[Federal Register Volume 78, Number 230 (Friday, November 29, 2013)]
[Notices]
[Pages 71700-71702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28724]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70940; File No. SR-Phlx-2013-113]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Suspension of 
and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Offer a Customer Rebate

November 25, 2013.

I. Introduction

    On October 31, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend the Customer Rebate Program in Section B of the Exchange's 
Pricing Schedule to increase Customer rebates available to certain 
market participants that transact Customer orders on Phlx. Phlx 
designated the proposed rule change as immediately effective upon 
filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\3\ The Commission published notice of filing of the proposed rule 
change in the Federal Register on November 19, 2013.\4\ To date, the 
Commission has received two comment letters on the proposal.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ See Securities Exchange Act Release No. 70866 (November 13, 
2013), 78 FR 69472 (``Notice'').
    \5\ See letters to Elizabeth M. Murphy, Secretary, Commission 
from: Michael J. Simon, Secretary, International Securities 
Exchange, LLC, dated November 11, 2013 (``ISE Letter''); and William 
O'Brien, Chief Executive Officer, Direct Edge Holdings LLC, dated 
November 13, 2013 (``DirectEdge Letter'').
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(3)(C) of the Act, the Commission hereby 
is: (1) Temporarily suspending File No. SR-Phlx-2013-113; and (2) 
instituting proceedings to determine whether to approve or disapprove 
File No. SR-Phlx-2013-113.

[[Page 71701]]

II. Summary of the Proposed Rule Change

    The Exchange's proposal amends the Customer Rebate Program in 
Section B of the Exchange's Pricing Schedule. Under the Customer Rebate 
Program, the Exchange pays tiered rebates to members for certain 
Customer orders executed on Phlx.\6\ In general, the tiers (there are 
four tiers) are based on Customer volume in multiply-listed options 
that member organizations under Common Ownership \7\ transact monthly 
on Phlx as a percentage of total national Customer volume in multiply-
listed options.\8\ Phlx's proposal provides an additional $0.02 per 
contract rebate for Customer orders executed on Phlx that currently 
qualify for the Customer Rebate Program provided the member 
organization, together with any affiliate under Common Ownership, 
transacts aggregate Customer volume on Phlx, The NASDAQ Options Market 
LLC (``NOM'') and/or NASDAQ OMX BX, Inc. (``BX Options'') 
(collectively, the ``NASDAQ OMX exchanges'') in multiply-listed options 
that is electronically delivered and executed equal to or greater than 
2.5% of national Customer volume in multiply-listed options in a 
month.\9\
---------------------------------------------------------------------------

    \6\ For a more detailed description of the Customer Rebate 
Program in Section B of the Exchange's Pricing Schedule, see Notice, 
supra note 4.
    \7\ Phlx defines Common Ownership in the Preface to the Pricing 
Schedule as a member or member organizations under 75% common 
ownership or control.
    \8\ See supra note 6.
    \9\ For a more detailed description of the proposed rule change, 
see Notice, supra note 4.
---------------------------------------------------------------------------

III. Summary of Comments Received

    As noted above, the Commission has received two comment letters on 
the proposed rule change.\10\ Among other things, both commenters 
believe that further scrutiny and public comment of the proposal is 
necessary given the unprecedented nature of the proposed rule change 
and the potential impact the proposal could have across all exchange 
pricing going forward.\11\ One commenter notes that the proposed rule 
change links the fees for transactions executed on Phlx to executions 
on two exchanges under common ownership with Phlx, which is 
unprecedented.\12\ This commenter states its view that the proposed 
rule change raises issues of such critical importance to the national 
market system that it is imperative that the fee change not be in 
effect during the period of public comment and Commission 
consideration.\13\ Another commenter states its view that a period of 
public notice and comment pursuant to Section 19(b)(2) of the Act is 
strongly warranted.\14\
---------------------------------------------------------------------------

    \10\ See supra note 5.
    \11\ See ISE Letter, supra note 5, at 1 and DirectEdge Letter, 
supra note 5, at 1.
    \12\ See ISE Letter, supra note 5, at 1.
    \13\ See id.
    \14\ See DirectEdge Letter, supra note 5, at 1.
---------------------------------------------------------------------------

IV. Suspension of SR-Phlx-2013-113

    Pursuant to Section 19(b)(3)(C) of the Act,\15\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\16\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(C).
    \16\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    The Commission believes it is appropriate in the public interest to 
temporarily suspend the proposal to solicit comment on and evaluate 
further the statutory basis for Phlx's proposal to vary the amount of 
the per contract Customer rebate that it will pay for certain 
transactions in options on its market based on the aggregate amount of 
volume in certain options across all three of the NASDAQ OMX exchanges.
    In temporarily suspending the proposal, the Commission intends to 
further assess whether the additional Customer rebate, which is based 
on execution volume across the NASDAQ OMX exchanges, is consistent with 
the statutory requirements applicable to a national securities exchange 
under the Act. In particular, the Commission will assess whether the 
proposed rule change satisfies the requirements of the Act and the 
rules thereunder requiring, among other things, that an exchange's 
rules provide for the equitable allocation of reasonable fees among 
members, issuers, and other persons using its facilities; not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers; and do not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.\17\
---------------------------------------------------------------------------

    \17\ See 15 U.S.C. 78f(b)(4), (5) and (8).
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest,\18\ for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.
---------------------------------------------------------------------------

    \18\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

V. Proceedings To Determine Whether To Approve or Disapprove SR-Phlx-
2013-113

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \19\ and 19(b)(2) of the Act \20\ to determine whether 
Phlx's proposed rule change should be approved or disapproved. Pursuant 
to Section 19(b)(2)(B) of the Act,\21\ the Commission is providing 
notice of the grounds for disapproval under consideration. As discussed 
above, the proposal increases the per contract Customer rebates for 
transactions on Phlx if the aggregate volume of Customer orders 
transacted by a member organization and its affiliates on Phlx, NOM 
and/or BX Options exceeds a specified volume threshold. The Act 
requires that exchange rules provide for the equitable allocation of 
reasonable fees among members, issuers, and other persons using its 
facilities; that exchange rules not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; and 
that exchange rules do not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act. The 
Commission intends to assess whether Phlx's proposal is consistent with 
these and other requirements of the Act.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \20\ 15 U.S.C. 78s(b)(2).
    \21\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
Id. The time for conclusion of the proceedings may be extended for 
up to 60 days if the Commission finds good cause for such extension 
and publishes its reasons for so finding. Id.
---------------------------------------------------------------------------

    The Commission believes it is appropriate to institute disapproval 
proceedings at this time in view of the legal and policy issues raised 
by the proposal. Institution of disapproval proceedings does not 
indicate, however, that the Commission has reached any conclusions with 
respect to the issues involved. The sections of the Act and the rules 
thereunder which are applicable to the proposed rule change include:
     Section 6(b)(4) of the Act,\22\ which requires that the 
rules of a national securities exchange ``provide for the equitable 
allocation of reasonable dues,

[[Page 71702]]

fees, and other charges among its members and issuers and other persons 
using its facilities.''
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Section 6(b)(5) of the Act,\23\ which requires that the 
rules of a national securities exchange be designed to, among other 
things, ``remove impediments to and perfect the mechanism of a free and 
open market and a national market system, and, in general, to protect 
investors and the public interest'' and not be ``designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers.''
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Section 6(b)(8) of the Act,\24\ which requires that the 
rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate'' in furtherance of the Act.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

VI. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as other relevant 
concerns. Such comments should be submitted by December 20, 2013. 
Rebuttal comments should be submitted by January 3, 2014. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\25\
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change. Interested persons are invited to submit written 
data, views, and arguments concerning the proposed rule change, 
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-2013-113 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-2013-113. 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. 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 publicly available. All submissions should refer to File Number 
SR-Phlx-2013-113 and should be submitted on or before December 20, 
2013. Rebuttal comments should be submitted by January 3, 2014.

Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\26\ that File Number SR-Phlx-2013-113, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule changes should be 
approved or disapproved.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(57) and (58).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28724 Filed 11-27-13; 8:45 am]
BILLING CODE 8011-01-P