[Federal Register Volume 78, Number 126 (Monday, July 1, 2013)]
[Notices]
[Pages 39426-39429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15615]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69842; File No. SR-Phlx-2013-68]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Section B of Exchange's Pricing Schedule
June 25, 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 June 21, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 at
Section B, entitled ``Customer Rebate Program'' to amend the various
defined categories associated with Customer rebates.
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 Exchange proposes to amend Section B of the Pricing Schedule,
entitled ``Customer Rebate Program,'' to provide members and member
organizations the ability to achieve greater Customer rebates by
transacting PIXL \3\ Orders.
---------------------------------------------------------------------------
\3\ PIXL is the Exchange's price improvement mechanism known as
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
---------------------------------------------------------------------------
Currently, the Exchange has in place a four tier structure Customer
Rebate Program at Section B of the Pricing Schedule which pays Customer
rebates on four Categories, A, B, C and D, of transactions. The four
tier structure pays rebates based on percentage thresholds of national
customer multiply-listed options volume by month based on four
Categories (A, B, C and D) of transactions. Specifically, the Exchange
bases a market participant's qualification for a certain Rebate Tier on
the percentage of total national customer volume in multiply-listed
options which are transacted monthly on Phlx as follows:
[[Page 39427]]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage thresholds of national
customer volume in multiply-listed
Customer rebate tiers equity and ETF options classes, Category A Category B Category C Category D
excluding SPY options (monthly)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tier 1.......................................... 0.00%-0.75%....................... $0.00 $0.00 $0.00 $0.00
Tier 2.......................................... Above 0.75%-1.60%................. 0.12 0.17 0.17 0.08
Tier 3.......................................... Above 1.60%-2.60%................. 0.14 0.17 0.17 0.08
Tier 4.......................................... Above 2.60%....................... 0.15 0.17 0.17 0.09
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Exchange totals Customer volume in Multiply Listed Options
(including Select Symbols and options overlying Standard and Poor's
Depositary Receipts/SPDRs (``SPY'')); \4\ that are electronically-
delivered and executed, except volume associated with electronic
Qualified Contingent Cross (``QCC'') Orders,\5\ as defined in Exchange
Rule 1080(o).\6\ Members and member organizations under Common
Ownership \7\ may aggregate their Customer volume for purposes of
calculating the Customer Rebate Tiers and receiving rebates.
---------------------------------------------------------------------------
\4\ SPY options are based on the SPDR exchange-traded fund
(``ETF''), which is designed to track the performance of the S&P 500
Index.
\5\ A QCC Order is comprised of an order to buy or sell at least
1000 contracts that is identified as being part of a qualified
contingent trade, as that term is defined in Rule 1080(o)(3),
coupled with a contra-side order to buy or sell an equal number of
contracts. The QCC Order must be executed at a price at or between
the National Best Bid and Offer and be rejected if a Customer order
is resting on the Exchange book at the same price. A QCC Order shall
only be submitted electronically from off the floor to the PHLX XL
II System. See Rule 1080(o). See also Securities Exchange Act
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate
the execution of stock/option Qualified Contingent Trades (``QCTs'')
that satisfy the requirements of the trade through exemption in
connection with Rule 611(d) of Regulation NMS). A Floor QCC Order
must: (i) Be for at least 1,000 contracts, (ii) meet the six
requirements of Rule 1080(o)(3) which are modeled on the QCT
Exemption, (iii) be executed at a price at or between the National
Best Bid and Offer; and (iv) be rejected if a Customer order is
resting on the Exchange book at the same price. In order to satisfy
the 1,000-contract requirement, a Floor QCC Order must be for 1,000
contracts and could not be, for example, two 500-contract orders or
two 500-contract legs. See Rule 1064(e). See also Securities
Exchange Act Release No. 64688 (June 16, 2011), 76 FR 36606 (June
22, 2011) (SR-Phlx-2011-56).
\6\ The Exchange calculates volume and pays rebates based on a
member's or member organization's Phlx house account number.
\7\ Common ownership means 75% common ownership or control.
---------------------------------------------------------------------------
Category A rebates are 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 symbols.\8\
Rebates are paid on Customer PIXL Orders in Section II symbols that
execute against non-Initiating Order \9\ interest, except in the case
of Customer PIXL Orders that are greater than 999 contracts. All
Customer PIXL Orders that are greater than 999 contracts are paid a
rebate regardless of the contra-party to the transaction.
---------------------------------------------------------------------------
\8\ Section II of the Pricing Schedule includes Multiply Listed
Options Fees, including options overlying equities, ETFs, ETNs and
indexes which are Multiply Listed.
\9\ 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). Non-
Initiating Order interest could be a PIXL Auction Responder or a
resting order or quote that was on the Phlx book prior to the
auction.
---------------------------------------------------------------------------
Category B rebates are paid to members executing electronically-
delivered Customer Complex Orders in Penny Pilot Options and Non-Penny
Pilot Options in Section II symbols.
Category C rebates are paid to members executing electronically-
delivered Customer Complex Orders \10\ in Select Symbols \11\ in
Section I.
---------------------------------------------------------------------------
\10\ 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).
\11\ The Select Symbols are listed in Section I of the Pricing
Schedule.
---------------------------------------------------------------------------
Category D rebates are paid to members executing electronically-
delivered Customer Simple Orders in Select Symbols in Section I.
Rebates are paid on PIXL Orders in Section I symbols that execute
against non-Initiating Order interest.
The Exchange is proposing to amend Categories B and C to offer
rebates on qualifying \12\ Customer PIXL Complex Orders in Section II
symbols for Category B and Section I symbols for Category C that
execute against non-Initiating Order interest, except in the case of
Customer PIXL Complex Orders that are greater than 999 contracts. All
Customer PIXL Complex Orders that are greater than 999 contracts would
be paid a rebate regardless of the contra-party to the transaction.
---------------------------------------------------------------------------
\12\ The Exchange pays rebates on certain Customer volumes as
specified in Section B of the Pricing Schedule.
---------------------------------------------------------------------------
The Exchange filed a proposed rule change to amend its Rules to
permit Complex Orders in PIXL.\13\ Specifically, the Exchange filed a
proposal to amend Rule 1080 to allow Complex Orders in the Exchange's
price-improving electronic auction, PIXL.\14\ The Exchange proposes to
permit members to receive a Customer rebate, pursuant to Section B of
the Exchange's Pricing Schedule, by transacting qualifying Customer
PIXL Complex Orders in Multiply Listed Section I and II symbols
provided the transactions are against non-Initiating Order interest and
not greater than 999 contracts. If the Customer PIXL Complex Order is
greater than 999 contracts, that transaction will be paid a rebate
regardless of the contra-party to the transaction. The Exchange
proposes for this rule change to become immediately effective, however
a member would not be able to transact PIXL Complex Orders, and thereby
receive Customer rebates, until SR-Phlx-2013-46 is approved by the
Commission.\15\
---------------------------------------------------------------------------
\13\ Securities Exchange Act Release No. 69550 (May 9, 2013), 78
FR 28654 (May 15, 2013) (SR-Phlx-2013-46) (notice of filing of
proposed rule change to accommodate Complex Orders in PIXL).
\14\ The PIXL mechanism is a process whereby members and member
organizations electronically submit orders they represent as agent
against principal interest or other interest that they represent as
agent. The submitted orders are stopped at a price and are
subsequently entered into an auction seeking price improvement.
Currently, the PIXL mechanism accepts only simple orders. Securities
Exchange Act Release No. 69550 (May 9, 2013), 78 FR 28654 (May 15,
2013) (SR-Phlx-2013-46).
\15\ The functionality to transact PIXL Complex Orders will not
be available unless and until such time as the Commission approves
SR-Phlx-2013-46. The purpose of this filing is to offer members the
opportunity to achieve certain rebates related to PIXL Complex
Orders when the functionality to transact such orders is approved by
the Commission.
---------------------------------------------------------------------------
The Exchange proposes to amend Category D to offer members a
similar
[[Page 39428]]
rebate opportunity. The Exchange proposes to pay rebates on qualifying
Customer PIXL Orders in Select Symbols in Section I that execute
against non-Initiating Order interest, except in the case of Customer
PIXL Order that are greater than 999 contracts. All Customer PIXL
Orders that are greater than 999 contracts would be paid a rebate
regardless of the contra-party to the transaction.
The Exchange believes that offering members the opportunity to
obtain rebates from PIXL transactions, whether in Simple or Complex
Orders, will incentivize members to transact a greater number of PIXL
Orders.
The Exchange also proposes to make technical amendments to the text
of Category A to clarify rule text and conform the text to the new
language which the Exchange proposes to add pursuant to this rule
change.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act \16\ in general,
and furthers the objectives of Section 6(b)(4) of the Act \17\ in
particular, in that it provides for an equitable allocation of
reasonable fees and other charges among Exchange members and member
organizations and other persons using its facilities.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange's proposal to amend Categories B and C of the Customer
Rebate Program to pay rebates on qualifying Customer PIXL Complex
Orders in Section I (Category C) and II (Category B) symbols, provided
those transactions are contra to non-Initiating Order interest,\18\ and
also pay Customer PIXL Complex Order rebates on all orders greater than
999 contracts regardless of the contra-party is reasonable because the
Exchange desires to incentivize members to transact Complex Orders in
PIXL. Today, the Exchange incentivizes members to transact Simple
Orders in PIXL by offering similar rebates under Category A \19\ of the
Customer Rebate Program.
---------------------------------------------------------------------------
\18\ For example, a PIXL Responder or a resting order or quote
that was on the Phlx book prior to the auction.
\19\ Category A rebates are paid to members and member
organizations executing electronically-delivered Customer Simple
Orders in Penny Pilot Options and Customer Simple Orders in Non-
Penny Pilot Options in Section II. Rebates are paid on Customer PIXL
Orders in Section II symbols that execute against non-Initiating
Order interest, except in the case of Customer PIXL Orders that are
greater than 999 contracts. All Customer PIXL Orders that are
greater than 999 contracts are paid a rebate regardless of the
contra-party to the transaction.
---------------------------------------------------------------------------
The Exchange's proposal to amend Category D of the Customer Rebate
Program to pay rebates on qualifying Customer PIXL Orders in Section I
Select Symbols provided those transactions are contra to non-Initiating
Order interest and also pay Customer PIXL Order rebates on all orders
greater than 999 contracts regardless of the contra-party is reasonable
because the Exchange desires to incentivize members to transact a
greater number of Simple Orders in PIXL. Today, the Exchange offers a
rebate for Simple Orders in PIXL under Category A of the Customer
Rebate Program.
The Exchange believes that the proposals to amend Categories B, C
and D of the Customer Rebate Program to pay rebates on Customer Simple
and Complex Orders in PIXL, respectively, in Section I and II symbols,
provided those transactions are contra to non-Initiating Order
interest,\20\ and also pay Customer PIXL Complex Order rebates on all
orders greater than 999 contracts regardless of the contra-party are
equitable and not unfairly discriminatory because the Exchange will pay
Customer rebates to any market participant that transacts a qualifying
Customer PIXL Order in a Simple or Complex Order that executes against
non-Initiating Order interest and will also pay Customer rebates to any
market participant that transacts a qualifying Customer Simple or
Complex Order in PIXL which is greater than 999 contracts regardless of
the contra-party in Section I and II symbols. The Exchange will apply
the Category B, C and D rebates uniformly with respect to market
participants transacting qualifying PIXL Orders.
---------------------------------------------------------------------------
\20\ For example, a PIXL Auction Responder or a resting order or
quote that was on the Phlx book prior to the auction.
---------------------------------------------------------------------------
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 its proposal to amend Category B, C and
D of the Customer Rebate Program does not impose an undue burden on
competition because the Exchange is offering to pay Customer rebates on
qualifying PIXL Simple and Complex Orders in Section I and II symbols,
respectively, provided those transactions are contra to non-Initiating
Order interest, to all participants. The Exchange is also offering to
pay Customer rebates on PIXL Simple and Complex Orders in Section I and
II symbols, respectively, on all qualifying orders greater than 999
contracts regardless of the contra party for all market participants.
These rebates should attract Customer PIXL Simple and Complex Order
flow to the Exchange and benefit all market participants through the
increased liquidity such order flow will bring to the PIXL auction in
terms of order interaction. Today, the Exchange pays rebates on PIXL
Simple Orders only in Category A of the Customer Rebate Program. With
this proposal, the Exchange is providing an opportunity to obtain
Customer rebates by transacting both Simple and Complex Orders in PIXL,
respectively, in all categories of the Customer Rebate Program.
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.
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.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
[[Page 39429]]
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-2013-68 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-2013-68. 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-2013-68 and
should be submitted on or before July 22, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
---------------------------------------------------------------------------
\22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15615 Filed 6-28-13; 8:45 am]
BILLING CODE 8011-01-P