to
Mini Options.
Fee Caps. In addition to the Monthly Market Maker Cap and the
Monthly Firm Fee Cap set forth in Section II that do not apply to
transactions in Mini Options, neither will other transaction fee caps,
discounts or rebates.
Customer Rebate Program. Also, Mini Options volume will now be
included in the calculations for the Customer Rebate Program
eligibility, but will not be eligible to receive the rebates associated
with the Customer Rebate Program. However, by including Mini Options
volume in the calculations for the Customer Rebate Program eligibility,
members have the ability to earn additional rebates because they can
add this volume to other eligible volume for purposes of qualifying for
a rebate tier in Section B of the Pricing Schedule.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act \6\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \7\ 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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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4).
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Transaction Fees. The Exchange believes that for Customers the
proposed Mini Options Transaction Fee-Electronic Adding Liquidity, Mini
Options Transaction Fee-Electronic Removing Liquidity, and Mini Options
Transaction Fee--Floor and QCC, as well as the fees and rebates
applicable for executions that occur as part of PIXL, are reasonable
because those fees are set at zero in order to encourage Customers to
transact Mini Options.
The Exchange also believes that the Mini Options Transaction Fee-
Electronic Adding Liquidity, the Mini Options Transaction Fee-
Electronic Removing Liquidity, and the Mini Options Transaction Fee--
Floor and QCC are reasonable, equitable and not unfairly discriminatory
because while all Customers will be able to take advantage of the zero
fee level, all Professionals, Broker-Dealers, and Firms will all pay
the identical per contract transaction fees ($0.03, $0.09 and $0.09,
respectively) and will therefore be treated in a uniform manner.
Specialists and Market Makers will also pay the identical Mini Options
Transaction Fee--Floor and QCC of $0.09 per contract and will therefore
also be treated in a uniform manner.
Specialists and Market Makers will pay a lower Mini Options
Transaction Fee-Electronic Adding Liquidity and a lower Mini Options
Transaction Fee-Electronic Removing Liquidity fees of $0.02 and $0.04
per contract, respectively. These lower fees are reasonable, equitable
and not unfairly discriminatory because Specialists and Market Makers
have obligations to the market and regulatory requirements, which
normally do not apply to other market participants. They have
obligations to make continuous markets, engage in a course of dealings
reasonably calculated to contribute to the maintenance of a fair and
orderly market, and not make bids or offers or enter into transactions
that are inconsistent with a course of dealings. The proposed
differentiation as between Specialists and Market Makers, Customers and
other market participants recognizes the differing contributions made
to the liquidity and trading environment on the Exchange by these
market participants.
The fees are also reasonable in light of the fact that the Mini
Options do have a smaller exercise and assignment value, specifically
1/10th that of a standard contract, and, as such, levying fees that are
approximately 10% of what a market participant pays today is reasonable
and equitable. The Exchange's cost to process quotes, orders and trades
in Mini Options is the same as for standard options, supporting the
proposed floor and remove liquidity transaction fees for other than
Customer. However, the Exchange believes it is necessary to keep fees
to provide liquidity lower than the fees for removing liquidity to
create appropriate economics to ensure there is ample liquidity for
market participants to execute against.
PIXL Executions. The Exchange's proposal to charge the following
new fees for order executions that are part of PIXL is reasonable.
Specifically, Initiating Orders will be $0.015 per contract. PIXL
Orders (contra-party to the Initiating Order) will be $0.00 for
Customers and all others will be assessed a transaction fee of $0.03
per contract. For PIXL Orders (contra-party to other than the
Initiating Order) Customers will be assessed a transaction fee of $0.00
and all others will be assessed a transaction fee of $0.03 per
contract. The contra-party will be assessed a transaction fee of $0.03
per contract.
Generally, these fees range from slightly more than, to slightly
less than,
[[Page 28910]]
10% of what the various market participants pay today. Charging all
market participants the same fee for Initiating Orders is equitable and
not unfairly discriminatory because it applies to all market
participants equally. The transaction fee for PIXL Orders (contra-party
to the Initiating Order) and for PIXL Orders (contra-party to other
than the Initiating Order) are equitable and not unfairly
discriminatory because they apply to all market participants, other
than Customers, equally and uniformly.
It is equitable and not unfairly discriminatory to not charge
Customers a transaction fee for PIXL Orders (contra-party to the
Initiating Order) or for PIXL Orders (contra-party to other than the
Initiating Order) because the Exchange believes it helps attract
Customers, which is beneficial to all other market participants on the
Exchange who generally seek to trade with Customer order flow.
Payment for Order Flow Fees. The Exchange believes that it is
reasonable that the PFOF fees will now apply to Mini Options at a rate
of $0.02 per contract for Penny Pilot Options and $0.06 for all other
options. The Exchange also believes that this proposal is equitable and
not unfairly discriminatory as it applies to all of market participants
equally. Further, the proposed PFOF fees are similar to those already
established at other market centers.\8\
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\8\ See Chicago Board Options Exchange, MIAX Options Exchange
and NYSE AMEX fee schedules.
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The fees are also reasonable in light of the fact that the Mini
Options do have a smaller exercise and assignment value, specifically
1/10th that of a standard contract, and, as such, levying fees that are
approximately 10% of what a market participant pays today is reasonable
and equitable. The Exchange's cost to process quotes, orders and trades
in Mini Options is the same as for standard options.
Routing Fees. The Exchange believes that it is reasonable,
equitable and not unfairly discriminatory that the routing fees set
forth in Section V will now apply to Mini Options. These fees are
reasonable because they will allow the Exchange to recoup and cover its
costs of providing routing services for Customer orders in Mini Options
just as it does for other standard equity options for which it incurs
the same costs.
The Exchange believes that Routing Fees are equitable and not
unfairly discriminatory because the Exchange would uniformly assess the
same Routing Fees to all Customers and Non-Customers, and because
market participants have the ability to directly route orders in Mini
Options to an away market and avoid the Routing Fee. Market
participants may submit orders to the Exchange as ineligible for
routing or ``DNR'' to avoid Routing Fees.
Finally, the Exchange believes that it is reasonable, equitable and
not unfairly discriminatory to assess different fees for Customers
orders as compared to non-Customer orders because the Exchange has
traditionally assessed lower fees to Customers as compared to non-
Customers. Customers will continue to receive the lowest fees or no
fees when routing orders, as is the case today. Other options exchanges
also assess lower Routing Fees for customer orders as compared to non-
customer orders in standard options.\9\
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\9\ BATS assesses lower customer routing fees as compared to
non-customer routing fees per the away market. For example BATS
assesses ISE customer routing fees of $0.30 per contract and an ISE
non-customer routing fee of $0.57 per contract. See BATS BZX
Exchange Fee Schedule.
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Fee Caps. The Exchange has previously stated that it believes that
it is reasonable, equitable and not unfairly discriminatory to not
apply the Monthly Market Maker Cap or Monthly Firm Fee Cap to Mini
Options transaction fees \10\ and now seeks to clarify that other
options transaction fee caps, discounts or rebates will also not apply
to transactions in Mini Options and that this equitable and not
unfairly discriminatory because this applies to all market participants
equally and uniformly.
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\10\ Supra note 4.
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Customer Rebate Program. The Customer Rebate Program was
established to incentivize market participants to increase the amount
of Customer order flow they transact on the Exchange.\11\ The Exchange
believes that it is reasonable, equitable and not unfairly
discriminatory that Mini Options volume will be included in, but will
not be eligible for the Customer Rebate Program defined in Section B of
the Pricing Schedule. However, by including Mini Options volume in the
calculations for the Customer Rebate Program eligibility, members have
the ability to earn additional rebates from standard contracts because
they can add this volume to other eligible volume for purposes of
qualifying for a rebate tier in Section B of the Pricing Schedule. It
is reasonable, equitable and not unfairly discriminatory since any
market participant is eligible for a tier, which means that more
eligible volume equals more ways for a market participant to earn a
rebate.
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\11\ See Securities Exchange Act Release No. 68924 (February 13,
2013), 78 FR 11916 (February 20, 2013).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange operates in a highly competitive market, comprised of
eleven 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 described in the above proposal are influenced by these robust
market forces and therefore must remain competitive with fees charged
and rebates paid by other venues and therefore must continue to be
reasonable and equitably allocated to those members that opt to direct
orders to the Exchange rather than competing venues.
The Mini Options are a new product that will commence trading on
the Exchange on March 28, 2013. The Exchange believes that
incentivizing market participants to transact Mini Options by not
assessing transaction fees and certain other fees encourages
competition in these products. There is no intra-market competition as
the Exchange will treat all market participants in a like manner with
respect to the transaction fees. Also, the Exchange believes that
because other markets will also list Mini Options there is no undue
burden on intermarket competition because market participants will be
able to select the venue where they will trade these products. In terms
of Routing, the Exchange-believes that assessing Customers lower fees
as compared to Non-Customers and assessing the same Routing Fees to all
Non-Customers regardless of the venue does not create an undue burden
on competition. The Exchange has traditionally assessed no or lower
fees to Customers. Also, the Exchange believes that because Mini
Options represent 1/10th of the size of a standard option contract,
reduced Routing Fees will not misalign the cost to transact Mini
Options.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
[[Page 28911]]
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.\12\ 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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\12\ 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-2013-45 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-2013-45. 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-2013-45 and
should be submitted on or before June 6, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11624 Filed 5-15-13; 8:45 am]
BILLING CODE 8011-01-P