[Federal Register Volume 78, Number 236 (Monday, December 9, 2013)]
[Notices]
[Pages 73907-73909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29260]
[[Page 73907]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70969; File No. SR-Phlx-2013-114]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Customer Rebate Program
December 3, 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 November 25, 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 Customer Rebate Program in
Section B of the Pricing Schedule.
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 increase certain Customer rebates in the
``Customer Rebate Program,'' in Section B of the Pricing Schedule to
provide members an opportunity to receive higher Customer rebates.
Currently, the Exchange has a Customer Rebate Program consisting of
four tiers which pays Customer rebates on two Categories, A \3\ and
B,\4\ of transactions.\5\ A Phlx member qualifies for a certain rebate
tier based on the percentage of total national customer volume in
multiply-listed options which it transacts monthly on Phlx. The
Exchange calculates Customer volume in Multiply Listed Options by
totaling electronically-delivered and executed volume, except volume
associated with electronic Qualified Contingent Cross (``QCC'')
Orders,\6\ as defined in Exchange Rule 1080(o).\7\ Today, the Exchange
pays the following rebates: \8\
---------------------------------------------------------------------------
\3\ 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 of the Pricing Schedule. 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.
\4\ 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. Rebates are paid
on Customer PIXL Complex Orders in Section II symbols 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
are paid a rebate regardless of the contra-party to the transaction.
\5\ See Section B of the Pricing Schedule.
\6\ 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 the Regulation NMS).
\7\ Members and member organizations under common ownership may
aggregate their Customer volume for purposes of calculating the
Customer Rebate Tiers and receiving rebates. Common ownership means
members or member organizations under 75% common ownership or
control.
\8\ SPY is included in the calculation of Customer volume in
Multiply Listed Options that are electronically-delivered and
executed for purposes of the Customer Rebate Program, however, the
rebates do not apply to electronic executions in SPY.
----------------------------------------------------------------------------------------------------------------
Percentage thresholds of
national customer volume in
Customer rebate tiers multiply-listed equity and ETF Category A Category B
options classes, excluding SPY
options (monthly)
----------------------------------------------------------------------------------------------------------------
Tier 1........................................ 0.00%-0.75%..................... $0.00 $0.00
Tier 2........................................ Above 0.75%-1.60%............... 0.12 0.17
Tier 3........................................ Above 1.60%-2.50%............... 0.14 0.17
Tier 4........................................ Above 2.50%..................... 0.15 0.17
----------------------------------------------------------------------------------------------------------------
The Exchange is proposing to amend the Customer Rebates in both
Categories A and B in Tiers 3 and 4 to increase the rebates by $0.02
per contract. The proposed Tier 3 Category A rebate would be increased
from $0.14 to $0.16 per contract. The proposed Tier 3 Category B rebate
would be increased from $0.17 to $0.19 per contract. The proposed Tier
4 Category A rebate would be increased from $0.15 to $0.17 per
contract. The proposed Tier 4 Category B rebate would be increased from
$0.17 to $0.19 per contract.
The Exchange also proposes to amend Tier 2, Categories A and B, to
pay a $0.02 per contract rebate in addition to the applicable Tier 2
rebate to a Specialist or Market Maker, or its affiliate under Common
Ownership,\9\ provided the Specialist or Market Maker has reached the
Monthly Market Maker Cap \10\ as defined in Section II. The
[[Page 73908]]
Exchange believes that offering higher Tier 2, 3 and 4 rebates will
encourage market participants to direct a greater number of Customer
orders to the Exchange.
---------------------------------------------------------------------------
\9\ The term ``Common Ownership'' means members or member
organizations under 75% common ownership or control.
\10\ Specialists and Market Makers are subject to a ``Monthly
Market Maker Cap'' of $550,000 for: (i) Electronic and floor Option
Transaction Charges; (ii) QCC Transaction Fees (as defined in
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e));
and (iii) fees related to an order or quote that is contra to a PIXL
Order or specifically responding to a PIXL auction. The trading
activity of separate Specialist and Market Maker member
organizations is aggregated in calculating the Monthly Market Maker
Cap if there is Common Ownership between the member organizations.
All dividend, merger, short stock interest, reversal and conversion,
jelly roll and box spread strategy executions (as defined in this
Section II) are excluded from the Monthly Market Maker Cap. In
addition, Specialists or 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 $0.17
per contract fee.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\11\ in general, and with
Section 6(b)(4) and 6(b)(5) of the Act,\12\ 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 the Exchange operates or controls, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange believes that its proposal to increase the Customer
rebates in Tiers 3 and 4 in Categories A and B by $0.02 per contract is
reasonable because it will attract a larger amount of Customer
liquidity to the Exchange. Today, Phlx offers members certain Customer
rebates to encourage Phlx member organizations to direct Customer order
flow to the Exchange, and the proposal will provide an additional
incentive for Customer order flow. Customer liquidity benefits all
market participants by providing more trading opportunities, which
attract Specialists and Market Makers. An increase in the activity of
these market participants in turn facilitates tighter spreads, which
may cause an additional corresponding increase in order flow from other
market participants.
The Exchange believes that its proposal to increase the Customer
rebates in Tiers 3 and 4 in Categories A and B by $0.02 per contract is
equitable and not unfairly discriminatory because it will be applied to
all market participants in a uniform matter. All members are eligible
to receive the rebate provided they submit a qualifying number of
electronic Customer volume.
The Exchange believes that its proposal to pay a $0.02 per contract
rebate in addition to the applicable Tier 2 rebate to a Specialist or
Market Maker, or its affiliate under Common Ownership, provided the
Specialist or Market Maker has reached the Monthly Market Maker Cap is
reasonable because the Exchange intends to encourage Specialists and
Market Makers to transact Customer orders on the Exchange to receive
the enhanced rebate.
The Exchange believes that its proposal to pay a $0.02 per contract
rebate in addition to the applicable Tier 2 rebate to a Specialist or
Market Maker, or its affiliate under Common Ownership, provided the
Specialist or Market Maker has reached the Monthly Market Maker Cap is
equitable and not unfairly discriminatory because unlike other market
participants, Specialists and Market Makers have burdensome quoting
obligations \13\ to the market that do not apply to Customers,
Professionals, Firms and Broker-Dealers. Specialists and Market Makers
serve an important role on the Exchange with regard to order
interaction and they provide liquidity in the marketplace.
Additionally, Specialists and Market Makers incur costs unlike other
market participants including, but not limited to, PFOF and other costs
associated with market making activities,\14\ which results in a higher
average cost per execution as compared to Firms, Broker-Dealers and
Professionals. The proposed differentiation as between Specialists and
Market Makers as compared to other market participants recognizes the
differing contributions made to the trading environment on the Exchange
by these market participants. The Exchange is continuing to offer the
Tier 2 rebate to all market participants.
---------------------------------------------------------------------------
\13\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
\14\ Specialists and Market Makers pay for certain data feeds
including the SQF Port Fee. SQF Port Fees are listed in the
Exchange's Pricing Schedule at Section VII. SQF is an interface that
allows Specialists and Market Makers to connect and send quotes into
Phlx XL and assists them in responding to auctions and providing
liquidity to the market.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose an undue burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
Customer Rebate Program will continue to encourage Customer order flow
to be directed to the Exchange. By incentivizing members to route
Customer orders, the Exchange desires to attract liquidity to the
Exchange, which in turn benefits all market participants. All market
participants are eligible to qualify for a Customer Rebate. The
Exchange believes this pricing amendment does not impose a burden on
competition but rather that the proposed rule change will continue to
promote competition on the Exchange.
The Exchange does not believe that offering Specialists and Market
Makers an enhanced rebate of $0.02 per contract in addition to the
applicable Tier 2 rebate creates an undue burden on competition because
Specialists and Market Makers have burdensome quoting obligations \15\
to the market that do not apply to Customers, Professionals, Firms and
Broker-Dealers. Specialists and Market Makers serve an important role
on the Exchange with regard to order interaction and they provide
liquidity in the marketplace.
---------------------------------------------------------------------------
\15\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------
The Exchange operates in a highly competitive market, comprised of
twelve options 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.\16\ 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
[[Page 73909]]
whether the proposed rule should be approved or disapproved.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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-2013-114 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-2013-114. 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-2013-114 and should be
submitted on or before December 30, 2013.
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29260 Filed 12-6-13; 8:45 am]
BILLING CODE 8011-01-P