[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Notices]
[Pages 30917-30920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12421]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72225; File No. SR-Phlx-2014-34]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change To Delete From Section IX of the
Exchange's Options Fee Schedule the PHOTO Historical Data Product
May 22, 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 May 9, 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 delete from Section IX of the Exchange's
Options Fee Schedule the PHOTO Historical data product.
The text of the proposed rule change is below; proposed new
language is italicized.
* * * * *
NASDAQ OMX PHLX LLC Pricing Schedule
* * *
IX. Proprietary Data Feed Fees
Top of PHLX Options (``TOPO'')
No change.
TOPO Plus Orders
No change.
PHLX Orders
No change.
PHLX Depth Data
No change.
PHLX Options Trade Outline (``PHOTO'')
------------------------------------------------------------------------
Monthly
Account type charge
------------------------------------------------------------------------
End of Day Product Subscriber................................ $500
Intra-Day Product Subscriber................................. 1,500
------------------------------------------------------------------------
[PHOTO Historical Data
------------------------------------------------------------------------
Charge
per
Account type calendar
month
requested
------------------------------------------------------------------------
End of Day Product Subscriber................................ $400
Intra-Day Product Subscriber................................. 750
------------------------------------------------------------------------
\9\ For example, a subscriber who requests End of Day PHOTO
Historical Data for the Month of March, 2009 would be charged $400. A
subscriber who requests End of Day PHOTO Historical Data for the months
of March, 2009 and April, 2009 would be charged $400 for the March,
2009 End of Day data and $400 for the April, 2009 End of day data, for
a total of $800, etc. A subscriber who requests Intra-Day PHOTO
Historical Data for the Month of March, 2009 would be charged $750.00.
A subscriber who requests Intra-Day PHOTO Historical Data for the
months of March, 2009 and April, 2009 would be charged $750 for the
March, 2009 Intra-Day data and $750 for the April, 2009 Intra-Day data,
for a total of $1,500, etc.]
* * * * *
(b) Not applicable.
(c) Not applicable.
* * * * *
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 modify Section IX of the Exchange's
Options Pricing Schedule to delete references to the PHOTO Historical
data product. PHOTO Historical is a stored data product and not a real
time data feed. NASDAQ OMX stores the data on a server within a
technology subsidiary that functions like any vendor that receives and
stores real time data feed. PHOTO Historical is not a facility of the
Exchange and fees associated with it do not belong in the Exchange Rule
Manual.
Background. In September 2010, the Exchange established fees for
its PHOTO market data product.\3\ PHOTO is a market data product
offered by the Exchange that provides proprietary electronic trade data
to subscribers. PHOTO is available as either an ``Intra-Day'' or ``End-
of-Day'' product. PHOTO Historical, as the name implies, is not a real-
time product; it is a stored product that permits a subscriber to
select a particular prior calendar month or months and receive the
``End of Day'' or ``Intra-Day'' data for each trading session conducted
during the calendar month(s) selected.
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\3\ See Securities Exchange Act Release No. 62887 (September 10,
2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121).
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Like PHOTO subscribers, PHOTO Historical subscribers receive the
following data:
[[Page 30918]]
Aggregate number of buy and sell transactions in the
affected series for each trading session conducted during the specified
calendar month(s);
Aggregate volume traded electronically on the Exchange in
the affected series for each trading session conducted during the
specified calendar month(s);
Aggregate number of trades effected on the Exchange to
open a position \4\ for each trading session conducted during the
specified calendar month(s);
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\4\ PHOTO Historical Data provides subscribers with the
aggregate number of ``opening purchase transactions'' in the
affected series for each trading session conducted during the
calendar month(s) selected. An opening purchase transaction is an
Exchange options transaction in which the purchaser's intention is
to create or increase a long position in the series of options
involved in such transaction. See Exchange Rule 1000(b)(24). PHOTO
Historical Data also provides subscribers with the aggregate number
of ``opening writing transactions'' in the affected series for each
trading session conducted during the calendar month(s) selected. An
opening writing transaction is an Exchange options transaction in
which the seller's (writer's) intention is to create or increase a
short position in the series of options involved in such
transaction. See Exchange Rule 1000(b)(25).
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Aggregate number of trades effected on the Exchange to
close a position \5\ for each trading session conducted during the
specified calendar month(s);
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\5\ PHOTO Historical Data provides subscribers with the
aggregate number of ``closing purchase transactions'' in the
affected series for each trading session conducted during the
calendar month(s) selected. A closing purchase transaction is an
Exchange options transaction in which the purchaser's intention is
to reduce or eliminate a short position in the series of options
involved in such transaction. See Exchange Rule 1000(b)(27). PHOTO
Historical Data will also provide subscribers with the aggregate
number of ``closing sale transactions'' in the affected series for
each trading session conducted during the calendar month(s)
selected. A closing sale transaction is an Exchange options
transaction an Exchange options transaction in which the seller's
intention is to reduce or eliminate a long position in the series of
options involved in such transaction. See Exchange Rule 1000(b)(26).
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Origin of the orders involved in trades on the Exchange in
the affected series for each trading session conducted during the
specified calendar month(s), specifically aggregated in the following
categories of participants: Customers, broker-dealers, market makers
(including specialists, Registered Options Traders (``ROTs''),
Streaming Quote Traders (``SQTs'') \6\ and Remote Streaming Quote
Traders (``RSQTs'') \7\), and professionals.\8\
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\6\ An SQT is an Exchange Registered Options Trader (``ROT'')
who has received permission from the Exchange to generate and submit
option quotations electronically in options to which such SQT is
assigned. See Exchange Rule 1014(b)(ii)(A).
\7\ An RSQT is an ROT that is a member or member organization
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically in options to which such RSQT has been assigned. An
RSQT may only submit such quotations electronically from off the
floor of the Exchange. See Exchange Rule 1014(b)(ii)(B).
\8\ 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). A professional
will be treated in the same manner as an off-floor broker-dealer for
purposes of Rules 1014(g) (except with respect to all-or-none
orders, which will be treated like customer orders), 1033(e),
1064.02 (except professional orders will be considered customer
orders subject to facilitation), and 1080.08 as well as Options
Floor Procedure Advices B-6, B-11 and F-5. Member organizations must
indicate whether orders are for professionals. See Exchange Rule
1000(b)(14).
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The fee for the PHOTO Historical Data End of Day product for
subscribers is $400.00 per calendar month selected. The fee for the
PHOTO Historical Data Intra-day product subscribers is $750.00 per
calendar month selected.
Proposal. NASDAQ believes that PHOTO Historical is not a facility
of the Exchange within the meaning of the Act, and that previous
proposed rule changes with respect to such PHOTO Historical were
unnecessary under the Act. Congress enacted the Exchange Act to impose
federal regulation on stock exchanges, and included in its definition
of ``exchange'' ``the market facilities maintained by such exchange.''
\9\ The Exchange Act separately defines ``facility,'' providing that
``[t]he term `facility' when used with respect to an exchange includes
[1] its premises, [2] tangible or intangible property whether on the
premises or not, [3] any right to the use of such premises or property
or any service thereof for the purpose of effecting or reporting a
transaction on an exchange (including among other things, any system of
communication to or from the exchange, by ticker or otherwise,
maintained by or with the consent of the exchange), and [4] any right
of the exchange to the use of any property or service.'' Id. The
Commission has not separately interpreted the definition of
``facility.'' \10\
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\9\ 15 U.S.C. Sec. 78c(a)(1).
\10\ Securities Exchange Act Release No. 26708, at 4 n.28 (1989)
(recognizing that the definition of the term ``facility'' has not
changed since it was originally adopted and that no hearing
testimony referred to it because ``the Committee felt that the
definition was `self-explanatory''') (citation omitted).
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PHOTO Historical does not satisfy any of the four prongs set forth
in the statutory definition of ``facility.'' First, it is not the
``premises'' of the Exchange. The term ``premises'' is generally
understood to refer to a building, its land, and appurtenances. Second,
PHOTO Historical is not tangible or intangible property of the
Exchange. While the Exchange initially distributes the PHOTO product as
a facility; NASDAQ OMX stores and distributes PHOTO Historical as any
vendor would do. Third, PHOTO Historical is not used on the Exchange's
premises ``for the purpose of effecting or reporting a transaction'' on
an exchange.\11\ Fourth, PHLX, in its capacity as an exchange, does not
hold any right to PHOTO Historical other than as the original
distributor of such data for which it receives applicable, filed fees.
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\11\ 15 U.S.C. 78c(a)(2).
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The Exchange's proposal is consistent with past precedent regarding
the distribution of historical data. Specifically, in 2010, the NASDAQ
Stock Market submitted a proposed rule change to eliminate from the
NASDAQ rule manual references to Historical TotalView.\12\ In that
case, TotalView was a real-time data product that was stored in a non-
exchange subsidiary that then redistributed the stored data in the same
manner and capacity as any market data vendor. The proposal was
designated as an immediately effective proposal and was not acted upon
by the Commission.
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\12\ Securities Exchange Act Release No. 61416 (Jan. 25, 2010)
(SR-NASDAQ-2010-010).
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Conversely, there is no Commission precedent for considering the
historical data of an exchange to be considered a facility when re-
distributed by a market data vendor. For example, when NASDAQ separated
from NASD, the Commission was asked to determine whether TRF LLC, which
would operate NASD's Trade Reporting Facility, was a facility of NASD
or the Nasdaq Exchange, which together owned TRF LLC.\13\ The Nasdaq
Exchange was to be ``primarily responsible for the management of the
TRF LLC's business affairs,'' and all ``profits and losses from the TRF
LLC [were] allocated to NASDAQ.'' Id. at 15; see also id. at 18
(``[T]he Nasdaq Exchange's parent company controls the board of the TRF
LLC, directs all business decisions, provides technology, and will reap
the economic benefits of the TRF LLC.''). Nevertheless, the Commission
concluded that the TRF LLC was a facility of NASD, not the Nasdaq
Exchange, because the ``Trade Reporting Facility is not a service `for
the purpose of effecting or reporting a transaction' on the Nasdaq
Exchange.'' Id. at 18. The
[[Page 30919]]
TRF LLC was instead ``a service for the purpose of reporting
transactions to the NASD.'' Id.
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\13\ Securities Exchange Act Release No. 54084 (June 30, 2006).
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Similarly, the Commission concluded that the ACES System, ``a
neutral communications service that allows NASDAQ members and non-
members to route orders to one another,'' is not a facility of the
NASDAQ Exchange.\14\ The Commission deemed it significant that the ACES
System does not route orders to NASDAQ and does not report executed
trades on the Exchange. Id. The Commission emphasized that, because the
ACES System is ``not linked to the Exchange's core systems, including
the NASDAQ Market Center,'' it ``is not possible for an order to be
routed to the NASDAQ Market Center via the ACES system.'' Id.
Accordingly, the Commission concluded that ACES does not have ``the
purpose of effecting or reporting a transaction on an exchange'' within
the meaning of the Exchange Act. Id. The Commission has also permitted
NASDAQ to remove from its rule book fees related to the Mutual Fund
Quotation Service and the NASDAQ Index Dissemination Service, both of
which disseminated market data not properly considered ``facilities''
of NASDAQ within the meaning of the Exchange Act.\15\
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\14\ Securities Exchange Act Release No. 56237 (August 9, 2007).
\15\ See Securities Exchange Act Release No. 58392 (August 20,
2008) (removing MFQS from rule book); Securities Exchange Act
Release No. 58897 (November 3, 2008) (removing NIDS from rule book).
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Given the plain language of the Exchange Act and the above-
referenced precedents, there is no basis in the Act for determining
that a real-time market data facility of an exchange retains that
character when an affiliated vendor redistributes it on an historical
basis. First, the affiliated vendor is not an exclusive processor of
such data, unlike the data that PHLX produces directly. Second,
historical data does not provide access or order entry capability to
the Exchange's execution system; nor does it carry information from or
about executions currently within the execution system. Third, the
affiliated vendor receives the data via an arms-length agreement and it
has no inherent advantage over any other recipient of such data.
Moreover, historical data is available via multiple sources. It is a
completely voluntary product in that PHLX makes it available on a
voluntary basis, and clients purchase it from NASDAQ OMX (or another
vendor) only if they voluntarily choose to do so.
For all of these reasons, PHLX believes that its PHOTO Historical
data service is not a facility of a national securities exchange within
the meaning of the Act and that it is not required under Section
19(b)(1) of the Act \16\ and Rule 19b-4 thereunder \17\ to file rules
regarding the applicable charges.
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\16\ 15 U.S.C. 78s(b)(1).
\17\ 17 CFR 240.19b-4.
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2. Statutory Basis
PHLX believes that PHOTO Historical is not a facility of a national
securities exchange within the meaning of the Act and the terms of this
service are not rules that must be filed with the Commission under
Section 19(b)(1) of the Act \18\ and Rule 19b-4 thereunder.\19\
Therefore, removing the applicable provisions from the PHLX rule book
would be consistent with the provisions of Section 6(b) of the Act.\20\
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\18\ 15 U.S.C. 78s(b)(1).
\19\ 17 CFR 240.19b-4.
\20\ 15 U.S.C. 78f(b).
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PHLX's proposal to remove PHOTO Historical from the rule manual is
also consistent with the Exchange Act insofar as it will have no impact
on PHLX's or its members' compliance with applicable regulations and
rules. First, PHLX has no obligation under the Exchange Act, either as
an exchange or a vendor, to offer PHOTO Historical to PHLX members.
Having chosen to offer such data and to do so on non-discriminatory
terms imposes no continuing obligation to do so. Second, even assuming
PHLX did have an obligation to make PHOTO Historical available, it will
continue to do so in the same manner if does now. Therefore, to the
extent PHLX members utilize PHOTO Historical, that use will be
uninterrupted. Third, there are multiple vendors of historical, many of
whom are not subject to Commission oversight.
B. Self-Regulatory Organization's Statement on Burden on Competition
PHLX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. To the contrary,
PHLX believes that this proposed rule change removing from the PHLX
rule manual a service improperly included, promotes competition by
removing an impediment to PHLX's competition with unregulated market
data providers with which PHLX competes for these services. Removing
barriers to competition has the potential to promote innovation, reduce
prices, and increase efficiency.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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-2014-34 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-2014-34. 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
[[Page 30920]]
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-2014-34,
and should be submitted on or before June 19, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12421 Filed 5-28-14; 8:45 am]
BILLING CODE 8011-01-P