[Federal Register Volume 81, Number 161 (Friday, August 19, 2016)]
[Notices]
[Pages 55496-55500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19798]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78576; File No. SR-Phlx-2016-83]


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

August 15, 2016.
    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 5, 2016, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

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

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
Section I titled ``Rebates and Fees for Adding and Removing Liquidity 
in SPY'' at Part A, relating to Simple Orders for SPY \3\ options to: 
(i) Increase the Customer \4\ Fee for Removing Liquidity; and (ii) 
amend Tier 4 of the Specialist \5\ and

[[Page 55497]]

Market Maker \6\ Rebate for Adding Liquidity tiers and add two 
additional tiers.
---------------------------------------------------------------------------

    \3\ 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.
    \4\ 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 which is not for 
the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
    \5\ The term ``Specialist'' applies to transactions for the 
account of a Specialist (as defined in Exchange Rule 1020(a)). A 
Specialist is an Exchange member who is registered as an options 
specialist pursuant to Rule 1020(a). An options Specialist includes 
a Remote Specialist which is defined as an options specialist in one 
or more classes that does not have a physical presence on an 
Exchange floor and is approved by the Exchange pursuant to Rule 501.
    \6\ The term ``Market Maker'' includes Registered Options 
Traders (``ROT''). See Exchange Rule 1014(b)(i) and (ii). A ROT 
includes a Streaming Quote Trader or ``SQT,'' a Remote Streaming 
Quote Trader or ``RSQT'' and a Non-SQT, which by definition is 
neither a SQT nor a RSQT. A ROT is defined in Exchange Rule 1014(b) 
as a regular member of the Exchange located on the trading floor who 
has received permission from the Exchange to trade in options for 
his own account. An SQT is defined in Exchange Rule 1014(b)(ii)(A) 
as an ROT who has received permission from the Exchange to generate 
and submit option quotations electronically in options to which such 
SQT is assigned. An RSQT is defined in Exchange Rule in 
1014(b)(ii)(B) as an ROT that is a member affiliated with an RSQTO 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in options to which such RSQT has been assigned. A 
Remote Streaming Quote Trader Organization or ``RSQTO,'' which may 
also be referred to as a Remote Market Making Organization 
(``RMO''), is a member organization in good standing that satisfies 
the RSQTO readiness requirements in Rule 507(a). RSQTs may also be 
referred to as Remote Market Markers (``RMMs'').
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
Pricing Schedule at Section I titled ``Rebates and Fees for Adding and 
Removing Liquidity in SPY'' to increase the Simple Order Customer Fee 
for Removing Liquidity in SPY to fund additional Simple Order 
Specialist and Market Maker Rebates for Adding Liquidity for options 
overlying SPY.
First Fee Change
    The purpose of the first fee change is to raise revenue for the 
Exchange by increasing the Simple Order Customer Fee for Removing 
Liquidity in SPY from $0.43 to $0.45 per contract. Despite the increase 
to this fee for Customers removing liquidity, the Exchange believes 
that the fee remains competitive as compared to fees assessed to other 
market participants.\7\
---------------------------------------------------------------------------

    \7\ Non-Customer market participants (Specialists, Market 
Makers, Firms, Broker-Dealers and Professionals) are assessed a 
Simple Order Fee for Removing Liquidity in SPY of $0.47 per 
contract.
---------------------------------------------------------------------------

Second Fee Change
    The purpose of the second fee change is to amend the Specialist and 
Market Maker Simple Order Rebates for Adding Liquidity to incentivize 
Specialists and Market Makers to add more volume to Phlx in order to 
receive rebates. Today Specialists and Market Makers have the 
opportunity to earn rebates that range from $0.15 to $0.30 per 
contract,\8\ depending on the amount of Specialist and Market Maker 
Simple Order contracts that are electronically executed per day in a 
month in SPY on Phlx. The Exchange is proposing to amend current Tier 4 
of the Specialist and Market Maker Simple Order Rebates for Adding 
Liquidity from volume that is greater than 20,000 to volume between 
20,000 and 34,999 electronically executed Simple Order contracts per 
day in a month in SPY. The Tier 4 Specialist and Market Maker Simple 
Order Rebates for Adding Liquidity will remain at $0.30 per contract. 
The Exchange also proposes to add two more Specialist and Market Maker 
Simple Order Rebates for Adding Liquidity tiers. New Tier 5 Specialist 
and Market Maker Simple Order Rebates for Adding Liquidity would pay a 
$0.32 per contract rebate to Specialists and Market Makers that add 
between 35,000 to 49,999 electronically executed Simple Order contracts 
per day in a month in SPY. New tier 6 Specialist and Market Maker 
Simple Order Rebates for Adding Liquidity would pay a $0.35 per 
contract rebate to Specialists and Market Makers that add greater than 
49,999 electronically executed Simple Order contracts per day in a 
month in SPY. The Exchange believes that adding these two new rebate 
tiers will encourage Specialists and Market Makers to add more 
electronically executed Simple Order liquidity in SPY on Phlx to obtain 
the higher rebates.
---------------------------------------------------------------------------

    \8\ Today, the Specialist and Market Maker Simple Order Rebates 
for Adding Liquidity are paid on a four tier rebate schedule in SPY. 
All other market participants do not receive a Simple Order Rebate 
for Adding Liquidity in SPY.
---------------------------------------------------------------------------

    The Exchange proposes to amend Section I to reorganize the Pricing 
Schedule and delete unnecessary rule text. The Exchange proposes to 
amend the current sentence above the Specialist and Market Maker Simple 
Order Rebates for Adding Liquidity tiers which currently states, ``*The 
Simple Order Rebate for Adding Liquidity for Specialists and Market 
Makers will be paid as noted below:''. The Exchange intends to 
incorporate more language into the new sentence concerning the 
Specialist and Market Maker Simple Order Rebates for Adding Liquidity 
tiers to make clear which market participants are being paid the rebate 
and what volume counts toward the monthly volume. The Exchange proposes 
to amend the sentence as follows: ``*The Simple Order Rebate for Adding 
Liquidity will be paid as noted below to Specialists and Market Makers 
adding the requisite amount of electronically executed Specialist and 
Market Maker Simple Order contracts per day in a month in SPY:''. This 
language is not intended to amend the manner in which the Exchange pays 
the Specialist and Market Maker Simple Order Rebates for Adding 
Liquidity. The Exchange is proposing to include more clear and specific 
language above the tiers and then simply list the volume and rebate 
amount in the table, rather than repeating the language in the table 
several times. The Exchange believes that these non-substantive 
amendments will add clarity to the Specialist and Market Maker Simple 
Order Rebates for Adding Liquidity by avoiding unnecessary repetition 
in the Pricing Schedule and simplifying the rebate table.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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

[[Page 55498]]

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.'' \11\
---------------------------------------------------------------------------

    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission 
\12\ (``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.\13\ 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.'' \14\
---------------------------------------------------------------------------

    \12\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \13\ See NetCoalition, at 534-535.
    \14\ Id. at 537.
---------------------------------------------------------------------------

    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'. . . .'' \15\ 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.
---------------------------------------------------------------------------

    \15\ 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)).
---------------------------------------------------------------------------

First Fee Change
    The Exchange's proposal to increase the Customer Simple Order Fee 
for Removing Liquidity in SPY is reasonable because despite the 
increase to the fee, Customers will continue to be assessed the lowest 
Simple Order Fee for Removing Liquidity in SPY as compared to other 
market participants (Specialists, Market Makers, Firms,\16\ Broker-
Dealers \17\ and Professionals \18\) that continue to pay a $0.47 per 
contract Simple Order Fee for Removing Liquidity in SPY. SPY options 
are currently the most actively traded options class. Despite this fee 
increase, the Exchange believes the Simple Order Customer Fee for 
Removing Liquidity will continue to encourage a greater number of 
market participants to remove Customer liquidity in SPY on Phlx because 
they continue to be assessed lower fees as compared to other market 
participants.
---------------------------------------------------------------------------

    \16\ 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.
    \17\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \18\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Exchange Rule 1000(b)(14) 
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).
---------------------------------------------------------------------------

    The Exchange's proposal to increase the Customer Simple Order Fee 
for Removing Liquidity in SPY is equitable and not unfairly 
discriminatory because the Simple Order Customer Fee for Removing 
Liquidity will continue to be lower as compared to other market 
participants ($0.45 vs. $0.47 per contract) and this lower fee will 
continue to encourage market participants to remove Customer liquidity 
in SPY on Phlx. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts 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 by symbol is a common practice on many U.S. options exchanges 
as a means to incentivize order flow to be sent to an exchange for 
execution in the most actively traded options classes. Other options 
exchanges price by symbol.\19\
---------------------------------------------------------------------------

    \19\ Miami International Securities Exchange LLC (``MIAX'') 
prices by symbol. See MIAX's Fee Schedule.
---------------------------------------------------------------------------

Second Fee Change
    The Exchange believes that its proposal to amend the Tier 4 
Specialist and Market Maker Simple Order Rebates for Adding Liquidity 
in SPY and add two new Specialist and Market Maker Simple Order Rebates 
for Adding Liquidity tiers is reasonable because it will attract more 
Specialist and Market Maker electronically executed Simple Order volume 
in SPY to Phlx. The Exchange is offering Specialists and Market Makers 
an opportunity to earn up to a $0.35 per contract Simple Order Rebate 
for Adding Liquidity in SPY. Today, the highest Specialist and Market 
Maker Simple Order Rebate for Adding Liquidity in SPY is $0.30 per 
contract. Specialists and Market Makers will be encouraged to add more 
electronically executed Simple Order liquidity in SPY on Phlx to obtain 
the proposed higher rebates.
    The Exchange believes that its proposal to amend the Tier 4 
Specialist and Market Maker Simple Order Rebates for Adding Liquidity 
in SPY and add two new Specialist and Market Maker Simple Order Rebates 
for Adding Liquidity tiers is equitable and not unfairly discriminatory 
because Specialists and Market Makers have obligations to the market 
and regulatory requirements, which normally do not apply to other 
market participants.\20\ 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 differentiation as between Specialists 
and Market Makers and all other market participants recognizes the 
differing contributions made to the liquidity and trading environment 
on the Exchange by these market participants. 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. For these reasons, the Exchange 
believes that it is equitable and not unfairly discriminatory to only 
offer Specialists and Market Makers Simple Order Rebates for Adding 
Liquidity in SPY.
---------------------------------------------------------------------------

    \20\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------

    The Exchange's proposal to reorganize the Pricing Schedule and 
delete unnecessary rule text is reasonable because the Exchange 
believes the deletion of the unnecessary text and reorganization of the 
rule text will bring greater clarity to the Pricing Schedule. The 
Exchange's proposal to reorganize the Pricing Schedule and delete 
unnecessary rule text is equitable and not unfairly discriminatory 
because the amendment is non-substantive and only intended to provide 
clarity to the Pricing Schedule. The rule text will apply uniformly to 
all market participants.

[[Page 55499]]

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, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    The fees and rebates proposed herein are intended to continue to 
incentivize market participants to send a greater amount of SPY order 
flow to Phlx and for this reason imposes no inter-market burden on 
competition. If the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.
First Fee Change
    The Exchange's proposal to increase the Customer Simple Order Fee 
for Removing Liquidity in SPY does not impose an undue burden on intra-
market competition because the Simple Order Customer Fee for Removing 
Liquidity will continue to be lower as compared to other market 
participants ($0.45 vs. $0.47 per contract) and this lower fee will 
continue to encourage market participants to remove Customer liquidity 
in SPY on Phlx. Also, Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
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 by symbol is a common practice on many U.S. options exchanges 
as a means to incentivize order flow to be sent to an exchange for 
execution in the most actively traded options classes. Other options 
exchanges price by symbol.\21\
---------------------------------------------------------------------------

    \21\ See note 19 above.
---------------------------------------------------------------------------

Second Fee Change
    The Exchange believes that its proposal to amend the Tier 4 
Specialist and Market Maker Simple Order Rebates for Adding Liquidity 
and add two new Specialist and Market Maker Simple Order Rebates for 
Adding Liquidity tiers does not impose an undue burden on intra-market 
competition because Specialists and Market Makers have obligations to 
the market and regulatory requirements, which normally do not apply to 
other market participants.\22\ 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 differentiation as between Specialists 
and Market Makers and all other market participants recognizes the 
differing contributions made to the liquidity and trading environment 
on the Exchange by these market participants. 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. For these reasons, the Exchange 
believes that it is equitable and not unfairly discriminatory to only 
offer Specialists and Market Makers Simple Order Rebates for Adding 
Liquidity in SPY.
---------------------------------------------------------------------------

    \22\ See note 20 above.
---------------------------------------------------------------------------

    The Exchange's proposal to reorganize the Pricing Schedule and 
delete unnecessary rule text does not impose an undue burden on intra-
market competition because the Exchange believes the deletion of the 
unnecessary text and reorganization of the rule text will bring greater 
clarity to the Pricing Schedule and the revised language applies 
uniformly to all market participants.

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.\23\
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2016-83 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-2016-83. 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.,

[[Page 55500]]

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-2016-83, and should be 
submitted on or before September 9, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19798 Filed 8-18-16; 8:45 am]
 BILLING CODE 8011-01-P