[Federal Register Volume 78, Number 114 (Thursday, June 13, 2013)]
[Notices]
[Pages 35654-35656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-14026]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69717; File No. SR-Phlx-2013-60]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to the
Schedule of Fees and Rebates for Execution of Quotes and Orders on
NASDAQ OMX PSX
June 7, 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 May 31, 2013, 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 changes to its schedule of fees and rebates
for execution of quotes and orders on NASDAQ OMX PSX (``PSX''). Phlx
proposes to implement the proposed rule change on June 3, 2013. The
text of the proposed rule change is available on the Exchange's Web
site at http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx, 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
Phlx is proposing two modifications to its schedule of fees and
rebates for transactions occurring on PSX.\3\ First, the Exchange
currently charges a fee of $0.00275 per share executed for orders in
securities listed on The NASDAQ Stock Market (``NASDAQ'') or the New
York Stock Exchange (``NYSE'') entered through a PSX market participant
identifier (``MPID'') through which a member organization provides an
average daily volume of 10,000 or more shares of liquidity during the
month. On May 1, 2013, Phlx submitted a proposed rule change that would
have, among other things, set the applicable fee for this volume tier
at $0.0028 per share executed.\4\ When that proposed rule change was
rejected for unrelated reasons, Phlx submitted another proposed rule
change to modify fees on May 3, 2013.\5\ Because, however, the change
filed on May 3 did not apply retroactively to May 1, Phlx determined
that it would be advisable to set the applicable fee at $0.00275 per
share executed for the month of May, to reflect the fact that member
organizations qualifying for the tier would be paying the pre-existing
higher rate of $0.0030 per share executed for transactions occurring on
May 1 and 2. Phlx is now proposing to set the applicable fee at the
originally intended rate of $0.0028 per share executed.
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\3\ The changes apply to securities priced at $1 or more per
share.
\4\ SR-Phlx-2013-47 (May 1, 2013).
\5\ Securities Exchange Act Release No. 69588 (May 15, 2013), 78
FR 29801 (May 21, 2013) (SR-Phlx-2013-51).
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Second, the Exchange proposes to modify its rebate tier of $0.0028
per share executed for displayed quotes/orders entered by a member
organization that provides an average daily volume of 2 million or more
shares of liquidity during the month by also requiring that (i) the
quote/order is entered through an MPID through which the member
organization displays, on average over the course of the month, 100
shares or more at the national best bid and/or national best offer at
least 25% of the time during regular market hours \6\ in the security
that is the subject of the quote/order, or (ii) the member organization
displays, on average over the course of the month, 100 shares or more
at the national best bid and/or national best offer at least 25% of the
time during regular market hours in 500 or more securities. A member
organization is not required to register as a PSX Market Maker in order
to qualify for the pricing tier. Rather, the trading data compiled by
the Exchange's systems on an ongoing basis allow it to determine which
member organizations and MPIDs satisfy the requirements for the tier,
and Phlx will use this information to determine the applicable rebate
rate to reflect in each member organization's monthly bill. To the
extent that a member organization satisfies the requirements for the
tier
[[Page 35655]]
during a particular month, the rebate will apply throughout that month.
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\6\ Phlx is adding a footnote to the fee schedule defining
regular market hours to mean ``9:30 a.m. through 4:00 p.m. Eastern
Time, or such shorter period as may be designated by the Exchange on
a day when PSX closes early'' (e.g., the day after Thanksgiving).
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The overall purpose of this change is to use financial incentives
to encourage member organizations to increase the extent to which they
choose to offer displayed liquidity at the inside market through
PSX.\7\ In doing so, the Exchange hopes to increase the attractiveness
of PSX as a trading venue and benefit all of its market participants by
increasing the extent to which liquidity is available on PSX at or near
the national best bid and/or national best offer. This pricing tier is
similar to programs that are in effect at NASDAQ and NASDAQ OMX BX
(``BX'') as well as similar programs for options that have been in
effect at other national securities exchanges, under which the
availability of a particular fee or rebate is conditioned upon the
extent to which quotes/orders are at or near the inside market.\8\
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\7\ In its ``Recommendations Regarding Regulatory Responses to
the Market Events of May 6, 2010'' (February 18, 2011) (available at
http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/jacreport_021811.pdf), the Joint CFTC-SEC Advisory Committee on
Emerging Regulatory Issues recommend that the Commission ``consider
encouraging, through incentives or regulation, persons who regularly
implement market maker strategies to maintain best buy and sell
quotations which are `reasonably related to the market,' '' noting
that such ``measures could certainly include differential pricing.''
Phlx believes that this proposed rule change expands on this
recommendation by providing incentives for all member organizations,
whether or not registered as market makers, to maintain buy and sell
quotations at the inside market for a significant portion of the
trading day.
\8\ See NASDAQ Rule 7014(g) and BX Rule 7018(a). See also
Securities Exchange Act Release No. 62507 (July 15, 2010), 75 FR
42802 (July 22, 2010) (SR-ISE-2010-68); Securities Exchange Act
Release No. 65076 (August 9, 2011), 76 FR 50525 (August 15, 2011)
(SR-BATS-2011-024). Phlx also notes that to the extent that the
proposed modification to the tier takes account of a member
organization's time at the inside market, it requires the Exchange
to perform calculations similar to those performed in connection
with its Excess Order Fee, which weights orders differently for
purposes of calculating a fee depending on the extent to which the
price of an order deviates from the inside market. See NASDAQ OMX
PHLX Pricing Schedule, Section VIII, paragraph (c). See also NASDAQ
Rule 7018(m), BX Rule 7018(d).
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2. Statutory Basis
Phlx believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act,\9\ in general, and with Sections
6(b)(4) and 6(b)(5) of the Act,\10\ 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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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4) and (5).
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The proposal to condition the availability of a rebate tier of
$0.0028 per share executed upon the satisfaction of stipulated
requirements for volume and extent of time with quotes/orders at the
national best bid and/or national best offer is reasonable because it
will condition the availability of a higher rebate tier on the extent
to which a member organization makes significant contributions to PSX
and its market quality by providing liquidity in the aggregate and by
maintaining trading interest at prices favorable to market participants
on the opposite side of the market. Moreover, the proposed change is
consistent with an equitable allocation of fees because the rebate is
provided to member organizations that benefit other market participants
through high levels of liquidity provision and consistent quoting at
the NBBO. In instances where a member organization's contribution to
PSX's time at the inside is limited to a small number of securities,
the rebate is allocated solely to transactions in the securities where
the member organization achieves time at the inside requirements.
Conversely, where the member organization makes notable market quality
contributions across 500 securities, the rebate is allocated to all of
the member organization's displayed quotes/orders, to reflect the more
significant contribution of the member organization to supporting
transactions at best prices and PSX's overall attractiveness as a
trading venue. The proposal is not unreasonably discriminatory because
the rebate is consistent with the benefits provided by market
participants receiving it, and because the Exchange offers alternative
means to receive a rebate that is only slightly lower ($0.0026 per
share executed) and that has very modest liquidity requirements
associated with it. The change does not result in any burden on
competition that is not necessary or appropriate; rather, the change
will promote competition by using pricing incentives to encourage
market participants to quote at the inside market to a greater extent,
thereby increasing the attractiveness of PSX as a trading venue.
Although the tier allows members qualifying for it to receive a higher
rebate than other market participants, this does not unduly burden
competition because the difference between the applicable rebate and
the next lowest rebate is only $0.0002 per share executed, and Phlx
believes that the difference is commensurate with the benefits provided
through satisfaction of the tier's volume and quoting requirements.
The change with respect to the fee charged for orders in securities
listed on NASDAQ or NYSE that are entered through a PSX MPID through
which a member organization provides an average daily volume of 10,000
or more shares of liquidity during the month is reasonable because it
reflects a small increase of $0.00005 per share executed. Moreover, the
fee in question is consistent with the requirements of SEC Rule 610(c)
under Regulation NMS.\11\ In adopting that rule, the Commission found
that fees not in excess of $0.0030 per share executed would promote the
objective of equal regulation and preventing excessive fees.\12\ The
change is consistent with an equitable allocation of fees because the
modified fee applicable to the volume tier in question remains lower
than the fee charged to member organizations not achieving the tier,
and therefore continues to provide a financial incentive for member
organizations to achieve higher volume levels at PSX. The change is not
unfairly discriminatory because the resulting fee is not higher than
the fee that other members may achieve through the use of routable
orders. Finally, the fee change does not unduly burden competition
because affected member organizations will continue to pay an access
fee that is lower than the base rate of $0.0030 per share executed, and
therefore their ability to compete will not be impacted; rather, they
will continue to pay a comparatively lower fee that reflects a volume-
based discount, conceptually similar to volume-based pricing incentives
that are provided by numerous other trading venues.
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\11\ 17 CFR 242.610(c).
\12\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37596 (June 29, 2005).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Phlx does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.\13\ Phlx notes that
it operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, Phlx must
continually adjust its fees to remain competitive with other
[[Page 35656]]
exchanges and with alternative trading systems that have been exempted
from compliance with the statutory standards applicable to exchanges.
Because competitors are free to modify their own fees in response, and
because market participants may readily adjust their order routing
practices, Phlx believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited. In
this instance, Phlx is instituting a small increase to one fee and
imposing conditions upon the availability of an enhanced rebate tier.
If the changes are unattractive to market participants, it is likely
that PSX will fail to increase its share of executions above its
current low level. Accordingly, Phlx does not believe that the changes
will impair the ability of member organizations or competing order
execution venues to maintain their competitive standing in the
financial markets.
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\13\ 15 U.S.C. 78f(b)(8).
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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) of the Act \14\ and paragraph (f) of Rule 19b-4
thereunder.\15\ 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.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f).
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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-2013-60 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-2013-60. 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-2013-60 and should be
submitted on or before July 5, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-14026 Filed 6-12-13; 8:45 am]
BILLING CODE 8011-01-P