[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9545-9547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-03560]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71529; File No. SR-Phlx-2014-08]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Monthly Strategy Cap
February 12, 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 January 30, 2014, 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 the fee caps applicable to certain
strategies on Multiply Listed Options in Section II, entitled
``Multiply Listed Options Fees.'' \3\
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\3\ Section II Multiply Listed Options Fees include options
overlying equities, ETFs, ETNs and indexes that 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 February 3,
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 purpose of the proposed rule change is to amend the fee caps
relating to dividend,\4\ merger,\5\ short stock interest,\6\ reversal
and conversion,\7\ jelly roll \8\ and box spread \9\ strategies in
Section II of the Pricing Schedule \10\ (together the ``Monthly
Strategy Cap''). The Exchange believes the proposed amendment would
continue to incentivize market participants to trade on the Exchange by
capping floor option transaction charges related to various strategies.
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\4\ A dividend strategy is defined as transactions done to
achieve a dividend arbitrage involving the purchase, sale and
exercise of in-the-money options of the same class, executed the
first business day prior to the date on which the underlying stock
goes ex-dividend.
\5\ A merger strategy is defined as transactions done to achieve
a merger arbitrage involving the purchase, sale and exercise of
options of the same class and expiration date, executed the first
business day prior to the date on which shareholders of record are
required to elect their respective form of consideration, i.e., cash
or stock.
\6\ A short stock interest strategy is defined as transactions
done to achieve a short stock interest arbitrage involving the
purchase, sale and exercise of in-the-money options of the same
class.
\7\ A reversal and conversion strategy is defined as
transactions that employ calls and puts of the same strike price and
the underlying stock. Reversals are established by combining a short
stock position with a short put and a long call position that shares
the same strike and expiration. Conversions employ long positions in
the underlying stock that accompany long puts and short calls
sharing the same strike and expiration.
\8\ A jelly roll strategy is defined as transactions created by
entering into two separate positions simultaneously. One position
involves buying a put and selling a call with the same strike price
and expiration. The second position involves selling a put and
buying a call, with the same strike price, but with a different
expiration from the first position.
\9\ A box spread strategy is a strategy that synthesizes long
and short stock positions to create a profit. Specifically, a long
call and short put at one strike is combined with a short call and
long put at a different strike to create synthetic long and
synthetic short stock positions, respectively.
\10\ While the fee caps are noted in Section II of the Pricing
Schedule, the caps apply to all Multiply Listed Options in Sections
I and II.
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Today, Specialist,\11\ Market Maker,\12\ Professional,\13\ Firm and
Broker-Dealer floor option transaction charges are capped at $1,250 for
dividend, merger and short stock interest strategies executed on the
same trading day in the same options class when such members are
trading in their own proprietary accounts. Specialist, Market Maker,
Professional, Firm and Broker-Dealer floor option transaction charges
executed on the same trading day in the same options class are capped
at $700 each for reversal and conversion, jelly roll and box spread
strategies. In addition, the Monthly Strategy Cap for floor option
transaction charges for dividend, merger and short stock interest,
reversal and conversion, jelly roll and box spread strategies are
capped at $35,000 per member organization for combined executions in
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a month when such members are trading in their own proprietary account.
The Exchange is proposing to modify only the Monthly Strategy Cap per
member organization. The remaining caps are not changed.
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\11\ A ``Specialist'' is an Exchange member who is registered as
an options specialist pursuant to Rule 1020(a).
\12\ 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)).
\13\ The term ``Professional'' is a 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 proposes to increase the Monthly Strategy Cap for
dividend, merger, short stock interest, reversal and conversion, jelly
roll and box spread strategies from $35,000 per member organization per
month to $50,000 per member organization for combined executions in a
month provided that such member organizations are trading in their own
proprietary account.\14\
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\14\ The requirement that such member organizations trade in
their own proprietary account would not be amended by this proposal.
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For purposes of clarity, the Exchange also proposes to make a
technical correction to Section II of the Pricing Schedule to remove a
reference the term ``short stock, interest'' and replace it with the
correct term ``short stock interest''.\15\ The clarification makes the
use of ``short stock interest'' consistent throughout the Pricing
Schedule.
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\15\ See Securities Exchange Act Release No. 68406 (December 11,
2012), 77 FR 74715 (December 17, 2012) (SR-Phlx-2012-138)
(discussing, among other things, Monthly Strategy Cap on ``short
stock interest'').
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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 is an equitable allocation of reasonable fees
and other charges among Exchange members and other persons using its
facilities.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4).
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The Exchange's proposal to increase the Monthly Strategy Cap on
floor option transaction charges for dividend, merger, short stock
interest, reversal and conversion, jelly roll and box spread strategies
from $35,000 to $50,000 per month, provided the strategy is executed on
the same trading day in the same options class when such members are
trading in their own proprietary account, is reasonable because the
Exchange seeks to continue to incentivize member organizations to
transact a greater number of strategies on the Exchange to benefit from
the fee cap. Also, this proposal is similar in nature to caps on other
exchanges, namely NYSE Arca, Inc. (``NYSE Arca''),\18\ NYSE Amex, Inc.
(``NYSE Amex'') \19\ and the Chicago Board Options Exchange,
Incorporated (``CBOE'') \20\ for strategies. The Exchange also believes
that the increased fee cap is equitable and not unfairly discriminatory
because the Exchange is offering all members, except for Customers,\21\
the same opportunity to cap their floor option transaction charges in
Multiply Listed Options.
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\18\ See NYSE Arca General Options and Trading Permit (OTP)
Fees.
\19\ See NYSE Amex Options Fee Schedule.
\20\ See CBOE's Fees Schedule.
\21\ Customers are not assessed options transaction charges in
Section II of the Pricing Schedule.
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The Exchange believes that its proposal to amend the amount of the
Monthly Strategy Cap to orders originating from the Exchange floor is
reasonable because members continue to pay floor brokers to execute
trades on the Exchange floor. The Exchange believes that offering fee
caps to member organizations executing multiply listed floor options
transactions in their own proprietary accounts would defray brokerage
costs associated with executing strategy transactions and continue to
incentivize members to utilize the floor for certain executions.\22\
The Exchange believes that its proposal to amend the Monthly Strategy
Cap originating from the Exchange floor is equitable and not unfairly
discriminatory because today, the fee caps are only applicable for
floor transactions. Moreover, the Exchange believes that a requirement
that both the buy and sell sides of the order originate from the floor
to qualify for applicability of the Monthly Strategy Cap would
constitute equal treatment of members.
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\22\ The Exchange's proposal would only apply the fee cap to
options transaction charges where buy and sell sides originate from
the Exchange floor. See text in Section II of the Pricing Schedule.
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The Exchange believes that making clarifying changes to the Pricing
Schedule, such as that the reference in respect of the Monthly Strategy
Cap is to ``short stock interest'' rather than ``short stock,
interest'', is a reasonable, equitable and not unfairly discriminatory
amendment because this technical amendment would clarify the Pricing
Schedule and make its terms consistent throughout.
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. To the contrary, the proposed
fees would continue to encourage members to transact strategies on the
exchange because the proposed fee caps are competitive with fee caps at
other options exchanges, and would clarify the use of ``short stock
interest'' in respect of the Monthly Strategy Cap to make it consistent
throughout the Pricing Schedule to the benefit of members, member
organizations, and 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 as 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.\23\ 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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\23\ 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-2014-08 on the subject line.
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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-2014-08. 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 such filing also will be available
for inspection and copying at the principal offices 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-2014-08,
and should be submitted on or before March 12, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03560 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P