[Federal Register Volume 79, Number 119 (Friday, June 20, 2014)]
[Notices]
[Pages 35391-35396]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-14421]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72395; File No. SR-Phlx-2014-38]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Pricing in Multiply Listed Options
June 16, 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 June 2, 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 II of the Pricing Schedule
which pertains to Multiply Listed Options fees.\3\
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\3\ Multiply Listed Options fees includes options overlying
equities, ETFs, ETNs and indexes which are multiply listed.
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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 Section II of the Exchange's
Pricing Schedule entitled ``Multiply Listed Options'' to: (i) Amend
Options Transaction Charges in Penny Pilot Options \4\ and Non-Penny
Pilot Options; (ii) amend certain Complex Order \5\ fees;
[[Page 35392]]
(iii) amend incentives related to achieving certain Customer Rebate
Tiers; \6\ (iv) amend the Monthly Market Maker Cap; and (v) remove
outdated rule text related to the Qualified Contingent Cross \7\ Bonus.
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\4\ The Penny Pilot was established in January 2007 and was last
extended in May 2014. See Securities and Exchange Release No. 72245
(May 23, 2014), 79 FR 31164 (May 30, 2014) (SR-Phlx-2014-37).
\5\ 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).
\6\ The Exchange offers Customer Rebates in Section B of the
Pricing Schedule.
\7\ 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 Regulation NMS). 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; 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).
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Options Transaction Charges
The Exchange proposes to increase the electronic Professional,\8\
Broker-Dealer \9\ and Firm \10\ Options Transaction Charges in Penny
Pilot Options to $0.48 per contract. Currently, a Professional is
assessed an electronic Options Transaction Charge of $0.30 per contract
and a Broker-Dealer and Firm are assessed an electronic Options
Transaction Charge of $0.45 per contract.
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\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). See Rule
1000(b)(14).
\9\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
\10\ 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.
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The Exchange also proposes to increase the electronic Specialist
\11\ and Market Maker \12\ Options Transaction Charge in Non-Penny
Pilot Options from $0.23 to $0.25 per contract. The Exchange believes
that these fee increases will permit the Exchange to incentivize market
participants by offering other incentives to lower prices as described
herein.
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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)). Directed Participants are also market makers.
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Complex Order Fees
The Exchange currently assesses Professionals an electronic Complex
Order fee of $0.30 per contract in Penny Pilot Options.\13\ The
Exchange will continue to offer Professionals this $0.30 per contract
fee for electronic Penny Pilot Complex Orders, which will represent a
lower fee as compared to the proposed Professional electronic Options
Transaction Charge of $0.48 per contract. The Exchange will also offer
Broker-Dealers and Firms the opportunity to lower the proposed $0.48
per contract electronic Penny Pilot Options Transaction Charges to
$0.30 per contract with respect to Complex Orders.
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\13\ See current note 13 of the Pricing Schedule.
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With respect to Non-Penny Pilot Options, the Exchange currently
assesses Professionals an electronic Complex Order fee of $0.30 per
contract in Non-Penny Pilot Options.\14\ The Exchange will continue to
offer Professionals this $0.30 per contract fee for electronic Non-
Penny Pilot Complex Orders. The Exchange will also offer Broker-Dealers
and Firms the opportunity to lower the current electronic Options
Transaction Charges of $0.70 to $0.30 per contract with respect to
Complex Orders.
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\14\ See current note 14 of the Pricing Schedule.
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The Exchange believes that offering these market participants the
opportunity to lower Complex Order fees will encourage the transaction
of these types of orders on Phlx.
Customer Rebate Tier Incentives
Today the Exchange offers Professionals, Broker-Dealers and Firms
the opportunity to reduce electronic Options Transaction Charges in
Non-Penny Pilot Options from $0.70 to $0.60 per contract if the member
or member organization under Common Ownership with another member or
member organization qualifies, in a given month, for Customer Rebate
Tiers 2, 3, 4, or 5 in Section B of the Pricing Schedule.\15\ The
Exchange will continue to offer these market participants the
opportunity to qualify for the Customer Rebate Tiers and reduce these
electronic fees to $0.60 per contract.\16\
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\15\ See current note 14 of the Pricing Schedule as related to a
Professional and current note 15 of the Pricing Schedule as related
to Broker-Dealers and Firms.
\16\ See revised note 14 of the Pricing Schedule which is being
applied to Broker-Dealers and Firms as well as Professionals within
the Pricing Schedule. Note 14 of the Pricing Schedule is being added
to the electronic Broker-Dealer and Firm Non-Penny Pilot Options
Transaction Charge.
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The Exchange also proposes to offer Specialists and Market Makers
an opportunity to lower the electronic Non-Penny Pilot Options
Transaction Charge from the proposed $0.25 per contract to $0.23 per
contract.\17\ Any Specialist or Market Maker member or member
organization under Common Ownership with another member or member
organization that qualifies for Customer Rebate Tiers 2, 3, 4 or 5 in
Section B of the Pricing Schedule will be assessed a $0.23 per contract
electronic Non-Penny Pilot Option Transaction Charge.
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\17\ The Exchange is adding note 15 of the Pricing Schedule to
the electronic Specialist and Market Maker Non-Penny Pilot Options
Transaction Charge.
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The Exchange believes that these incentives will encourage
Specialists and Market Makers to transact a greater number of orders on
the Exchange.
Monthly Market Maker Cap
Today, 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 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.
The Exchange proposes to continue to assess 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 a $0.17
[[Page 35393]]
per contract fee in both Penny and Non-Penny Pilot Options, as is the
case today. The Exchange proposes to assess no fee to 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 in the following symbols: Apple, Inc.
(``AAPL''), Bank of American Corporation (``BAC''), Facebook, Inc.
(``FB''), iShares Russell 2000 (``IWM'') and PowerShares QQQ (``QQQ'').
The Exchange believes that assessing Specialists and Market Makers no
fee in these symbols if they are on the contra-side of an
electronically-delivered and executed Customer order; and have reached
the Monthly Market Maker Cap will incentivize Specialists and Market
Makers to offer improved bids and offers on the Exchange.
QCC Bonus
The Exchange previously filed an immediately effective rule change
\18\ to offer an additional rebate applicable to both electronic QCC
Orders (``eQCC'') \19\ and Floor QCC Orders \20\ (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'').\21\ The QCC Bonus was only available
during the month of May 2014. The Exchange proposes to delete the rule
text applicable to the QCC Bonus as that bonus is no longer applicable.
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\18\ See Securities Exchange Act Release No. 72136 (May 9,
2014), 79 FR 27968 (May 15, 2004) (SR-Phlx-2014-31).
\19\ See Rule 1080(o).
\20\ See Rule 1064(e).
\21\ The QCC Bonus was in addition to the maximum QCC Rebate of
$375,000 and did not count toward the maximum QCC Rebate of
$375,000.
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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 \22\ in general,
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act
\23\ 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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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(4), (5).
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Options Transaction Charges
The Exchange's proposal to increase the electronic Professional,
Broker-Dealer and Firm Options Transaction Charges in Penny Pilot
Options to $0.48 per contract is reasonable because the Exchange's fees
will remain competitive with fees at other options markets.\24\ Today,
a Professional is assessed an electronic Options Transaction Charge in
Penny Pilot Options of $0.30 per contract and a Broker-Dealer and Firm
are assessed an electronic Options Transaction Charge in Penny Pilot
Options of $0.45 per contract. Despite the fee increase, the proposal
will allow the Exchange to incentivize market participants by offering
the opportunity to lower Options Transaction Charges as described
herein.
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\24\ See the NASDAQ Options Market LLC's (``NOM'') pricing at
Chapter XV of NOM's Rulebook.
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The Exchange's proposal to increase the electronic Professional,
Broker-Dealer and Firm Options Transaction Charges in Penny Pilot
Options to $0.48 per contract is equitable and not unfairly
discriminatory because the Exchange will assess Professionals, Broker-
Dealers and Firms the same electronic Options Transaction Charges in
Penny Pilot Options. The Exchange does not assess Customers an
electronic Options Transaction Charge in Penny Pilot Options because
Customer order flow enhances liquidity on the Exchange for the benefit
of all market participants. Customer liquidity benefits all market
participants by providing more trading opportunities, which attracts
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. Specialists and Market Makers are assessed lower
electronic Options Transaction Charges in Penny Pilot Options as
compared to Professionals, Broker-Dealers and Firms because they have
obligations to the market and regulatory requirements, which normally
do not apply to other market participants.\25\ They have obligations to
make continuous markets, engage in a course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market, and not make bids or offers or enter into transactions that are
inconsistent with a course of dealings. The proposed differentiation as
between Customers, Specialists and Market Makers and other market
participants recognizes the differing contributions made to the
liquidity and trading environment on the Exchange by these market
participants.
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\25\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
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The Exchange's proposal to increase the electronic Specialist and
Market Maker Options Transaction Charge in Non-Penny Pilot Options from
$0.23 to $0.25 per contract is reasonable because the Exchange will
continue to offer Specialists and Market Makers other incentives such
as the Monthly Market Maker Cap, which incentive is not offered to
other market participants. The Exchange believes that despite the fee
increase, the fee remains competitive with other market participant
fees. Also, the Exchange is offering Specialists and Market Makers a
means to reduce the Options Transaction Charge to $0.23 per contract in
Non-Penny Pilot Options as described in more detail below.\26\
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\26\ Specialists and Market Makers could reduce the Options
Transaction Charge in Non-Penny Pilot Options from $0.25 to $0.23
per contract by qualifying for Customer Rebate Tiers 2, 3, 4 or 5 in
Section B of the Pricing Schedule, as proposed herein. See proposed
note 15 of the Pricing Schedule.
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The Exchange's proposal to increase the electronic Specialist and
Market Maker Options Transaction Charge in Non-Penny Pilot Options from
$0.23 to $0.25 per contract is equitable and not unfairly
discriminatory because the Exchange will continue to assess Specialists
and Market Makers the lowest electronic Options Transaction Charge in
Non-Penny Pilot Options as compared to the $0.70 per contract
electronic Options Transaction Charge assessed to Professionals,
Broker-Dealers and Firms.\27\ Specialists and Market Makers are
assessed lower electronic Options Transaction Charges in Penny Pilot
Options as compared to Professionals, Broker-Dealers and Firms because
they have obligations to the market and regulatory requirements, which
normally do not apply to other market participants.\28\
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\27\ Customers are not assessed a Non-Penny Pilot Options
Transaction Charge.
\28\ See note 25.
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Complex Order Fees
The Exchange's proposal to continue to offer Professionals, and now
Broker-Dealers and Firms, the opportunity to reduce electronic Complex
Orders to a fee of $0.30 per contract in Penny Pilot Options is
reasonable because the Exchange is increasing fees for these market
participants with this proposal. Professionals will have the
opportunity to lower the proposed $0.48 per contract electronic Options
Transaction Charge in Penny Pilot Options to $0.30 per contract with
respect to Complex Orders. This will represent a lower fee as compared
to the proposed electronic
[[Page 35394]]
Professional Options Transaction Charge of $0.48 per contract that will
apply to Simple Orders in Penny Pilot Options. Broker-Dealers and Firms
will likewise be offered the opportunity to reduce the proposed
increased electronic Penny Pilot Options Transaction Charges of $0.48
to $0.30 per contract with respect to Complex Orders. Therefore, these
market participants that are assessed the highest electronic fees will
have an opportunity to lower these rlectronic [sic] fees in Penny Pilot
Complex Orders.
The Exchange's proposal to offer Broker-Dealers and Firms the same
opportunity as a Professional to reduce electronic Complex Orders to a
fee of $0.30 per contract in Penny Pilot Options is equitable and not
unfairly discriminatory because the Exchange will assess Professionals,
Broker-Dealers and Firms the same electronic Options Transaction Charge
in Penny Pilot Options of $0.30 per contract. The Exchange does not
assess Customers an electronic Options Transaction Charge in Penny
Pilot Options because Customer order flow enhances liquidity on the
Exchange for the benefit of all market participants. Specialists and
Market Makers are assessed lower electronic Options Transaction Charges
in Penny Pilot Options as compared to Professionals, Broker-Dealers and
Firms because they have obligations to the market and regulatory
requirements, which normally do not apply to other market
participants.\29\ They have obligations to make continuous markets,
engage in a course of dealings reasonably calculated to contribute to
the maintenance of a fair and orderly market, and not make bids or
offers or enter into transactions that are inconsistent with a course
of dealings.
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\29\ See note 25.
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The Exchange's proposal to continue to offer Professionals, and now
Broker-Dealers and Firms, the opportunity to reduce electronic Complex
Orders from $0.70 to $0.30 per contract in Non-Penny Pilot Options is
reasonable because the Exchange desires to provide these market
participants the opportunity to lower Complex Order fees in Penny and
Non-Penny Pilot Options alike. This opportunity to lower electronic
Complex Order fees, which is currently offered only to Professionals,
will be extended to Broker-Dealers and Firms in Non-Penny Pilot
Options. Professionals, Broker-Dealers and Firms are assessed the
highest electronic Options Transactions Charges in Non-Penny Pilot
Options of $0.70 per contract, as compared to other market
participants. The Exchange believes that offering these market
participants the opportunity to lower Non-Penny Pilot electronic
Complex Order fees will encourage the transaction of these types of
orders on Phlx.
The Exchange's proposal to offer Broker-Dealers and Firms the same
opportunity as Professionals to reduce electronic Complex Orders to a
fee of $0.30 per contract in Non-Penny Pilot Options is equitable and
not unfairly discriminatory because the Exchange will assess
Professionals, Broker-Dealers and Firms the same electronic Options
Transaction Charge in Non-Penny Pilot Options of $0.30 per contract.
The Exchange does not assess Customers an electronic Options
Transaction Charge in Non-Penny Pilot Options because Customer order
flow enhances liquidity on the Exchange for the benefit of all market
participants. Specialists and Market Makers are assessed lower
electronic Options Transaction Charges in Non-Penny Pilot Options as
compared to Professionals, Broker-Dealers and Firms because they have
obligations to the market and regulatory requirements, which normally
do not apply to other market participants.\30\
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\30\ See note 25.
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Customer Rebate Tier Incentives
The Exchange's proposal to offer Specialists and Market Makers an
opportunity to lower electronic Options Transaction Charges in Non-
Penny Pilot Options from $0.25 to $0.23 per contract, provided certain
criteria are met, is reasonable because the Exchange desires to offer
all market participants \31\ an opportunity to lower Non-Penny Pilot
Options Transaction Fees. The electronic Options Transaction Charges in
Non-Penny Pilot Options are higher as compared to electronic Options
Transaction Charges in Penny Pilot Options. The Exchange believes that
offering all market participants the opportunity to lower electronic
Options Transaction Charges in Non-Penny Pilot Options by incentivizing
them to transact Customer order flow in turn benefits all market
participants.
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\31\ Today, Professionals, Broker-Dealers and Firms have an
opportunity to reduce fees to $0.60 per contract in Non-Penny Pilot
Options provided certain criteria are met Professionals, Broker-
Dealers and Firms are offered the opportunity to reduce electronic
Non-Penny Pilot Options Transaction Charges to $0.60 per contract if
the member or member organization under Common Ownership with
another member or member organization qualifies, in a given month,
for Customer Rebate Tiers 2, 3, 4, or 5 in Section B of the Pricing
Schedule.
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The Exchange's proposal to offer Specialists and Market Makers the
opportunity to lower electronic Options Transaction Charges in Non-
Penny Pilot Options from $0.25 to $0.23 per contract is equitable and
not unfairly discriminatory because the Exchange will offer all market
participants, excluding Customers,\32\ a means to reduce Options
Transaction Charges by qualifying for a Customer Rebate in Section B of
the Pricing Schedule. Even with the reduced rate for Professionals,
Broker-Dealers and Firms of $0.60 per contract, Specialist and Market
Makers will continue to be assessed the lowest electronic Options
Transaction Charge in Non-Penny Pilot Options because they have
obligations to the market and regulatory requirements, which normally
do not apply to other market participants.\33\
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\32\ Customers are not assessed a Non-Penny Pilot Options
Transaction Charge.
\33\ See note 25.
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Monthly Market Maker Cap
The Exchange's proposal to not assess a fee to 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 in AAPL, BAC, FB, IWM and QQQ is reasonable
because the Exchange desires to incentivize Specialists and Market
Makers to transact more options in these symbols and bring additional
liquidity to the Exchange. All market participants will benefit from
the increased Customer liquidity brought to the Exchange. The Exchange
today differentiates pricing by option symbols.\34\ Specialists and
Market Makers will continue to pay the same fee of $0.17 per contract
in Penny and Non-Penny Pilot Options, when the cap is satisfied, except
for the symbols noted above.
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\34\ See Section I of the Pricing Schedule which differentiates
pricing in SPDR S&P 500 (``SPY'') options. See also Securities
Exchange Release No. 66757 (April 6, 2012), 77 FR 22034 (April 12,
2012) (SR-Phlx-2012-45).
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The Exchange's proposal to not assess a fee to 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 in AAPL, BAC, FB, IWM and QQQ is equitable and
not unfairly discriminatory. Specialists and Market Makers have
burdensome quoting obligations \35\ 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.
[[Page 35395]]
Additionally, Specialists and Market Makers incur costs unlike other
market participants including, but not limited to, Payment for Order
Flow (``PFOF'') \36\ and other costs associated with market making
activities, 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. 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 offering Specialists and Market Makers the
opportunity to cap fees in certain highly liquidity Penny Pilot Options
is equitable and not unfairly discriminatory for the reasons noted
above.
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\35\ See note 25.
\36\ Specialists and Market Makers, as compared to other market
participants, are assessed PFOF when transacting Customer electronic
orders.
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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 is no longer in effect 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 any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange's proposal to
increase electronic Options Transaction Charges for Professionals,
Broker-Dealers and Firms in Penny Pilot Options conforms pricing for
these market participants. Customers continue not be assessed Penny
Pilot Options Transaction Charges and Specialists and Market Makers
continue to be assessed the lowest electronic Options Transaction
Charges in Penny Pilot Options due to the obligations they bear in the
market.\37\
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\37\ See note 25.
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With respect to Non-Penny Pilot Options, the increase to
Specialists and Market Makers for electronic orders is offset by the
ability to reduce those fees by qualifying for certain Customer Rebates
in Section B of the Pricing Schedule and also the ability to cap
certain fees. The Exchange is offering all market participants that are
assessed Non-Penny Pilot Options Transaction Charges the opportunity to
reduce those fees by qualifying for certain Customer Rebates in Section
B of the Pricing Schedule.
Professionals, as is the case today, as well as Broker-Dealers and
Firms alike will be offered the opportunity to reduce electronic
Complex Order fees in both Penny and Non-Penny Pilot Options as these
market participants are assessed the highest Penny and Non-Penny Pilot
Options Transaction Charges.
Specialists and Market Makers will be offered the opportunity to
pay no fees, after they have satisfied the obligations related to the
Monthly Market Maker Cap, in the following symbols: AAPL, BAC, FB, IWM
and QQQ. Specialists and Market Makers have burdensome quoting
obligations \38\ 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, 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. 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. For these reasons noted above, the Exchange does
not believe that offering Specialists and Market Makers the opportunity
to cap fees in certain symbols imposes an undue burden on competition.
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\38\ Id.
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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 described in the above proposal are
influenced by these robust market forces and therefore must remain
competitive with fees charged d [sic] 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.\39\ 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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\39\ 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-2014-38 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-2014-38. This file
[[Page 35396]]
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 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-2014-38, and should be
submitted on or before July 11, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14421 Filed 6-19-14; 8:45 am]
BILLING CODE 8011-01-P