[Federal Register Volume 80, Number 139 (Tuesday, July 21, 2015)]
[Notices]
[Pages 43151-43156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17754]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75455; File No. SR-Phlx-2015-61]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Customer Rebate Program, Multiply Listed Options, and Singly-Listed
Options
July 15, 2015.
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 July 1, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify the Phlx Pricing Schedule
(``Pricing Schedule''). Specifically, the Exchange proposes to amend
pricing in Section B, entitled ``Customer Rebate Program,'' \3\ Section
II, entitled ``Multiply Listed Options Fees,'' \4\ and Section III,
entitled ``Singly Listed Options,'' \5\ of the Pricing Schedule. The
Exchange proposes these amendments in order to: (i) Increase the
rebates specifically for Tier 4 and Tier 5 (Category B) electronic
Complex \6\ and Complex PIXL \7\ Orders \8\; (ii) increase the
assessment of Multiply Listed Options fees for non-Penny Pilot \9\
Options for electronic Professional,\10\ Broker-Dealer,\11\ and Firm
\12\ orders; (iii) delete Customer Rebate Tier 2 and Tier 3 from notes
13 [sic] and 14 dealing with Common Ownership; \13\ and (iv) increase
the assessment of Singly-Listed FX options \14\ fees for Professional,
Broker-Dealer, and Firm orders.
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\3\ The term ``Customer'' applies to any transaction that is
identified by a member or member organization for clearing in the
Customer range at The Options Clearing Corporation (``OCC'') which
is not for the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Rule 1000(b)(14).
\4\ This includes options overlying equities, exchange traded
funds (``ETFs''), exchange traded notes (``ETNs'') and indexes which
are Multiply Listed.
\5\ This includes options overlying foreign exchange (``FX''),
equities, ETFs, ETNs, and indexes not listed on another exchange.
\6\ 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 ETF coupled with the purchase or sale of
options contract(s). See Exchange Rule 1080, Commentary .07(a)(i).
\7\ PIXL\SM\ is the Exchange's price improvement mechanism known
as Price Improvement XL or PIXL. See Rule 1080(n).
\8\ A transaction resulting from an order that was
electronically delivered utilizes Phlx XL. See Exchange Rules 1014
and 1080. Electronically delivered orders do not include orders
transacted on the Exchange floor. A transaction resulting from an
order that is non-electronically-delivered is represented on the
trading floor by a floor broker. See Exchange Rule 1063. All orders
are either electronically or non-electronically delivered.
\9\ The Penny Pilot was established in January 2007 and was last
extended in 2015. See Securities Exchange Act Release Nos. 55153
(January 23, 2007), 72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74)
(notice of filing and approval order establishing Penny Pilot); and
75286 (June 24, 2015) (SR-Phlx-2015-54) (notice of filing and
immediate effectiveness extending the Penny Pilot through June 30,
2016). Non-Penny Pilot Options are options other than Penny Pilot
Options listed on the Exchange (e.g. AAPL, BAC, EEM, FB, FXI, IWM,
QQQ, TWTR, VXX and XLF), which can be found at http://www.nasdaqtrader.com/Micro.aspx?id=phlx.
\10\ 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).
\11\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
\12\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at The Options Clearing Corporation.
\13\ The term ``Common Ownership'' means members or member
organizations under 75% common ownership or control.
\14\ FX options include XDB, XDE, XDN, XDS, XDA, XDM, XEH, XEV,
XDZ, XDC, and XDV.
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The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The
[[Page 43152]]
Exchange has prepared summaries, set forth in sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to modify the Pricing Schedule to
specifically amend fees in Section B, entitled ``Customer Rebate
Program,'' Section II, entitled ``Multiply Listed Options Fees,'' and
Section III, entitled ``Singly Listed Options.'' The Exchange proposes
these amendments in order to: (i) Increase the rebates specifically for
Tier 4 and Tier 5 (Category B) electronic Complex and Complex PIXL
Orders; (ii) increase the assessment of Multiply Listed Options fees
for non-Penny Pilot Options for electronic Professional, Broker-Dealer,
and Firm orders; (iii) delete Customer Rebate Tier 2 and Tier 3 from
notes 13 [sic] and 14 dealing with Common Ownership; and (iv) increase
the assessment of Singly-Listed FX options fees for Professional,
Broker-Dealer, and Firm orders.
Section B--Customer Rebate Program
Currently, the Exchange has a Customer Rebate Program consisting of
five tiers that pays Customer Rebates on two categories, A and B, of
transactions. A Phlx member qualifies for a certain rebate tier based
on the percentage of total national customer volume in Multiply Listed
equity and ETFs options classes, excluding SPY \15\ options that it
transacts monthly on Phlx. The Exchange calculates Customer volume in
Multiply Listed Options (including SPY options) by totaling
electronically-delivered and executed volume, excluding volume
associated with electronic Qualified Contingent Cross (``QCC'')
Orders,\16\ as defined in Exchange Rule 1080(o).\17\ The Exchange
proposes, as discussed below, to increase the Tier 4 and Tier 5 Complex
PIXL Orders (Category B) rebates.
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\15\ SPY is the SPDR[supreg] S&P 500[supreg] ETF Trust.
S&P[supreg], S&P 500[supreg], SPDR[supreg], and Standard &
Poor's[supreg] are registered trademarks of Standard &
Poor's[supreg] Financial Services LLC.
\16\ A QCC Order is comprised of an order to buy or sell at
least 1000 contracts that is identified as being part of a qualified
contingent trade, as that term is defined in Rule 1080(o)(3),
coupled with a contra-side order to buy or sell an equal number of
contracts. The QCC Order must be executed at a price at or between
the National Best Bid and Offer and be rejected if a Customer order
is resting on the Exchange book at the same price. A QCC Order shall
only be submitted electronically from off the floor to the PHLX XL
II System. See Rule 1080(o). See also Securities Exchange Act
Release No. 64249 (April 7, 2011), 76 FR 20773 (April 13, 2011) (SR-
Phlx-2011-47) (a rule change to establish a QCC Order to facilitate
the execution of stock/option Qualified Contingent Trades (``QCTs'')
that satisfy the requirements of the trade through exemption in
connection with Rule 611(d) of the Regulation NMS).
\17\ Members and member organizations under common ownership may
aggregate their Customer volume for purposes of calculating the
Customer Rebate Tiers and receiving rebates. Common ownership means
members or member organizations under 75% common ownership or
control.
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Currently, a Category A rebate is 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
symbols. Rebates are paid on Customer PIXL Orders in Section II symbols
that execute against non-Initiating Order interest. In the instance
where member organizations qualify for Tier 4 or higher in the Customer
Rebate Program, Customer PIXL Orders that execute against a PIXL
Initiating Order are paid a rebate of $0.14 per contract. Rebates on
Customer PIXL Orders will be capped at 4,000 contracts per order for
Simple PIXL Orders.
Currently, a Category B rebate is paid to members executing
electronically-delivered Customer Complex Orders in Penny Pilot Options
and non-Penny Pilot Options in Section II symbols. Rebates are paid on
Customer PIXL Complex Orders in Section II symbols that execute against
non-Initiating Order interest. Customer Complex PIXL Orders that
execute against a Complex PIXL Initiating Order will not be paid a
rebate under any circumstances. The Category B rebate will not be paid
when an electronically-delivered Customer Complex Order, including a
Customer Complex PIXL Order, executes against another electronically-
delivered Customer Complex Order. Rebates on Customer PIXL Orders are
capped at 4,000 contracts per order leg for Complex PIXL Orders.
Moreover, the Exchange will pay a $0.02 per contract Category A rebate
and a $0.03 per contract Category B rebate in addition to the
applicable Tier 2 and 3 rebate to a Specialist or Market Maker or its
member or member organization affiliate under Common Ownership provided
the Specialist or Market Maker has reached the Monthly Market Maker
Cap, as defined in Section II.
Now, the rebates in all tiers (Category A and Category B) are as
follows:
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Percentage thresholds of
national customer volume in
Customer rebate tiers multiply-listed equity and ETF Category A Category B
options classes, excluding spy
options (monthly)
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Tier 1........................................ 0.00%-0.60%..................... $0.00 $0.00
Tier 2........................................ Above 0.60-1.10................. *0.10 *0.17
Tier 3........................................ Above 1.10-1.60................. *0.12 *0.17
Tier 4........................................ Above 1.60-2.50................. 0.16 0.20
Tier 5........................................ Above 2.50...................... 0.17 0.20
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The Exchange proposes to change the Tier 4 Customer Rebate
(Category B) from $0.20 to $0.22. The Exchange also proposes to change
the Tier 5 Customer Rebate (Category B) from $0.20 to $0.22.\18\ The
Exchange believes that the proposed increased Category B rebates will
continue to encourage members to send Customer liquidity to Phlx
despite the cap on PIXL Complex Order rebates at the proposed 4,000
contracts per order leg. The Exchange believes that the proposed two
cent increase is reasonable. Moreover, the Exchange believes that the
resulting 5 cents difference between Category B Tiers 3 and 4 ($0.17
and $0.22) is reasonable and fair since, comparatively, the current
difference between Tiers 1 and 2 is 17 cents.
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\18\ This is similar to the Chicago Board Options Exchange
(``CBOE''). See CBOE's Fee Schedule.
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Section II--Multiply Listed Options
Currently, the Exchange charges Customers, Professionals,
Specialists and Market Makers, Broker-Dealers, and Firms Options
Transaction Fees for Multiply Listed Options (including options
overlying equities, ETFs, ETNs, and indexes which are Multiply Listed).
The fees are different for Penny Pilot Options and non-Penny Pilot
Options.
[[Page 43153]]
Now, the Multiply-Listed Options fees, per contract, are as
follows:
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Professional Specialist and Broker-dealer Firm
------------------------------------------------------ ---------------------- market maker -------------------------------------------
Customer ----------------------
Electronic Floor Electronic Floor Electronic Floor Electronic Floor
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Options Transaction Charge (Penny Pilot)............. $0.00 \13\ $0.48 $0.25 $0.22 $0.30 \13\ $0.48 $0.25 \12\ \13\ $0.25
$0.48
Options Transaction Charge (non-Penny Pilot)......... 0.00 \13\ \14\ 0.25 \15\ 0.25 0.30 \13\ \14\ 0.25 \12\ \13\ 0.25
0.70 0.70 \14\ 0.70
Options Surcharge in MNX and NDX..................... N/A 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20
Options Surcharge in BKX............................. N/A 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Cabinet Options...................................... 0.00 N/A 0.10 N/A 0.10 N/A 0.10 N/A 0.10
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The Exchange offers a discount to Professional, Broker-Dealer, and
Firm for certain orders. Today, notes 13 and 14 apply to fees assessed
to a Professional, Broker-Dealer, and Firm for electronic orders in
certain non-Penny Pilot Options. Note 13 states that electronic Complex
Orders will be assessed $0.35 per contract. Note 14 states that any
member or member organization under Common Ownership with another
member or member organization that qualifies for Customer Rebate Tiers
2, 3, 4 or 5 in Section B of the Pricing Schedule will be assessed
$0.60 per contract. In addition, note 12 applies to fees assessed to a
Firm for electronic orders in certain non-Penny Pilot Options. Note 12
states that Firm electronic simple orders in AAPL, BAC, EEM, FB, FXI,
IWM, QQQ, TWTR, VXX, and XLF \19\ will be assessed $0.34.
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\19\ All are currently in the Penny Pilot.
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The Exchange proposes to amend the discounted amount that is
currently assessed to a Professional, Broker- Dealer, and Firm for
electronic orders in certain Multiply Listed non-Penny Pilot Options.
Whereas today the Exchange assesses a Professional, Broker-Dealer, and
Firm each a $0.70 per contract Options Transaction Charge for Non-Penny
Pilot Options, the Exchange proposes to increase this fee to $0.75.
Despite the increase in the fee, the Exchange believes that its fee
structure will continue to incentivize Professionals, Firms, and
Broker-Dealers to transact electronic non-Penny Pilot volume on the
Exchange.
The Exchange offers a discount to Specialists and Market Makers for
certain orders. Today, note 15 applies to a Specialist or Market Maker
that transacts electronic orders in non-Penny Pilot Options. Note 15
states that any member or member organization under Common Ownership
with another member or member organization that qualifies for Customer
Rebate Tiers 2, 3, 4 or 5 in Section B of the Pricing Schedule will be
assessed $0.23 per contract. The Exchange is proposing to delete the
reference to Customer Rebate Tiers 2 and 3 in note 14 and note 15.
Thus, note 15 would continue to apply to Specialists and Market Makers
such that after the proposal, per note 15 any member or member
organization under Common Ownership with another member or member
organization that qualifies for Customer Rebate Tiers 4 or 5 in Section
B of the Pricing Schedule will be assessed $0.23 per contract.
Today, note 14 applies to a Professional, Broker-Dealer, or Firm
that transacts electronic orders in non-Penny Pilot Options. Note 14
states that any member or member organization under Common Ownership
with another member or member organization that qualifies for Customer
Rebate Tiers 2, 3, 4 or 5 in Section B of the Pricing Schedule will be
assessed $0.60 per contract. The Exchange is proposing to delete the
reference in note 14 to Customer Rebate Tiers 2 and 3, just like in
note 15. Thus, note 14 would continue to apply to Professionals,
Broker-Dealers, and Firms such that after the proposal, per note 14 any
member or member organization under Common Ownership with another
member or member organization that qualifies for Customer Rebate Tiers
4 or 5 in Section B of the Pricing Schedule will be assessed $0.60 per
contract. The Exchange believes that the qualification for Customer
Rebate Tiers 2 or 3 is no longer necessary for the discount incentive
in notes 14 and 15, particularly where Professionals, Broker-Dealers,
Specialists and Market Makers, and Firms can choose to earn the
discount by qualifying for Customer Rebate Tiers 4 or 5 by bringing
liquidity to the Exchange.
Despite the proposed deletion of the reference to Customer Rebate
Tiers 2 and 3 in notes 14 and 15, the Exchange believes that its fee
structure will continue to incentivize Professionals, Firms, Broker-
Dealers, and Specialists and Market Makers to transact electronic non-
Penny Pilot Option volume on the Exchange. The Exchange believes that
with the proposed deletion of the reference to Customer Rebate Tiers 2
and 3, the incentive remains to bring more order flow to the Exchange
to earn the discount.
Section III--Singly Listed Options
Currently, fees for Singly Listed Options are located in Section
III of the Pricing Schedule. The Singly-Listed Options fees, per
contract, are as follows: \20\
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\20\ While Singly-Listed Options fees also apply to FX options,
these fees are not proposed to be changed and therefore, for
purposes of brevity, are not reproduced here.
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Specialist and
Customer Professional market maker Firm Broker- dealer
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Options Transaction Charge......................................... $0.40 $0.70 $0.40 $0.70 $0.70
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Today, the Exchange assesses an Options Transaction Charge for
Customers of $0.40 per contract, for Professionals, Firms, and Broker-
Dealers of $0.70 per contract, and for Specialists and Market Makers of
$0.40 per contract. These fees apply to options overlying FX, equities,
ETNs, ETFs, and indexes not listed on another exchange.\21\ The
Exchange proposes to increase the Professional, Broker-Dealer, and Firm
Options Transaction Charges from $0.70 to $0.75 per contract for Singly
Listed Options.\22\ The increase
[[Page 43154]]
aligns these fees with the above-described proposed electronic non-
Penny Pilot fees in Section II of the Pricing Schedule.\23\ Despite the
fee increase, the proposal will allow the Exchange to incentivize
market participants to transact Singly Listed Options.
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\21\ These Singly Listed Options include SOX, HGX, and OSX.
\22\ The Exchange is not increasing the fees for Customers and
Specialists and Market Makers. As discussed herein, Customer orders
bring valuable liquidity to the market, which liquidity benefits
other market participants; and Specialists and Market Makers have
market obligations (e.g., to make continuous markets) that other
market participants do not have.
\23\ Professionals, Broker-Dealers, and Firms are proposed to be
similarly assessed a $0.75 per contract electronic Options
Transaction Charge in Multiply Listed [sic] Options.
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The Exchange believes that the fees and rebates in its Pricing
Schedule are structured to attract liquidity. Tier 4 and 5 of the
Customer Rebate Schedule in Section B, for example, provide the highest
relative rebates in the five tier Customer Rebate Program to those that
bring the most liquidity to the Exchange, in particular where the
percentage thresholds of national customer volume in multiply-listed
equity and ETF Options classes, excluding SPY Options (monthly) are
also the highest. In making the proposed changes to the Pricing
Schedule, the Exchange continues to incentivize members to execute
liquidity on the Exchange.
2. Statutory Basis
The Exchange believes that its proposal to amend the Pricing
Schedule is consistent with Section 6(b) of the Act \24\ in general,
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act
\25\ in particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system which Phlx operates or
controls, and is not designed to permit unfair discrimination between
market participants to whom the Exchange's fees and rebates are
applicable.
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(4), (5).
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Section B--Customer Rebates
The Exchange believes that its proposal to change the Tier 4
Customer Rebate (Category B) from $0.20 to $0.22, and to change the
Tier 5 Customer Rebate (Category B) from $0.20 to $0.22, is reasonable.
These proposed changes will allow the Exchange to continue to attract
Customer liquidity to the Exchange. Customer orders bring valuable
liquidity to the market, which liquidity benefits other market
participants. Customer liquidity benefits all market participants by
providing more trading opportunities, which attracts Specialists and
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
The Exchange believes that the proposed increased Category B rebates
will continue to encourage members to send Customer liquidity to Phlx
despite the cap on PIXL Complex Order rebates at the proposed 4,000
contracts per order leg. The Exchange believes that the proposed two
cent increase is reasonable. Additionally, the CBOE has similar
rebates.\26\
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\26\ CBOE's VIP credit for certain orders in Tier 3 is $0.22 per
contract. See CBOE's Fees Schedule. See also Securities Exchange Act
Release No. 371588 (June 17, 2015), 80 FR 36021 (June 23, 2015) (SR-
CBOE-2015-058) (rule change increasing VIP credit for certain orders
in Tier 3 from $0.16 per contract to $0.22 per contract, also in
Tier 2 from $0.16 per contract to $0.21 per contract and in Tier 4
from $0.17 per contract to $0.23 per contract).
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The Exchange believes that its proposal to change the Tier 4 and
Tier 5 Customer Rebate (Category B) from $0.20 to $0.22 is equitable
and not unfairly discriminatory because these amendments to Category B
apply uniformly to all market participants to whom Category B applies.
Moreover, the Exchange believes that the resulting 5 cents difference
between Category B Tiers 3 and 4 ($0.17 and $0.22) is reasonable and
not unfair since, comparatively, the current difference between Tiers 1
and 2 is 17 cents.
Section II--Multiply Listed Options
The Exchange believes that increasing from $0.70 to $0.75 the
amount that is currently assessed to a Professional, Broker-Dealer, and
Firm for electronic orders in certain Multiply Listed non-Penny Pilot
Options is reasonable. Despite the increase in the fee, the Exchange
believes that its fee structure will continue to incentivize
Professionals, Broker-Dealers, and Firms to transact electronic non-
Penny Pilot volume on the Exchange. The Exchange believes that the
proposed fee, although higher, will continue to incentivize
Professionals, Broker-Dealers, and Firms to send order flow to the
Exchange. In addition, these modestly increased fees are consistent
with similarly increased proposed fees for Singly Listed Options. The
Exchange believes that it is reasonable for it to instill consistency
in its pricing as discussed.
The Exchange believes that increasing from $0.70 to $0.75 the
amount that is currently assessed to a Professional, Broker-Dealer, and
Firm for electronic orders in certain Multiply Listed non-Penny Pilot
Options is equitable and not unfairly discriminatory because it applies
uniformly to all. Further, the proposed amendment will continue to
allow the Exchange to incentivize Professionals, Broker-Dealers, and
Firms to send electronic order flow to the Exchange for execution. The
Exchange's fees will be competitive with fees at other options markets.
Although the Exchange will still be assessing Professionals, Broker-
Dealers, and Firms more than Customers (which do not pay the Option
Transaction Charge in Penny Pilot or in non-Penny Pilot Options),
Customer order flow enhances liquidity on the Exchange for the benefit
of all market participants and benefits all market participants by
providing more trading opportunities, which attracts Specialists and
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Although Professionals, Broker-Dealers, and Firms will still be charged
more for non-Penny Pilot Options than Specialists and Market Makers,
who are charged $0.25 and $0.30, respectively, Specialists and Market
Makers have obligations to the market and regulatory requirements,
which normally do not apply to other market participants.\27\
Specialists and Markets have obligations to make continuous markets,
engage in a course of dealings reasonably calculated to contribute to
the maintenance of a fair and orderly market, and not make bids or
offers or enter into transactions that are inconsistent with a course
of dealings.
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\27\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
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The Exchange believes it is reasonable to propose to delete the
reference to Customer Rebate Tiers 2 and 3 in notes 14 and 15. Thus,
note 15 would continue to apply to Specialists and Market Makers and
after the proposal any member or member organization under Common
Ownership with another member or member organization that qualifies for
Customer Rebate Tiers 4 [sic] or 5 [sic] in Section B of the Pricing
Schedule will be assessed $0.23 per contract. Similarly, note 14 would
continue to apply to Professionals, Broker-Dealers, and Firms and after
the proposal any member or member organization under Common Ownership
with another member or member organization that qualifies for Customer
Rebate Tiers 4 or 5 in Section B of the Pricing Schedule will be
assessed $0.60 per contract. The Exchange believes that the
qualification for Customer Rebate Tiers 4 or 5 is no
[[Page 43155]]
longer necessary for the discount incentive in notes 14 and 15,
particularly where Professionals, Broker-Dealers, Specialists, and
Market Makers, and Firms can choose to earn the discount by qualifying
for Customer Rebate Tiers 4 or 5 by bringing liquidity to the Exchange.
Despite the proposed deletion of the reference to Customer Rebate Tiers
2 and 3 in notes 14 and 15, the Exchange believes that its fee
structure will continue to incentivize Professionals, Firms, Broker-
Dealers, and Specialists and Market Makers to transact electronic non-
Penny Pilot volume on the Exchange. The Exchange believes that with the
proposed deletion of the reference to Customer Rebate Tiers 2 and 3,
the incentive remains to bring more order flow to the Exchange to earn
the discount.
The Exchange believes it is equitable and not unfairly
discriminatory to increase from $0.70 to $0.75 the Multiply Listed non-
Penny Pilot Options fee, as well as to delete the reference to Customer
Rebate Tiers 2 and 3 in notes 14 and 15. The Exchange believes that the
proposed changes will enable to Exchange to continue to incentivize
market participants to bring non-Penny Pilot Customer liquidity to the
Exchange. Customer liquidity benefits all market participants by
providing more trading opportunities, which attracts Specialists and
Market Makers. An increase in the activity of these market participants
in turn facilitates tighter spreads, which may cause an additional
corresponding increase in order flow from other market participants.
Specialists and Market Makers are assessed lower electronic Options
Transaction Charges in Penny Pilot Options as compared to
Professionals, Broker-Dealers, and Firms because they have obligations
to the market and regulatory requirements, which normally do not apply
to other market participants.\28\ They have obligations to make
continuous markets, engage in a course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market, and not make bids or offers or enter into transactions that are
inconsistent with a course of dealings. The proposed differentiation as
between Customers and Specialists and Market Makers and other market
participants (e.g., Professionals, Broker-Dealers, and Firms)
recognizes the differing contributions made to the liquidity and
trading environment on the Exchange by these market participants.
Moreover, the proposed changes to the fee structure and rebate
structure will be applied uniformly to all.
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\28\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
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Section III--Singly Listed Options
The Exchange believes that increasing the Professional, Firm, and
Broker-Dealer Options Transaction Charges is reasonable because the
Exchange is seeking to conform fees to electronic Non-Penny Pilot
Options \29\ pricing for Multiply Listed Options \30\ in order to
recoup the operational costs \31\ for Singly Listed Options. Also, the
Exchange believes the fees are reasonable because the proposed fees are
within the range of similar fees assessed at other exchanges.\32\
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\29\ All Singly Listed Options are Non-Penny Pilot Options.
\30\ See Section II of the Pricing Schedule.
\31\ By way of example, in analyzing an obvious error, the
Exchange would have additional data points available in establishing
a theoretical price for a Multiply Listed Option as compared to a
Singly Listed Option, which requires additional analysis and
administrative time to comply with Exchange rules to resolve an
obvious error.
\32\ CBOE assesses an $0.80 per contract fee to Customers,
Broker-Dealers, Non-Trading Permit Holder Market Makers and
Professional, Voluntary Professional and Joint Back-Office market
participants for SPX Range Options (SRO) transactions, a proprietary
index, in addition to a surcharge fee. SPX refers to options on the
Standard & Poor's 500 Index. See CBOE's Fees Schedule. In addition,
NASDAQ Options Market LLC (``NOM'') assesses Non-Penny Pilot Fees
for Removing Liquidity ranging from $0.85 to $0.89 per contract
depending on the market participant. See Chapter XV, Section 2 of
NOM's Rules. The Exchange also assesses a Professional, Broker-
Dealer and Firm an electronic options transaction charge (non-Penny
Pilot Options) of $0.70 per contract for transactions in Multiply
Listed Options. See Section II of the Exchange's Pricing Schedule.
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The Exchange believes that increasing the Professional, Firm, and
Broker-Dealer Options Transaction Charges is equitable and not unfairly
discriminatory because the pricing will be comparable among similar
categories of market participants, as is the case today. Professionals,
Firms, and Broker-Dealers will be assessed the same rates ($0.70 [sic]
per contract) and Customers and Specialists and Market Makers will
continue to be assessed lower rates as compared to other market
participants. Customer order flow is, as discussed above, assessed the
lowest fee because incentivizing members to continue to offer Customer
trading opportunities in Singly Listed Options benefits all market
participants through increased liquidity. The Exchange notes that
Specialists and Market Makers are assessed lower options transaction
charges as compared to other market participants, except Customers,
because they have burdensome quoting obligations \33\ to the market
which do not apply to Customers, Professionals, Firms, and Broker-
Dealers. The proposed differentiation as between Customers and
Specialists and Market Makers as compared to Professionals, Firms, and
Broker-Dealers recognizes the differing contributions made to the
liquidity and trading environment on the Exchange by these market
participants. The proposed changes to the Options Transactions Charge
will be applied uniformly to all.
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\33\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
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The Exchange desires to continue to incentivize members and member
organizations, through the Exchange's rebate and fee structure, to
select Phlx as a venue for bringing liquidity and trading by offering
competitive pricing. Such competitive, differentiated pricing exists
today on other options exchanges. The Exchange's goal is creating and
increasing incentives to attract orders to the Exchange that will, in
turn, benefit all market participants through increased liquidity at
the Exchange.
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 Customer Rebate Program amendments in Section B of the Pricing
Schedule do not create an undue burden on competition and, like all of
the amendments proposed by the Exchange, will apply uniformly to all
market participants. Moreover, the Section B amendments will enable the
Exchange to continue to attract liquidity, which benefits all market
participants by providing more trading opportunities, which attracts
Specialists and Market Makers. The Exchange's proposal to increase the
assessment for Professional, Broker-Dealer, and Firm Multiply-Listed
Options electronic Orders in certain non-Penny options, and the
deletion of Customer Rebate Tiers 2 and 3 from notes 14 and 15, does
not place an undue burden on competition, but rather will similarly
allow the Exchange to continue to attract liquidity. In addition, the
proposed $0.75 fee in Section II is consistent with what is assessed by
CBOE, as well as the Exchange proposal in Section III to increase the
assessment applicable to Professionals, Broker-Dealers, and Firms that
transact Singly-Listed. These increases do not create an undue burden
on competition, but rather align the
[[Page 43156]]
proposed Singly-Listed Option fees in Section III with the proposed
non-Penny Pilot Option fees in Section II of the Pricing Schedule, as
well as with other exchanges. Despite these proposed fee and rebate
changes, the Exchange's proposal will allow it to continue to
incentivize market participants to bring liquidity to the Exchange, as
described herein.
The Exchange operates in a highly competitive market, comprised of
twelve exchanges, in which market participants can easily and readily
direct order flow to competing venues if they deem fee levels at a
particular venue to be excessive or rebates to be inadequate.
Accordingly, the fees that are assessed and the rebates paid by the
Exchange, as described in the proposal, are influenced by these robust
market forces and therefore must remain competitive with fees charged
and rebates paid by other venues and therefore must continue to be
reasonable and equitably allocated to those members that opt to direct
orders to the Exchange rather than competing venues.
The proposed fees are designed to ensure a fair and reasonable use
of Exchange resources by allowing the Exchange to recoup costs while
continuing to attract liquidity and offer connectivity at competitive
rates to Exchange members and member organizations.
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.\34\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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\34\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2015-61 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2015-61. 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-2015-61 and should be
submitted on or before August 11, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-17754 Filed 7-20-15; 8:45 am]
BILLING CODE 8011-01-P