[Federal Register Volume 79, Number 9 (Tuesday, January 14, 2014)]
[Notices]
[Pages 2501-2504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-00464]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71256; File No. SR-Phlx-2013-124]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating To
Multiply Listed Options Fees
January 8, 2014.
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 December 30, 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 in amending the Exchange's Pricing Schedule proposes
to: (i) Amend certain Options Transactions Charges with respect to
Section II related to Multiply Listed Options Fees; \3\ (ii) eliminate
the Electronic Firm Fee Discount in Section II; and (iii) eliminate
outdated rule text in Section II related to an expired rebate.
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\3\ The pricing in Section II includes options overlying
equities, ETFs, ETNs and indexes which are Multiply Listed.
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While the changes proposed herein are effective upon filing, the
Exchange has designated that the amendments be operative on January 2,
2014.
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 is proposing to amend various sections of its Pricing
Schedule. Specifically, the Exchange proposes to amend various Options
Transaction Charges in Section II in both Penny and Non-Penny Pilot
Options. The Exchange proposes to eliminate the Electronic Firm Fee
Discount.\4\ The Exchange proposes to eliminate outdated rule text in
Section II to clarify the Pricing Schedule applicable to Qualified
Contingent Cross (``QCC'') orders.
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\4\ The Exchange assesses Firms a reduced Options Transaction
Charge in Penny and Non-Penny Options provided a Firm has volume
greater than a certain amount of contracts in a month.
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Section II--Multiply Listed Options Fees
Options Transaction Charges
The Exchange currently offers Professionals,\5\ Broker-Dealers \6\
and Firms \7\ a reduced Options Transaction Charge with respect to
electronic Complex Orders,\8\ in either Penny or Non-Penny Pilot
Options of $0.30 per contract. The Exchange is proposing to eliminate
the reduced fee with respect to Broker-Dealer and Firm Options
Transaction Charges in Penny and Non-Penny Pilot Options. Professionals
will continue to be offered the reduced fee with respect to electronic
Complex Orders. Today, Broker-Dealers are being assessed $0.30 per
contract for electronic Complex Orders as compared to $0.45 per
contract for Penny Pilot Options and $0.60 per contract for Non-Penny
Pilot Options, which applies to electronic Simple Orders. All Broker-
Dealer electronic orders, Complex and Simple Orders, would be assessed
$0.45 per contract for Penny Pilot Options and $0.60 per contract for
Non-Penny Pilot Options as of January 2, 2014. Today, Firms are being
assessed $0.30 per contract for electronic Complex Orders as compared
to $0.45 per contract for Penny Pilot Options and $0.60 per contract
for Non-Penny Pilot Options, which applies to electronic Simple Orders.
All Firm electronic orders, Complex and Simple Orders, would be
assessed $0.45 per contract for Penny Pilot Options and $0.60 per
contract for Non-Penny Options as of January 2,
[[Page 2502]]
2014. The Exchange desired to incentivize Professionals, Broker-Dealers
and Firms to submit electronic Complex Orders to the Exchange at the
time the reduced fee became effective. The Exchange believes that
Broker-Dealers and Firms were not incentivized to transact electronic
Complex Orders. The Exchange believes that eliminating the reduced fee
for Broker-Dealers and Firms will not impact trading activity on the
Exchange as these market participants were not taking advantage of the
reduced fee.
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\5\ 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).
\6\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
\7\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at The Options Clearing Corporation.
\8\ 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).
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Section II--Multiply Listed Options Fees
Electronic Firm Fee Discount
The Exchange currently offers Firms the opportunity to reduce
Options Transaction Charges in Penny Pilot and Non-Penny Pilot Options
to $0.20 per contract for a given month provided that a Firm has volume
greater than 350,000 electronically-delivered contracts in a month
(``Electronic Firm Fee Discount'').\9\ The Exchange proposes to
eliminate this Electronic Firm Fee Discount. The Exchange believes that
eliminating the discount for Firms will not impact trading activity on
the Exchange as these market participants are not taking advantage of
the Electronic Firm Fee Discount.
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\9\ The Electronic Firm Fee Discount applies per member
organization when such members are trading in their own proprietary
account. The Exchange initially adopted this discount in 2012 to
incentivize Firms to transact electronic orders, by providing Firms
with an opportunity to pay lower fees in Section II of the Pricing
Schedule by offering a reduction of Firm electronic Options
Transaction Charges in Penny Pilot and non-Penny Pilot Options,
provided the Firm had qualifying volume. See Securities Exchange Act
Release No. 66985 (May 14, 2012), 77 FR 29726 (May 18, 2012) (SR-
Phlx-2012-61).
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Section II--Multiply Listed Options Fees
QCC Bonus
The Exchange previously filed an immediately effective rule change
to offer an additional rebate applicable to both electronic QCC Orders
(``eQCC'') \10\ and Floor QCC Orders \11\ (collectively ``QCC
Orders''). The Exchange currently offers an additional rebate of
$35,000 if the member organization transacts 1,750,000 of qualifying
QCC contracts (``QCC Bonus'').\12\ The QCC Bonus is only available
during the month of December 2013. The Exchange proposes to delete the
rule text applicable to the QCC Bonus as of January 2, 2014 as that
bonus is no longer applicable.
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\10\ 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).
\11\ 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 (``NBBO''); 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).
\12\ The QCC Bonus is in addition to the maximum QCC Rebate of
$375,000 and does not count toward the maximum QCC Rebate of
$375,000.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\13\ in general, and with
Section 6(b)(4) and 6(b)(5) of the Act,\14\ 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.
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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(4) and (5).
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Section II--Multiply Listed Options Fees
Options Transaction Charges
The Exchange's proposal to eliminate the current electronic Complex
Order reduced fee with respect to Broker-Dealer and Firm Options
Transaction Charges in Penny and Non-Penny Pilot Options is reasonable
because these market participants are not taking advantage of the
current reduced fee by transacting electronic Complex Orders. The
Exchange believes that eliminating such a reduced fee for Broker-
Dealers and Firms will not result in any change in the amount of
electronic Complex Orders transacted on the Exchange by these market
participants. The Exchange's proposal would not impact electronic
Simple Orders, which do not receive reduced rates today. By eliminating
the reduced fee for electronic Complex Orders, Broker-Dealers and Firms
would be assessed $0.45 per contract for Penny Pilot Options and $0.60
per contract for Non-Penny Pilot Options for both electronic Complex
and Simple Orders. Professionals would continue to receive the
electronic Complex Order discount. The reduced fee assessed to
Professionals is comparable with electronic Professional fees at other
options exchanges.\15\
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\15\ CBOE assesses a Professional and Voluntary Professional a
$0.30 per contract electronic fee in Penny and Non-Penny Classes.
See CBOE's Fees Schedule. NYSE Amex assesses a tiered electronic
Professional Customer rate starting at $.32 per contract for
electronic orders which take liquidity from 0 to 16,999 contracts.
See NYSE AMEX Options Fee Schedule.
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The Exchange's proposal to eliminate the current electronic Complex
Order reduced fee with respect to Broker-Dealer and Firm Options
Transaction Charges in Penny and Non-Penny Pilot Options is equitable
and not unfairly discriminatory for the reasons which follow. Today,
Broker-Dealer and Firm electronic Simple Orders are not reduced for
electronic Complex Orders [sic]. Broker-Dealers and Firms are assessed
$0.45 per contract for electronic Penny Pilot Options Simple Orders and
$0.60 per contract for electronic Non-Penny Pilot Options Simple
Orders. The Exchange's proposal to eliminate the reduced fee for
Broker-Dealer and Firm electronic Complex Orders would remove the
current differentiation as between Broker-Dealer and Firm electronic
Complex versus Simple Orders and would assess those electronic
transactions the same Options Transaction Charges in both Penny and
Non-Penny Pilot Options. By eliminating the reduced fee for Broker-
Dealers and Firms, these market participants will pay a higher fee as
compared to a Professional for electronic Complex Orders. A
Professional only pays a reduced fee for electronic Non-Penny Pilot
Complex Orders as the reduced fee for electronic Penny Pilot Options in
Complex Orders is the same as that for Penny Pilot Options in Simple
Orders.
With respect to Professionals, these market participants would
continue to receive the reduced fee of $0.30 per contract with respect
to electronic Complex Orders. Today, Professionals are assessed a $0.30
per contract Options Transaction Charge for Penny Pilot Options and a
$0.60 per contract Options Transaction Charge for Non-Penny Pilot
Options with respect to Simple Orders. A Professional receiving a
reduced fee of $0.30 per contract for electronic Complex Orders is
assessed the same Options Transaction Charge as with electronic Simple
Orders. Today, a Professional pays $0.30 per contract for electronic
Non-Penny Pilot Options
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transactions in electronic Complex Orders as compared to $0.60 per
contract for electronic Non-Penny Pilot Options transactions in
electronic Simple Orders. The Exchange believes that it is equitable
and not unfairly discriminatory to assess Professionals a reduced fee
for electronic Complex Orders in Non-Penny Pilot Options because
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
Penny and Non-Penny Pilot electronic Options Transaction Charges at a
rate which is greater than fees assessed to a Specialist and Market
Maker and less than electronic fees assessed to a Firm and Broker-
Dealer. Specialists and Market Makers are assessed lower electronic
fees as compared to Professionals, because Specialists and Market
Makers have burdensome quoting obligations \16\ to the market which do
not apply to Professionals, Customers, Firms and Broker-Dealers.
Customers are not assessed Options Transactions Charges in either Penny
Pilot or Non-Penny Pilot Options because Customer order flow brings
liquidity to the market, which in turn benefits all market
participants. 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.
Today, with respect to Simple Orders, Broker-Dealers and Firms pay
higher fees as compared to a Professional for electronic transactions
and this is not changing.\17\
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\16\ See Exchange Rule 1014 entitled ``Obligations and
Restrictions Applicable to Specialists and Registered Options
Traders.''
\17\ Firms and Broker-Dealers are assessed a Penny Pilot Options
Transaction Charge of $0.45 per contract. Firms and Broker-Dealers
are assessed a Non-Penny Pilot Options Transaction Charge of $0.60
per contract.
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The Exchange believes that continuing to assess Professionals a
higher electronic Options Transaction Charges in both Penny Pilot and
Non-Penny Pilot Options of $0.30 and $0.60 per contract, respectively,
as compared to a floor Options Transaction Charge in both Penny Pilot
and Non-Penny Pilot Options of $0.25 per contract 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.\18\ 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 Firms, Broker-Dealers,
Specialists and Market Makers in Section II of the Pricing Schedule.
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\18\ A transaction resulting from an order that was
electronically delivered utilizes Phlx XL II. 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.
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Section II--Multiply Listed Options Fees
Electronic Firm Fee Discount
The Exchange's proposal to eliminate the Electronic Firm Fee
Discount which is currently offered to Firms to reduce Options
Transaction Charges in Penny Pilot and Non-Penny Pilot Options is
reasonable because market participants were not taking advantage of the
Electronic Firm Fee Discount.
The Exchange's proposal to eliminate the Electronic Firm Fee
Discount which is currently offered to Firms to reduce Options
Transaction Charges in Penny Pilot and Non-Penny Pilot Options is
equitable and not unfairly discriminatory because the Exchange will not
offer such a discount to any market participant.
Section II--Multiply Listed Options Fees
QCC Bonus
The Exchange's proposal to remove rule text related to the QCC
Bonus is reasonable because removing the outdated rule text will add
clarity to the Pricing Schedule.
The Exchange's proposal to remove rule text related to the QCC
Bonus is equitable and not unfairly discriminatory because the QCC
Bonus will no longer be in effect as of January 2, 2014 and therefore
not available to any market participant.
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. Eliminating the electronic
Complex Order reduced fee with respect to Broker-Dealers and Firms for
Options Transaction Charges in Penny and Non-Penny Pilot Options and
not eliminating the reduced fee for Professionals, reflects the trading
activity of these market participants. Professionals engage in trading
activity similar to that conducted by Specialists or Market Makers such
as joining bids and offers on the Exchange and competing for incoming
order flow. This distinction is consistent with the current
differentials that exist between these market participants with respect
to the current Options Transaction Charges which are assessed to these
participants.\19\ Further, Specialists and Market Makers would be
assessed lower electronic fees as compared to Professionals, because
Specialists and Market Makers have burdensome quoting obligations \20\
to the market which do not apply to Professionals, Customers, Firms and
Broker-Dealers. Customers are not assessed Options Transactions Charges
in either Penny Pilot or Non-Penny Pilot Options because Customer order
flow brings liquidity to the market, which in turn benefits all market
participants.
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\19\ Professionals are assessed a Penny Pilot Options
Transaction Charge of $0.30 per contract and a Non-Penny Pilot
Options Transaction Charge of $0.60 per contract. Firms and Broker-
Dealers are assessed a Penny Pilot Options Transaction Charge of
$0.45 per contract. Firms and Broker-Dealers are assessed a Non-
Penny Pilot Options Transaction Charge of $0.60 per contract.
\20\ See Exchange Rule 1014 entitled ``Obligations and
Restrictions Applicable to Specialists and Registered Options
Traders.''
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Eliminating the Electronic Firm Fee Discount does not create an
undue burden on competition. Today, this discount is currently
available only to Firms. This discount would not be offered to any
market participant as of January 2, 2014.
The QCC Bonus would be unavailable to all market participants and
therefore would not create an undue burden on competition. Also,
removing unnecessary rule text from the Pricing Schedule adds clarity
to the rule text.
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. Therefore these fees and rebates must remain competitive
with fees charged and rebates paid by other venues and must continue to
be reasonable and equitably allocated to those members that opt to
direct orders to the Exchange rather than competing venues.
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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)(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.
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\21\ 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-2013-124 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-2013-124. 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-2013-124 and should be
submitted on or before February 4, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00464 Filed 1-13-14; 8:45 am]
BILLING CODE 8011-01-P