Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating To Customer Rebates and Pricing for Multiply Listed Options, 18784-18790 [2017-08056]
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Federal Register / Vol. 82, No. 76 / Friday, April 21, 2017 / Notices
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
SUMMARY:
DATES:
Effective date: April 20, 2017.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Reed, 202–268–3179.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on April 14, 2017,
it filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add First-Class
Package Service Contract 76 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2017–117, CP2017–168.
SUPPLEMENTARY INFORMATION:
Stanley F. Mires,
Attorney, Federal Compliance.
[FR Doc. 2017–08038 Filed 4–20–17; 8:45 am]
BILLING CODE 7710–12–P
POSTAL SERVICE
Product Change—Priority Mail
Negotiated Service Agreement
AGENCY:
ACTION:
Postal ServiceTM.
Notice.
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
SUMMARY:
DATES:
Effective date: April 21, 2017.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Reed, 202–268–3179.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on April 14, 2017,
it filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add Priority
Mail Contract 308 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2017–115,
CP2017–166.
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SUPPLEMENTARY INFORMATION:
Stanley F. Mires,
Attorney, Federal Compliance.
Jkt 241001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Brent J. Fields,
Secretary.
[FR Doc. 2017–08055 Filed 4–20–17; 8:45 am]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Designation of a Longer Period for
Commission Action on a Proposed
Rule Change To Adopt Rule 7017
April 17, 2017.
On February 17, 2017, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to adopt Rule 7017 to enhance
the level of information provided to a
member acting as the stabilizing agent
for a follow-on offering of additional
shares of a security that is listed on
Nasdaq. The proposed rule change was
published for comment in the Federal
Register on March 6, 2017.3 The
Commission has received no comment
letters on the proposed rule change.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is April 20, 2017.
The Commission is extending this 45day time period.
The Commission finds it appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider this proposed rule change.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,5
designates June 4, 2017, as the date by
which the Commission shall either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–NASDAQ–2017–015).
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 80120
(February 28, 2017), 82 FR 12649.
4 15 U.S.C. 78s(b)(2).
5 Id.
2 17
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NASDAQ–2017–015]
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[FR Doc. 2017–08043 Filed 4–20–17; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80466; File No. SR–Phlx–
2017–29]
Self-Regulatory Organizations;
NASDAQ PHLX LLC; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating To
Customer Rebates and Pricing for
Multiply Listed Options
April 17, 2017.
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 April 3,
2017, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to: (i) Amend
Section B of the Exchange’s Pricing
Schedule to create a new Category D
and make other amendments to this
section; and (ii) amend Section II of the
Exchange’s Pricing Schedule entitled
‘‘Multiply Listed Options Fees,’’ 3 to
assess a surcharge related to Complex
Orders.4
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqphlx.cchwallstreet.com,
at the principal office of the Exchange,
6 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 These fees include options overlying equities,
ETFs, ETNs and indexes which are Multiply Listed.
4 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 Rule
1098.
1 15
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and at the Commission’s Public
Reference Room.
the most significant aspects of such
statements.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
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
1. Purpose
The purpose of the proposed rule
change is to amend the Pricing
Schedule: (i) At Section B to create an
additional incentive to encourage
market participants to send Customer
Complex Order flow to Phlx; and (ii) at
Section II to adopt certain surcharges for
electronically-delivered Complex
Orders so that the Exchange may pay
Percentage thresholds of national customer
volume in multiply-listed equity and ETF
options classes, excluding SPY options
(monthly)
Customer rebate tiers
Tier
Tier
Tier
Tier
Tier
1
2
3
4
5
...............................................................
...............................................................
...............................................................
...............................................................
...............................................................
increased Customer Rebates. Each of the
proposed amendments is discussed in
greater detail below.
Customer Rebate Program
The Exchange proposes to amend
Section B, entitled ‘‘Customer Rebate
Program,’’ to amend Category C and add
a new Category D to continue existing
incentives to direct Customer Complex
Order flow to the Exchange and create
additional incentives. Currently, the
Exchange has a Customer Rebate
Program consisting of the following five
tiers that pay Customer rebates on three
Categories, A,5 B 6 and C,7 of
transactions:
Category A
0.00%–0.60% .................................................
Above 0.60%–1.10% ......................................
Above 1.10%–1.60% ......................................
Above 1.60%–2.50% ......................................
Above 2.50% ..................................................
$0.00
0.10
0.15
0.20
0.21
Category B
$0.00
0.10
0.12
0.16
0.17
Category C
$0.00
0.17
0.17
0.22
0.22
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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 8 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).9
The Exchange proposes to amend
Category C by decreasing the Tier 2
rebate from $0.17 to $0.16 per contract
and increasing the Tier 3 rebate from
$0.17 to $0.18 per contract. The
Category C rebates will continue to be
paid on electronically-delivered
Customer Complex Orders in Penny
Pilot Options, but will no longer be paid
on Non-Penny Pilot Options in Section
II symbols, which are proposed to be
subject to the proposed Category D
rebate. For Category C, rebates will
continue to be paid on Customer PIXL 10
Complex Orders in Section II symbols
that execute against non-Initiating Order
interest.11 Customer Complex PIXL
Orders that execute against a Complex
PIXL Initiating Order will continue to
not be paid a Category C rebate under
any circumstances. The Category C
rebate will continue to not be paid when
an electronically-delivered Customer
Complex Order, including Customer
Complex PIXL Order, executes against
another electronically-delivered
Customer Complex Order. The
Exchange proposes to no longer cap
rebates on Customer PIXL Orders at
4,000 contracts per order leg for
Complex PIXL Orders, but will continue
to cap them for Simple PIXL Orders are
[sic] noted in Category B.
The Exchange will create a new
Category D rebate which will pay: No
rebate for Tier 1; a $0.21 per contract
rebate for Tier 2; a $0.22 rebate for Tier
3; a $0.26 rebate for Tier 4; and a $0.27
rebate for Tier 5. There [sic] rebates are
per contract. The Category D Rebates
will be paid to members executing
electronically-delivered Customer
Complex Orders in Non-Penny Pilot
Options in Section II symbols. Rebates
will be paid on Customer PIXL Complex
Orders that execute against nonInitiating Order interest. A Customer
Complex PIXL Order that executes
against a Complex PIXL Initiating Order
will not be paid a rebate under any
circumstances. The Category D Rebate
5 The 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.
6 The Category B Rebate is 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 are capped at 4,000 contracts
per order for Simple PIXL Orders.
7 The Category C Rebate is paid to members
executing electronically-delivered Customer
Complex Orders in Penny Pilot Options and NonPenny Pilot Options in Section II symbols. Rebates
are paid on Customer PIXL Complex Orders in
Section II symbols that execute against nonInitiating Order interest. Customer Complex PIXL
Orders that execute against a Complex PIXL
Initiating Order are not paid a rebate under any
circumstances. The Category C Rebate is not paid
when an electronically-delivered Customer
Complex Order, including Customer Complex PIXL
Order, executes against another electronicallydelivered Customer Complex Order. Rebates on
Customer PIXL Orders are capped at 4,000 contracts
per order leg for Complex PIXL Orders.
8 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)).
9 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.
10 PIXLSM is the Exchange’s price improvement
mechanism known as Price Improvement XL or
PIXL. See Rule 1080(n).
11 With respect to PIXL functionality, a Phlx
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)(E)) it represents as agent (‘‘Initiating
Order’’) provided it submits the PIXL order for
electronic execution into the PIXL Auction
(‘‘Auction’’) pursuant to Rule 1080. Non-Initiating
Order interest could be a PIXL Auction Responder
or a resting order or quote that was on the Phlx book
prior to the auction.
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will not be paid when an electronicallydelivered Customer Complex Order,
including a Customer Complex PIXL
Order, executes against another
electronically-delivered Customer
Complex Order.
The Exchange proposes to adopt a
new Category D rebate which will be
paid to members executing
electronically-delivered Customer
Complex Orders in Non-Penny Pilot
Options in Section II symbols. Rebates
will be 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 D Rebate will not be paid
when an electronically-delivered
Customer Complex Order, including a
Customer Complex PIXL Order,
executes against another electronicallydelivered Customer Complex Order. The
Exchange will pay no Tier 1 Category D
rebate. The Exchange will pay a $0.21
per contract Tier 2 Category D rebate.
The Exchange will pay a $0.22 per
contract Tier 3 Category D rebate. The
Exchange will pay a $0.26 per contract
Tier 4 Category D rebate. The Exchange
will pay a $0.27 per contract Tier 5
Category D rebate. Today, rebates are
not paid on NDX and MNX contracts in
any Category, however NDX and MNX
contracts count toward the volume
requirements to qualify for a Customer
Rebate Tier. This will be continue to be
the case.
Today, the Exchange pays a $0.02 per
contract Category A and B rebate and a
$0.03 per contract Category C rebate in
addition to the applicable Tier 2 and 3
rebate, provided the Specialist,12 Market
Maker 13 or Appointed
12 The term ‘‘Specialist’’ shall apply to 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 501(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.
13 The term ‘‘Market Maker’’ describes fees and
rebates applicable to Registered Options Traders
(‘‘ROTs’’), Streaming Quote Traders (‘‘SQTs’’),
Remote Streaming Quote Traders (‘‘RSQTs’’). An
ROT is defined in Exchange Rule 1014(b) is a
regular member or a foreign currency options
participant of the Exchange located on the trading
floor who has received permission from the
Exchange to trade in options for his own account.
A ROT includes SQTs and RSQTs as well as on and
off-floor ROTS. 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
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MM 14 has reached the Monthly Market
Maker Cap 15 as defined in Section II, to:
(1) A Specialist or Market Maker who is
not under Common Ownership 16 or is
not a party of an Affiliated Entity; or (2)
an OFP member or member organization
affiliate under Common Ownership; or
(3) an Appointed OFP 17 of an Affiliated
Entity. The Exchange proposes to pay an
additional $0.03 rebate in addition to
the applicable Tier 2 and 3 Category D
rebates, provided the Specialist, Market
Maker or Appointed MM has reached
the Monthly Market Maker Cap as
defined in Section II, to: (1) A Specialist
or Market Maker who is not under
Common Ownership or is not a party of
an Affiliated Entity; or (2) an OFP
member or member organization
affiliate under Common Ownership; or
(3) an Appointed OFP of an Affiliated
Entity.
Today, the Exchange pays a $0.05 per
contract Category C rebate in addition to
the applicable Tier 2 and 3 rebates to
members or member organizations or
member or member organization
affiliated under Common Ownership
provided the member or member
organization qualified for a Tier 1 or 2
MARS Payments in Section IV, Part E.
The Exchange is proposing to expand
this additional rebate to apply the $0.05
per contract rebate to Category D and
also expand the applicable Tiers from 2
and 3 to Tiers 2, 3, 4 or 5 rebate tiers
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’’).
14 An Appointed MM is a Phlx Market Maker or
Specialist who has been appointed by an Order
Flow Provider (‘‘OFP’’) for purposes of qualifying
as an Affiliated Entity. An OFP is a member or
member organization that submits orders, as agent
or principal, to the Exchange.
15 Specialists and Market Makers are subject to a
‘‘Monthly Market Maker Cap’’ of $500,000 for: (i)
Electronic and floor Option Transaction Charges;
(ii) QCC Transaction Fees (as defined in Exchange
Rule 1080(o) and Floor QCC Orders, as defined in
1064(e)); and (iii) fees related to an order or quote
that is contra to a PIXL Order or specifically
responding to a PIXL auction. The trading activity
of separate Specialist and Market Maker member
organizations is aggregated in calculating the
Monthly Market Maker Cap if there is Common
Ownership between the member organizations. All
dividend, merger, short stock interest, reversal and
conversion, jelly roll and box spread strategy
executions (as defined in Section II) are excluded
from the Monthly Market Maker Cap.
16 The term ‘‘Common Ownership’’ shall mean
members or member organizations under 75%
common ownership or control.
17 An Appointed OFP is an Order Flow Provider
who has been appointed by a Phlx Market Maker
or Specialist for purposes of qualifying as an
Affiliated Entity.
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for both Category C and D rebates.
Finally the Exchange is expanding the
MARS qualification from Tiers 1 and 2
to any MARS Payments 18 for both
Category C and D rebates. The new rule
text would provide, ‘‘The Exchange will
pay a $0.05 per contract Category C and
Category D rebate in addition to the
applicable Tier 2, 3, 4 and 5 rebates to
members or member organizations or
member or member organization
affiliated under Common Ownership
provided the member or member
organization qualified for any MARS
Payments in Section IV, Part E.’’
The Exchange believes that the
proposed amendments will attract a
greater amount of Customer Complex
Order liquidity to Phlx. Customer
liquidity benefits all market participants
by providing more order flow to the
marketplace and more trading
opportunities.
Multiply Listed Options
The Exchange proposes to adopt
certain surcharges for electronicallydelivered Complex Orders in order that
it may pay increased Customer Rebates.
Customer liquidity benefits all market
participants by providing more liquidity
with which market participants may
interact on Phlx. The Customer Rebates
provide an additional incentive to
encourage market participants to send
Customer Complex Order flow to Phlx.
The Exchange proposes to amend
Section II to assess a surcharge of $0.03
per contract on electronic Complex
Orders that remove liquidity from the
Complex Order Book and auctions,
excluding PIXL, in Penny Pilot Options,
excluding SPY. The Exchange proposes
to assess a surcharge of $0.10 per
contract on electronic Complex Orders
that remove liquidity from the Complex
Order Book and auctions, excluding
PIXL, in Non-Penny Pilot Options,
excluding NDX and MNX.
The Exchange notes that an order that
is received by the trading system first in
time shall be considered an order
adding liquidity and an order that trades
against that order shall be considered an
order removing liquidity.
The Exchange is amending the rule
text to make clear that surcharges are
not subject to the Monthly Market
Maker Cap. Today, the Exchange
assesses surcharges for BKX, NDX and
MNX. Those charges are not included in
the calculation of the Monthly Market
18 Today, Phlx members that have System
Eligibility, as described in Section IV, Part E, and
have executed the requisite number of Eligible
Contracts, as described in Section IV, Part E, in a
month will be paid per contract rebates based on
a 4 tier structure which pays a certain MARS
Payment based on Average Daily Volume.
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Maker Cap. The proposed surcharges
will not be included in the Monthly
Market Maker Cap.
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2. Statutory Basis
The Exchange believes that its
proposal to amend its Pricing Schedule
is consistent with Section 6(b) of the
Act,19 in general, and furthers the
objectives of Section 6(b)(4) and (b)(5) of
the Act,20 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 its facilities, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
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.’’ 21
Likewise, in NetCoalition v. Securities
and Exchange Commission 22
(‘‘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 costbased approach.23 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.’’ 24
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 brokerdealers 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
U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
21 Securities Exchange Act Release No. 51808
(June 29, 2005), 70 FR 37496 at 37499 (File No. S7–
10–04) (‘‘Regulation NMS Adopting Release’’).
22 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
23 See id. at 534–535.
24 See id. at 537.
the execution of order flow from broker
dealers’ . . . .’’ 25 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.
Customer Rebates
The Exchange’s proposal to amend
Section B, entitled ‘‘Customer Rebate
Program,’’ to amend Category C and add
a new Category D is reasonable because
today the Exchange pays a Customer
Complex Order rebate on both Penny
and Non-Penny Pilot Options. The
Exchange will continue to pay rebates
for both Penny and Non-Penny Pilot
Options, but will amend the rebates
paid for Non-Penny Pilot Options as
proposed for Category D. The Exchange
notes that today it assesses different fees
for Penny and Non-Penny Pilot
Options.26
The Exchange’s proposal to amend
Section B, entitled ‘‘Customer Rebate
Program,’’ to amend Category C and add
a new Category D is equitable and not
unfairly discriminatory because the
Exchange will uniformly pay Customer
rebates to all qualifying market
participants. Any market participant
may qualify for a Customer Rebate.
With respect to the Tier 2 Category C
rebate, which is decreased from $0.17 to
$0.16 per contract, and the Tier 3
Category C rebate, which is increased
from $0.17 to $0.18 per contract, the
Exchange believes that these proposed
changes are reasonable because the
Exchange currently pays the same $0.17
per contract rebate for these two tiers.
The Exchange desires to pay a lower
rebate for Tier 2, which requires
National Customer Volume 27 of above
0.60%–1.10%, and a higher rebate for
Tier 3, which requires National
Customer Volume of above 1.10%–
1.60%, because of the difference in the
volume requirements. The Exchange
believes that it is reasonable to pay a
higher rebate for the Tier 3 Category C
rebate because of the higher volume
requirement.
With respect to the Tier 2 Category C
rebate, which is decreased from $0.17 to
$0.16 per contract, and the Tier 3
Category C rebate, which is increased
from $0.17 to $0.18 per contract, the
Exchange believes that these proposed
changes are equitable and not unfairly
discriminatory because the Exchange
19 15
20 15
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25 See id. at 539 (quoting Securities Exchange Act
Commission at Release No. 59039 (December 2,
2008), 73 FR 74770 at 74782–74783 (December 9,
2008) (SR–NYSEArca–2006–21)).
26 See Section II of the Pricing Schedule.
27 The National Customer Volume would be in
Multiply-Listed Equity and ETF Options Classes,
excluding SPY Options, on a monthly basis.
PO 00000
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18787
will uniformly pay Customer rebates to
all qualifying market participants. Any
market participant may qualify for a
Customer Rebate.
With respect to the proposed rebates
for Category D, the Exchange believes
that it is reasonable to pay no rebate for
Tier 1, which has a National Customer
Volume requirement between 0.00%–
0.60%, because no other Category pays
a rebate for this level of volume. The
Exchange believes that it is reasonable
to pay the proposed Tier 2 through 5
rebates,28 progressively higher rebates
which are commensurate with the
increased National Customer Volume
requirement for each Tier.
With respect to the proposed rebates
for Category D, the Exchange believes
the proposed rebates are equitable and
not unfairly discriminatory because the
Exchange will uniformly pay Customer
rebates to all qualifying market
participants. Any market participant
may qualify for a Customer Rebate.
The Exchange’s proposal to no longer
cap rebates on Customer PIXL Orders at
4,000 contracts per order leg for
Complex PIXL Orders is reasonable
because the Exchange will potentially
attract a greater amount of Customer
liquidity to the Exchange without a cap.
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’s proposal to no longer
cap rebates on Customer PIXL Orders at
4,000 contracts per order leg for
Complex PIXL Orders is equitable and
not unfairly discriminatory because the
Exchange will uniformly not cap
Category C rebates for any market
participant.
The Exchange’s proposal to structure
the Category D rebate similar to the
Category C rebate is reasonable because
today, electronically-delivered
Customer Complex Orders in NonPenny Pilot Options in Section II
symbols, will be [sic] subject to the
same terms. Rebates will continue to be
paid on Customer PIXL Complex Orders
in Section II symbols that execute
28 Category D pays: A $0.21 rebate for Tier 2
(National Customer Volume above 0.60%–1.10%); a
$0.22 rebate for Tier 3 (National Customer Volume
above 1.10%–1.60%); a $0.26 rebate for Tier 4
(National Customer Volume above 1.60%–2.50%);
and a $0.27 rebate for Tier 5 (National Customer
Volume above 2.50%).
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against non-Initiating Order interest.
Customer Complex PIXL Orders that
execute against a Complex PIXL
Initiating Order will continue to not be
paid a rebate under any circumstances.
The Category D Rebate will continue to
not be paid when an electronicallydelivered Customer Complex Order,
including a Customer Complex PIXL
Order, executes against another
electronically-delivered Customer
Complex Order. Also, the Exchange is
proposing to remove the 4,000 contracts
per order cap, as noted above, for the
Category C rebates and the cap will not
be applicable for the Category D rebates.
The Exchange’s proposal to structure
the Category D rebate similar to the
Category C rebate is equitable and not
unfairly discriminatory because the
Exchange will uniformly apply the
Category D rebates to all market
participants.
The Exchange’s proposal to pay a
$0.03 per contract Category D rebate, in
addition to the applicable Tier 2 and 3
rebates, provided the Specialist, Market
Maker or Appointed MM has reached
the Monthly Market Maker Cap as
defined in Section II, to: (1) A Specialist
or Market Maker who is not under
Common Ownership or is not a party of
an Affiliated Entity; or (2) an OFP
member or member organization
affiliate under Common Ownership; or
(3) an Appointed OFP of an Affiliated
Entity is reasonable. Today, market
participants sending electronicallydelivered Customer Complex Orders in
Non-Penny Pilot Options in Section II
symbols are paid the $0.03 per contract
rebate in addition to the Tier 2 and 3
rebate in Category C, provided the
requirements are met. The Exchange
believes it is reasonable to continue to
pay this additional rebate provide [sic]
the requirements are met.
The Exchange’s proposal to pay a
$0.03 per contract Category D rebate, in
addition to the applicable Tier 2 and 3
rebates, provided the Specialist, Market
Maker or Appointed MM has reached
the Monthly Market Maker Cap as
defined in Section II, to: (1) A Specialist
or Market Maker who is not under
Common Ownership or is not a party of
an Affiliated Entity; or (2) an OFP
member or member organization
affiliate under Common Ownership; or
(3) an Appointed OFP of an Affiliated
Entity is equitable and not unreasonably
discriminatory. The Exchange will
uniformly pay the additional $0.03
rebate in addition to the Tier 2 and 3
Category D rebates to all qualifying
market participants. Any market
participant may qualify for a Customer
Rebate.
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The Exchange’s proposal to amend
the manner in which the Exchange pays
the $0.05 per contract rebate on
electronically-delivered Customer
Complex Orders in Non-Penny Pilot
Options is reasonable. Today,
electronically-delivered Customer
Complex Orders in Non-Penny Pilot
Options are paid a $0.05 per contract
rebate in addition to the applicable Tier
2 and 3 rebates to members or member
organizations or member or member
organization affiliated under Common
Ownership, provided the member or
member organization qualified for a Tier
1 or 2 MARS Payment in Section IV,
Part E. The Exchange proposes, with
respect to both Category C and D, to
expand the applicable tiers from only
Tiers 2 and 3 to Tiers 2, 3, 4 or 5. This
is reasonable because it will allow
additional market participants to take
advantage of the additional rebate,
provided the requirements are met.
Also, the Exchange’s proposal to expand
the MARS qualification from Tiers 1
and 2 to any MARS Payments 29 is
reasonable because it will allow
additional market participants to take
advantage of the additional rebate.
The Exchange’s proposal to amend
the manner in which the Exchange pays
the $0.05 per contract rebate on
electronically-delivered Customer
Complex Orders in Non-Penny Pilot
Options is equitable and not
unreasonably discriminatory because
the Exchange will uniformly pay the
additional $0.05 rebate to the applicable
expanded rebate tiers and MARS tiers
provided the market participant
qualifies. Any market participant may
qualify for a Customer Rebate.
Multiply Listed Options
The Exchange’s proposal to adopt a
surcharge of $0.03 per contract on
electronic Complex Orders that remove
liquidity from the Complex Order Book
and auctions, excluding PIXL, in Penny
Pilot Options, excluding SPY and a
surcharge of $0.10 per contract on
electronic Complex Orders that remove
liquidity from the Complex Order Book
and auctions, excluding PIXL, in NonPenny Pilot Options, excluding NDX
and MNX is reasonable. The Exchange
is adopting these surcharges, which will
be applied on transactions that remove
liquidity from the Complex Order Book,
in order to help offset the increased
rebates which are proposed to be given
29 Today, Phlx members that have System
Eligibility, as described in Section IV, Part E, and
have executed the requisite number of Eligible
Contracts, as described in Section IV, Part E, in a
month will be paid per contract rebates based on
a 4 tier structure which pays a certain MARS
Payment based on Average Daily Volume.
PO 00000
Frm 00061
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to Complex Orders in Section B. The
Exchange believes that it is reasonable
to only assess this surcharge to those
orders which remove liquidity from the
market because the Exchange wants to
continue to encourage market
participation and price improvement for
those participants that seek to add
liquidity on Phlx. The Exchange
believes that not assessing the surcharge
on PIXL and SPY orders is reasonable.
PIXL has its own pricing,30 and the
Exchange wants to continue to
encourage price improvement within
PIXL. SPY has its own rebate program
separate and apart from Section B.31
Limiting the surcharges to
electronically-delivered transactions is
reasonable because the Section B rebates
apply only to electronically-delivered
Customer orders. Further, limiting the
surcharge to orders entered
electronically is equitable and not
unfairly discriminatory because the
Exchange has expended considerable
resources to develop its electronic
trading platforms and seeks to recoup
the costs of such expenditures. Finally,
excluding NDX and MNX is reasonable
because these symbols are currently
subject to a surcharge.32
The Exchange’s proposal to adopt a
surcharge of $0.03 per contract on
electronic Complex Orders that remove
liquidity from the Complex Order Book
and auctions, excluding PIXL, in Penny
Pilot Options, excluding SPY and a
surcharge of $0.10 per contract on
electronic Complex Orders that remove
liquidity from the Complex Order Book
and auctions, excluding PIXL, in NonPenny Pilot Options, excluding NDX
and MNX is equitable and not unfairly
discriminatory. The surcharges will be
applied uniformly to all market
participants.
The Exchange’s proposal to amend
the rule text to make clear that
surcharges are not subject to the
Monthly Market Maker Cap is
reasonable because today, the Exchange
does not count surcharges for BKX, NDX
and MNX toward the Monthly Market
Maker Cap, only Options Transaction
Charges.
The Exchange’s proposal to amend
the rule text to make clear that
surcharges are not subject to the
Monthly Market Maker Cap is equitable
and not unfairly discriminatory because
all Specialists and Market Makers will
be uniformly applied the cap.
Specialists and Market Makers have
obligations to the market and regulatory
requirements, which normally do not
30 See
Section IV, Part A of the Pricing Schedule.
Section I of the Pricing Schedule.
32 See Section II of the Pricing Schedule.
31 See
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sradovich on DSK3GMQ082PROD with NOTICES
apply to other market participants.33
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 for
Specialists and Market Makers to cap
fees.
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.
In sum, 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.
33 See Rule 1014 titled ‘‘Obligations and
Restrictions Applicable to Specialists and
Registered Options Traders.’’
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Customer Rebates
The Exchange’s proposal to amend
Section B, entitled ‘‘Customer Rebate
Program,’’ to amend Category C and add
a new Category D does not impose an
undue burden on intra-market
competition because the Exchange will
uniformly pay Customer rebates to all
qualifying market participants. Any
market participant may qualify for a
Customer Rebate.
With respect to the Tier 2 Category C
rebate, which is decreased from $0.17 to
$0.16 per contract, and the Tier 3
Category C rebate, which is increased
from $0.17 to $0.18 per contract, the
Exchange believes that these proposed
changes do not impose an undue burden
on intra-market competition because the
Exchange will uniformly pay Customer
rebates to all qualifying market
participants. Any market participant
may qualify for a Customer Rebate.
With respect to the proposed rebates
for Category D, the Exchange believes
the proposed rebates do not impose an
undue burden on intra-market
competition because the Exchange will
uniformly pay Customer rebates to all
qualifying market participants. Any
market participant may qualify for a
Customer Rebate.
The Exchange’s proposal to no longer
cap rebates on Customer PIXL Orders at
4,000 contracts per order leg for
Complex PIXL Orders does not impose
an undue burden on intra-market
competition because the Exchange will
uniformly not cap Category C rebates for
any market participant.
The Exchange proposal’s to structure
the Category D rebate similar to the
Category C rebate does not impose an
undue burden on intra-market
competition because the Exchange will
uniformly apply the Category D rebates
to all market participants.
The Exchange’s proposal to pay a
$0.03 per contract Category D rebate
addition to the applicable Tier 2 and 3
rebate, provided the Specialist, Market
Maker or Appointed MM has reached
the Monthly Market Maker Cap as
defined in Section II, to: (1) A Specialist
or Market Maker who is not under
Common Ownership or is not a party of
an Affiliated Entity; or (2) an OFP
member or member organization
affiliate under Common Ownership; or
(3) an Appointed OFP of an Affiliated
Entity does not impose an undue
burden on intra-market competition.
The Exchange will uniformly pay the
additional $0.03 rebate in addition to
the Tier 2 and 3 Category D rebates to
all qualifying market participants. Any
market participant may qualify for a
Customer Rebate.
PO 00000
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18789
The Exchange’s proposal to amend
the manner in which the Exchange pays
the $0.05 per contract rebate on
electronically-delivered Customer
Complex Orders in Non-Penny Pilot
Options does not impose an undue
burden on intra-market competition
because the Exchange will uniformly
pay the additional $0.05 rebate to the
applicable expanded rebate and MARS
tiers, provided the market participant
qualifies. Any market participant may
qualify for a Customer Rebate.
Multiply Listed Options
The Exchange’s proposal to adopt a
surcharge of $0.03 per contract on
electronic Complex Orders that remove
liquidity from the Complex Order Book
and auctions, excluding PIXL, in Penny
Pilot Options, excluding SPY and a
surcharge of $0.10 per contract on
electronic Complex Orders that remove
liquidity from the Complex Order Book
and auctions, excluding PIXL, in NonPenny Pilot Options, excluding NDX
and MNX does not impose on intramarket competition because the
surcharges will be applied uniformly to
all market participants.
The Exchange’s proposal to amend
the rule text to make clear that
surcharges are not subject to the
Monthly Market Maker Cap does not
impose on intra-market competition
because the all Specialists and Market
Makers will be uniformly applied the
cap. Specialists and Market Makers have
obligations to the market and regulatory
requirements, which normally do not
apply to other market participants.34
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 for
Specialists and Market Makers to cap
fees.
34 See Rule 1014 titled ‘‘Obligations and
Restrictions Applicable to Specialists and
Registered Options Traders.’’
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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.35
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.
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–
2017–29, and should be submitted on or
before May 12, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Brent J. Fields,
Secretary.
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2017–29 on the subject line.
sradovich on DSK3GMQ082PROD with NOTICES
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:
[FR Doc. 2017–08056 Filed 4–20–17; 8:45 am]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule To
Amend the Fees Schedule
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–2017–29. 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 (https://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
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80473; File No. SR–C2–
2017–015]
April 17, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934,1 and
Rule 19b–4 thereunder,2 notice is
hereby given that on April 13, 2017, C2
Options Exchange, Incorporated
(‘‘Exchange’’ or ‘‘C2’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Fees Schedule. The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.c2exchange.com/Legal/), at the
36 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
35 15
U.S.C. 78s(b)(3)(A)(ii).
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17:30 Apr 20, 2017
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Exchange’s Office of the Secretary, 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 Exchange proposes to amend its
Fees Schedule.3 Specifically, the
Exchange is eliminating certain fees
relating to the PULSe workstation. By
way of background, the PULSe
workstation is a front-end order entry
system designed for use with respect to
orders that may be sent to the trading
systems of the Exchange. Exchange
Trading Permit Holders (‘‘TPHs’’) may
also make workstations available to
their customers, which may include
TPHs, non-broker dealer public
customers and non-TPH broker dealers.
The Exchange first proposes to
eliminate the Away-Market Routing
Intermediary fee. This fee is payable by
a Routing Intermediary and only
applicable for away-market routing from
any PULSe workstation for which it
serves as the Routing Intermediary. The
fee is $0.02 per contract or share
equivalent for the first million contracts
or share equivalent executed in a month
for executions on all away markets
aggregated across all such PULSe
workstations, and $0.03 per contract or
share equivalent for each additional
contract or share equivalent executed in
the same month on all away markets.
The Exchange also proposes to
eliminate the C2 Routing fee. The C2
Routing fee is payable by a TPH and
only applicable for routing to C2 from
non-TPH PULSe workstations made
available by the TPH. The fee is $0.02
3 The Exchange initially filed the proposed fee
change on April 3, 2017 (SR–C2–2017–012). On
April 13 [sic], 2017, the Exchange withdrew that
filing and submitted this filing. The Commission
notes that C2 withdrew C2–2017–012 on April 17,
2017.
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]]>Agencies
[Federal Register Volume 82, Number 76 (Friday, April 21, 2017)]
[Notices]
[Pages 18784-18790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08056]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80466; File No. SR-Phlx-2017-29]
Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating To
Customer Rebates and Pricing for Multiply Listed Options
April 17, 2017.
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 April 3, 2017, 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: (i) Amend Section B of the Exchange's
Pricing Schedule to create a new Category D and make other amendments
to this section; and (ii) amend Section II of the Exchange's Pricing
Schedule entitled ``Multiply Listed Options Fees,'' \3\ to assess a
surcharge related to Complex Orders.\4\
---------------------------------------------------------------------------
\3\ These fees include options overlying equities, ETFs, ETNs
and indexes which are Multiply Listed.
\4\ 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 Rule 1098.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqphlx.cchwallstreet.com, at the principal
office of the Exchange,
[[Page 18785]]
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 Pricing
Schedule: (i) At Section B to create an additional incentive to
encourage market participants to send Customer Complex Order flow to
Phlx; and (ii) at Section II to adopt certain surcharges for
electronically-delivered Complex Orders so that the Exchange may pay
increased Customer Rebates. Each of the proposed amendments is
discussed in greater detail below.
Customer Rebate Program
The Exchange proposes to amend Section B, entitled ``Customer
Rebate Program,'' to amend Category C and add a new Category D to
continue existing incentives to direct Customer Complex Order flow to
the Exchange and create additional incentives. Currently, the Exchange
has a Customer Rebate Program consisting of the following five tiers
that pay Customer rebates on three Categories, A,\5\ B \6\ and C,\7\ of
transactions:
---------------------------------------------------------------------------
\5\ The 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.
\6\ The Category B Rebate is 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 are
capped at 4,000 contracts per order for Simple PIXL Orders.
\7\ The Category C 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 are not
paid a rebate under any circumstances. The Category C Rebate is not
paid when an electronically-delivered Customer Complex Order,
including 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.
----------------------------------------------------------------------------------------------------------------
Percentage thresholds of
national customer volume
in multiply-listed
Customer rebate tiers equity and ETF options Category A Category B Category C
classes, excluding SPY
options (monthly)
----------------------------------------------------------------------------------------------------------------
Tier 1................................ 0.00%-0.60%............. $0.00 $0.00 $0.00
Tier 2................................ Above 0.60%-1.10%....... 0.10 0.10 0.17
Tier 3................................ Above 1.10%-1.60%....... 0.15 0.12 0.17
Tier 4................................ Above 1.60%-2.50%....... 0.20 0.16 0.22
Tier 5................................ Above 2.50%............. 0.21 0.17 0.22
----------------------------------------------------------------------------------------------------------------
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 \8\
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).\9\
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\8\ 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)).
\9\ 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.
---------------------------------------------------------------------------
The Exchange proposes to amend Category C by decreasing the Tier 2
rebate from $0.17 to $0.16 per contract and increasing the Tier 3
rebate from $0.17 to $0.18 per contract. The Category C rebates will
continue to be paid on electronically-delivered Customer Complex Orders
in Penny Pilot Options, but will no longer be paid on Non-Penny Pilot
Options in Section II symbols, which are proposed to be subject to the
proposed Category D rebate. For Category C, rebates will continue to be
paid on Customer PIXL \10\ Complex Orders in Section II symbols that
execute against non-Initiating Order interest.\11\ Customer Complex
PIXL Orders that execute against a Complex PIXL Initiating Order will
continue to not be paid a Category C rebate under any circumstances.
The Category C rebate will continue to not be paid when an
electronically-delivered Customer Complex Order, including Customer
Complex PIXL Order, executes against another electronically-delivered
Customer Complex Order. The Exchange proposes to no longer cap rebates
on Customer PIXL Orders at 4,000 contracts per order leg for Complex
PIXL Orders, but will continue to cap them for Simple PIXL Orders are
[sic] noted in Category B.
---------------------------------------------------------------------------
\10\ PIXL\SM\ is the Exchange's price improvement mechanism
known as Price Improvement XL or PIXL. See Rule 1080(n).
\11\ With respect to PIXL functionality, a Phlx 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)(E)) it represents as
agent (``Initiating Order'') provided it submits the PIXL order for
electronic execution into the PIXL Auction (``Auction'') pursuant to
Rule 1080. Non-Initiating Order interest could be a PIXL Auction
Responder or a resting order or quote that was on the Phlx book
prior to the auction.
---------------------------------------------------------------------------
The Exchange will create a new Category D rebate which will pay: No
rebate for Tier 1; a $0.21 per contract rebate for Tier 2; a $0.22
rebate for Tier 3; a $0.26 rebate for Tier 4; and a $0.27 rebate for
Tier 5. There [sic] rebates are per contract. The Category D Rebates
will be paid to members executing electronically-delivered Customer
Complex Orders in Non-Penny Pilot Options in Section II symbols.
Rebates will be paid on Customer PIXL Complex Orders that execute
against non-Initiating Order interest. A Customer Complex PIXL Order
that executes against a Complex PIXL Initiating Order will not be paid
a rebate under any circumstances. The Category D Rebate
[[Page 18786]]
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.
The Exchange proposes to adopt a new Category D rebate which will
be paid to members executing electronically-delivered Customer Complex
Orders in Non-Penny Pilot Options in Section II symbols. Rebates will
be 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 D 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. The Exchange will pay
no Tier 1 Category D rebate. The Exchange will pay a $0.21 per contract
Tier 2 Category D rebate. The Exchange will pay a $0.22 per contract
Tier 3 Category D rebate. The Exchange will pay a $0.26 per contract
Tier 4 Category D rebate. The Exchange will pay a $0.27 per contract
Tier 5 Category D rebate. Today, rebates are not paid on NDX and MNX
contracts in any Category, however NDX and MNX contracts count toward
the volume requirements to qualify for a Customer Rebate Tier. This
will be continue to be the case.
Today, the Exchange pays a $0.02 per contract Category A and B
rebate and a $0.03 per contract Category C rebate in addition to the
applicable Tier 2 and 3 rebate, provided the Specialist,\12\ Market
Maker \13\ or Appointed MM \14\ has reached the Monthly Market Maker
Cap \15\ as defined in Section II, to: (1) A Specialist or Market Maker
who is not under Common Ownership \16\ or is not a party of an
Affiliated Entity; or (2) an OFP member or member organization
affiliate under Common Ownership; or (3) an Appointed OFP \17\ of an
Affiliated Entity. The Exchange proposes to pay an additional $0.03
rebate in addition to the applicable Tier 2 and 3 Category D rebates,
provided the Specialist, Market Maker or Appointed MM has reached the
Monthly Market Maker Cap as defined in Section II, to: (1) A Specialist
or Market Maker who is not under Common Ownership or is not a party of
an Affiliated Entity; or (2) an OFP member or member organization
affiliate under Common Ownership; or (3) an Appointed OFP of an
Affiliated Entity.
---------------------------------------------------------------------------
\12\ The term ``Specialist'' shall apply to 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 501(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.
\13\ The term ``Market Maker'' describes fees and rebates
applicable to Registered Options Traders (``ROTs''), Streaming Quote
Traders (``SQTs''), Remote Streaming Quote Traders (``RSQTs''). An
ROT is defined in Exchange Rule 1014(b) is a regular member or a
foreign currency options participant of the Exchange located on the
trading floor who has received permission from the Exchange to trade
in options for his own account. A ROT includes SQTs and RSQTs as
well as on and off-floor ROTS. 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'').
\14\ An Appointed MM is a Phlx Market Maker or Specialist who
has been appointed by an Order Flow Provider (``OFP'') for purposes
of qualifying as an Affiliated Entity. An OFP is a member or member
organization that submits orders, as agent or principal, to the
Exchange.
\15\ Specialists and Market Makers are subject to a ``Monthly
Market Maker Cap'' of $500,000 for: (i) Electronic and floor Option
Transaction Charges; (ii) QCC Transaction Fees (as defined in
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e));
and (iii) fees related to an order or quote that is contra to a PIXL
Order or specifically responding to a PIXL auction. The trading
activity of separate Specialist and Market Maker member
organizations is aggregated in calculating the Monthly Market Maker
Cap if there is Common Ownership between the member organizations.
All dividend, merger, short stock interest, reversal and conversion,
jelly roll and box spread strategy executions (as defined in Section
II) are excluded from the Monthly Market Maker Cap.
\16\ The term ``Common Ownership'' shall mean members or member
organizations under 75% common ownership or control.
\17\ An Appointed OFP is an Order Flow Provider who has been
appointed by a Phlx Market Maker or Specialist for purposes of
qualifying as an Affiliated Entity.
---------------------------------------------------------------------------
Today, the Exchange pays a $0.05 per contract Category C rebate in
addition to the applicable Tier 2 and 3 rebates to members or member
organizations or member or member organization affiliated under Common
Ownership provided the member or member organization qualified for a
Tier 1 or 2 MARS Payments in Section IV, Part E. The Exchange is
proposing to expand this additional rebate to apply the $0.05 per
contract rebate to Category D and also expand the applicable Tiers from
2 and 3 to Tiers 2, 3, 4 or 5 rebate tiers for both Category C and D
rebates. Finally the Exchange is expanding the MARS qualification from
Tiers 1 and 2 to any MARS Payments \18\ for both Category C and D
rebates. The new rule text would provide, ``The Exchange will pay a
$0.05 per contract Category C and Category D rebate in addition to the
applicable Tier 2, 3, 4 and 5 rebates to members or member
organizations or member or member organization affiliated under Common
Ownership provided the member or member organization qualified for any
MARS Payments in Section IV, Part E.''
---------------------------------------------------------------------------
\18\ Today, Phlx members that have System Eligibility, as
described in Section IV, Part E, and have executed the requisite
number of Eligible Contracts, as described in Section IV, Part E, in
a month will be paid per contract rebates based on a 4 tier
structure which pays a certain MARS Payment based on Average Daily
Volume.
---------------------------------------------------------------------------
The Exchange believes that the proposed amendments will attract a
greater amount of Customer Complex Order liquidity to Phlx. Customer
liquidity benefits all market participants by providing more order flow
to the marketplace and more trading opportunities.
Multiply Listed Options
The Exchange proposes to adopt certain surcharges for
electronically-delivered Complex Orders in order that it may pay
increased Customer Rebates. Customer liquidity benefits all market
participants by providing more liquidity with which market participants
may interact on Phlx. The Customer Rebates provide an additional
incentive to encourage market participants to send Customer Complex
Order flow to Phlx.
The Exchange proposes to amend Section II to assess a surcharge of
$0.03 per contract on electronic Complex Orders that remove liquidity
from the Complex Order Book and auctions, excluding PIXL, in Penny
Pilot Options, excluding SPY. The Exchange proposes to assess a
surcharge of $0.10 per contract on electronic Complex Orders that
remove liquidity from the Complex Order Book and auctions, excluding
PIXL, in Non-Penny Pilot Options, excluding NDX and MNX.
The Exchange notes that an order that is received by the trading
system first in time shall be considered an order adding liquidity and
an order that trades against that order shall be considered an order
removing liquidity.
The Exchange is amending the rule text to make clear that
surcharges are not subject to the Monthly Market Maker Cap. Today, the
Exchange assesses surcharges for BKX, NDX and MNX. Those charges are
not included in the calculation of the Monthly Market
[[Page 18787]]
Maker Cap. The proposed surcharges will not be included in the Monthly
Market Maker Cap.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act,\19\ in general,
and furthers the objectives of Section 6(b)(4) and (b)(5) of the
Act,\20\ 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 its facilities, and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(4), (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 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.'' \21\
---------------------------------------------------------------------------
\21\ Securities Exchange Act Release No. 51808 (June 29, 2005),
70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Likewise, in NetCoalition v. Securities and Exchange Commission
\22\ (``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.\23\ 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.'' \24\
---------------------------------------------------------------------------
\22\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\23\ See id. at 534-535.
\24\ See 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' . . . .'' \25\ 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.
---------------------------------------------------------------------------
\25\ See id. at 539 (quoting Securities Exchange Act Commission
at Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-74783
(December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------
Customer Rebates
The Exchange's proposal to amend Section B, entitled ``Customer
Rebate Program,'' to amend Category C and add a new Category D is
reasonable because today the Exchange pays a Customer Complex Order
rebate on both Penny and Non-Penny Pilot Options. The Exchange will
continue to pay rebates for both Penny and Non-Penny Pilot Options, but
will amend the rebates paid for Non-Penny Pilot Options as proposed for
Category D. The Exchange notes that today it assesses different fees
for Penny and Non-Penny Pilot Options.\26\
---------------------------------------------------------------------------
\26\ See Section II of the Pricing Schedule.
---------------------------------------------------------------------------
The Exchange's proposal to amend Section B, entitled ``Customer
Rebate Program,'' to amend Category C and add a new Category D is
equitable and not unfairly discriminatory because the Exchange will
uniformly pay Customer rebates to all qualifying market participants.
Any market participant may qualify for a Customer Rebate.
With respect to the Tier 2 Category C rebate, which is decreased
from $0.17 to $0.16 per contract, and the Tier 3 Category C rebate,
which is increased from $0.17 to $0.18 per contract, the Exchange
believes that these proposed changes are reasonable because the
Exchange currently pays the same $0.17 per contract rebate for these
two tiers. The Exchange desires to pay a lower rebate for Tier 2, which
requires National Customer Volume \27\ of above 0.60%-1.10%, and a
higher rebate for Tier 3, which requires National Customer Volume of
above 1.10%-1.60%, because of the difference in the volume
requirements. The Exchange believes that it is reasonable to pay a
higher rebate for the Tier 3 Category C rebate because of the higher
volume requirement.
---------------------------------------------------------------------------
\27\ The National Customer Volume would be in Multiply-Listed
Equity and ETF Options Classes, excluding SPY Options, on a monthly
basis.
---------------------------------------------------------------------------
With respect to the Tier 2 Category C rebate, which is decreased
from $0.17 to $0.16 per contract, and the Tier 3 Category C rebate,
which is increased from $0.17 to $0.18 per contract, the Exchange
believes that these proposed changes are equitable and not unfairly
discriminatory because the Exchange will uniformly pay Customer rebates
to all qualifying market participants. Any market participant may
qualify for a Customer Rebate.
With respect to the proposed rebates for Category D, the Exchange
believes that it is reasonable to pay no rebate for Tier 1, which has a
National Customer Volume requirement between 0.00%-0.60%, because no
other Category pays a rebate for this level of volume. The Exchange
believes that it is reasonable to pay the proposed Tier 2 through 5
rebates,\28\ progressively higher rebates which are commensurate with
the increased National Customer Volume requirement for each Tier.
---------------------------------------------------------------------------
\28\ Category D pays: A $0.21 rebate for Tier 2 (National
Customer Volume above 0.60%-1.10%); a $0.22 rebate for Tier 3
(National Customer Volume above 1.10%-1.60%); a $0.26 rebate for
Tier 4 (National Customer Volume above 1.60%-2.50%); and a $0.27
rebate for Tier 5 (National Customer Volume above 2.50%).
---------------------------------------------------------------------------
With respect to the proposed rebates for Category D, the Exchange
believes the proposed rebates are equitable and not unfairly
discriminatory because the Exchange will uniformly pay Customer rebates
to all qualifying market participants. Any market participant may
qualify for a Customer Rebate.
The Exchange's proposal to no longer cap rebates on Customer PIXL
Orders at 4,000 contracts per order leg for Complex PIXL Orders is
reasonable because the Exchange will potentially attract a greater
amount of Customer liquidity to the Exchange without a cap. 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's proposal to no longer cap rebates on Customer PIXL
Orders at 4,000 contracts per order leg for Complex PIXL Orders is
equitable and not unfairly discriminatory because the Exchange will
uniformly not cap Category C rebates for any market participant.
The Exchange's proposal to structure the Category D rebate similar
to the Category C rebate is reasonable because today, electronically-
delivered Customer Complex Orders in Non-Penny Pilot Options in Section
II symbols, will be [sic] subject to the same terms. Rebates will
continue to be paid on Customer PIXL Complex Orders in Section II
symbols that execute
[[Page 18788]]
against non-Initiating Order interest. Customer Complex PIXL Orders
that execute against a Complex PIXL Initiating Order will continue to
not be paid a rebate under any circumstances. The Category D Rebate
will continue to not be paid when an electronically-delivered Customer
Complex Order, including a Customer Complex PIXL Order, executes
against another electronically-delivered Customer Complex Order. Also,
the Exchange is proposing to remove the 4,000 contracts per order cap,
as noted above, for the Category C rebates and the cap will not be
applicable for the Category D rebates.
The Exchange's proposal to structure the Category D rebate similar
to the Category C rebate is equitable and not unfairly discriminatory
because the Exchange will uniformly apply the Category D rebates to all
market participants.
The Exchange's proposal to pay a $0.03 per contract Category D
rebate, in addition to the applicable Tier 2 and 3 rebates, provided
the Specialist, Market Maker or Appointed MM has reached the Monthly
Market Maker Cap as defined in Section II, to: (1) A Specialist or
Market Maker who is not under Common Ownership or is not a party of an
Affiliated Entity; or (2) an OFP member or member organization
affiliate under Common Ownership; or (3) an Appointed OFP of an
Affiliated Entity is reasonable. Today, market participants sending
electronically-delivered Customer Complex Orders in Non-Penny Pilot
Options in Section II symbols are paid the $0.03 per contract rebate in
addition to the Tier 2 and 3 rebate in Category C, provided the
requirements are met. The Exchange believes it is reasonable to
continue to pay this additional rebate provide [sic] the requirements
are met.
The Exchange's proposal to pay a $0.03 per contract Category D
rebate, in addition to the applicable Tier 2 and 3 rebates, provided
the Specialist, Market Maker or Appointed MM has reached the Monthly
Market Maker Cap as defined in Section II, to: (1) A Specialist or
Market Maker who is not under Common Ownership or is not a party of an
Affiliated Entity; or (2) an OFP member or member organization
affiliate under Common Ownership; or (3) an Appointed OFP of an
Affiliated Entity is equitable and not unreasonably discriminatory. The
Exchange will uniformly pay the additional $0.03 rebate in addition to
the Tier 2 and 3 Category D rebates to all qualifying market
participants. Any market participant may qualify for a Customer Rebate.
The Exchange's proposal to amend the manner in which the Exchange
pays the $0.05 per contract rebate on electronically-delivered Customer
Complex Orders in Non-Penny Pilot Options is reasonable. Today,
electronically-delivered Customer Complex Orders in Non-Penny Pilot
Options are paid a $0.05 per contract rebate in addition to the
applicable Tier 2 and 3 rebates to members or member organizations or
member or member organization affiliated under Common Ownership,
provided the member or member organization qualified for a Tier 1 or 2
MARS Payment in Section IV, Part E. The Exchange proposes, with respect
to both Category C and D, to expand the applicable tiers from only
Tiers 2 and 3 to Tiers 2, 3, 4 or 5. This is reasonable because it will
allow additional market participants to take advantage of the
additional rebate, provided the requirements are met. Also, the
Exchange's proposal to expand the MARS qualification from Tiers 1 and 2
to any MARS Payments \29\ is reasonable because it will allow
additional market participants to take advantage of the additional
rebate.
---------------------------------------------------------------------------
\29\ Today, Phlx members that have System Eligibility, as
described in Section IV, Part E, and have executed the requisite
number of Eligible Contracts, as described in Section IV, Part E, in
a month will be paid per contract rebates based on a 4 tier
structure which pays a certain MARS Payment based on Average Daily
Volume.
---------------------------------------------------------------------------
The Exchange's proposal to amend the manner in which the Exchange
pays the $0.05 per contract rebate on electronically-delivered Customer
Complex Orders in Non-Penny Pilot Options is equitable and not
unreasonably discriminatory because the Exchange will uniformly pay the
additional $0.05 rebate to the applicable expanded rebate tiers and
MARS tiers provided the market participant qualifies. Any market
participant may qualify for a Customer Rebate.
Multiply Listed Options
The Exchange's proposal to adopt a surcharge of $0.03 per contract
on electronic Complex Orders that remove liquidity from the Complex
Order Book and auctions, excluding PIXL, in Penny Pilot Options,
excluding SPY and a surcharge of $0.10 per contract on electronic
Complex Orders that remove liquidity from the Complex Order Book and
auctions, excluding PIXL, in Non-Penny Pilot Options, excluding NDX and
MNX is reasonable. The Exchange is adopting these surcharges, which
will be applied on transactions that remove liquidity from the Complex
Order Book, in order to help offset the increased rebates which are
proposed to be given to Complex Orders in Section B. The Exchange
believes that it is reasonable to only assess this surcharge to those
orders which remove liquidity from the market because the Exchange
wants to continue to encourage market participation and price
improvement for those participants that seek to add liquidity on Phlx.
The Exchange believes that not assessing the surcharge on PIXL and SPY
orders is reasonable. PIXL has its own pricing,\30\ and the Exchange
wants to continue to encourage price improvement within PIXL. SPY has
its own rebate program separate and apart from Section B.\31\ Limiting
the surcharges to electronically-delivered transactions is reasonable
because the Section B rebates apply only to electronically-delivered
Customer orders. Further, limiting the surcharge to orders entered
electronically is equitable and not unfairly discriminatory because the
Exchange has expended considerable resources to develop its electronic
trading platforms and seeks to recoup the costs of such expenditures.
Finally, excluding NDX and MNX is reasonable because these symbols are
currently subject to a surcharge.\32\
---------------------------------------------------------------------------
\30\ See Section IV, Part A of the Pricing Schedule.
\31\ See Section I of the Pricing Schedule.
\32\ See Section II of the Pricing Schedule.
---------------------------------------------------------------------------
The Exchange's proposal to adopt a surcharge of $0.03 per contract
on electronic Complex Orders that remove liquidity from the Complex
Order Book and auctions, excluding PIXL, in Penny Pilot Options,
excluding SPY and a surcharge of $0.10 per contract on electronic
Complex Orders that remove liquidity from the Complex Order Book and
auctions, excluding PIXL, in Non-Penny Pilot Options, excluding NDX and
MNX is equitable and not unfairly discriminatory. The surcharges will
be applied uniformly to all market participants.
The Exchange's proposal to amend the rule text to make clear that
surcharges are not subject to the Monthly Market Maker Cap is
reasonable because today, the Exchange does not count surcharges for
BKX, NDX and MNX toward the Monthly Market Maker Cap, only Options
Transaction Charges.
The Exchange's proposal to amend the rule text to make clear that
surcharges are not subject to the Monthly Market Maker Cap is equitable
and not unfairly discriminatory because all Specialists and Market
Makers will be uniformly applied the cap. Specialists and Market Makers
have obligations to the market and regulatory requirements, which
normally do not
[[Page 18789]]
apply to other market participants.\33\ 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 for Specialists and Market Makers to cap fees.
---------------------------------------------------------------------------
\33\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------
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.
In sum, 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.
Customer Rebates
The Exchange's proposal to amend Section B, entitled ``Customer
Rebate Program,'' to amend Category C and add a new Category D does not
impose an undue burden on intra-market competition because the Exchange
will uniformly pay Customer rebates to all qualifying market
participants. Any market participant may qualify for a Customer Rebate.
With respect to the Tier 2 Category C rebate, which is decreased
from $0.17 to $0.16 per contract, and the Tier 3 Category C rebate,
which is increased from $0.17 to $0.18 per contract, the Exchange
believes that these proposed changes do not impose an undue burden on
intra-market competition because the Exchange will uniformly pay
Customer rebates to all qualifying market participants. Any market
participant may qualify for a Customer Rebate.
With respect to the proposed rebates for Category D, the Exchange
believes the proposed rebates do not impose an undue burden on intra-
market competition because the Exchange will uniformly pay Customer
rebates to all qualifying market participants. Any market participant
may qualify for a Customer Rebate.
The Exchange's proposal to no longer cap rebates on Customer PIXL
Orders at 4,000 contracts per order leg for Complex PIXL Orders does
not impose an undue burden on intra-market competition because the
Exchange will uniformly not cap Category C rebates for any market
participant.
The Exchange proposal's to structure the Category D rebate similar
to the Category C rebate does not impose an undue burden on intra-
market competition because the Exchange will uniformly apply the
Category D rebates to all market participants.
The Exchange's proposal to pay a $0.03 per contract Category D
rebate addition to the applicable Tier 2 and 3 rebate, provided the
Specialist, Market Maker or Appointed MM has reached the Monthly Market
Maker Cap as defined in Section II, to: (1) A Specialist or Market
Maker who is not under Common Ownership or is not a party of an
Affiliated Entity; or (2) an OFP member or member organization
affiliate under Common Ownership; or (3) an Appointed OFP of an
Affiliated Entity does not impose an undue burden on intra-market
competition. The Exchange will uniformly pay the additional $0.03
rebate in addition to the Tier 2 and 3 Category D rebates to all
qualifying market participants. Any market participant may qualify for
a Customer Rebate.
The Exchange's proposal to amend the manner in which the Exchange
pays the $0.05 per contract rebate on electronically-delivered Customer
Complex Orders in Non-Penny Pilot Options does not impose an undue
burden on intra-market competition because the Exchange will uniformly
pay the additional $0.05 rebate to the applicable expanded rebate and
MARS tiers, provided the market participant qualifies. Any market
participant may qualify for a Customer Rebate.
Multiply Listed Options
The Exchange's proposal to adopt a surcharge of $0.03 per contract
on electronic Complex Orders that remove liquidity from the Complex
Order Book and auctions, excluding PIXL, in Penny Pilot Options,
excluding SPY and a surcharge of $0.10 per contract on electronic
Complex Orders that remove liquidity from the Complex Order Book and
auctions, excluding PIXL, in Non-Penny Pilot Options, excluding NDX and
MNX does not impose on intra-market competition because the surcharges
will be applied uniformly to all market participants.
The Exchange's proposal to amend the rule text to make clear that
surcharges are not subject to the Monthly Market Maker Cap does not
impose on intra-market competition because the all Specialists and
Market Makers will be uniformly applied the cap. Specialists and Market
Makers have obligations to the market and regulatory requirements,
which normally do not apply to other market participants.\34\ 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 for Specialists and Market Makers to cap fees.
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\34\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
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[[Page 18790]]
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.\35\
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\35\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2017-29 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-2017-29. 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 (https://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-2017-29, and should be
submitted on or before May 12, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-08056 Filed 4-20-17; 8:45 am]
BILLING CODE 8011-01-P
