[Federal Register Volume 83, Number 30 (Tuesday, February 13, 2018)]
[Notices]
[Pages 6299-6301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02863]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82653; File No. SR-Phlx-2018-13]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule To Exclude NDX and NDXP Options From the
Strategy Caps and From Special Pricing for FLEX Transactions
February 7, 2018.
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 26, 2018, Nasdaq 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 Exchange's Pricing Schedule to
exclude A.M. and P.M.-settled options on broad-based indexes with
nonstandard expiration dates from its pricing for Strategy Caps and for
FLEX transactions.
While changes to the Pricing Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on February 1, 2018.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqphlx.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
[[Page 6300]]
the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange lists A.M. and P.M.-settled options on the Nasdaq
100[supreg] Index with nonstandard expiration dates under the symbols
``NDX'' and ``NDXP,'' \3\ respectively. NDX and NDXP are proprietary
products that are or soon will be traded exclusively on the Exchange
and its affiliates.\4\ The pricing schemes applicable to these products
reflects their proprietary and exclusive nature.\5\ That is,
transactions in NDX and NDXP are exempt from many of the fee caps, fee
waivers, and prices that otherwise apply to other options transactions.
For example, transactions in options overlying NDX and NDXP are
excluded from the ``Monthly Market Maker Cap'' and the ``Monthly Firm
Fee Cap.'' Furthermore, for members executing facilitation orders, NDX
and NDXP options transactions are excluded from waivers of the Firm
Floor Options Transaction and the Broker-Dealer Floor Options
Transaction charges.
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\3\ The Exchange lists NDXP on a pilot basis. See Securities and
Exchange Act Release No. 82341 (December 15, 2017), 82 FR 60651
(December 21, 2017) (SR-Phlx-2017-79).
\4\ NDX is listed on Phlx, Nasdaq ISE, and Nasdaq GEMX. Several
NDX options are listed on Cboe, but once they expire later this
year, NDX will be entirely exclusive to the Nasdaq, Inc. Exchanges.
NDXP presently is listed only on Phlx, but other Nasdaq-owned self-
regulatory organizations intend to list it at a later date.
\5\ See Securities and Exchange Act Release No. 82341 (December
15, 2017), 82 FR 60651 (December 21, 2017) (SR-Phlx-2017-79).
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Presently, however, one category of fee cap remains applicable to
transactions in NDX and NDXP. Pursuant to Section II of the Pricing
Schedule, transactions in NDX and NDXP are subject to so-called
``Strategy Caps.'' Strategy Caps limit the fees that otherwise apply to
certain categories of options participants when they engage in Floor
options transactions while employing strategies set forth in the
Pricing Schedule, namely dividend, merger, short stock interest,
reversal and conversion, jelly roll, or box spread strategies.
Additionally, pursuant to Section IV.B. of the Pricing Schedule,
special pricing applies to transactions by Customers and Non-Customers
in NDX and NDXP FLEX options.\6\ Customers presently pay no fees for
such transactions, while Non-Customers pay $0.25 per contract.
Moreover, the Monthly Firm Fee Cap, Monthly Market Maker Cap, Strategy
Caps and the Options Surcharge described in Section II of the Pricing
Schedule apply to FLEX Transaction Fees for NDX and NDXP.
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\6\ The characteristics of a FLEX option are discussed in Rule
1079.
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The Exchange proposes to amend these two provisions of the Pricing
Schedule. First, the Exchange proposes to amend Section II to exempt
transactions in NDX and NDXP from Strategy Caps. Second, the Exchange
proposes to apply Section II pricing to transactions in NDX and NDXP
FLEX options. Accordingly, electronic and floor options transaction
charges for FLEX options overlying NDX and NDXP will be $0.75 per
contract for all Non-Customers. No transaction charge will apply to
Customers for NDX or NDXP FLEX options. A $0.25 per contract surcharge
will be assessed to Non-Customers in NDX and NDXP FLEX options.
The purpose of these two amendments to the Pricing Schedule is to
further refine the pricing of transactions in NDX and NDXP to reflect
the exclusive and proprietary nature of these products.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\8\ 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, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \9\
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\9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\10\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of
a market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\11\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \12\
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\10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\11\ See NetCoalition, at 534-535.
\12\ Id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \13\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes that these views apply with equal force to the options
markets.
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\13\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
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The Exchange's proposal to exclude NDX and NDXP options
transactions from the Strategy Caps in Section II of the Pricing
Schedule is reasonable because these caps apply to Multiply-Listed
Options and NDX and NDXP are not Multiply-Listed Options. As noted
above, NDX and NDXP are listed exclusively on the Exchange. The
Exchange does not believe that such caps are necessary to incentivize
member organizations to execute strategies on the Floor involving
products like NDX or NDXP that are exclusive to it. The Exchange's
proposal to exclude NDX and NDXP options transactions from Strategy
Caps is also equitable and not unfairly discriminatory because the
Exchange will apply this cap exclusion in a uniform manner.
The Exchange's proposal to exclude NDX and NDXP FLEX options from
Section IV.B.--FLEX Transaction Fees pricing and instead apply to such
transactions Section II pricing is reasonable because the Exchange
believes that FLEX option pricing will continue to be competitive
despite the exclusion of NDX and NDXP. The Exchange's proposal is
equitable and not unfairly discriminatory because the Exchange will
uniformly exclude NDX
[[Page 6301]]
and NDXP FLEX options from FLEX option pricing. Moreover, the Exchange
will apply to participants in NDX and NDXP FLEX options the same
Section II transaction charges it applies to participants in other
types of NDX and NDXP options transactions.
The Exchange notes that the proposed transaction charges for NDX
and NDXP FLEX options are reasonable, equitable and not unfairly
discriminatory as NDX and NDXP are exclusively listed products. The
Exchange seeks to recoup its operational costs \14\ for listing
proprietary products. Also, pricing by symbol is a common practice on
many U.S. options exchanges as a means to incentivize order flow to be
sent to an exchange for execution in particular products. Other options
exchanges price by symbol.\15\ Further, the Exchange notes that with
its products, market participants are offered an opportunity to either
transact NDX or NDXP or separately execute options overlying
PowerShares QQQ Trust (``QQQ'').\16\ Offering products such as QQQ
provides market participants with a variety of choices in selecting the
product they desire to utilize to transact the Nasdaq 100[supreg]
Index.\17\ When exchanges are able to recoup costs associated with
offering proprietary products, it incentivizes growth and competition
for the innovation of additional products.
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\14\ By way of example, in analyzing an obvious error, the
Exchange would have additional data points available in establishing
a theoretical price for a Multiply Listed Option as compared to a
proprietary product, which requires additional analysis and
administrative time to comply with Exchange rules to resolve an
obvious error.
\15\ See pricing for RUT on CBOE's Fees Schedule.
\16\ QQQ is an exchange-traded fund based on the Nasdaq-100
Index[supreg].
\17\ QQQ options overlies the same Index as NDX and NDXP, namely
the Nasdaq 100[supreg] Index. This relationship between QQQ options
and NDX and NDXP options is similar to the relationship between RUT,
the iShares Russell 2000 Index, and IWM which is the ETF on RUT.
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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. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. The Exchange notes that with its products, market
participants are offered an opportunity to either transact NDX or NDXP
or separately execute options overlying PowerShares QQQ Trust
(``QQQ''). Offering products such as QQQ provides market participants
with a variety of choices in selecting the product they desire to
utilize to transact the Nasdaq 100 Index.\18\
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\18\ See note 17 above.
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The Exchange's proposal to exclude NDX and NDXP from the Strategies
Caps does not impose an undue burden on competition because no market
participant would be eligible to count NDX or NDXP toward the
Strategies Caps.
The Exchange's proposal to exclude NDX and NDXP from FLEX Option
pricing in Section IV.B. and instead apply Section II pricing to such
transactions does not impose an undue burden on competition because the
proposal would apply to participants in FLEX NDX and NDXP options
transactions the same transactions fees that it assess for other types
of NDX and NDXP options transactions.
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\
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\19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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.
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-2018-13 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-2018-13. 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Phlx-2018-13, and should be submitted on
or before March 6, 2018.
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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02863 Filed 2-12-18; 8:45 am]
BILLING CODE 8011-01-P