[Federal Register Volume 78, Number 183 (Friday, September 20, 2013)]
[Notices]
[Pages 57913-57916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-22911]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70416; File No. SR-Phlx-2013-92]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Pricing Schedule Sections II and IV
September 16, 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 September 3, 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 to amend its Pricing Schedule by waiving the
Broker-Dealer Floor Options Transaction Charge (including the Cabinet
Options Transaction Charge) as well as the Broker-Dealer FLEX
transaction fee, for members executing facilitation orders pursuant to
Exchange Rule 1064 when such members would otherwise incur these
charges or this fee for trading in their own proprietary account contra
to a Customer (a ``BD-Customer Facilitation'') if the member's BD-
Customer Facilitation average daily volume (including both FLEX and
non-FLEX transactions) exceeds 10,000 contracts per day in a given
month.
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 the Exchange's
Pricing Schedule with respect to certain pricing in Section II entitled
``Multiply Listed Options Fees,'' and in Section IV.B, entitled FLEX
Transaction Fees, in the case of BD-Customer Facilitations as described
below.
Broker-Dealer Floor Options Transaction Charges \3\
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\3\ The Broker-Dealer Floor Options Transaction Charge and Firm
Floor Options Transaction Charge in this discussion include the
Cabinet Options Transaction Charge.
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The Exchange currently assesses Broker-Dealer Floor Options
Transaction Charges \4\ of $0.25 per contract for both Penny Pilot and
non-Penny Pilot options. Similarly, the Exchange assesses Firm Floor
Options Transaction Charges \5\ of $0.25 per contract for both Penny
Pilot and non-Penny Pilot options, but it waives these charges for
members executing facilitation orders pursuant to Exchange Rule 1064
when such members are trading in their own proprietary account.\6\ The
Exchange is now proposing to also waive the Broker-Dealer Floor Options
Transaction Charge for members executing BD-Customer Facilitations if
the member's BD-Customer Facilitation average daily volume exceeds
10,000 contracts per day (the ``Minimum ADV'') in a given month
(including both FLEX and non-FLEX transactions) when such members are
trading in their own proprietary account.
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\4\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
\5\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at OCC. The waiver does not apply to orders where a
member is acting as agent on behalf of a non-member.
\6\ See Exchange Rule 1064 entitled ``Crossing, Facilitation and
Solicited Orders.'' A facilitation occurs when a floor broker holds
an options order for a public customer and a contra-side order for
the same option series and, after providing an opportunity for all
persons in the trading crowd to participate in the transaction,
executes both orders as a facilitation cross. The Exchange's waiver
of the Firm Floor Options Transaction Charges includes Cabinet
Option Transaction Charges.
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On occasion, a Broker-Dealer will facilitate orders on behalf of
its Customers.\7\ The Broker-Dealer places both the Customer order and
the Broker-Dealer's order with a floor broker for execution in open
outcry. The Exchange believes that a transaction in which a Broker-
Dealer facilitates a Customer order should be treated in the same
manner as a Firm facilitation transaction. To qualify for the free
execution, the Broker-Dealer and the Customer must have the same Phlx
house account number on both the buy and sell side of the transaction.
This is the same treatment that applies to
[[Page 57914]]
pricing applicable to Firm Floor Options Transaction Charges for
members executing facilitation orders when such members are trading in
their own proprietary account.\8\
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\7\ The term ``Customer'' applies to any transaction that is
identified by a member or member organization for clearing in the
Customer range at The Options Clearing Corporation (``OCC'') which
is not for the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Rule 1000(b)(14)).
\8\ As noted above, Firm Floor Options Transaction Charges are
waived for members executing facilitation orders pursuant to
Exchange Rule 1064 when such members are trading in their own
proprietary account (including Cabinet Options Transaction Charges).
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FLEX Transaction Fees
The Exchange currently assesses Firm FLEX Transaction Fees of $0.15
per contract as well as Broker-Dealer FLEX Transaction Fees, also $0.15
per contract, for FLEX transactions in multiple listed options. The
Exchange waives the Firm FLEX Transaction Fee for members executing
facilitation orders pursuant to Exchange Rule 1064 when such members
are trading in their own proprietary account. The Exchange is now
proposing to waive the Broker-Dealer FLEX Transaction Fee as well for
BD-Customer Facilitations, if the member's BD-Customer Facilitation
average daily volume (including both FLEX and non-FLEX transactions)
exceeds the Minimum ADV.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act \9\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \10\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that not charging a member the Broker-Dealer
Floor Options Transaction Charge for transactions in which it
facilitates a Customer order, provided it meets the Minimum ADV, is
reasonable because it will encourage the member to facilitate Customer
orders and increase participation in open outcry, which will in turn
promote liquidity on the Exchange. Customer order flow brings unique
benefits to the market which benefits all market participants through
increased liquidity. In addition, the proposed rule change is
reasonable, equitable, and not unfairly discriminatory because Broker-
Dealers facilitating Customer orders are performing essentially the
same business as Firm facilitation orders.
The Exchange believes that not charging a member the Broker-Dealer
Floor Options Transaction Charge for transactions in which it
facilitates a Customer order, provided it meets the Minimum ADV, is
equitable and not unfairly discriminatory because Broker-Dealers will
continue to be assessed a higher fee than a Customer who pays no fee to
transact Floor Penny Pilot or Non-Penny Pilot Options. Broker-Dealers
will continue to be assessed higher fees than Specialists and Market
Makers in Floor Penny Pilot Options and Non-Penny Pilot Options \11\
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 Customers,
Specialists and Market Makers and other market participants recognizes
the differing contributions made to the liquidity and trading
environment on the Exchange by these market participants, as well as
the differing mix of orders entered. Broker-Dealers, Firms and
Professionals \12\ today all pay a $0.25 per contract Floor Penny Pilot
and Non-Penny Pilot Options Transaction Charge. Professionals have
access to more information and technological advantages as compared to
Customers and Professionals do not bear the obligations of Specialists
or Market Makers. Also, Professionals engage in trading activity
similar to that conducted by Specialists or Market Makers. For example,
Professionals continue to join bids and offers on the Exchange and thus
compete for incoming order flow. For these reasons, the Exchange
assesses Professionals the same Floor Options Transaction Charges as
Firms and Broker-Dealers. Today, the Firm Floor Options Transaction
Charge of $0.25 per contract for both Penny Pilot and Non-Penny Pilot
options, is waived for members executing facilitation orders pursuant
to Exchange Rule 1064 when such members are trading in their own
proprietary account. The Exchange proposes to waive the Broker-Dealer
Floor Options Transaction Charge of $0.25 per contract for both Penny
Pilot and Non-Penny Pilot options for transactions in which it
facilitates a Customer order, provided it meets the Minimum ADV. The
Exchange believes this proposal narrows the current rate differentials
between a Broker-Dealer and a Firm, where a Firm is entitled to a
waiver today because the Exchange would waive the Broker-Dealer Floor
Options Transaction Charge for members executing BD-Customer
Facilitations if the member's BD-Customer Facilitation average daily
volume exceeds 10,000 contracts per day in a given month. Offering
Broker-Dealers and Firms such a waiver while not offering the waiver to
Professionals is not unfairly discriminatory because unlike Firms and
Broker-Dealers, Professionals do not facilitate orders as described in
this proposal.
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\11\ Specialists and Market Makers are assessed Floor Penny
Pilot and Non-Penny Pilot Options Transaction Charges of $0.25 per
contract.
\12\ 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).
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The Exchange believes that waiving the Broker-Dealer Floor Options
Transaction Charge for members executing BD-Customer Facilitations if
the member's BD-Customer Facilitation average daily volume exceeds
10,000 contracts per day in a given month as compared to the electronic
Options Transaction Charges in both Penny Pilot and Non-Penny Pilot
options is reasonable, equitable and not unfairly discriminatory
because these fees recognize the distinction between the floor order
entry model and the electronic model and the proposed fees respond to
competition along the same lines.\13\ Floor participants incur costs
associated with accessing the floor, i.e. need for a floor broker, and
other costs which are not born by electronic members. Today, the
Exchange assesses different fees for electronic as compared to floor
transactions for Professionals, Specialists \14\ and Market Makers,\15\
Broker-Dealers and Firms in Section II of the Pricing Schedule.
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\13\ A transaction resulting from an order that was
electronically delivered utilizes Phlx XL. See Exchange Rules 1014
and 1080. Electronically delivered orders do not include orders
transacted on the Exchange floor. A transaction resulting from an
order that is non-electronically-delivered is represented on the
trading floor by a floor broker. See Exchange Rule 1063. All orders
will be either electronically or non-electronically delivered.
\14\ A Specialist is an Exchange member who is registered as an
options specialist pursuant to Rule 1020(a).
\15\ A ``market maker'' includes Registered Options Traders
(Rule 1014(b)(i) and (ii)), which includes Streaming Quote Traders
(see Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see
Rule 1014(b)(ii)(B)). Directed Participants are also market makers.
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The Exchange further believes the 10,000 contract minimum is
reasonable, equitable, and not unfairly discriminatory because tiers
are not novel and are applicable for different participants. For
example, Firm electronic Options Transaction Charges in Penny Pilot and
non-Penny Pilot
[[Page 57915]]
Options will be reduced to $0.17 per contract for a given month
provided that a Firm has volume greater than 500,000 electronically-
delivered contracts in a month (``Electronic Firm Fee Discount''). The
Electronic Firm Fee Discount will apply per member organization when
such members are trading in their own proprietary account. The Exchange
believes the proposed Minimum ADV is a reasonable and achievable
standard for all members classified as Broker-Dealer, whereas a similar
threshold was not needed for Firm because of the competitive
environment in which the Exchange operates.
The Exchange is waiving the Cabinet Options Transactions Charges
for BD-Customer Facilitations because Cabinet Options Transactions
Charges are also waived under the existing waiver applicable to Firm
facilitations, in those cases where Cabinet Options Transactions
Charges apply in lieu of the Floor Options Transaction Charges. The
Exchange believes that waiving the Broker-Dealer FLEX Transaction Fee
for transactions in which a member facilitates a Customer order,
provided it meets the Minimum ADV, is reasonable because it will
encourage the member to facilitate Customer orders. Customer order flow
brings liquidity to the Exchange. The Exchange believes that waiving
the Broker-Dealer FLEX Transaction Fee for transactions in which a
member facilitates a Customer order, provided it meets the Minimum ADV,
is equitable and not unfairly discriminatory because Customers are not
assessed a FLEX Transaction Fee. All other market participants are
assessed a $0.15 per contract FLEX Transaction Fee. Today, the Firm
FLEX Transaction Fee is waived for members executing facilitation
orders pursuant to Exchange Rule 1064 when such members are trading in
their own proprietary account. The Exchange proposes to waive the
Broker-Dealer FLEX Transaction Fee as well for BD-Customer
Facilitations, if the member's BD-Customer Facilitation average daily
volume (including both FLEX and non-FLEX transactions) exceeds the
Minimum ADV. This same treatment applies today to pricing applicable to
Firm Floor Options Transaction Charges for members executing
facilitation orders when such members are trading in their own
proprietary account. The Exchange believes that offering Broker-Dealers
the waiver of the FLEX Transaction Fee for facilitating a Customer
order, provided it meets the Minimum ADV, is would provide these market
participants, who also facilitate Customer orders and perform
essentially the same business as a Firm in terms of facilitation
orders, the opportunity to obtain the same waiver. The purpose of the
waiver is to encourage the member to facilitate Customer orders and
other market participants that are assessed a FLEX Transaction Fee,
such as Professionals, Specialists and Market Makers, to engage in such
activity.
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, because the proposed fee
waivers would be available to any member with BD-Customer Facilitation
Trades meeting the Minimum ADV, and because they will incentivize
members to execute more such orders on the Exchange. To the extent that
this purpose is achieved, all of the Exchange's market participants
should benefit from the improved market liquidity.
The Exchange operates in a highly competitive market, comprised of
eleven [sic] exchanges, in which market participants can easily and
readily direct Customer 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 Customer 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.\16\
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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.
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-2013-92 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.
9All submissions should refer to File Number SR-Phlx-2013-92. 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-
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2013-92 and should be submitted on or before October 11, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-22911 Filed 9-19-13; 8:45 am]
BILLING CODE 8011-01-P