[Federal Register Volume 81, Number 105 (Wednesday, June 1, 2016)]
[Notices]
[Pages 35094-35098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77908; File No. SR-Phlx-2016-59]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Related to PIXL 
Pricing

May 25, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 35095]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 11, 2016, NASDAQ PHLX LLC (``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 amend Section IV, Part A of the Pricing 
Schedule entitled ``PIXL Pricing.''
    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 this rule change is to amend the PIXL \3\ pricing 
located in the Pricing Schedule at Section IV, Part A. The Exchange 
amends the PIXL Pricing to incentivize market participants to direct 
more PIXL Orders to Phlx.
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    \3\ PIXL\SM\ is the Exchange's price improvement mechanism known 
as Price Improvement XL or PIXL. 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)(F) it represents as agent (``Initiating 
Order''), provided it submits the PIXL order for electronic 
execution into the PIXL Auction pursuant to Rule 1080. See Exchange 
Rule 1080(n).
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    Today, the Exchange assesses a $0.07 per contract Initiating Order 
Fee. If the member or member organization qualifies for the Tier 4 or 5 
Customer Rebate \4\ in Section B, the member or member organization 
will be assessed a discounted Initiating Order Fee of $0.05 per 
contract for Simple PIXL Orders and $0.03 per contract for Complex \5\ 
PIXL Orders. The Exchange is proposing to make three changes to the 
PIXL Pricing.
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    \4\ Currently, the Exchange has a Customer Rebate Program 
consisting of five tiers that pay Customer rebates on three 
Categories, A, B and C of transactions. A Phlx member qualifies for 
a certain rebate tier based on the percentage of total national 
customer volume in multiply-listed options that it transacts monthly 
on Phlx. The Exchange calculates Customer volume in Multiply Listed 
Options by totaling electronically-delivered and executed volume, 
excluding volume associated with electronic Qualified Contingent 
Cross (``QCC'') Orders, as defined in Exchange Rule 1080(o). In 
calculating electronically-delivered and executed Customer volume in 
Multiply Listed Options, the numerator of the equation includes all 
electronically-delivered and executed Customer volume in Multiply 
Listed Options. The denominator of that equation includes national 
customer volume in multiply-listed equity and ETF options volume, 
excluding SPY. See Section B of the Pricing Schedule.
    \5\ 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.
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Pricing Change Number 1
    The Exchange proposes to assess a $0.05 per contract discounted 
Initiating Order Fee to members and member organizations that qualify 
for the Tier 4 or 5 Customer Rebate in Section B, regardless of whether 
the order is a Simple or Complex PIXL Order. The Initiating Order Fee 
for Simple PIXL Orders would therefore be assessed the same lower rate 
when the member or member organization would qualify for this reduced 
fee. The Exchange proposes to increase the discounted Complex PIXL 
Initiating Order Fee from $0.03 to $0.05 per contract provided the 
member or member organization qualifies for Tier 4 or 5 of the Customer 
Rebate in Section B.
Pricing Change Number 2
    Additionally, the Exchange proposes a new incentive for members or 
member organizations that deliver equal to or greater than 3.00% of 
National Customer Volume in Multiply-Listed equity and exchange-traded 
fund (``ETF'') option classes, excluding SPY options,\6\ in a given 
month to lower their Initiating Order Fee to $0.00 per contract for 
Complex PIXL Orders. This proposal will offer members submitting 
Complex PIXL Orders the opportunity to pay no Initiating Order Fee 
instead of a $0.05 per contract \7\ discounted Complex PIXL Initiating 
Order Fee if the member qualifies for the incentive.
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    \6\ Options overlying Standard and Poor's Depositary Receipts/
SPDRs (``SPY'') are based on the SPDR exchange-traded fund, which is 
designed to track the performance of the S&P 500 Index.
    \7\ Today the Complex PIXL Initiating Order Fee for members and 
member organizations that qualify for the Tier 4 or 5 Customer 
Rebate in Section B is $0.03 per contract. This proposal increases 
that fee to $0.05 per contract.
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Pricing Change Number 3
    The Exchange also proposes to offer this new incentive to members 
or member organizations under Common Ownership.\8\ Today, any member or 
member organization under Common Ownership with another member or 
member organization that qualifies for a Tier 4 or 5 Customer Rebate in 
Section B will be assessed a discounted PIXL Initiating Order Fee of 
$0.05 per contract for Simple PIXL Orders and $0.03 per contract for 
Complex PIXL Orders. The Exchange proposes that any member or member 
organization under Common Ownership with another member or member 
organization that executes equal to or greater than 3.00% of National 
Customer Volume in Multiply-Listed equity and ETF options classes, 
excluding SPY options, in a given month will be assessed a discounted 
PIXL Initiating Order Fee of $0.05 for Simple PIXL Orders and $0.00 for 
Complex PIXL Orders. The Exchange also proposes to increase the 
discounted Complex PIXL Initiating Order Fee for members or member 
organizations under Common Ownership that qualify for Customer Rebate 
Tier 4 or 5 in Section B. With this proposal, any member or member 
organization under Common Ownership with another member or member 
organization that qualifies for a Customer Rebate Tier 4 or 5 in 
Section B will be assessed a discounted Complex PIXL Initiating Order 
Fee of $0.05 per contract.
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    \8\ The term ``Common Ownership'' shall mean members or member 
organizations under 75% common ownership or control.
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    Despite the increase to the discounted Complex PIXL Initiating 
Order Fee for members and member organizations that qualify for a 
Customer Rebate Tier 4 or 5 in Section B, the Exchange believes that 
the increased discounted rate will continue to encourage members to 
direct more Complex PIXL Orders to the Exchange.\9\
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    \9\ Currently, the Initiating Order Fee for Professional, Firm, 
Broker-Dealer, Specialist and Market Maker orders that are contra to 
a Customer PIXL Order will be reduced to $0.00 if the Customer PIXL 
Order is greater than 399 contracts. The Exchange is not amending 
this provision.

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[[Page 35096]]

2. Statutory Basis
    The proposal is consistent with Section 6(b) of the Act,\10\ in 
general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of 
the Act,\11\ 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 the 
Exchange operates or controls, and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \12\
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    \12\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\13\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\14\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \15\
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    \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See NetCoalition, at 534-535.
    \15\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \16\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \16\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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Pricing Change Number 1
    The Exchange's proposal to increase the discounted Complex PIXL 
Initiating Order Fee for members and member organizations that qualify 
for Tier 4 or 5 of the Customer Rebate in Section B from $0.03 to $0.05 
per contract is reasonable because the Exchange assesses this 
discounted same [sic] rate for the Simple PIXL Initiating Order Fee. 
Furthermore, the Exchange believes that this fee is reasonable because 
it continues to be lower than the $0.07 per contract Initiating Order 
Fee for members and member organizations that do not qualify for Tier 4 
or 5 of the Customer Rebate in Section B. Finally, the Exchange is 
offering members and member organizations an opportunity to lower the 
Complex PIXL Initiating Order Fee to $0.00 per contract provided the 
member or member organization executes equal to or greater than 3.00% 
of National Customer Volume in Multiply-Listed equity and ETF option 
classes, excluding SPY options, in a given month.
    The Exchange's proposal to increase the discounted Complex PIXL 
Initiating Order Fee for members and member organizations that qualify 
for Tier 4 or 5 of the Customer Rebate in Section B from $0.03 to $0.05 
per contract is equitable and not unfairly discriminatory because the 
Exchange will apply the proposed fees in a uniform manner to all market 
participants who qualify for the discounted rate. Further, all market 
participants are eligible to earn Customer Rebates, transact Complex 
PIXL Orders and participate in a PIXL Auction.
Pricing Change Number 2
    The Exchange's proposal to offer members and member organizations 
an opportunity to pay no Complex PIXL Initiating Order Fee provided 
they transact equal to or greater than 3.00% of National Customer 
Volume in Multiply-Listed equity and ETF option classes, excluding SPY 
options, in a given month is reasonable because it will encourage 
market participants to transact Customer volume as well as a greater 
number of Complex PIXL Orders on the Exchange. Today, members and 
member organizations may lower their Complex PIXL Order Initiating 
Order Fees by qualifying for Tiers 4 \17\ or 5 \18\ of the Customer 
Rebate in Section B. In order to qualify for Section B Customer Rebate 
Tiers 4 or 5 a member or member organization is required to transact a 
certain percentage of total National Customer Volume (above 1.60%) in 
Multiply-Listed options in a month on Phlx to receive a lower Complex 
PIXL Initiating Order Fee of $0.05 \19\ as compared to the Initiating 
Order Fee of $0.07 per contract. With this proposal the Exchange offers 
members and member organizations an opportunity to pay no Initiating 
Order Fee for Complex PIXL Orders provided they deliver equal to order 
[sic] greater than 3.00% of National Customer Volume in Multiply-Listed 
equity and ETF options classes, excluding SPY options, in a given month 
is transacted on Phlx [sic]. The Exchange seeks to encourage market 
participants to increase the amount of Customer order flow that is 
directed to Phlx by offering the opportunity to pay no Complex PIXL 
Initiating Order Fee. In order to qualify for this new incentive, a 
greater amount of Customer volume is necessary to be transacted than 
the volume currently required to qualify for the Customer Rebate Tiers 
4 and 5 in Section B.
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    \17\ Tier 4 requires member and member organizations to transact 
above 1.60%-2.50% of National Customer Volume in Multiply-Listed 
Equity and ETF Options.
    \18\ Tier 5 requires member and member organizations to transact 
above 2.50% of National Customer Volume in Multiply-Listed Equity 
and ETF Options.
    \19\ Today the Complex PIXL Initiating Order Fee for members and 
member organizations that qualify for the Tier 4 or 5 Customer 
Rebate in Section B is $0.03 per contract. This proposal increases 
that fee to $0.05 per contract.
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    The Exchange believes that members and member organizations will 
direct a greater amount of Customer liquidity to Phlx to qualify for a 
Complex PIXL Initiating Order Fee of $0.00 per contract. 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's proposal to offer member and member organizations an 
opportunity to pay no Complex PIXL Initiating Order Fee provided they 
transact equal to or greater than 3.00% of National Customer Volume in 
Multiply-Listed equity and ETF options classes, excluding SPY options, 
in a given month is equitable and not unfairly discriminatory because 
the

[[Page 35097]]

opportunity to pay no Complex PIXL Initiating Order Fee is available to 
all market participants. In addition, all market participants are 
eligible to earn Customer Rebates, transact Complex PIXL Orders and 
participate in a PIXL Auction.
Pricing Change Number 3
    The Exchange's proposal to increase the discounted Complex PIXL 
Initiating Order Fee for members and member organizations under Common 
Ownership that qualify for Tier 4 or 5 of the Customer Rebate in 
Section B from $0.03 to $0.05 per contract is reasonable for the same 
reasons explained herein. It is also reasonable to offer member and 
member organizations under Common Ownership an opportunity to pay no 
Complex PIXL Order Initiating Order Fee provided the member or member 
organization executes equal to or greater than 3.00% of National 
Customer Volume in Multiply-Listed equity and ETF options classes, 
excluding SPY options, in a given month for the same reasons explained 
herein. The Exchange believes that applying the same pricing to members 
under Common Ownership as wholly-owned entities avoids disparate 
treatment of members that have divided their various business 
activities between separate corporate entities as compared to members 
that operate those business activities within a single corporate 
entity.
    The Exchange's proposal to increase the discounted Complex PIXL 
Initiating Order Fee for members and member organizations under Common 
Ownership that qualify for Tier 4 or 5 of the Customer Rebate in 
Section B from $0.03 to $0.05 per contract is equitable and not 
unfairly discriminatory for the same reasons explained herein. It is 
also equitable and not unfairly discriminatory to offer member and 
member organizations under Common Ownership an opportunity to pay no 
Complex PIXL Initiating Order Fee provided the member or member 
organization executes equal to or greater than 3.00% of National 
Customer Volume in Multiply-Listed Equity and ETF options classes, 
excluding SPY options, in a given month for the same reasons explained 
herein. The Exchange believes that its proposed pricing is equitable 
and not unfairly discriminatory because it permits both wholly owned 
and common control members and member organizations to be subject to 
the same pricing for PIXL.

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. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
that the degree to which fee changes in this market may impose any 
burden on inter-market competition is extremely limited.
Pricing Change Number 1
    The Exchange believes that increasing the discounted Complex PIXL 
Initiating Order Fee for members and member organizations that qualify 
for Tier 4 or 5 of the Customer Rebate in Section B from $0.03 to $0.05 
per contract does not create an undue burden on intra-market 
competition because the Exchange will apply the proposed fees in a 
uniform manner to all market participants who qualify for the 
discounted rate. All market participants are eligible to earn Customer 
Rebates, transact Complex PIXL Orders and participate in a PIXL 
auction. Also, encouraging Customer liquidity benefits all market 
participants by providing more trading opportunities, which attract 
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.
Pricing Change Number 2
    The Exchange believes that it is does not create an undue burden on 
intra-market competition to offer member and member organizations an 
opportunity to lower the Complex PIXL Initiating Order Fee to $0.00 per 
contract provided the member or member organization executes equal to 
or greater than 3.00% of National Customer Volume in Multiply-Listed 
equity and ETF options classes, excluding SPY options, in a given month 
because all market participants are eligible to earn Customer Rebates, 
transact Complex PIXL Orders and participate in a PIXL auction. Also, 
encouraging Customer liquidity benefits all market participants by 
providing more trading opportunities, which attract 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.
Pricing Change Number 3
    The Exchange's proposal to increase the discounted Complex PIXL 
Initiating Order Fee for members and member organizations under Common 
Ownership that qualify for Tier 4 or 5 of the Customer Rebate in 
Section B from $0.03 to $0.05 per contract and the proposal to lower 
the Complex PIXL Initiating Order Fee to $0.00 per contract provided 
the member or member organization executes equal to or greater than 
3.00% of National Customer Volume in Multiply-Listed equity and ETF 
options classes, excluding SPY options, in a given month do not create 
an undue burden on intra-market competition because the pricing 
subjects both wholly owned and common control members and member 
organizations to the same pricing for PIXL.
    The Exchange does not believe that the proposed rule changes to 
increase the discounted Complex PIXL Initiating Order Fee for members 
and member organizations, including those under Common Ownership, that 
qualify for Tier 4 or 5 of the Customer Rebate in Section B from $0.03 
to $0.05 per contract and offer a new incentive to reduce the Complex 
PIXL Initiating Order Fee to $0.00 per contract, including those 
members under Common Ownership, will impose any burden on intra-market 
competition not necessary or appropriate in furtherance of the purposes 
of the Act because all market participants are eligible to earn 
Customer Rebates, transact Complex PIXL Orders and participate in a 
PIXL auction. Also, encouraging Customer liquidity benefits all market 
participants by providing more trading opportunities, which attract 
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.

[[Page 35098]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\20\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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.

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-2016-59 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-2016-59. 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-2016-59 and 
should be submitted on or before June 22, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-12793 Filed 5-31-16; 8:45 am]
 BILLING CODE 8011-01-P