[Federal Register Volume 80, Number 166 (Thursday, August 27, 2015)]
[Notices]
[Pages 52073-52075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-21208]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75749; File No. SR-Phlx-2015-71]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the
Options Regulatory Fee
August 21, 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 August 17, 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.
---------------------------------------------------------------------------
\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 make adjustments to its Options Regulatory
Fee (``ORF'') by amending Section IV, Part D of the Pricing Schedule.
While changes to the Pricing Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative September 1, 2015 and February 1, 2016, as noted herein.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to: (1) Decrease the ORF
from $0.0045 per to $0.0035 as of September 1, 2015 and increase the
ORF from $0.0035 to $0.0040 as of February 1, 2016 to account for
additional fine revenue, cost reductions and to balance the Exchange's
regulatory revenue against the anticipated costs and potential fines;
and (2) remove the requirement that the ORF may only be modified semi-
annually.
Background
The ORF is assessed to each member for all options transactions
executed or cleared by the member that are cleared at The Options
Clearing Corporation (``OCC'') in the Customer range (i.e., that clear
in the Customer account of the member's clearing firm at OCC). The
Exchange monitors the amount of revenue collected from the ORF to
ensure that it, in combination with other regulatory fees and fines,
does not exceed regulatory costs. The ORF is imposed upon all
transactions executed by a member, even if such transactions do not
take place on the Exchange.\3\ The ORF also includes options
transactions that are not executed by an Exchange member but are
ultimately cleared by an Exchange member.\4\ The ORF is not charged for
member proprietary options transactions because members incur the costs
of owning memberships and through their memberships are charged
transaction fees, dues and other fees that are not applicable to non-
members. The dues and fees paid by members go into the general funds of
the Exchange, a portion of which is used to help pay the costs of
regulation. The ORF is collected indirectly from members through their
clearing firms by OCC on behalf of the Exchange.
---------------------------------------------------------------------------
\3\ The ORF applies to all ``C'' account origin code orders
executed by a member on the Exchange. Exchange Rules require each
member to record the appropriate account origin code on all orders
at the time of entry in order to allow the Exchange to properly
prioritize and route orders and assess transaction fees pursuant to
the Rules of the Exchange and report resulting transactions to OCC.
See Exchange Rule 1063, Responsibilities of Floor Brokers, and
Options Floor Procedure Advice F-4, Orders Executed as Spreads,
Straddles, Combinations or Synthetics and Other Order Ticket Marking
Requirements. The Exchange represents that it has surveillances in
place to verify that members mark orders with the correct account
origin code.
\4\ In the case where one member both executes a transaction and
clears the transaction, the ORF is assessed to the member only once
on the execution. In the case where one member executes a
transaction and a different member clears the transaction, the ORF
is assessed only to the member who executes the transaction and is
not assessed to the member who clears the transaction. In the case
where a non-member executes a transaction and a member clears the
transaction, the ORF is assessed to the member who clears the
transaction.
---------------------------------------------------------------------------
The ORF is designed to recover a portion of the costs to the
Exchange of the supervision and regulation of its members, including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. The Exchange believes that revenue generated
from the ORF, when combined with all of the Exchange's other regulatory
fees, will cover a material portion, but not all, of the Exchange's
regulatory costs. The Exchange will continue to monitor the amount of
revenue collected from the ORF to ensure that it, in combination with
its other regulatory fees and fines, do not exceed regulatory costs. If
the Exchange determines regulatory revenues exceed regulatory costs,
the Exchange will adjust the ORF by submitting a fee change filing to
the Commission.
ORF Adjustments
The Exchange is proposing to decrease the ORF from $0.0045 to
$0.0035 as of September 1, 2015 and increase the ORF from $0.0035 to
$0.0040 as of February 1, 2016 in order to account for regulatory
revenue from disciplinary actions taken by the Exchange. The Exchange
regularly reviews its ORF to ensure that the ORF, in combination with
its other regulatory fees and fines, do not exceed regulatory costs.
The Exchange believes that decreasing the ORF by $0.0010 from September
1, 2015 through January 31, 2016 and then adjusting the ORF as of
February 1, 2016 to $.0040 (a $0.0005 reduction from the current
rates), will permit the Exchange to cover a material portion of its
regulatory costs, while not exceeding regulatory costs.
Semi-Annual Changes to ORF
The Exchange previously filed a rule change to Section IV, Part D
of the Pricing Schedule to specify the frequency with which the
Exchange may change the ORF.\5\ At that time, the
[[Page 52074]]
Exchange amended the Pricing Schedule to specify that the Exchange may
only increase or decrease the ORF semi-annually, and any such fee
change will be effective on the first business day of February or
August.\6\ The Exchange stated in that filing, ``[i]n addition to
submitting a proposed rule change to the Securities and Exchange
Commission (``Commission'') as required by the Act to increase or
decrease the ORF, the Exchange will notify participants via an Options
Trader Alert of any anticipated change in the amount of the fee at
least 30 calendar days prior to the effective date of the change.'' \7\
---------------------------------------------------------------------------
\5\ See Securities Release No. 71569 (February 19, 2014), 79 FR
10593 (February 25, 2014) (SR-Phlx-2014-12).
\6\ Id.
\7\ Id.
---------------------------------------------------------------------------
The Exchange is proposing to eliminate the requirement that its ORF
may be only increased or decreased semi-annually because the Exchange
believes it requires the flexibility to amend its ORF as needed to meet
its regulatory requirements and adjust its ORF to account for the
regulatory revenue that it receives and the costs that it incurs, as
evidenced by the adjustments proposed in this rule change. While the
Exchange is eliminating the requirement to adjust only semi-annually,
it will continue to submit a rule proposal with the Commission for each
modification to the ORF and notify participants via an Options Trader
Alert of any anticipated change in the amount of the fee at least
thirty (30) calendar days prior to the effective date. The Exchange
believes that the prior notification to market participants will
provide guidance on the timing of any changes to the ORF and ensure
market participants are prepared to configure their systems to properly
account for the ORF.
While changes to the Pricing Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative September 1, 2015 and February 1, 2016, as noted herein.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\8\ in general, and with
Section 6(b)(4) and 6(b)(5) of the Act,\9\ 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 that the Exchange operates or controls, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange believes that lowering the ORF from $0.0045 to $0.0035
as of September 1, 2015 and then increasing the ORF from $0.0035 to
$0.0040 as of February 1, 2016 is reasonable because the Exchange's
collection of ORF needs to be balanced against the amount of regulatory
revenue collected by the Exchange. The Exchange believes that the
proposed adjustments noted herein will serve to balance the Exchange's
regulatory revenue against the anticipated regulatory costs. It is
further reasonable because both price changes discussed herein
represent a price reduction compared to the current rate of $0.0045.
The Exchange believes that lowering the ORF from $0.0045 to $0.0035
as of September 1, 2015 and then increasing the ORF from $0.0035 to
$0.0040 as of February 1, 2016 is equitable and not unfairly
discriminatory because these adjustments would be applicable to all
members on all of their transactions that clear as Customer at OCC. In
addition, the ORF seeks to recover the costs of supervising and
regulating members, including performing routine surveillances,
investigations, examinations, financial monitoring, and policy,
rulemaking, interpretive, and enforcement activities. The ORF is not
charged for member proprietary options transactions because members
incur the costs of owning memberships and through their memberships are
charged transaction fees, dues and other fees that are not applicable
to non-members. Moreover, the Exchange believes the ORF ensures
fairness by assessing higher fees to those members that require more
Exchange regulatory services based on the amount of Customer options
business they conduct. Regulating Customer trading activity is more
labor intensive and requires greater expenditure of human and technical
resources than regulating non-Customer trading activity. Surveillance,
regulation and examination of non-Customer trading activity generally
tends to be more automated and less labor intensive. As a result, the
costs associated with administering the Customer component of the
Exchange's overall regulatory program are anticipated to be higher than
the costs associated with administering the non-Customer component of
its regulatory program. As such, the Exchange proposes assessing higher
fees to those members that will require more Exchange regulatory
services based on the amount of Customer options business they
conduct.\10\ Additionally, the dues and fees paid by members go into
the general funds of the Exchange, a portion of which is used to help
pay the costs of regulation.
---------------------------------------------------------------------------
\10\ The ORF is not charged for orders that clear in categories
other than the Customer range at OCC (e.g., Market Maker orders)
because members incur the costs of memberships and through their
memberships are charged transaction fees, dues and other fees that
go into the general funds of the Exchange, a portion of which is
used to help pay the costs of regulation.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change to remove the
limit to amend the ORF only semi-annually, with advance notice, is
reasonable because the Exchange will continue to provide market
participants with thirty (30) days advance notice of amending its ORF.
Also, the Exchange is required to monitor the amount of revenue
collected from the ORF to ensure that it, in combination with its other
regulatory fees and fines, do not exceed regulatory costs. Therefore,
the Exchange believes it is reasonable to remove the semi-annual limit
to amend its ORF in order to permit the Exchange to make amendments to
its ORF as necessary to comply with the Exchange's obligations.
The Exchange believes that the proposed rule change to remove the
limit to amend the ORF only semi-annually, with advance notice, is
equitable and not unfairly discriminatory because it will apply in the
same manner to all members that are subject to the ORF. Moreover, the
Exchange believes that the proposed ORF is a small incremental cost for
Customer executions.\11\ The Exchange has in place a regulatory
structure to surveil for, exam [sic] and monitor the marketplace for
violations of Exchange Rules. The ORF assists the Exchange to fund the
cost of this regulation of the marketplace.
---------------------------------------------------------------------------
\11\ The Exchange does not assess a Customer any transaction
fees in Multiply Listed Options, except in SPY, and pays Customer
rebates.
---------------------------------------------------------------------------
Also, all members will continue to receive advance notice of
changes to the ORF.
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 does not believe
that adjusting its ORF creates an undue burden on inter-market or
intra-market competition. The Exchange will adjust its ORF for all
members on all of their transactions that clear as Customer at OCC. The
Exchange is obligated to
[[Page 52075]]
ensure that the amount of regulatory revenue collected from the ORF, in
combination with its other regulatory fees and fines, does not exceed
regulatory costs. Additionally, the dues and fees paid by members go
into the general funds of the Exchange, a portion of which is used to
help pay the costs of regulation. The Exchange's members are subject to
ORF on other options markets.\12\
---------------------------------------------------------------------------
\12\ For example, see the Chicago Board Options Exchange,
Incorporated's Fees Schedule and the International Securities
Exchange, LLC's Fee Schedule.
---------------------------------------------------------------------------
The Exchange does not believe that removing the limit to amend the
ORF semi-annually, with advance notice, creates an undue burden on
competition. The Exchange will continue to provide the same advance
notice of changes to the ORF as it does today.
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.\13\ 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.
---------------------------------------------------------------------------
\13\ 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-2015-71 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2015-71. 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-2015-71 and should be
submitted on or before September 17, 2015.
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21208 Filed 8-26-15; 8:45 am]
BILLING CODE 8011-01-P