[Federal Register Volume 78, Number 119 (Thursday, June 20, 2013)]
[Notices]
[Pages 37250-37259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-14686]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69768; File No. SR-Phlx-2013-61]


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

June 14, 2013.
    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 3, 2013, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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: 
(i) Amend the Customer Rebate Program; (ii) adopt new pricing specific 
to options overlying Standard and Poor's Depositary Receipts/SPDRs 
(``SPY''); \3\ (iii) amend the Complex Order \4\ Fee for Removing 
Liquidity applicable to Specialists and Market Makers in receipt of 
certain directed orders; and (iv) amend PIXL \5\ Pricing.
---------------------------------------------------------------------------

    \3\ SPY options are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 500 
Index.
    \4\ 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).
    \5\ PIXL is the Exchange's price improvement mechanism known as 
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
---------------------------------------------------------------------------

    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 Exchange proposes to amend existing Section B, entitled 
``Customer Rebate Program,'' Section I, entitled ``Rebates and Fees for 
Adding and Removing Liquidity in Select Symbols,'' \6\ and Section IV, 
A ``PIXL Pricing.'' The Exchange also proposes to adopt a new Section 
C, entitled ``Rebates and Fees for Adding and Removing Liquidity in 
SPY.'' Each proposed amendment is described in greater detail below.
---------------------------------------------------------------------------

    \6\ The Select Symbols are listed in Section I.
---------------------------------------------------------------------------

Customer Rebate Program

    Currently, the Exchange has in place a four tier structure Customer 
Rebate Program at Section B of the Pricing Schedule which pays Customer 
rebates on four Categories (A, B, C and D) of transactions. The four 
tier structure pays rebates based on percentage thresholds of national 
customer multiply-listed options volume by month based on the same four 
Categories (A, B, C and D) of transactions. Specifically, the Exchange 
bases a market participant's qualification for a certain Rebate Tier on 
the percentage of total national customer volume in multiply-listed 
options which are transacted monthly on Phlx as follows:

----------------------------------------------------------------------------------------------------------------
                                   Percentage
                                  thresholds of
                                    national
                                 customer volume
     Customer rebate tiers        in multiply-      Category A      Category B      Category C      Category D
                                  listed equity
                                 and ETF options
                                     classes
                                    (monthly)
----------------------------------------------------------------------------------------------------------------
Tier 1........................  0.00%-0.75%.....           $0.00           $0.00           $0.00           $0.00
 
Tier 2........................  Above 0.75%-                0.11            0.12            0.13            0.08
                                 1.60%.
 
Tier 3........................  Above 1.60%-                0.13            0.13            0.14            0.08
                                 2.60%.
Tier 4........................  Above 2.60%.....            0.15            0.15            0.15            0.09
----------------------------------------------------------------------------------------------------------------

    Today, the Exchange totals Customer volume in Multiply Listed 
Options (including Select Symbols) that are electronically-delivered 
and executed, except volume associated with electronic QCC Orders, as 
defined in Exchange Rule 1080(o).\7\ Members and member organizations 
under common ownership \8\ may aggregate their Customer volume for 
purposes of calculating the Customer Rebate Tiers and receiving 
rebates.
---------------------------------------------------------------------------

    \7\ The Exchange calculates volume and pay rebates based on a 
member organization's Phlx house account numbers.
    \8\ Common ownership means 75% common ownership or control.
---------------------------------------------------------------------------

    Category A rebates are paid to members executing electronically-
delivered Customer Simple Orders in Penny Pilot Options and Customer 
Simple Orders in Non-Penny Pilot Options in Section II. Rebates are 
paid on Customer PIXL Orders in Section II symbols that execute against 
non-Initiating Order interest, except in the case of Customer PIXL 
Orders that are greater than 999 contracts. All Customer PIXL Orders 
that are greater than 999 contracts are paid a rebate regardless of

[[Page 37251]]

the contra party to the transaction. Category B rebates are paid to 
members executing electronically-delivered Customer Complex Orders in 
Penny Pilot Options and Non-Penny Pilot Options in Section II. Category 
C rebates are paid to members executing electronically-delivered 
Customer Complex Orders in Select Symbols in Section I. Category D 
rebates are paid to members executing electronically-delivered Customer 
Simple Orders in Select Symbols in Section I. Rebates are paid on PIXL 
Orders in Section I symbols that execute against non-Initiating Order 
interest.
    The Exchange is proposing to amend the rebates paid to market 
participants with this proposal. The Exchange proposes to continue to 
pay Categories A, B, C and D no rebate with proposed Tier 1 which is 
between 0.00% to 0.75% of national customer volume in multiply-listed 
options classes. Currently, the Exchange pays the following Tier 2 
rebates for a percentage of national customer volume in multiply-listed 
options classes above 0.75% to 1.60%: Category A: $0.11, Category B: 
$0.12, Category C: $0.13 and Category D: $0.08. The Exchange is 
proposing to increase the Tier 2 Category A rebate from $0.11 to $0.12 
per contract, the Category B rebate from $0.12 to $0.17 per contract 
and the Category C rebate from $0.13 to $0.17 per contract. The 
Category D rebate for Tier 2 would remain at $0.08 per contract. 
Currently, the Exchange pays the following Tier 3 rebates for a 
percentage of national customer volume in multiply-listed options 
classes above 1.60% to 2.60%: Category A: $0.13, Category B: $0.13, 
Category C: $0.14 and Category D: $0.08. The Exchange is proposing to 
increase the Tier 3 Category A rebate from $0.13 to $0.14 per contract, 
the Category B rebate from $0.13 to $0.17 per contract and the Category 
C rebate from $0.14 to $0.17 per contract. The Category D rebate for 
Tier 3 would remain at $0.08 per contract. Currently, the Exchange pays 
the following Tier 4 rebates for a percentage of national customer 
volume in multiply-listed options classes above 2.60%: Category A: 
$0.15, Category B: $0.15, Category C: $0.15 and Category D: $0.09. The 
Exchange is proposing to increase the Tier 4 Category B rebate from 
$0.15 to $0.17 per contract and the Category C rebate from $0.15 to 
$0.17 per contract. The Tier 4 Category A rebate would remain at $0.15 
per contract and the Tier 4 Category D rebate would remain at $0.09 per 
contract.
    As is the case today, the Exchange is proposing to continue to 
permit the electronically-delivered and executed volume associated with 
options on SPY to be included in the calculation of Multiply Listed 
Options, however SPY options will no longer be paid the Customer 
rebates in Section A because SPY options will no longer be part of 
Section I, as proposed below. Today SPY is defined as a Select Symbol 
in Section I of the Pricing Schedule. The Exchange is proposing below 
to remove SPY from the definition of Select Symbol and adopt new 
pricing which applies to SPY. In calculating electronically-delivered 
and executed Customer volume in Multiply Listed Options, the numerator 
of the equation will remain unchanged and will continue to include all 
electronically-delivered and executed Customer volume in Multiply 
Listed Options. The Exchange is proposing to amend the denominator of 
that equation by excluding volume associated with SPY from the 
computation of national customer volume in multiply-listed equity and 
ETF options volume. The Exchange believes it is appropriate to make 
this modification to afford members the opportunity to achieve new 
Customer Rebate Program tiers or maintain their current level of 
Customer Rebate Program tiers in light of the proposed changes below. 
The Exchange notes that options on SPY account for approximately 15% of 
the equity and ETF options volume in the industry. The proposed pricing 
in new Section C, described below, would contain rebates applicable to 
SPY options. Therefore, the Exchange would not pay rebates on SPY 
options as part of the Customer Rebate Program.
    The Exchange believes that increasing the amount of rebates that 
will be paid to market participants that qualify for certain Categories 
of rebates in Tiers 2, 3 and 4 will encourage market participants to 
send increased Customer order flow to the Exchange to the benefit of 
all market participants. The Exchange also believes that continuing to 
include options on SPY transactions in the calculation for qualifying 
tiers will continue to encourage Customer order flow in SPY.
    Section C-SPY
    The Exchange proposes to not apply Section I pricing to options on 
SPY and instead adopt new pricing in a new Section C entitled ``Rebates 
and Fees for Adding and Removing Liquidity in SPY'' for options on SPY. 
The Exchange also proposes to remove the symbol ``SPY'' from the list 
of Select Symbols in Section I of the Pricing Schedule.
    The Exchange proposes to adopt ``Make/Take'' pricing for SPY in 
both Simple and Complex Orders. The Exchange proposes to adopt the 
following pricing for options on SPY in Simple Orders in a new Part A 
to Section C:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Customer       Specialist     Market maker        Firm        Broker-dealer   Professional
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rebate for Adding Liquidity.............................           $0.00           $0.20           $0.20           $0.00           $0.00           $0.00
Fee for Removing Liquidity..............................            0.44            0.44            0.44            0.44            0.44            0.44
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Today, Specialists \9\ and Market Makers \10\ transacting Simple 
Orders in Select Symbols are paid a $0.20 per contract Rebate for 
Adding Liquidity only when the Specialist or Market Maker is contra to 
a Specialist, Market Maker, Firm, Broker-Dealer or Professional.\11\ If 
the Specialist or Market Maker is contra to a Customer order, the 
Specialist or Market Maker is assessed the Simple Order Fee for Adding 
Liquidity. The Exchange assesses Specialists and Market Makers a $0.10 
per contract Fee for Adding Liquidity for Simple Orders in Select 
Symbols and Firms, Professionals and Broker-Dealers pay a $0.45 per 
contract Fee for Adding Liquidity for Simple Orders in Select Symbols. 
Customers are not assessed a Simple Order Fee for Adding or Removing 
Liquidity in Select Symbols. Specialists, Market Makers, Firms, Broker-
Dealers and Professionals are assessed a $0.45 per contract Fee for 
Removing Liquidity in Select Symbols.
---------------------------------------------------------------------------

    \9\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Rule 1020(a).
    \10\ 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.
    \11\ 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).
---------------------------------------------------------------------------

    The Exchange proposes to adopt a ``Make/Take'' pricing model with

[[Page 37252]]

respect to SPY options wherein the Exchange would pay a rebate to 
liquidity providers and assess a fee on liquidity takers. The Exchange 
therefore proposes to adopt certain Rebates for Adding Liquidity for 
Specialists and Market Makers of $0.20 per contract and assess a $0.44 
per contract Fee for Removing Liquidity on all market participants with 
respect to Simple Order SPY options. Customers, Firms, Broker-Dealers 
and Professionals would not be assessed a fee for adding liquidity in 
SPY Simple Orders. Unlike the pricing for Simple Order Select Symbols, 
the Exchange would pay a rebate to Specialists and Market Makers for 
each transaction in SPY, regardless of the contra party. Therefore, 
Firms, Broker-Dealers and Professionals would be assessed a lower fee 
because the Simple Order Fees for Removing Liquidity in SPY are 
decreased from $0.45 to $0.44 per contract. Customers would now pay 
$0.44 per contract when removing liquidity as compared to no fee today, 
but would remain free with respect to adding liquidity. Specialists and 
Market Makers would pay lower fees as compared to today.
    The Exchange proposes to adopt the following pricing for options on 
SPY in Complex Orders in a new Part B to Section C:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Customer       Specialist     Market maker        Firm        Broker-dealer   Professional
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fee for Adding Liquidity................................           $0.00           $0.10           $0.10           $0.10           $0.10           $0.10
Fee for Removing Liquidity..............................            0.00            0.40            0.40            0.50            0.50            0.50
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Today, all market participants, other than a Customer are assessed 
a Complex Order Fee for Adding Liquidity in Select Symbols of $0.10 per 
contract. A Customer is not assessed a Complex Order Fee for Adding or 
Removing Liquidity in Select Symbols. Today, a Specialist and Market 
Maker are assessed a $0.25 per contract Complex Order Fee for Removing 
Liquidity and a Firm, Broker-Dealer and Professional are assessed $0.50 
per contract Complex Order Fee for Removing Liquidity in Select 
Symbols. The Exchange proposes to adopt pricing for SPY options and 
continue to not assess a Customer either a Fee for Adding or Removing 
Liquidity in Complex Orders in SPY options. All market participants, 
other than a Customer, would be assessed a $0.10 per contract Complex 
Order Fee for Adding Liquidity in SPY options, as is the case today in 
Select Symbols. The Exchange proposes to adopt Complex Order Fees for 
Removing Liquidity for SPY options as follows: A Specialist and Market 
Maker would be assessed $0.40 per contract Complex Order Fee for 
Removing Liquidity and a Firm, Broker-Dealer and Professional would be 
assessed $0.50 per contract. The Exchange would pay a Customer rebate 
of $0.38 per electronically-delivered and executed contract in Complex 
Orders in SPY options. The Exchange would therefore increase the 
Complex Order Fees for Removing Liquidity in SPY options for 
Specialists and Market Makers.
    Similar to Section I pricing, the order that is received by the 
trading system first in time shall be considered an order adding 
liquidity and an order that trades against that order shall be 
considered an order removing liquidity, except with respect to orders 
that trigger an order exposure alert.
    The Exchange also proposes to decrease Complex Order Fees for 
Removing Liquidity applicable to Specialists and Market Makers by $0.02 
per contract when the Specialist or Market Maker transacts against a 
Customer Order directed to that Specialist or Market Maker for 
execution. Today, the Exchange decreases the Complex Order Fees for 
Removing Liquidity applicable to Specialists and Market Makers by $0.05 
per contract pursuant to a Pilot Program.\12\ As described in greater 
detail below, the Exchange proposes to reduce the Complex Order Fees 
for Removing Liquidity applicable to Specialists and Market Makers from 
$0.02 to $0.05 per contract for Select Symbols and SPY. In addition, 
the Exchange proposes to pay Customers a rebate of $0.38 per contract 
for SPY transactions in Complex Orders. The Exchange believes that the 
proposed pricing will encourage market participants to direct orders in 
SPY options to the Exchange.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 68202 (November 9, 
2012), 77 FR 68856 (November 16, 2012) (SR-Phlx-2012-27 and SR-Phlx-
2012-54).
---------------------------------------------------------------------------

    The Exchange also states in the Pricing Schedule, similar to 
Section I pricing, that Simple Orders that are executed against the 
individual components of Complex Orders will be assessed the fees and 
rebates in Part A (Simple Orders) and the individual components of such 
a Complex Order will be assessed the fees in Part B (Complex Orders).
    The Exchange proposes to assess no fees and pay no rebates on 
transactions which execute against an order for which the Exchange 
broadcast an order exposure alert in SPY. Rule 1080(m) provides for the 
broadcast of certain orders that are on the Phlx Book.\13\ The Exchange 
broadcasts orders on the Phlx Book by issuing order exposure alerts to 
all Phlx market participants that subscribe to certain data feeds. The 
Exchange believes that by not assessing fees (or paying a rebate) when 
removing orders from the order book in SPY where an order exposure 
alert was issued, will incentivize market participants to remove 
liquidity from the Phlx Book.
---------------------------------------------------------------------------

    \13\ See Rule 1080(m) and see also Securities Exchange Act 
Release No. 68517 (December 21, 2012), 77 FR 77134 (December 31, 
2012) (SR-Phlx-2012-136).
---------------------------------------------------------------------------

    As explained above, SPY Customer volume will be included in the 
calculation of Customer volume in Multiply Listed Options that are 
electronically-delivered and executed for purposes of the Customer 
Rebate Program in Section A, however the rebates defined in Section A 
will not apply to electronic executions in SPY.
    Today, the Monthly Market Maker Cap \14\ is not applicable to 
electronic transactions in the Select Symbols, except Qualified 
Contingent Cross (``QCC'') Transaction Fees.\15\ The

[[Page 37253]]

Exchange proposes to apply the Monthly Market Maker Cap to SPY 
transactions as it is applied today.
---------------------------------------------------------------------------

    \14\ 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 and reversal and 
conversion strategy executions (as defined in this Section II) are 
excluded from the Monthly Market Maker Cap.
    \15\ 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 (``NBBO'') 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 the Regulation NMS).
---------------------------------------------------------------------------

    Today, the Monthly Firm Fee Cap \16\ applies to floor transactions 
in Select Symbols and QCC Orders (electronic and floor transactions). 
The Exchange proposes to apply the Monthly Firm Fee Cap to SPY 
transactions as it is applied today.
---------------------------------------------------------------------------

    \16\ Firms are subject to a maximum fee of $75,000 (``Monthly 
Firm Fee Cap''). Firm Floor Option Transaction Charges and QCC 
Transaction Fees, as defined in this section above, in the 
aggregate, for one billing month may not exceed the Monthly Firm Fee 
Cap per member organization when such members are trading in their 
own proprietary account. All dividend, merger, and short stock 
interest strategy executions (as defined in this Section II) are 
excluded from the Monthly Firm Fee Cap. Reversal and conversion 
strategy executions (as defined in this Section II) are included in 
the Monthly Firm Fee Cap. QCC Transaction Fees are included in the 
calculation of the Monthly Firm Fee Cap.
---------------------------------------------------------------------------

    Today, Payment for Order Flow Fees \17\ are collected on 
transactions in the Select Symbols, except when a Specialist or Market 
Maker is also assessed the Simple Order Fee for Removing Liquidity, in 
which case the Payment for Order Flow fees will not apply. The Exchange 
proposes to not collect PFOF on transactions in SPY options.
---------------------------------------------------------------------------

    \17\ The Payment for Order Flow (``PFOF'') Program assesses fees 
to Specialists and Market Makers resulting from Customer orders 
(``PFOF Fees''). The PFOF fees are available to be disbursed by the 
Exchange according to the instructions of the Specialist or Market 
Maker to order flow providers who are members or member 
organizations who submit, as agent, Customer orders to the Exchange 
through a member or member organization who is acting as agent for 
those customer orders. Any excess PFOF funds billed but not utilized 
by the Specialist or Market Maker are carried forward unless the 
Specialist or Market Maker elects to have those funds rebated on a 
pro rata basis, reflected as a credit on the monthly invoices. At 
the end of each calendar quarter, the Exchange calculates the amount 
of excess funds from the previous quarter and subsequently rebates 
excess funds on a pro-rata basis to the applicable Specialist or 
Market Maker who paid into that pool of funds.
---------------------------------------------------------------------------

    Today, the Cancellation Fee for each cancelled electronically 
delivered Professional AON order applies to Select Symbols. The 
Cancellation Fee does not apply for each cancelled electronically 
delivered Customer order in Select Symbols. The Exchange proposes to 
apply the Cancellation Fee to SPY transactions as it is applied today.
    Today, transactions in Select Symbols originating on the Exchange 
floor are subject to the Multiply Listed Options Fees in Section II. 
However, if one side of the transaction originates on the Exchange 
floor and any other side of the trade was the result of an 
electronically submitted order or a quote, then these fees will apply 
to the transactions which originated on the Exchange floor and 
contracts that are executed electronically on all sides of the 
transaction. The Exchange proposes to treat transactions originating on 
the Exchange floor in SPY as they are applied today.
    Today, non-Complex electronic auctions include the Quote Exhaust 
auction and, for purposes of fees, the opening process. A Complex 
electronic auction includes, but is not limited to, the Complex Order 
Live Auction (``COLA'').\18\ Customer executions that occur as part of 
a Complex electronic auction are assessed $0.00 per contract. However, 
the Exchange would pay the applicable proposed Customer rebate of $0.38 
per contract for Customer executions in a Complex electronic auction in 
SPY.
---------------------------------------------------------------------------

    \18\ COLA is the automated Complex Order Live Auction process. A 
COLA may take place upon identification of the existence of a COLA-
eligible order either: (1) Following a COOP, or (2) during normal 
trading if the Phlx XL system receives a Complex Order that improves 
the cPBBO. See Exchange Rule 1080.
---------------------------------------------------------------------------

    Today, Customer executions that occur as part of a non-Complex 
electronic auction are assessed $0.00 per contract. Professional, Firm, 
Broker-Dealer, Specialist and Market Maker executions that occur as 
part of a Complex electronic auction are assessed the Fees for Removing 
Liquidity in Section I, Part B. Professional, Firm, Broker-Dealer, 
Specialist and Market Maker executions that occur as part of a non-
Complex electronic auction are assessed the Fees for Adding Liquidity 
in Section I, Part B. The Exchange proposes to treat transactions in 
auctions in the same manner for SPY options and assess the fees in 
Section C, Part B.
    Today, QCC Transaction fees and rebates, defined in Section II, are 
applicable to Section I. This will also be the case for SPY in that the 
QCC Transaction fees and rebates will be applicable to Section C.
    With respect to PIXL Pricing, today an Initiating Order is assessed 
$0.07 per contract or $0.05 per contract if Customer Rebate Program 
Threshold Volume defined in Section B of the Pricing Schedule is 
greater than 100,000 contracts per day in a month.\19\ The Exchange 
reduces the Initiating Order \20\ Fee for Firms that are contra to 
Customer PIXL Orders to $0.00 per contract if the Customer PIXL Order 
is greater than 999 contracts. Today, with respect to Select Symbols: 
(i) When the PIXL Order is contra to the Initiating Order a Customer 
PIXL Order is assessed $0.00 per contract and all non-Customer market 
participant PIXL Orders are assessed $0.30 per contract when contra to 
the Initiating Order; (ii) when a PIXL Order is contra to a PIXL 
Auction Responder, the PIXL Order is assessed the Fee for Adding 
Liquidity in Section I and the Responder is assessed $0.30 per 
contract, unless the Responder is a Customer, in which case the fee 
will be $0.00 per contract; and (iii) when the PIXL Order is contra to 
a resting order or quote that was on the Phlx Book prior to the 
auction, the PIXL Order is assessed the Fee for Removing Liquidity not 
to exceed $0.30 per contract and the resting order or quote is assessed 
the Fee for Adding Liquidity in Section I. If the resting order or 
quote that was on the Phlx Book was entered during the Auction, the 
PIXL Order is assessed the Fee for Adding Liquidity in Section I and 
the resting order or quote is assessed the Fee for Removing Liquidity 
not to exceed $0.30 per contract.
---------------------------------------------------------------------------

    \19\ See Section IV, A Pricing.
    \20\ A member may electronically submit for execution an order 
it represents as agent on behalf of a public customer, broker-
dealer, or any other entity (``PIXL Order'') against principal 
interest or against any other order (except as provided in Rule 
1080(n)(i)(E)) it represents as agent (``Initiating Order'') 
provided it submits the PIXL order for electronic execution into the 
PIXL Auction (``Auction'') pursuant to Rule 1080. See Exchange Rule 
1080(n).
---------------------------------------------------------------------------

    The Exchange proposes to adopt PIXL Pricing in new Section C to 
assess Initiating Orders in SPY options $0.05 per contract for all 
market participants. In addition, when the PIXL Order is contra to the 
Initiating Order, a Customer PIXL Order will be assessed $0.00 per 
contact and all non-Customer market participants will be assessed a 
$0.38 per contract fee when contra to the Initiating Order. Also, when 
a PIXL Order is contra to other than the Initiating Order,\21\ the PIXL 
Order will be assessed $0.00 per contract, unless the order is a 
Customer, in which case the Customer will receive a rebate of $0.38 per 
contract. All other contra parties to the PIXL Order, other than the 
Initiating Order, will be assessed a reduced Fee for Removing Liquidity 
of $0.38 per contract or will receive the Rebate to Add Liquidity.
---------------------------------------------------------------------------

    \21\ For example, a PIXL Auction Responder or a resting order or 
quote that was on the Phlx book prior to the auction.
---------------------------------------------------------------------------

    The Exchange believes that the proposed pricing for SPY options 
will encourage market participants to send an even greater amount of 
SPY orders to the Exchange to take advantage of the new pricing for SPY 
and lower costs in certain circumstances.
    Finally, the Exchange proposes to amend the Preface to the Pricing

[[Page 37254]]

Schedule to include new Section C in the Preface.
Section I Complex Orders
    On November 9, 2012, the Commission approved SR-Phlx-2012-27 and 
SR-Phlx-2012-54, as modified by Amendment No. 1, on a one-year pilot 
basis, with such fees being operative on December 3, 2012 (``Approval 
Order'').\22\ The Approval Order reinstated the fees that were proposed 
by the Exchange in SR-Phlx-2012-27.\23\ Specifically, the Approval 
Order permits a $0.05 fee differential as between Specialists and 
Market Makers that receive directed \24\ Complex Orders and those that 
do not receive directed Complex Orders. Today, the Exchange decreases 
the Complex Order Fee for Removing Liquidity applicable to Specialists 
and Market Makers of $0.25 per contract by $0.05 per contract when the 
Specialist or Market Maker transacts against a Customer Order directed 
to that Specialist or Market Maker for execution. The pilot was 
approved for one year and expires on December 2, 2013. As part of the 
pilot program, the Exchange provides certain pilot reports.\25\ The 
Exchange proposes to reduce the fee differential from $0.05 to $0.02 
per contract and proposes to terminate the current pilot program that 
is in effect. The Exchange believes that it will continue to 
incentivize Specialists and Market Makers to remove liquidity on the 
Exchange with the lower fee differential.
---------------------------------------------------------------------------

    \22\ See Securities Exchange Act Release No. 68202 (November 9, 
2012), 77 FR 68856 (November 16, 2012) (SR-Phlx-2012-27 and SR-Phlx-
2012-54).
    \23\ Specifically, SR-Phlx-2012-27 proposed to: (1) Increase the 
Customer Complex Order Rebate for Adding Liquidity from $0.30 to 
$0.32 per contract; (2) create a new Complex Order Rebate for 
Removing Liquidity and specifically pay a Customer a $0.06 Complex 
Order Rebate for Removing Liquidity; and (3) increase the Complex 
Order Fees for Removing Liquidity for Firms, Broker-Dealers and 
Professionals from $0.35 per contract to $0.38 per contract. These 
filings were initially suspended and later approved on a pilot 
basis. See Securities Exchange Act Release Nos. 66551 (March 9, 
2012), 77 FR 15400 (March 15, 2012) (SR-Phlx-2012-27) and 66883 
(April 30, 2012), 77 FR 26591 (May 4, 2012) (SR-Phlx-2012-54). By 
order dated April 30, 2012, the Commission suspended SR-Phlx-2012-27 
and SR-Phlx-2012-54. See Securities Exchange Release No. 66884 
(April 30, 2012), 77 FR 26595 (May 4, 2012) (SR-Phlx-2012-27 and SR-
Phlx-2012-54).
    \24\ An order that is ``directed'' is one that is directed by an 
Order Flow Provider to a specific Market Maker or Specialist when 
that order is entered electronically into PHLX XL II. The term 
``Order Flow Provider'' means any member or member organization that 
submits, as agent, orders to the Exchange. See Rule 1080(l)(i)(B).
    \25\ See note 22.
---------------------------------------------------------------------------

Section IV PIXL Amendments
    The Exchange proposes to amend PIXL pricing at Section IV, Part A 
of the Pricing Schedule. As noted above, today the Exchange assesses an 
Initiating Order a $0.07 per contract or $0.05 per contract fee if the 
Customer Rebate Program Threshold Volume, defined in Section B, is 
greater than 100,000 contracts per day in a month.\26\ If the 
Initiating Order fee is for a Firm that is contra to a Customer PIXL 
Order, the Initiating Order Fee is reduced to $0.00 if a Customer PIXL 
Order is greater than 999 contracts. The Exchange proposes to expand 
the reduction of the Initiating Order Fee to a Professional, Broker-
Dealer, Specialist and Market Maker, as well as a Firm. Customers are 
not assessed an Initiating Order Fee. The Exchange believes that this 
amendment will encourage all market participants to transact a greater 
number of PIXL Orders.
---------------------------------------------------------------------------

    \26\ Any member or member organization under Common Ownership 
with another member or member organization that qualifies for a 
Customer Rebate Tier discount in Section B receives the PIXL 
Initiating Order discount as described above.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Pricing 
Schedule is consistent with Section 6(b) of the Act \27\ in general, 
and furthers the objectives of Section 6(b)(4) of the Act \28\ in 
particular, in that it provides for an equitable allocation of 
reasonable fees and other charges among Exchange members and other 
persons using its facilities.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

Customer Rebate Program
    The Exchange's proposal to increase certain Customer rebates in 
Tiers 2, 3 and 4 is reasonable because the increased rebates will 
encourage market participants to send increased Customer order flow to 
the Exchange to the benefit of all market participants. The Exchange's 
proposal to increase certain Customer rebates in Tiers 2, 3 and 4 is 
equitable and not unfairly discriminatory because the Exchange would 
pay the Customer rebates uniformly with respect to market participants 
transacting qualifying orders. Any market participant that transacts 
qualifying orders is eligible for a Customer rebate.
    The Exchange's proposal to not pay Customer rebates on SPY options, 
but continue to include SPY options in the calculation of Multiply 
Listed Options that qualify for Customer rebates in Section A of the 
Pricing Schedule is reasonable because market participants would 
continue to benefit from SPY option volume in terms of qualifying for 
Customer Rebate Tiers. Also, the Exchange will offer a Customer rebate 
of $0.38 per contract for Complex Order transactions in SPY options. 
The Exchange's proposal to not pay Customer Rebate Program rebates in 
Section B for transactions in SPY options, but continue to include SPY 
options in the calculation of Multiply Listed Options that qualify for 
Customer rebates in Section B of the Pricing Schedule is equitable and 
not unfairly discriminatory because the Exchange would apply the 
calculation of Customer rebates and would pay rebates on qualifying 
orders in a uniform manner. Further, the Exchange's proposal to remove 
SPY options volume from the industry calculation is reasonable because 
it allows members and member organizations to have the flexibility in 
routing decisions with respects to SPY while maintaining their current 
level rebate tiers. The Exchange's proposal to remove SPY options 
volume from the industry calculation is equitable and not unfairly 
discriminatory because the Exchange [sic] would no longer apply 
uniformly to all market participants.
    The Exchange's proposal to adopt new pricing for SPY is reasonable, 
equitable, and not unfairly discriminatory because 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 the 
most actively traded options classes. SPY options are currently the 
most actively traded equity or ETF option class.\29\ Other options 
exchanges price by symbol.\30\
---------------------------------------------------------------------------

    \29\ For May 2013, SPY Options accounted for approximately 15% 
of the overall equity and ETF options volume. By comparison, the 
second most actively traded equity or ETF option are AAPL Options, 
which account for approximately 4% of the overall equity and ETF 
options volume.
    \30\ See the Chicago Board Options Exchange Incorporated's Fees 
Schedule and the International Securities Exchange LLC.
---------------------------------------------------------------------------

    The Exchange's proposed new Simple and Complex Order pricing, which 
adopts ``Make/Take'' pricing, in SPY options is reasonable because the 
Exchange desires to incentivize market participants to transact a 
greater number of SPY options. The Exchange is offering pricing 
specific to SPY because, as previously mentioned, SPY options are 
currently the most actively traded options class and therefore the 
Exchange believes that incentivizing Specialists and Market Makers to 
add increased liquidity in SPY options and encouraging market 
participants to send Customer order flow to the Exchange by offering 
Complex Order Customer rebates and PIXL incentives will benefit

[[Page 37255]]

all market participants through increased liquidity, tighter markets 
and order interaction. The Exchange believes it is reasonable to assess 
lower fees to transact SPY options in Simple Orders to Specialists, 
Market Makers, Firms, Broker-Dealers and Professionals because the 
Exchange seeks to incentivize these market participants to transact a 
greater number of Simple Order SPY options. The Exchange would assess 
higher fees to Customers in the form of a Simple Order Fee for Removing 
Liquidity in SPY options. Assessing Customers Fees for Removing 
Liquidity, similar to other market participants, is reasonable in a 
``Make/Take'' pricing model because the model seeks to reward liquidity 
providers by assessing takers. Other options exchanges similarly assess 
Customers fees to remove liquidity.\31\ The Exchange also believes that 
it is reasonable to increase the Specialist and Market Maker Complex 
Order Fees for Removing Liquidity in SPY options because Specialists 
and Market Makers would continue to be assessed lower fees as compared 
to Firms, Broker-Dealers and Professionals \32\ and by increasing this 
fee, the Exchange is able to pay the proposed $0.38 per contract 
Customer rebate in Complex Orders in SPY options.
---------------------------------------------------------------------------

    \31\ See The NASDAQ Options Market LLC's (``NOM'') Rules at 
Chapter XV, Section 2. NOM assesses Customers a $0.45 per contract 
Fee for Removing Liquidity in Penny Pilot Options and a $0.82 Fee 
for Removing Liquidity in Non-Penny Pilot Options.
    \32\ Customers are not assessed a Complex Order Fee for Removing 
Liquidity in SPY options.
---------------------------------------------------------------------------

    The Exchange's proposed Simple Order pricing is equitable and not 
unfairly discriminatory for the reasons below. Today, Specialists and 
Market Makers transacting Simple Orders in Select Symbols are paid a 
$0.20 per contract Rebate for Adding Liquidity only when the Specialist 
or Market Maker is contra to a Specialist, Market Maker, Firm, Broker-
Dealer or Professional and they also pay a $0.10 per contract Fee for 
Adding Liquidity and a $0.45 per contract Fee for Removing Liquidity in 
Select Symbols. The Exchange is proposing to continue to pay 
Specialists and Market Makers a Rebate for Adding Liquidity in Simple 
Orders in SPY options, but without limitation as to contra-party. The 
Exchange would not assess a Fee for Adding Liquidity and would assess a 
$0.01 per contract lower Fee for Removing Liquidity ($0.44 vs. $0.45 
per contract) for Simple Orders in SPY options.
    The Exchange believes that by providing Specialists and Market 
Makers a greater opportunity to earn a rebate and assessing lower Fees 
for Removing Liquidity and no Fees for Adding Liquidity will 
incentivize Specialists and Market Makers to interact with a greater 
number of Simple Orders in SPY options on the Exchange. Similar to 
Section I pricing, the Exchange is only paying a rebate to Specialists 
and Market Makers and not pay a similar rebate to other market 
participants because Specialists and Market Makers have obligations to 
the market and regulatory requirements,\33\ 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 
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. With respect 
to Firms, Broker-Dealers and Professionals, today the Exchange pays no 
Rebate for Adding Liquidity in Select Symbols to these market 
participants and uniformly assesses a $0.45 per contract Fee for Adding 
and Removing Liquidity for Simple Orders in Select Symbols. The 
Exchange is proposing to continue to not pay a Simple Order Rebate for 
Adding Liquidity to Firms, Broker-Dealers and Professionals in SPY 
options and also to not assess a Fee for Adding Liquidity for Simple 
Orders in SPY options. The Exchange proposes to lower the Fee for 
Removing Liquidity for Simple Orders in SPY options for Firms, Broker-
Dealers and Professionals from $0.45 to $0.44 per contract. The 
Exchange would continue to uniformly assess the Fees for Removing 
Liquidity to all market participants for Simple Orders in SPY options. 
Customers would be assessed higher fees for Simple Orders in SPY 
options in terms of removing liquidity but would continue to be free 
with respect to adding liquidity. Today, Customers do not receive a 
Rebate for Adding Liquidity for Simple Orders in Select Symbols nor do 
they pay a Fee for Adding Liquidity in Simple Orders for Select 
Symbols. This will continue to be the case for Simple Orders in SPY 
options. Today, Customers do not pay a Simple Order Fee for Removing 
Liquidity in Select Symbols. With this proposal the Exchange would 
assess a $0.44 per contract Simple Order Fee for Removing Liquidity in 
SPY options similar to all other market participants. The Exchange 
believes that it is equitable and not unreasonably discriminatory to 
assess the same Simple Order Fee for Removing Liquidity in SPY options 
to all market participants.
---------------------------------------------------------------------------

    \33\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------

    The Exchange's proposed Complex Order pricing is equitable and not 
unfairly discriminatory for the reasons below. Today, Customers are not 
assessed a Complex Order Fee for Adding or Removing Liquidity in Select 
Symbols. In a classic pricing model, the Exchange has traditionally not 
assessed fees to Customers because Customer order flow brings unique 
benefits to the market. Other market participants benefit from the 
liquidity that Customer order flow brings to the Exchange. All market 
participants, except Customers, today pay a $0.10 per contract Complex 
Order Fee for Adding Liquidity in Select Symbols. The Exchange proposes 
to continue to assess all market participants, other than Customers, a 
$0.10 per contract Complex Order Fee for Adding Liquidity in SPY 
Options. Today, Specialists and Market Makers pay a $0.25 per contract 
Complex Order Fee for Removing Liquidity in Select Symbols and Firms, 
Broker-Dealers and Professionals pay a $0.50 per contract Complex Order 
Fee for Removing Liquidity in Select Symbols. The Exchange proposes to 
increase the Complex Order Fee for Removing Liquidity in SPY options 
for Specialists and Market Makers from $0.25 to $0.40 per contract. 
Firms, Broker-Dealers and Professionals would continue to be assessed 
$0.50 per contract Complex Order Fee for Removing Liquidity in SPY 
options because the Exchange is seeking to narrow the differential as 
between Specialists and Market Makers and Firms, Broker-Dealers and 
Professionals. Today, Specialists and Market Maker pay a Complex Order 
Fee for Removing Liquidity in Select Symbols of $0.25 per contract 
whereas Firms, Broker-Dealers and Professionals pay $0.50 per contract. 
That $0.25 per contract differential as between these market 
participants when removing liquidity in Complex Orders would be 
narrowed to $0.10 per contract by increasing the Specialist and Market 
Maker Complex Order Fee for Removing Liquidity from $0.25 to $0.40 per 
contract. The Exchange believes it is equitable and not unfairly 
discriminatory to continue to assess lower fees in SPY options to 
Specialists

[[Page 37256]]

and Market Makers as compared to Firms, Broker-Dealers and 
Professionals because as explained herein, Specialists and Market 
Makers have obligations to the market and regulatory requirements,\34\ 
which normally do not apply to other market participants.
---------------------------------------------------------------------------

    \34\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------

    As discussed more fully below, the Exchange believes that reducing 
the current fee differential for SPY options in new Section C, as well 
as Select Symbols, from $0.05 to $0.02 per contact is reasonable 
because the Exchange believes that reducing Specialist and Market Maker 
Fees for Removing Liquidity in Complex Orders when such orders are 
directed to these [sic] seeks to incentivize market participants to 
direct and transact a greater number of Customer Complex Orders at the 
Exchange. Creating these incentives and attracting Customer Complex 
Orders to the Exchange, in turn, benefits all market participants 
through increased liquidity at the Exchange. A higher percentage of 
Customer Complex Orders leads to increased Complex Order auctions and 
better opportunities for price improvement.
    The Exchange believes that reducing the current fee differential 
for SPY options in new Section C, as well as Select Symbols, from $0.05 
to $0.02 per contact is equitable and not unfairly discriminatory 
because Specialists and Market Makers have burdensome quoting 
obligations \35\ to the market which do not apply to Firms, 
Professionals and Broker-Dealers. Also, Specialists and Market Makers 
that receive directed orders have higher quoting obligations \36\ 
compared to other Specialists and Market Makers and therefore are 
assessed a lower fee when they transact with a Customer order that was 
directed to them for execution as compared to Specialists and Market 
Makers. In addition, the Exchange believes that reducing the discount 
for directed orders will narrow the fee differential as between 
Specialists and Market Makers that receive directed orders and those 
that do not receive directed orders.
---------------------------------------------------------------------------

    \35\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
    \36\ Id.
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable, equitable and not 
unreasonably discriminatory \37\ to pay a Customer Complex Order rebate 
of $0.38 per contract in SPY options because such a rebate would 
attract increased Customer Complex Order flow to the Exchange which 
liquidity benefits all market participants. Customer order flow 
benefits market participants and provides the opportunity for increased 
order interaction on the Exchange.
---------------------------------------------------------------------------

    \37\ The Commission notes that Section 6(b) of Act the prohibits 
unfair discrimination. 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to specify within new Section C (SPY) pricing 
that similar to Section I (Select Symbol) pricing, the order that is 
received by the trading system first in time shall be considered an 
order adding liquidity and an order that trades against that order 
shall be considered an order removing liquidity, except with respect to 
orders that trigger an order exposure alert and that Simple Orders that 
are executed against the individual components of Complex Orders will 
be assessed the fees and rebates in Part A, however, the individual 
components of such a Complex Order will be assessed the fees in Part B. 
The Exchange believes that this text will clarify the application of 
the pricing in Section C, similar to Section I. The Exchange is not 
proposing to amend this language, but rather represent that the same 
method by which the Exchange determines whether an order adds or 
removes liquidity and what pricing applies, Simple or Complex, applies 
in new Section C.
    The Exchange's proposal to assess no fees and pay no rebates on 
transactions which execute against an order for which the Exchange 
broadcast an order exposure alert in SPY is reasonable because by not 
imposing any pricing when market participants respond to broadcasts 
orders and remove orders from the Phlx Book will incentivize market 
participants to respond to additional broadcast orders. The Exchange's 
proposal to assess no fees and pay no rebates on transactions which 
execute against an order for which the Exchange broadcast an order 
exposure alert in SPY options is equitable and not unfairly 
discriminatory because the Exchange proposes to not assess fees or pay 
rebates uniformly for all market participants.
    The Exchange's proposal to not apply the Monthly Market Maker Cap 
to electronic transactions in the Select Symbols, except QCC 
Transaction Fees is reasonable, equitable and not unfairly 
discriminatory because this is the same manner in which the Monthly 
Market Maker Cap applies to Section I pricing.
    The Exchange's proposal to apply the Monthly Firm Fee Cap to floor 
transactions in Select Symbols and QCC Orders (electronic and floor 
transactions) is reasonable, equitable and not unfairly discriminatory 
because this is the same manner in which the Monthly Firm Fee Cap 
applies to Section I pricing.
    The Exchange's proposal to not collect PFOF on transactions in SPY 
options is reasonable because the Exchange seeks to encourage market 
participants to transact a greater number of SPY option orders. The 
Exchange's proposal to not collect PFOF on transactions in SPY options 
is equitable and not unfairly discriminatory because the Exchange would 
not assess PFOF on any market participant transacting SPY.
    The Exchange's proposal to apply the Cancellation Fee for each 
cancelled electronically delivered Professional AON order in SPY 
options as it applies today to Select Symbols is reasonable, equitable 
and not unfairly discriminatory as the Exchange is not proposing to 
treat SPY options differently from Select Symbols with respect to the 
Cancellation Fee.
    The Exchange's proposal to subject transactions in SPY options 
originating on the Exchange floor to the Multiply Listed Options Fees 
in Section II, unless one side of the transaction originates on the 
Exchange floor and any other side of the trade was the result of an 
electronically submitted order or a quote, then applicable fees in Part 
C will apply to the transactions which originated on the Exchange floor 
and contracts that are executed electronically on all sides of the 
transaction is reasonable, equitable and not unfairly discriminatory 
because the Exchange proposes to not amend the manner in which SPY 
options are treated today as Select Symbols.
    The Exchange's proposal to treat Customer executions which occur as 
part of a non-Complex electronic auction and a Complex electronic 
auction in the same manner for SPY options as exists today for Select 
Symbols is reasonable, equitable and not unfairly discriminatory 
because the Exchange is not proposing to amend these fees. In addition, 
the Exchange would pay the applicable proposed Customer Complex Order 
rebate of $0.38 per contract for Customer executions in an auction 
which should benefit market participants as described herein.
    The Exchange believes that paying Customers a $0.38 per contract 
rebate when Complex Order transactions in SPY options are transacted is 
reasonable because it encourages Customer order flow in SPY options, 
which order flow benefits all market participants. The

[[Page 37257]]

Exchange believes that paying Customers a $0.38 per contract rebate 
when Complex Order transactions in SPY options are transacted is 
equitable and not unfairly discriminatory because Customer order flow 
bring unique benefits to the market which benefits all market 
participants. The Exchange today offers Customer rebates in Section B 
and would now instead pay this rebate for SPY options in Complex 
Orders.
    The Exchange's proposal to treat QCC Transaction fees and rebates 
for SPY options in the same manner as exists today for Select Symbols 
is reasonable, equitable and not unfairly discriminatory because the 
Exchange is not proposing to amend these fees or rebates.
    The Exchange's proposal to amend PIXL pricing for SPY options is 
reasonable because the Exchange is seeking to incentivize market 
participants to transact a greater number of SPY options in PIXL by 
lower the Initiating Order Fee to $0.05 per contract for all market 
participants for all PIXL transactions. The Exchange's proposal to 
increase the fee that will be assessed to non-Customer market 
participants that are contra to an Initiating Order for SPY options 
from $0.30 to $0.38 per contract is reasonable because the Exchange is 
offering to pay a Customer rebate of $0.38 per contract when the PIXL 
Order is contra to an order other than an Initiating Order \38\ in 
order to incentivize market participants to transact a greater number 
of Customer SPY options in PIXL. The fee increase would provide the 
Exchange the opportunity to offer the $0.38 Customer rebate. The 
Exchange also believes that it is reasonable to assess a PIXL Order 
that is contra to other than the Initiating Order $0.00 per contract, 
unless the order is a Customer order, in which case the Exchange would 
pay a Customer rebate of $0.38 per contract to remove liquidity because 
the Exchange desires to incentivize its market participants to transact 
a greater number of SPY PIXL orders. The Exchange believes it is 
reasonable that all other contra parties to the PIXL Order, other than 
the Initiating Order, will be equally assessed a reduced Fee for 
Removing Liquidity of $0.38 per contract when removing or they will 
receive the Rebate for Adding Liquidity if adding because the Exchange 
desires to equally provide all market participants the same 
incentivizes to encourage them to transact a greater number of SPY PIXL 
Orders.
---------------------------------------------------------------------------

    \38\ See note 20.
---------------------------------------------------------------------------

    The Exchange's proposal to amend PIXL pricing for SPY options is 
equitable and not unfairly discriminatory because the Exchange proposes 
to assess all market participants transacting SPY options in PIXL a 
$0.05 per contract for Initiating Orders in SPY options. The Exchange's 
proposal to increase the fee for non-Customer market participants that 
are contra to a PIXL Order from $0.30 to $0.38 per contract is 
equitable and not unfairly discriminatory because the Exchange is 
seeking to incentivize Customer orders in PIXL. As explained herein, 
Customer order flow benefits all market participants through increased 
liquidity and therefore increasing the fee that will be assessed to 
non-Customer market participants benefits all market participants 
because of the increased liquidity that such order flow will bring to 
the market. With respect to PIXL Orders that are contra to other than 
the Initiating Order, the Exchange will not assess a Customer PIXL 
Order a fee unless the order is contra a Customer order and then the 
fee will be increased because of the rebate that is being assessed. The 
Exchange believes that it is equitable and not unfairly discriminatory 
to lower fees for all market participants that are contra to other than 
an Initiating Order because the treatment is the same for all 
participants; the fee amendment applies uniformly to all non-Customer 
market participants. Also, the Exchange proposes to uniformly assess 
all market participants a fee when a Customer rebate would be paid to 
enable the Exchange to offer the rebate. The Exchange believes that 
widening the differential as between the Initiating Order Fee and the 
contra party to the PIXL Order ($0.05 vs. $0.38) as compared to the 
cost to transact a PIXL Order today ($0.05 or $0.07 per contract vs. 
$0.30) does not misalign the cost of these transactions depending on 
the market participant because the Exchange would now not assess a fee 
in the case that PIXL Order is contra to other than the Initiating 
Order, which is not a Customer, and would pay the Customer a rebate in 
the case where the contra party is a Customer. Further, the Exchange 
notes that Specialist and Market Makers today pay a combined fee of 
$0.55 \39\ to respond to a PIXL auction when the PIXL Order is a 
Customer order, whereas Broker-Dealers or Professionals responding to 
PIXL auctions pay only $0.30 per contract. Under the proposal, all non-
Customer market participants would be treated in a uniform manner when 
responding to PIXL auctions. In order to remain competitive, the 
Exchange must implement fees and rebates that are competitive with 
pricing at other options exchanges that offer a similar auction 
opportunity. While the proposed fees would increase the differential 
between a non-Customer market participants that initiated the PIXL 
auction and a non-Customer market participants responding to the PIXL 
auction, the Exchange believes the fee differential is important in 
that it affords the Exchange the opportunity to pay Customers a rebate 
in order to provide the required incentives for market participants to 
continue to utilize PIXL for SPY options executions where the 
participant seeks price improvement.
---------------------------------------------------------------------------

    \39\ The combined fee of $0.55 per contract is calculated by 
adding the transaction fee of $0.30 per contract in Section I and 
the PFOF of $0.25 per contract.
---------------------------------------------------------------------------

Section I Complex Orders
    Customer Complex Orders are becoming an increasingly important 
segment of options trading. The Exchange believes that reducing the 
current fee differential for Select Symbols in Section I and SPY 
options in new Section C from $0.05 to $0.02 per contact is reasonable 
because the Exchange believes that reducing Specialist and Market Maker 
Fees for Removing Liquidity in Complex Orders when such orders are 
directed to these seeks to incentivize market participants to direct 
and transact a greater number of Customer Complex Orders at the 
Exchange. Creating these incentives and attracting Customer Complex 
Orders to the Exchange, in turn, benefits all market participants 
through increased liquidity at the Exchange. A higher percentage of 
Customer Complex Orders leads to increased Complex Order auctions and 
better opportunities for price improvement.
    The Exchange believes that reducing the current fee differential 
for Select Symbols and SPY options from $0.05 to $0.02 per contact is 
equitable and not unfairly discriminatory because Specialists and 
Market Makers have burdensome quoting obligations \40\ to the market 
which do not apply to Firms, Professionals and Broker-Dealers. Also, 
Specialists and Market Makers that receive directed orders have higher 
quoting obligations \41\ compared to other Specialists and Market 
Makers and therefore are assessed a lower fee when they transact with a 
Customer order that

[[Page 37258]]

was directed to them for execution as compared to Specialists and 
Market Makers. In addition, the Exchange believes that reducing the 
discount for directed orders will narrow the fee differential as 
between Specialists and Market Makers that receive directed orders and 
those that do not receive directed orders.
---------------------------------------------------------------------------

    \40\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
    \41\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal to remove SPY from the list of Select 
Symbols in Section I is reasonable because the new pricing in Section C 
of the Pricing Schedule would now apply to SPY options. The Exchange's 
proposal to remove SPY from the list of Select Symbols in Section I is 
equitable and not unfairly discriminatory because the new pricing in 
Section C would apply uniformly to all market participants for SPY 
options just as the pricing in Section I would apply uniformly to all 
symbols noted in that section.
Section IV--PIXL Amendments
    The Exchange's proposal to amend PIXL pricing at Section IV, Part A 
of the Pricing Schedule is reasonable because the Exchange is 
attempting to attract PIXL order flow by incentivizing members. The 
Exchange believes that this amendment will encourage market 
participants to transact a greater number of larger sized orders in 
PIXL. Today, the Exchange offers Firms the opportunity to reduce the 
PIXL Initiating Order Fee which is currently $0.07 or $0.05 per 
contract if a Firm that is a contra to a Customer PIXL Order transacts 
an order which exceeds 999 contracts. The Exchange now desires to 
incentivize all market participants that are assessed an Initiating 
Order Fee to transact large PIXL Orders (greater than 999 contracts) by 
expanding the reduction of the Initiating Order Fee to a Professional, 
Broker-Dealer, Specialist and Market Maker. The Exchange would offer 
all market participants, other than Customers who are not assessed an 
Initiating Order Fee, an incentive to transact large sized orders in 
PIXL.
    The Exchange's proposal to amend PIXL pricing at Section IV, Part A 
of the Pricing Schedule is equitable and not unfairly discriminatory 
because the Exchange would uniformly provide all market participants 
that are assessed the Initiating Order Fee an opportunity to reduce the 
Initiating Order Fee to $0.00 per contract provided the requisite 
number of orders is transacted.

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 believes that its 
proposal to amend the Customer Rebate Program to increase certain 
rebates offered by the Exchange does not impose an undue burden on 
competition because all market participants may participate in the 
Customer Rebate Program. The Exchange's proposal to not pay rebates on 
SPY options in the Customer Rebate Program because the Exchange is 
proposing to offer rebates on SPY options as part of new Part C also 
does not impose an undue burden on competition because the Exchange is 
offering to pay Customer rebates on SPY options as part of a new 
pricing schedule to encourage market participants to transact a greater 
number of SPY options.
    The Exchange believes that the proposed pricing for SPY options, 
which provides greater incentives to transact both SPY Simple and 
Complex Orders creates additional opportunity for all market 
participants to decrease cost and bring additional liquidity to the 
market by offering the Exchange an ability to provide rebates to 
Customers, Specialists and Market Makers. The proposed differentiation 
as between Customers, Specialists and Market Makers and other market 
participants (Professionals, Firms and Broker-Dealers) recognizes the 
differing contributions made to the liquidity and trading environment 
on the Exchange by these market participants. The Exchange believes 
that not assessing fees or paying rebates when a market participant 
executes against an order for which the Exchange broadcast an order 
exposure alert in SPY options creates competition among market 
participants to remove liquidity from the Phlx Book. This competition 
does not create an undue burden on competition but rather offers all 
market participants the opportunity to receive the benefit of the 
pricing when transacting SPY options. The Exchange's proposal to not 
collect PFOF on SPY transactions likewise promotes competition in SPY 
by reducing costs to all market participants that pay PFOF.
    The Exchange's proposal to reduce the PIXL Initiating Order fee for 
all market participants transacting SPY options promotes competition in 
this highly liquid option. The Exchange's proposal to increase the 
differential as between the Initiating Order Fee and the PIXL Order in 
SPY options is offset by the rebate that is offered to the Customer 
transacting SPY which in turn brings liquidity to the PIXL auction. The 
Exchange is proposing to not assess the PIXL Order that is contra to 
other than the Initiating Order in SPY options a fee except when contra 
to a Customer order because that is the only case where a rebate is 
paid to a Customer in PIXL. There is also the opportunity for 
Specialists and Market Makers to receive a Rebate To Add Liquidity when 
transacting SPY options. The Exchange does not believe the proposal 
creates an undue burden on competition, the increased fees when 
transacting PIXL Orders in SPY Options allow for the Exchange to pay 
Customer rebates which in turn brings necessary liquidity to the PIXL 
auction and promotes competition. Further, in 2013, Specialists and 
Market Makers represented 99.8% of responders to SPY PIXL auctions. 
Specialists and Market Makers were the contra party to a Customer order 
97.7% of the time. Therefore, under the current pricing structure, the 
effective rate for Specialists and Market Makers responding to SPY PIXL 
orders was $0.5443, which means the effective differential today is 
$0.4943. The proposed SPY PIXL pricing actually reduces the effective 
differential among Broker-Dealers, which the Exchange believes enhances 
competition among Broker-Dealers, enriches the price discovery process 
and creates further price improvement opportunities for Customers.
    With respect to reducing the Complex Order Fees for Removing 
Liquidity in Select Symbols and SPY options for orders directed to 
Specialists and Market Makers, it is important to note that Specialists 
and Market Makers are unaware of the identity of the contra-party at 
the time of the trade and are also required to execute at the best 
price, pursuant to Exchange Rules, against an order intended for them 
by an order flow provider in order to be assessed the reduced Complex 
Order Fee for Removing Liquidity. The Exchange is proposing to decrease 
the fee differential as between Specialists and Market Makers that 
receive directed orders and those that do not receive directed orders 
in Select Symbols and SPY. The Exchange believes that decreasing this 
fee differential does not create an undue burden on competition.
    Today, PIXL pricing is proposed to incentivize Firms to bring 
Initiating Orders to a PIXL auction by offering an incentive to reduce 
the Initiating Order Fee. By expanding the opportunity to all market 
participants that pay an Initiating Order Fee to reduce those fees, the 
Exchange encourages competition among market participants to price 
improve the order.
    The Exchange operates in a highly competitive market, comprised of 
eleven exchanges, in which market

[[Page 37259]]

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.

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.\42\ 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.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-2013-61 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-2013-61. 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 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; 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-2013-61 and 
should be submitted on or before July 11, 2013.
---------------------------------------------------------------------------

    \43\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-14686 Filed 6-19-13; 8:45 am]
BILLING CODE 8011-01-P