[Federal Register Volume 79, Number 50 (Friday, March 14, 2014)]
[Notices]
[Pages 14553-14556]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-05597]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71674; File No. SR-Phlx-2014-13]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Routing Fees
March 10, 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 March 4, 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend Section V of the Pricing Schedule
entitled ``Routing Fees.''
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 this filing is to amend the Routing Fees in Section
V of the Pricing Schedule in order to recoup costs incurred by the
Exchange to route orders to away markets.
Today, the Exchange assesses a Non-Customer a $0.95 per contract
Routing Fee to any options exchange. The Customer \3\ Routing Fee for
option orders routed to The NASDAQ Options Exchange LLC (``NOM'') is a
$0.05 per contract Fixed Fee in addition to the actual transaction fee
assessed. The Customer Routing Fee for option orders routed to NASDAQ
OMX BX, Inc. (``BX Options'') is $0.00 per contract. The Customer
Routing Fee for option orders routed to all other options exchanges \4\
(excluding NOM and BX Options) is a fixed fee of $0.20 per contract
(``Fixed Fee'') in addition to the actual transaction fee assessed. If
the away market pays a rebate, the Routing Fee is $0.00 per contract.
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\3\ 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)).
\4\ Including BATS Exchange, Inc. (``BATS''), BOX Options
Exchange LLC (``BOX''), the Chicago Board Options Exchange,
Incorporated (``CBOE''), C2 Options Exchange, Incorporated (``C2''),
International Securities Exchange, LLC (``ISE''), the Miami
International Securities Exchange, LLC (``MIAX''), NYSE Arca, Inc.
(``NYSE Arca''), NYSE MKT LLC (``NYSE Amex'') and Topaz Exchange,
LLC (``Gemini'').
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With respect to the fixed costs, the Exchange incurs a fee when it
utilizes Nasdaq Options Services LLC (``NOS''),\5\ a member of the
Exchange and the Exchange's exclusive order router. Each time NOS
routes an order to an away market, NOS is charged a clearing fee \6\
and, in the case of certain exchanges, a transaction fee is also
charged in certain symbols, which fees are passed through to the
Exchange. The Exchange currently recoups clearing and transaction
charges incurred by the Exchange as well as certain other costs
incurred by the Exchange when routing to away markets, such as
administrative and technical costs associated with operating NOS,
membership fees at away markets, Options Regulatory Fees (``ORFs''),
staffing and technical costs associated with routing options. The
Exchange assesses the actual away market fee at the time that the order
was entered into the Exchange's trading system. This transaction fee is
calculated on an order-by-order basis
[[Page 14554]]
since different away markets charge different amounts.
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\5\ The Exchange filed a proposed rule change to utilize Nasdaq
Execution Services, LLC (``NES'') for outbound order routing. See
Securities Exchange Act Release No. 71417 (January 28, 2014), 79 FR
6253 (February 3, 2014) (SR-Phlx-2014-04). This filing has not yet
been implemented. The Exchange intends to implement this filing in
mid-March 2014.
\6\ The Options Clearing Corporation (``OCC'') assesses $0.01
per contract side.
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The Exchange is proposing to assess market participants routing
Customer orders to NOM a $0.10 per contract Fixed Fee in addition to
the actual transaction fee assessed. Today the Exchange assesses a
$0.05 per contract Fixed Fee in addition to the actual transaction fee
assessed with respect to Customer orders routed to NOM. The Exchange
would increase the Fixed Fee for Customer orders routed to NOM from
$0.05 to $0.10 per contract to recoup an additional portion of the
costs incurred by the Exchange for routing these orders.
Today the Exchange does not assess a fee with respect to Customer
orders routed to BX Options. The Exchange noted in a previous rule
change routing proposal that it would not assess a fee for Customer
orders routed to BX Options because the Exchange retains the rebate
that is paid by that market.\7\ In order words, the Exchange today does
not assess a Routing Fee when routing Customer orders to BX Options
because that exchange pays a rebate and instead of netting the customer
rebate paid by BX Options against a fixed fee, the Exchange simply does
not assess a fee. The Exchange is proposing to assess a $0.10 per
contract Fixed Fee when routing Customer orders to BX Options in order
to recoup a portion of the costs incurred by the Exchange for routing
these orders. The Exchange does not assess the actual transaction fee
assessed by BX Options, rather the Exchange only assesses the Fixed
Fee, because the Exchange would continue to retain the rebate to offset
the cost to route orders to BX Options. This is the not the case for
all orders routed to BX Options because not all Customer orders receive
a rebate.\8\
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\7\ See Securities Exchange Act Release No. 69253 (March 28,
2013), 78 FR 20709 (April 5, 2013) (SR-Phlx-2013-23).
\8\ BX Options pays a Customer Rebate to Remove Liquidity as
follows: Customers are paid $0.32 per contract in All Other Penny
Pilot Options (excluding BAC, IWM, QQQ, SPY and VXX) and $0.70 per
contract in Non-Penny Pilot Options. See BX Options Rules at Chapter
XV, Section 2(1).
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Similarly, the Exchange is proposing to amend the Customer Routing
Fee assessed when routing to all other options exchanges, if the away
market pays a rebate, from a $0.00 to a $0.10 per contract Fixed Fee,
in order to recoup an additional portion of the costs incurred by the
Exchange for routing these orders. The Exchange does not assess the
actual transaction fee assessed by the away market, rather the Exchange
only assesses the Fixed Fee, because the Exchange would continue to
retain the rebate to offset the cost to route orders to these away
markets. Today, the Exchange incurs certain costs when routing to away
markets that pay rebates. The Exchange desires to recoup additional
costs at this time.
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) and (b)(5) of the Act \10\
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 Phlx operates or
controls, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange believes that amending the Customer Routing Fee for
orders routed to NOM from a Fixed Fee of $0.05 to $0.10 per contract,
in addition to the actual transaction fee, is reasonable because the
Exchange desires to recoup an additional portion of the cost it incurs
when routing Customer orders to NOM. Today, the Exchange assesses
orders routed to NOM a lower Fixed Fee for routing Customer orders as
compared to the Fixed Fee assessed to other options exchanges. The
Exchange is proposing to increase the Fixed Fee to recoup additional
costs that are incurred by the Exchange in connection with routing
these orders on behalf of its members.
The Exchange believes that amending the Customer Routing Fee for
orders routed to BX Options from a Fixed Fee of $0.00 to $0.10 per
contract is reasonable because the Exchange desires to recoup an
additional portion of the cost it incurs when routing Customer orders
to BX Options, similar to the amount of Fixed Fee it proposes to assess
for orders routed to NOM. The Exchange is proposing to assess a Fixed
Fee to recoup additional costs that are incurred by the Exchange in
connection with routing these orders on behalf of its members. While
the Exchange would continue to retain any rebate paid by BX Options,
the Exchange does not assess the actual transaction fee that is charged
by BX Options for Customer orders.
The Exchange believes that continuing to assess lower Fixed Fees to
route Customer orders to NOM and BX Options, as compared to other
options exchanges, is reasonable as the Exchange is able to leverage
certain infrastructure to offer those markets lower fees as explained
further below. Similarly, the Exchange believes that amending the
Customer Routing Fee to other away markets, other than NOM and BX
Options, in the instance the away market pays a rebate from a Fixed Fee
of $0.00 to $0.10 per contract is reasonable because the Exchange
desires to recoup an additional portion of the cost it incurs when
routing orders to these away markets. While the Exchange would continue
to retain any rebate paid by these away markets, the Exchange does not
assess the actual transaction fee that is charged by the away market
for Customer orders. The Fixed Fee for Customer orders is an
approximation of the costs the Exchange will be charged for routing
orders to away markets. As a general matter, the Exchange believes that
the proposed fees for Customer orders routed to markets which pay a
rebate, such as BX Options and other away markets, would allow it to
recoup and cover a portion of the costs of providing optional routing
services for Customer orders because it better approximates the costs
incurred by the Exchange for routing such orders. While each
destination market's transaction charge varies and there is a cost
incurred by the Exchange when routing orders to away markets,
including, OCC clearing costs, administrative and technical costs
associated with operating NOS, membership fees at away markets, ORFs
and technical costs associated with routing options, the Exchange
believes that the proposed Routing Fees will enable it to recover the
costs it incurs to route Customer orders to away markets.
The Exchange believes that amending the Customer Routing Fee for
orders routed to NOM from a Fixed Fee of $0.05 to $0.10 per contract,
in addition to the actual transaction fee, is equitable and not
unfairly discriminatory because the Exchange would assess the same
Fixed Fee to all orders routed to NOM in addition to the transaction
fee assessed by that market. With respect to BX Options, the Exchange
would uniformly assess a $0.10 per contract Fixed Fee for all orders
routed to BX Options and would continue to uniformly not assess the
actual transaction fee, as is the case today. The Exchange would
uniformly assess a $0.10 per contract Fixed Fee to orders routed to
NASDAQ OMX exchanges because the Exchange is passing along the saving
realized by leveraging NASDAQ OMX's infrastructure and scale to market
participants when those orders are routed to NOM or BX Options and is
providing those savings to all market participants. Furthermore, PHLX
[[Page 14555]]
XL routes orders to away markets where the Exchange's disseminated bid
or offer is inferior to the national best bid (best offer) (``NBBO'')
price and based on price first.\11\ The Exchange believes that it is
equitable and not unfairly discriminatory to assess a fixed cost of
$0.10 per contract to route orders to NOM and BX Options because the
cost, in terms of actual cash outlays, to the Exchange to route to
those markets is lower. For example, costs related to routing to NOM
and BX Options are lower as compared to other away markets because NOS
is utilized by all three exchanges to route orders.\12\ NOS and the
three NASDAQ OMX options markets have a common data center and staff
that are responsible for the day-to-day operations of NOS. Because the
three exchanges are in a common data center, Routing Fees are reduced
because costly expenses related to, for example, telecommunication
lines to obtain connectivity are avoided when routing orders in this
instance. The costs related to connectivity to route orders to other
NASDAQ OMX exchanges are lower than the costs to route to a non-NASDAQ
OMX exchange. When routing orders to non-NASDAQ OMX exchanges, the
Exchange incurs costly connectivity charges related to
telecommunication lines, membership and access fees, and other related
costs when routing orders.
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\11\ See Rule 1080(m). The Phlx XL II system will
contemporaneously route an order marked as an Intermarket Sweep
Order (``ISO'') to each away market disseminating prices better than
the Exchange's price, for the lesser of: (a) The disseminated size
of such away markets, or (b) the order size and, if order size
remains after such routing, trade at the Exchange's disseminated bid
or offer up to its disseminated size. If contracts still remain
unexecuted after routing, they are posted on the book. Once on the
book, should the order subsequently be locked or crossed by another
market center, the Phlx XL II system will not route the order to the
locking or crossing market center, with some exceptions noted in
Rule 1080(m).
\12\ See Chapter VI, Section 11 of the BX Options and NOM Rules.
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The Exchange believes that amending the Customer Routing Fee to
other away markets, other than NOM and BX Options, in the instance the
away market pays a rebate from a Fixed Fee of $0.00 to $0.10 per
contract is equitable and not unfairly discriminatory because the
Exchange would assess a lower Routing Fee, as compared to away markets
that do not pay a rebate, because the Exchange retains the rebate that
is paid by the away market. The Exchange would assess the same Fixed
Fee when routing Customer orders to a NASDAQ OMX exchange that pays a
rebate as it would to route an order to an away market (non-NASDAQ OMX
exchange) that pays a rebate. These proposals would apply uniformly to
all market participants when routing to an away market that pays a
rebate, other than NOM and BX Options. Market participants may submit
orders to the Exchange as ineligible for routing or ``DNR'' to avoid
Routing Fees.\13\ It is important to note that when orders are routed
to an away market they are routed based on price first.\14\
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\13\ See Rule 1066(h) (Certain Types of Orders Defined) and
1080(b)(i)(A) (PHLX XL and PHLX XL II).
\14\ PHLX XL will route orders to away markets where the
Exchange's disseminated bid or offer is inferior to the national
best bid (best offer) (``NBBO'') price. See also note 11.
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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 does not believe
that the proposal creates a burden on intra-market competition because
the Exchange is applying the same Routing Fees to all market
participants in the same manner dependent on the routing venue, with
the exception of Customers. The Exchange will continue to assess
separate Customer Routing Fees. Customers will continue to receive the
lowest fees as compared to non-Customers when routing orders, as is the
case today. Other options exchanges also assess lower Routing Fees for
customer orders as compared to non-customer orders.\15\
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\15\ BATS assesses lower customer routing fees as compared to
non-customer routing fees per the away market. For example BATS
assesses ISE customer routing fees of $ 0.30 per contract and an ISE
non-customer routing fee of $ 0.57 per contract. See BATS BZX
Exchange Fee Schedule.
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The Exchange's proposal would allow the Exchange to continue to
recoup its costs when routing Customer orders to NOM or BX Options as
well as away markets that pay a rebate when such orders are designated
as available for routing by the market participant. The Exchange
continues to pass along savings realized by leveraging NASDAQ OMX's
infrastructure and scale to market participants when Customer orders
are routed to NOM and BX Options and is providing those savings to all
market participants. Today, other options exchanges also assess fixed
routing fees to recoup costs incurred by the exchange to route orders
to away markets.\16\ Market participants may submit orders to the
Exchange as ineligible for routing or ``DNR'' to avoid Routing
Fees.\17\ It is important to note that when orders are routed to an
away market they are routed based on price first.\18\
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\16\ See CBOE's Fees Schedule and ISE's Fee Schedule.
\17\ See note 13.
\18\ See note 14.
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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.\19\ 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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\19\ 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-2014-13 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2014-13. 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
[[Page 14556]]
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 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-2014-13, and should be submitted on or before April
4, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05597 Filed 3-13-14; 8:45 am]
BILLING CODE 8011-01-P