[Federal Register Volume 78, Number 59 (Wednesday, March 27, 2013)]
[Notices]
[Pages 18652-18654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07011]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69204; File No. SR-Phlx-2013-31]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Sections I and II of the Pricing Schedule

March 21, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on March 15, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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 at 
Section I entitled ``Rebates and Fees for Adding and Removing Liquidity 
in Select Symbols,'' \3\ and Section II entitled ``Multiply Listed 
Options Fees.'' \4\
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    \3\ The rebates and fees in Section I apply to certain Select 
Symbols which are listed in Section I of the Pricing Schedule. The 
Select Symbols are listed in Section I of the Pricing Schedule.
    \4\ The pricing in Section II includes options overlying 
equities, ETFs, ETNs and indexes which are Multiply Listed.
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    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on April 1, 
2013.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to increase certain 
Simple Order Fees for Removing Liquidity and Firm Options Transaction 
Charges in Penny and Non-Penny Pilot Options. Despite the increase to 
these fees, the Exchange believes that the fees remain competitive with 
fees assessed by other options exchanges. The Exchange is also 
proposing to waive the Firm Options Transaction Charge for the buy side 
of a transaction if the same member is both the buyer and seller of a 
Firm transaction when such members are trading in their own proprietary 
account in order to incentivize Firms to add and remove liquidity in 
the market.
Section I Amendments
    The Exchange proposes to amend the Simple Order fees in Section I, 
Part A of the Pricing Schedule which apply to Select Symbols. 
Currently, the Exchange pays the following Simple Order Fees for 
Removing Liquidity: Customer $0.00 per contract and a Specialist,\5\ 
Market Maker,\6\ Firm, Broker-Dealer and Professional \7\ $0.44 per 
contract. The Exchange proposes to amend the Simple Order Fees for 
Adding Liquidity by increasing Specialist, Market Maker, Firm, Broker-
Dealer and Professional fees from $0.44 to $0.45 per contract. The 
Exchange proposes to continue to assess Customers no Fee for Removing 
Liquidity in Simple Orders.
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    \5\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \6\ 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.
    \7\ 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).
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Section II Amendments
    The Exchange proposes to increase the Firm electronic Options 
Transaction Charge in Penny Pilot Options from $0.44 to $0.45 per 
contract. The Exchange also proposes to amend the Firm electronic 
Options Transaction Charge in Non-Penny Pilot Options from $0.45 to 
$0.50 per contract.
    The Exchange proposes to waive the Firm Floor Options Transaction 
Charge for the buy side of a transaction if the Firm represents both 
sides of a Firm transaction when such members or its affiliates under 
Common Ownership \8\ are trading in their own proprietary account.\9\ 
The Firm Floor Options Transaction Charges in Penny Pilot and Non-Penny 
Options are $0.25 per contract. The Exchange also proposes to relocate 
another Firm Options Transaction Charges waiver for members executing 
facilitation orders pursuant to Exchange Rule 1064 when such members 
are trading in their own proprietary account (including FLEX and 
Cabinet Options Transaction Charges) to a new bullet on the Pricing 
Schedule and amend that text to clarify that the waiver applies to 
Floor Options Transaction Charges, which the Exchange proposes to 
capitalize for consistency. The Exchange also proposes to capitalize 
the terms ``Floor'' and ``Options Transaction Charge'' in Section II.
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    \8\ Common Ownership is defined as members or member 
organizations under 75% common ownership or control. See Preface to 
the Exchange's Pricing Schedule.
    \9\ This waiver does not apply to electronic transactions.
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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 \10\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \11\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members and other persons using its 
facilities.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that increasing the Simple Order Fees For 
Removing Liquidity in Select Symbols from $0.44 to $0.45 per contract 
is reasonable because the fees will continue to remain

[[Page 18653]]

competitive with fees assessed by other options exchanges.\12\ The 
Exchange believes that increasing the Simple Order Fees For Removing 
Liquidity in Select Symbols from $0.44 to $0.45 per contract is 
equitable and not unfairly discriminatory because the Exchange would 
assess all market participants, except Customers, a $0.45 per contract 
Simple Order Fee for Removing Liquidity in Select Symbols. The Exchange 
proposes to assess no Simple Order Fee for Removing Liquidity to 
Customers because Customer order flow enhances liquidity on the 
Exchange for the benefit of all market participants.
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    \12\ NYSE Arca, Inc. assesses Customers, Firms, Broker-Dealers, 
Lead Market Maker and NYSE Arca Market Makers a $0.45 take fee for 
electronic executions in Penny Pilot Issues. See NYSE Arca, Inc.'s 
Fee Schedule.
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    The Exchange believes that increasing the Firm Options Transaction 
Charge in Penny Pilot Options from $0.44 to $0.45 per contract 
reasonable because this fee is within the range of other fees in 
Section II of the Pricing Schedule. The Exchange currently assesses an 
electronic Broker-Dealer Firm Options Transaction Charge in Penny Pilot 
Options of $0.45 per contract. The Exchange believes that increasing 
the Firm Options Transaction Charge in Non-Penny Pilot Options from 
$0.45 to $0.50 per contract is reasonable because this fee is within 
the range of other fees in Section II of the Pricing Schedule. The 
Exchange currently assesses an electronic Broker-Dealer Firm Options 
Transaction Charge in Penny Pilot Options of $0.60 per contract. The 
Exchange generally assesses lower fees for Penny Pilot Options as 
compared to non-Penny Pilot Option because those securities are among 
the most actively traded and liquid options. This is the case today for 
Specialist, Market Maker and Broker-Dealer Fees.\13\
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    \13\ The Exchange assesses Specialists and Market Makers an 
electronic Options Transaction Charge in Penny Pilot Options of 
$0.22 per contract and an electronic Options Transaction Charge in 
non-Penny Pilot Options of $0.23 per contract. The Exchange assesses 
Broker-Dealers an electronic Options Transaction Charge in Penny 
Pilot Options of $0.45 per contract and an electronic Options 
Transaction Charge in non-Penny Pilot Options of $0.60 per contract.
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    The Exchange believes that increasing the Firm Options Transaction 
Charge in Penny Pilot Options from $0.44 to $0.45 per contract and 
increasing the Firm Options Transaction Charge in Non-Penny Pilot 
Options from $0.45 to $0.50 per contract is equitable and not unfairly 
discriminatory for the reasons which follow. Firms will continue to be 
assessed a higher fee than a Customer who pays no fee to transact 
electronic Penny Pilot or Non-Penny Pilot Options. Customer order flow 
brings unique benefits to the market which benefits all market 
participants through increased liquidity. Firms will continue to be 
assessed higher fees than Specialists and Market Makers in electronic 
Penny Pilot Options \14\ and Non-Penny Pilot Options \15\ because 
Specialists and Market Makers have obligations to the market and 
regulatory requirements, which normally do not apply to other market 
participants. 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, as well as 
the differing mix of orders entered. Broker-Dealers and Firms today pay 
higher fees as compared to a Professional for electronic Penny Pilot 
Options \16\ and Non-Penny Pilot \17\ transactions and this would not 
change. Professionals have access to more information and technological 
advantages as compared to Customers and Professionals do not bear the 
obligations of Specialists or Market Makers. Also, Professionals engage 
in trading activity similar to that conducted by Specialists or Market 
Makers. For example, Professionals continue to join bids and offers on 
the Exchange and thus compete for incoming order flow. For these 
reasons, the Exchange believes that Professionals may be priced higher 
than a Customer and may be priced equal to or higher than a Specialist 
or Market Maker. Finally, the Firm will be assessed fees which are 
equal to or lower than a Broker-Dealer. The Exchange believes that 
increasing the Firm electronic Penny Pilot and Non-Penny Options 
Transaction Charges does not misalign the current rate differentials 
between a Broker-Dealer and a Firm because the Exchange is eliminating 
the differential in electronic Penny Pilot Options and narrowing the 
differential from $0.15 to $0.10 per contract in electronic Non-Penny 
Pilot Options.
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    \14\ Specialists and Market Makers are assessed Floor Penny 
Pilot Options Transaction Charges of $0.22 per contract and Floor 
Non-Penny Pilot Options Transaction Charges of $0.23 per contract.
    \15\ Specialists and Market Makers are assessed electronic Non-
Penny Pilot Options Transaction Charges of $0.23 per contract.
    \16\ Professionals are assessed electronic Penny Pilot Options 
Transaction Charges of $0.30 per contract.
    \17\ Professionals are assessed electronic Non-Penny Pilot 
Options Transaction Charges of $0.30 per contract.
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    The Exchange believes that assessing higher electronic Firm Options 
Transaction Charges in both Penny Pilot ($0.45 per contract) and non-
Penny Pilot Options ($0.50 per contract) as compared to a Firm Floor 
Options Transaction Charge in both Penny Pilot and non-Penny Pilot 
Options of $0.25 per contract is reasonable, equitable and not unfairly 
discriminatory because these fees recognize the distinction between the 
floor order entry model and the electronic model and the proposed fees 
respond to competition along the same lines.\18\ Floor participants 
incur costs associated with accessing the floor, i.e. need for a floor 
broker, and other costs which are not born by electronic members. 
Today, the Exchange assesses different fees for electronic as compared 
to floor transactions for Professionals, Specialists and Market Makers, 
Broker-Dealers and Firms in Section II of the Pricing Schedule.
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    \18\ A transaction resulting from an order that was 
electronically delivered utilizes Phlx XL. See Exchange Rules 1014 
and 1080. Electronically delivered orders do not include orders 
transacted on the Exchange floor. A transaction resulting from an 
order that is non-electronically-delivered is represented on the 
trading floor by a floor broker. See Exchange Rule 1063. All orders 
will be either electronically or non-electronically delivered.
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    The Exchange believes that its proposal to waive the Firm Floor 
Options Transaction Charge for the buy side of a transaction if the 
same member or its affiliates under Common Ownership is both the buyer 
and seller of a Firm transaction when such members are trading in their 
own proprietary account is reasonable because the Exchange is proposing 
to not assess fees to both sides of that transaction in the instance 
where a Firm is moving positions within the Firm and is both the buyer 
and the seller. For example, a Firm on the Exchange's trading floor may 
determine to move positions within the Firm and today the transaction 
results in an Options Transaction Charge to both sides of the trade. 
The Exchange believes as long as the Firm is the buyer and seller for a 
trade in the Firm's proprietary account, it is reasonable to apply only 
one Options Transaction Charge.
    The Exchange believes its proposal to waive the Firm Floor Options 
Transaction Charge for the buy side of a transaction if the same member 
or its affiliate under Common Ownership is both the buyer and seller of 
a Firm transaction when such members are trading in their own 
proprietary account

[[Page 18654]]

is equitable and not unfairly discriminatory because the Exchange 
intends to apply the waiver uniformly to all Firms that trade in this 
manner in their proprietary account, even if certain members and chose 
to operate under separate entities.
    The Exchange believes that the amendment to relocate the sentence 
referencing the waiver of the Firm Options Transaction Charges for 
members executing facilitation orders pursuant to Exchange Rule 1064 
when such members are trading in their own proprietary account 
(including FLEX and Cabinet Options Transaction Charges) to a new 
bullet on the Pricing Schedule, amending the rule text to clarify that 
the waiver applies to Floor Options Transaction Charges, and 
capitalizing the words ``Options Transaction Charges'' are reasonable, 
equitable and not unfairly discriminatory. The Exchange is not 
proposing to amend the application of the waiver, but believes that 
grouping the Firm waivers separately in a new bullet on the Pricing 
Schedule, capitalizing terms for consistency in Section II and 
clarifying that the waiver is a floor waiver will prevent confusion 
among market participants.

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 operates in a 
highly competitive market, comprised of eleven exchanges, in which 
market participants can easily and readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or rebates to be inadequate. Accordingly, the fees that are 
assessed and the rebates paid by the Exchange described in the above 
proposal are influenced by these robust market forces and therefore 
must remain competitive with fees charged and rebates paid by other 
venues and therefore must continue to be reasonable and equitably 
allocated to those members that opt to direct orders to the Exchange 
rather than competing venues.
    The Exchange believes that increasing the Simple Order Fees for 
Removing Liquidity in Select Symbols and Firm Options Transaction 
Charges in Penny and Non-Penny Pilot Options does not impose a burden 
on competition. The fees proposed herein are consistent with fees on 
other options exchanges and other fees assessed by Phlx.\19\ In 
addition, the Exchange believes that the increase to the Simple Order 
Fees for Removing Liquidity will impose the same fees on all members, 
except Customers. Customer order flow brings liquidity to the market 
and benefits all market participants.
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    \19\ See NYSE Arca, Inc.'s Fee Schedule and Section II of the 
Phlx Pricing Schedule.
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    With respect to the increase to the Firm Fees, the Exchange 
believes that those fee increases do not misalign the current rate 
differentials as between market participants, but serves to narrow or 
eliminate in the case of Firm Penny Pilot Options the fee differential. 
In addition, the Exchange is offering Firms an opportunity to eliminate 
Options Transaction Charges by encouraging Firms to take liquidity. The 
Exchange believes that the proposed rule change will continue to 
promote competition on the Exchange.

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.\20\ 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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    \20\ 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-2013-31 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2013-31. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal 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-2013-31 and should be 
submitted on or before April 17, 2013.

    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. 2013-07011 Filed 3-26-13; 8:45 am]
BILLING CODE 8011-01-P