Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Its Pricing Schedule, 4926-4936 [2013-01226]
Download as PDF
<![CDATA[
4926
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
7. Do commenters believe that the
ability of market makers and authorized
participants to arbitrage throughout the
day will be sufficiently robust to ensure
that prices of the Shares closely track
the intraday NAV per Share of the
Fund? Are there circumstances in which
significant premiums or discounts could
develop?
8. Do commenters believe that the
third-party model that would be used to
value the Fund’s OTC down-and-in put
options would accurately reflect prices
at which the Fund could enter into new
OTC down-and-in put options or
unwind existing OTC down-and-in put
options? Why or why not? Should the
Exchange or the Fund be required to
provide further disclosure relating to the
formula and methodology of such thirdparty pricing model? Would such
disclosure better help investors to price
the OTC down-and-in put options held
by the Fund?
9. Are there any characteristics
unique to barrier options on equity
securities that would make them more
difficult to value than options on equity
securities without a barrier feature? If
so, what are they and how could they
potentially impact the valuation?
10. Are there any circumstances
under which the nature of barrier
options would cause market makers to
widen bid and offer spreads for the
Shares? For example, if a significant
number of components stocks are at or
near a 20% loss a few days before
expiration of the down-and-out-put
options, would market makers widen
their spreads to reflect the added
uncertainty?
Comments may be submitted by any
of the following methods:
wreier-aviles on DSK5TPTVN1PROD with
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2012–108 on
the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Numbers SR–NYSEArca–2012–108.
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://
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
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 such
filings 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–NYSE
Arca–2012–108 and should be
submitted on or before February 13,
2013. Rebuttal comments should be
submitted by February 27, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–01224 Filed 1–22–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68674; File No. SR– Phlx–
2013–01]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to Its
Pricing Schedule
January 16, 2013.
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 January 2,
2013, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
37 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
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 to amend the
Exchange’s Pricing Schedule at Section
A, entitled ‘‘Customer Rebate Program,’’
Section I entitled ‘‘Rebates and Fees for
Adding and Removing Liquidity in
Select Symbols,’’ 3 Section II entitled
‘‘Multiply Listed Options Fees’’ 4 and at
Section IV entitled ‘‘Other Transaction
Fees.’’ Specifically, the Exchange
proposes to amend the Customer Rebate
Program, Select Symbols,5 Simple and
Complex Order 6 fees and rebates, the
applicability of Payment for Order
Flow 7 and PIXL 8 Pricing.
The text of the proposed rule change
is provided in Exhibit 5. The text of the
proposed rule change is also available
on the Exchange’s Web site at https://
nasdaqomxphlx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
3 The rebates and fees in Section I apply to certain
Select Symbols which are listed in Section I of the
Pricing Schedule.
4 The pricing in Section II includes options
overlying equities, ETFs, ETNs and indexes which
are Multiply Listed.
5 The Select Symbols are listed in Section I of the
Pricing Schedule.
6 A Complex Order is any order involving the
simultaneous purchase and/or sale of two or more
different options series in the same underlying
security, priced at a net debit or credit based on the
relative prices of the individual components, for the
same account, for the purpose of executing a
particular investment strategy. Furthermore, a
Complex Order can also be a stock-option order,
which is an order to buy or sell a stated number
of units of an underlying stock or exchange-traded
fund (‘‘ETF’’) coupled with the purchase or sale of
options contract(s). See Exchange Rule 1080,
Commentary .08(a)(i).
7 The Payment for Order Flow program started on
July 1, 2005 as a pilot and after a series of orders
extending the pilot became effective on April 29,
2012. See Securities Exchange Act Release No.
52114 (July 22, 2005), 70 FR 44138 (August 1, 2005)
(SR–Phlx–2005–44); 57851 (May 22, 2008), 73 FR
31177 (May 20, 2008) (SR–Phlx–2008–38); 55891
(June 11, 2007), 72 FR 333271 (June 15, 2007) (SR–
Phlx–2007–39); 53754 (May 3, 2006), 71 FR 27301
(May 10, 2006) (SR–Phlx–2006–25); 53078 (January
9, 2006), 71 FR 2289 (January 13, 2006) (SR–Phlx–
2005–88); 52568 (October 6, 2005), 70 FR 60120
(October 14, 2005) (SR–Phlx–2005–58); and 59841
(April 29, 2009), 74 FR 21035 (May 6, 2009) (SR–
Phlx–2009–38).
8 PIXL is the Exchange’s price improvement
mechanism known as Price Improvement XL or
(PIXLSM). See Rule 1080(n).
E:\FR\FM\23JAN1.SGM
23JAN1
4927
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to accomplish various
objectives. First, the Exchange proposes
to amend the Customer Rebate Program
to incentivize market participants to
increase the amount of Customer order
flow they transact on the Exchange.
Towards this end, the Exchange
proposes the addition of Category D to
the Customer Rebate Program relating to
Customer Simple Orders in Select
Symbols. The Exchange also proposes to
offer certain credits when an order,
which is sent to the Exchange, is routed
to an away market. Second, the
Exchange proposes to remove certain
Select Symbols from Section I and
instead assess the fees and offer caps as
specified in Section II of the Pricing
Schedule. The Exchange believes that
the pricing in Section II, coupled with
the proposed enhancements to the
Customer Rebate Program may
encourage an increase in Customer
transactions in those symbols. Third,
the Exchange proposes to amend the
Section I pricing in Simple and
Complex Orders and PIXL Pricing to
also encourage additional Customer
order flow by not assessing fees to
Customers. The Exchange proposes to
lower the Simple Order Fees for
Removing Liquidity and certain PIXL
Pricing to encourage additional Simple
Order transactions. Fourth, the
Exchange proposes to increase the
Simple Order Fees for Adding Liquidity,
adopt Complex Order Fees for Adding
Liquidity and increase certain Complex
Orders Fees for Removing Liquidity to
permit the Exchange to offer additional
rebates in the Customer Rebate Program
in Section A. Fifth, the Exchange
proposes to lower the Complex Order
Specialist and Market Fees for
Removing Liquidity in Select Symbols,
as well as auctions and openings, and
amend the applicability of Payment for
Order Flow Fee for Select Symbols and
broadcast messages to encourage greater
Customer order interaction on the
Exchange.
Customer Rebate Program
The Exchange is proposing to amend
its Customer Rebate Program in Section
A of the Pricing Schedule. Currently,
the Exchange has a four-tiered Customer
Rebate Program as follows:
Rebate per contract categories
Average daily volume threshold
Category
A
0 to 49,999 contracts in a month ................................................................................................
50,000 to 99,999 contracts in a month .......................................................................................
100,000 to 274,999 contracts in a month ...................................................................................
over 275,000 contracts in a month ..............................................................................................
(a) Changes to the Tiers and Rebate
Rates
At this time, the Exchange proposes to
reduce the Customer Rebate Program to
a three-tiered rebate structure. The
Exchange proposes to amend Tier 1
which is currently 0 to 49,999 contracts
in a month to 0 to 99,999 contracts in
a month. The Exchange is not proposing
to amend the rebate rates in Categories
A, B or C for Tier 1. Those rebates will
remain at $0.00 per contract. Next, the
Exchange is proposing to amend Tier 2
which is currently 50,000 to 99,999
contracts in a month to 100,000 to
349,999 contracts in a month. The
Exchange proposes to amend the Tier 2
rate in Category A from $0.07 to $0.10
per contract. The Exchange proposes to
amend the Tier 2 rate in Category B
from $0.10 to $0.12 per contract. The
Exchange proposes to amend the Tier 2
rate in Category C from $0.00 to $0.13
per contract. The Exchange proposes to
eliminate Tier 3 which is currently
100,000 to 274,999 contracts in a
month.9 The Exchange proposes to
amend current Tier 4 which awards
rebates over 275,000 contracts in a
month and rename it Tier 3 and award
rebates over 350,000 contracts in a
month. The Exchange proposes to
amend the new Tier 3 rate in Category
A from $0.12 to $0.15 per contract. The
Exchange would not amend the Tier 3
rate in Category B. The Exchange
proposes to amend the Tier 3 rate in
Category C from $0.06 to $0.15 per
contract. The Exchange is not proposing
to amend the types of orders that qualify
for Categories A, B or C.10
$0.00
0.07
0.10
0.12
Category
B
$0.00
0.10
0.14
0.15
Category
C
$0.00
0.00
0.05
0.06
The Exchange also proposes to add
another Category of orders eligible for
rebates entitled ‘‘Category D.’’ This new
category would pay rebates to members
executing electronically-delivered
Customer Simple Orders in Select
Symbols in Section I. Also, the rebate
would be paid on PIXL Orders in
Section I symbols that execute against
non-Initiating Order interest.11 The
Exchange proposes to pay the following
Category D rebates: no rebate for Tier 1,
a $0.05 per contract rebate for Tier 2 and
a $0.07 per contract rebate for Tier 3.
The Exchange also proposes to add the
words ‘‘Tier 1,’’ ‘‘Tier 2,’’ and ‘‘Tier 3’’
to the Pricing Schedule to further clarify
the tiers. The proposed Customer Rebate
Program would be as follows:
Rebate per contract categories
wreier-aviles on DSK5TPTVN1PROD with
Average daily volume threshold
Category
A
Tier 1: 0 to 99,999 contracts in a month .........................................................
9 Currently, Tier 3 pays the following rebates: A
Category A rebate of $0.10 per contract, a Category
B rebate of $0.14 per contract and a Category C
rebate of $0.05 per contract.
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
$0.00
10 The Exchange notes that it will evaluate the
tiers monthly and may file modifications to the tiers
periodically depending on market conditions.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
Category
B
$0.00
Category
C
$0.00
Category
D
$0.00
11 This application of the Category D rebate to
PIXL Orders is similar to the current application of
the Category A rebate to PIXL Orders.
E:\FR\FM\23JAN1.SGM
23JAN1
4928
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
Rebate per contract categories
Average daily volume threshold
Category
A
Tier 2: 100,000 to 349,999 contracts in a month ............................................
Tier 3: over 350,000 contracts in a month ......................................................
(b) Changes to Average Daily Volume
Calculation
Currently, the Exchange calculates
Average Daily Volume Threshold by
totaling Customer volume in Multiply
Listed Options (including Select
Symbols) that are electronicallydelivered and executed, except volume
associated with the following: (i)
Electronically-delivered and executed
Customer Simple Orders in Select
Symbols that remove liquidity; and (ii)
electronic Qualified Contingent Cross
Orders (‘‘QCC Orders’’),12 as defined in
Exchange Rule 1080(o) (‘‘Threshold
Volume’’). Rebates are paid on
Threshold Volume.
The Exchange proposes to amend the
Average Daily Volume Calculation by
eliminating Customer volume in
Multiply-Listed Options that are
electronically-delivered and executed
except for volume associated with
electronically-delivered and executed
Simple Orders in Select Symbols that
remove liquidity. The Exchange is
proposing to amend the Average Daily
Volume by eliminating the exclusion of
the electronically-delivered and
executed Customer Simple Orders in
Select Symbols that remove liquidity.
The QCC Orders would be the only
exception when calculating Customer
volume in Multiply-Listed Options that
are electronically-delivered in the
Average Daily Volume Threshold
calculation.13
wreier-aviles on DSK5TPTVN1PROD with
(c) Credit for Member Qualifying for
Tier 2 and 3 Rebates
The Exchange proposes to reduce
Routing Fees in Section V of the
Exchange’s Pricing Schedule for
12 A QCC Order is comprised of an order to buy
or sell at least 1000 contracts that is identified as
being part of a qualified contingent trade, as that
term is defined in Rule 1080(o)(3), coupled with a
contra-side order to buy or sell an equal number of
contracts. The QCC Order must be executed at a
price at or between the National Best Bid and Offer
(‘‘NBBO’’) and be rejected if a Customer order is
resting on the Exchange book at the same price. A
QCC Order shall only be submitted electronically
from off the floor to the PHLX XL II System. See
Rule 1080(o). See also Securities Exchange Act
Release No. 64249 (April 7, 2011), 76 FR 20773
(April 13, 2011) (SR–Phlx–2011–47) (a rule change
to establish a QCC Order to facilitate the execution
of stock/option Qualified Contingent Trades
(‘‘QCTs’’) that satisfy the requirements of the trade
through exemption in connection with Rule 611(d)
of the Regulation NMS).
13 QCC Orders are excluded today.
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
0.10
0.15
member organizations that qualify for
Tier 2 or Tier 3 of the Customer Rebate
Program. Specifically, the Exchange
proposes to credit member organizations
that qualify for either a Tier 2 or Tier 3
rebate with a credit of $0.04 per
contract, which credit would be applied
to Routing Fees, as specified in Section
V of the Pricing Schedule, when a
Customer order is routed to NASDAQ
OMX BX, Inc. (‘‘BX Options’’) or the
NASDAQ Options Market LLC
(‘‘NOM’’). Member organizations that
qualify for either a Tier 2 or Tier 3
rebate would be entitled to receive a
$0.10 per contract credit, which credit
would be applied to Routing Fees,
specified in Section V of the Pricing
Schedule, when a Customer order is
routed to an away market other than BX
Options or NOM.
The Exchange believes that the
proposed amendments to the Customer
Rebate Program, including the credit
proposed for Routing Fees, would
further incentivize members to transact
Customer orders on the Exchange. The
Exchange believes the proposed
amendments will attract additional
Customer order flow to the Exchange for
the benefit of all market participants.
Section I Amendments
(a) Select Symbols
The Exchange displays a list of Select
Symbols in its Pricing Schedule at
Section I, which symbols are subject to
the rebates and fees in that section. The
Exchange is proposing to delete the
following symbols from the list of Select
Symbols in Section I of the Pricing
Schedule: Arena Pharmaceuticals, Inc.
(‘‘ARNA’’), Alcoa, Inc. (‘‘AA’’),
Advanced Micro Devices, Inc. (‘‘AMD’’),
Cisco Systems, Inc. (‘‘CSCO’’), SPDR
DOW Jones Industrial Average (‘‘DIA’’),
iShares MSCI EAFE Index Fund
(‘‘EFA’’), iShares MSCI Brazil Index
Fund (‘‘EWZ’’), Ford Motor Co. (‘‘F’’),
(Direxion Daily Financial Bull 3x Shares
(‘‘FAS’’), Direxion Daily Financial Bear
3X Shares (‘‘FAZ’’), iShares FTSE China
25 Index Fund (‘‘FXI’’), Market Vectors
Gold Miners ETF (‘‘GDX’’), General
Electric Company (‘‘GE’’), Intel
Corporation (‘‘INTC’’), Nokia
Corporation (‘‘NOK’’), Oracle
Corporation (‘‘ORCL’’), Pfizer, Inc.
(‘‘PFE’’),Research in Motion Limited
(‘‘RIMM’’), ProShares UltraShort S&P
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
Category
B
0.12
0.15
Category
C
0.13
0.15
Category
D
0.05
0.07
500 (‘‘SDS’’), Sirius XM Radio Inc.
(‘‘SIRI’’), iShares Silver Trust (‘‘SLV’’),
ProShares UltraShort 20+ Year Treasury
(‘‘TBT’’), iShares Barclays 20 Year
Treasury (‘‘TLT’’), Direxion Daily Small
Cap Bear 3X Shares (‘‘TZA’’), United
States Natural Gas (‘‘UNG’’), United
States Oil (‘‘USO’’), Vale S.A. (‘‘VALE’’),
iPath S&P 500 VIX ST Futures ETN
(‘‘VXX’’), Verizon Communications Inc.
(‘‘VZ’’), SPDR Select Sector Fund—
Energy (‘‘XLE’’), SPDR Select Sector
Fund (‘‘XLI’’) and Yahoo! Inc.
(‘‘YHOO’’) (collectively, ‘‘Proposed
Deleted Symbols’’). These Proposed
Deleted Symbols would be subject to the
fees, fee caps and related discounts in
Section II of the Pricing Schedule
entitled ‘‘Multiply Listed Options Fees.’’
The Exchange believes that by assessing
the Proposed Deleted Symbols the
pricing in Section II of the Pricing
Schedule the Exchange will attract order
flow to the Exchange.
(b) Simple Orders
The Exchange proposes to amend the
Simple Order rebates and fees in
Section I, Part A of the Pricing
Schedule. Currently, the Exchange pays
the following Simple Order Rebates for
Adding Liquidity: Customer $0.26 per
contract, Specialist 14 and Market
Maker 15 $0.23 per contract, Firm and
Broker-Dealer receive no rebate and
Professional 16 receives a $0.23 per
contract rebate. The Exchange proposes
to not pay a Customer or Professional
rebate and decrease the Specialist and
Market Maker rebate from $0.23 to $0.20
per contract, however the Exchange
would only pay a Specialist or Market
Maker Rebate for Adding Liquidity in
Simple Orders if the Specialist or
Market Maker is contra to a Specialist,
Market Maker, Firm, Broker-Dealer or
Professional. In other words, the
14 A ‘‘Specialist’’ is an Exchange member who is
registered as an options specialist pursuant to Rule
1020(a).
15 A ‘‘Market Maker’’ includes Registered Options
Traders (Rule 1014(b)(i) and (ii)), which includes
Streaming Quote Traders (see Rule 1014(b)(ii)(A))
and Remote Streaming Quote Traders (see Rule
1014(b)(ii)(B)). Directed Participants are also market
makers.
16 The term ‘‘Professional’’ means any person or
entity that (i) is not a broker or dealer in securities,
and (ii) places more than 390 orders in listed
options per day on average during a calendar month
for its own beneficial account(s). See Rule
1000(b)(14).
E:\FR\FM\23JAN1.SGM
23JAN1
wreier-aviles on DSK5TPTVN1PROD with
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
Specialist or Market Maker would not
receive a Simple Order Rebate for
Adding Liquidity if they are contra to a
Customer and instead would be
assessed the Simple Order Fee for
Adding Liquidity, which will be
discussed below. The Rebate for Adding
Liquidity for Customer, Broker-Dealer,
Firm and Professional would be marked
‘‘N/A’’ as those market participants
would be assessed a Fee for Adding
Liquidity to be discussed below. In
addition, the Exchange proposes to add
a note to the Pricing Schedule
indicating the above exception to the
payment of the Specialist and Market
Maker Rebate for Adding Liquidity in
Simple Orders.
Currently, the Exchange assesses the
following Simple Order Fees for Adding
Liquidity: Customer, Specialist,
Professional and Market Maker pay no
fee, a Firm and Broker-Dealer pay $0.05
per contract. The Exchange proposes to
amend the Simple Order Fees for
Adding Liquidity as follows: a Customer
would continue to not be assessed
however instead of ‘‘N/A’’ the Exchange
would reflect the fee as ‘‘$0.00’’ on the
Pricing Schedule. A Specialist and
Market Maker would be assessed a $0.10
per contract Simple Order Fee for
Adding Liquidity, but only when contra
to a Customer order. If the Specialist or
Market Maker is contra to a Specialist,
Market Maker, Firm, Broker-Dealer or
Professional, then the Specialist or
Market Maker would be entitled to the
Simple Order Rebate for Adding
Liquidity.
As explained above, Specialists and
Market Makers receive a Rebate for
Adding Liquidity when contra to a
Specialist, Market Maker, Firm, BrokerDealer and Professional. The Firm and
Broker-Dealer Fees for Adding Liquidity
would be increased from $0.05 to $0.45
per contract. A Professional would be
assessed $0.45 per contract pursuant to
this proposal as compared to no fee.
Currently the Exchange assesses the
following Simple Orders Fees for
Removing Liquidity: A Customer is
assessed $0.43 per contract, a Specialist,
Market Maker, Firm, Broker-Dealer and
Professional are assessed $0.45 per
contract. The Exchange proposes to
decrease the Customer Fee for Removing
Liquidity from $0.43 to $0.00 per
contract. The Exchange also proposes to
decrease the Specialist, Market Maker,
Firm, Broker-Dealer and Professional
fees from $0.45 to $0.44 per contract.
The Exchange believes that decreasing
certain Simple Order fees will
incentivize market participants to send
order flow to the Exchange, particularly
Customer order flow. In addition, the
Exchange believes that the increased
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
fees would allow the Exchange to offer
additional Customer rebates as proposed
in the Customer Rebate Program to
attract liquidity to the Exchange.
(c) Complex Orders
The Exchange proposes to amend the
Complex Order rebates and fees in
Section I, Part B of the Pricing Schedule.
The Exchange currently pays the
following Complex Order Rebates for
Adding Liquidity: a Customer is paid
$0.32 per contract and Specialists,
Market Makers, Firms, Broker-Dealers
and Professionals are paid $0.10 per
contract. The Exchange proposes to
eliminate the Rebates for Adding
Liquidity in Complex Orders. Currently,
Customers are paid a $0.06 Complex
Order Rebate for Removing Liquidity.
No other market participant is paid a
Complex Order Rebate for Removing
Liquidity. The Exchange proposes to
eliminate the Customer Complex Order
Rebate for Removing Liquidity. The
Exchange’s proposal would therefore
pay no rebates in Section I, Part B with
respect to Complex Orders.
The Exchange proposes to adopt a
Complex Order Fee for Adding
Liquidity of $0.10 per contract that will
be applicable to Specialists, Market
Makers, Firms, Broker-Dealers and
Professionals. Customers would not be
assessed a Complex Order Fee for
Adding Liquidity.
The Exchange currently assesses the
following Complex Order Fees for
Removing Liquidity: $0.39 per contract
for Specialists, Market Makers, Firms,
Broker-Dealers and Professionals.
Customers are not assessed a Complex
Order Fee for Removing Liquidity. The
Exchange is proposing to decrease the
Specialist and Market Maker Complex
Order Fees for Removing Liquidity from
$0.39 to $0.25 per contract. The
Exchange proposes to increase the
Complex Order Fees for Removing
Liquidity for Firms, Broker-Dealers and
Professionals from $0.39 to $0.50 per
contract. A Customer would continue to
not be assessed a Complex Order Fee for
Removing Liquidity. The Exchange is
proposing to decrease certain fees to
incentivize market participants to
transact Complex Orders on the
Exchange and the Exchange is
proposing to increase certain fees in
order that it may offer additional rebates
in the Customer Rebate Program as
described herein.
(d) Complex Auctions, Non-Complex
Auctions and the Opening Process
Today the Exchange pays market
participants for Customer executions
that occur as part of a Complex
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
4929
electronic auction 17 and the opening
process the Complex Order Rebate for
Removing Liquidity. Customer
executions that occur as part of a nonComplex auction 18 are paid the Simple
Order Rebate for Removing Liquidity,
except when contra to another Customer
order. Today, the Exchange does not
assess a Fee for Removing Liquidity for
transactions that occur either as part of
a Complex electronic auction or a nonComplex electronic auction.
The Exchange proposes to no longer
pay rebates for Customer executions that
occur as part of a Complex electronic
auction, the opening process or a
Complex Order or a non-Complex
auction. In addition, the Exchange
would not assess any fees for
transactions that occur as part of a
Complex electronic auction, the opening
process or a non-Complex electronic
auction, as is the case today for
Customer orders. The Exchange believes
that assessing no fees and paying no
rebates for transactions executed during
certain auctions and the opening
process would benefit market
participants. While no rebates would be
paid, there would also be no fees
assessed.
Currently, the Specialists and Market
Makers pay the Simple Order Fee for
Removing Liquidity during the opening
the process. The Exchange proposes to
assess Specialists and Market Makers
the Simple Order Fee for Adding
Liquidity if contra to a Customer during
the opening process. Specialists and
Market Makers will continue to pay the
Simple Order Fee for Removing
Liquidity during the opening the
process if contra to a Specialist, Market
Maker, Firm, Broker-Dealer or
Professional.
(e) Payment for Order Flow Fees
Currently, Payment for Order Flow 19
Fees are not collected on transactions in
17 A Complex electronic auction includes, but is
not limited to, the Complex Order Live Auction
(‘‘COLA’’).
18 A non-Complex electronic auction includes the
Quote Exhaust auction and, for purposes of these
fees, the opening process.
19 The Payment for Order Flow (‘‘PFOF’’) Program
assesses fees to Specialists and Market Makers
resulting from Customer orders (‘‘PFOF Fees’’). The
PFOF fees are available to be disbursed by the
Exchange according to the instructions of the
Specialist or Market Maker to order flow providers
who are members or member organizations who
submit, as agent, Customer orders to the Exchange
through a member or member organization who is
acting as agent for those customer orders. Any
excess PFOF funds billed but not utilized by the
Specialist or Market Maker are carried forward
unless the Specialist or Market Maker elects to have
those funds rebated on a pro rata basis, reflected as
a credit on the monthly invoices. At the end of each
calendar quarter, the Exchange calculates the
E:\FR\FM\23JAN1.SGM
Continued
23JAN1
4930
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
Select Symbols.20 The Exchange is
proposing to amend the Pricing
Schedule to collect Payment for Order
Flow Fees on transactions in Select
Symbols, except when a Specialist or
Market Maker is assessed the Simple
Order Fee for Removing Liquidity, in
which case the Payment for Order Flow
fees would not apply. The Exchange
believes that assessing Payment for
Order Flow Fees on Select Symbols,
similar to other Multiply Listed
Symbols, except when a Specialist or
Market Maker is assessed the Simple
Order Fee for Removing Liquidity
would attract additional Customer order
flow to the Exchange.
The Exchange also proposes to make
a technical amendment in Section II of
the Pricing Schedule to amend the
Pricing Schedule to change the term
‘‘Single contra-side’’ in Part B of Section
II of the Pricing Schedule to ‘‘Simple
Order’’ for consistency in use of its
terms.
(f) Order Exposure Alert
wreier-aviles on DSK5TPTVN1PROD with
The Exchange recently filed to amend
Rule 1080(m) to provide for the
broadcast of certain orders that are on
the Phlx Book.21 The Exchange
proposed to broadcast orders on the
Phlx Book by issuing order exposure
alerts to all Phlx XL II 22 participants
and market participants that subscribe
to certain data feeds. The Exchange
proposes to specify in Section II of its
Pricing Schedule that no Payment for
Order Flow Fees would be assessed on
transactions which execute against an
order for which the Exchange broadcast
an order exposure alert in Penny Pilot
Options, including Select Symbols. By
eliminating Payment for Order Flow
Fees the Exchange desires to spur
Specialists and Market Makers to
transact against orders that triggered the
broadcast message.
amount of excess funds from the previous quarter
and subsequently rebates excess funds on a pro-rata
basis to the applicable Specialist or Market Maker
who paid into that pool of funds.
20 The Select Symbols are listed in Section I of
the Pricing Schedule.
21 See Securities Exchange Act Release No. 68517
(December 21, 2012), 77 FR 77134 (December 31,
2012) (SR–Phlx–2012–136).
22 This proposal refers to ‘‘PHLX XL®’’ as the
Exchange’s automated options trading system. In
May 2009 the Exchange enhanced the system and
adopted corresponding rules referring to the system
as ‘‘Phlx XL II.’’ See Securities Exchange Act
Release No. 59995 (May 28, 2009), 74 FR 26750
(June 3, 2009) (SR–Phlx–2009–32). The Exchange
intends to submit a separate technical proposed
rule change that would change all references to the
system from ‘‘Phlx XL II’’ to ‘‘PHLX XL’’ for
branding purposes.
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
Section IV Amendments
(a) PIXL
The Exchange proposes to amend
Section IV of the Pricing Schedule at
Part A. Currently, the Exchange assesses
an Initiating Order 23 a $0.07 per
contract or $0.05 per contract fee if the
Customer Rebate Program Threshold
Volume, defined in Section A, is greater
than 275,000 contracts per day in a
month. The Exchange is proposing to
instead assess an Initiating Order a
$0.07 per contract or $0.05 per contract
fee if the Customer Rebate Program
Threshold Volume defined in Section A
is greater than 100,000 contracts per day
in a month.
In addition, the Exchange also
proposes to permit Phlx members and
member organizations under common
ownership to aggregate their Customer
Rebate Program Threshold Volume in
order to determine if they qualify for the
$0.07 or $0.05 per contract Initiating
Order fee. Common ownership is
defined as 75 percent common
ownership or control.
Today, when a PIXL order in a Select
Symbol 24 is contra to a PIXL Auction
Responder, the Exchange will either pay
a Rebate for Adding Liquidity or assess
a Fee for Adding Liquidity in Section I
of the Pricing Schedule. Today, a
Responder is assessed $0.30 per
contract. The Exchange proposes to
amend the PIXL pricing for order
executions in Select Symbols as follows:
when a PIXL Order in a Select Symbol
is contra to a PIXL Auction Responder,
the PIXL Order would be assessed the
Fee for Adding Liquidity in Section I
and the Responder would be assessed
$0.30 per contract, unless the Responder
is a Customer, in which case the fee
would be $0.00 per contract.
Additionally, today when a PIXL
Order in a Select Symbol is contra to a
resting order or quote that was on the
PHLX book prior to the auction, the
PIXL Order is assessed $0.30 per
contract and the resting order or quote
is either paid the Rebate for Adding
Liquidity or assessed the Fee for Adding
Liquidity in Section I. Today, if the
resting order or quote that was on the
PHLX book was entered during the
Auction, the PIXL Order receives the
23 A member may electronically submit for
execution an order it represents as agent on behalf
of a public customer, broker-dealer, or any other
entity (‘‘PIXL Order’’) against principal interest or
against any other order (except as provided in Rule
1080(n)(i)(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. See Exchange
Rule 1080(n).
24 Select Symbols are subject to the rebates and
fees in Section I of the Pricing Schedule.
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
Rebate for Adding Liquidity or is
assessed the Fee for Adding Liquidity in
Section I and the resting order or quote
is assessed $0.30 per contract. The
Exchange proposes to amend the PIXL
pricing for order executions in Select
Symbols as follows: when the PIXL
Order is contra to a resting order or
quote that was on the PHLX book prior
to the auction, the PIXL Order would be
assessed the Fee for Removing Liquidity
not to exceed $0.30 per contract and the
resting order or quote would be assessed
the Fee for Adding Liquidity in Section
I. Further, the Exchange proposes that if
the resting order or quote that was on
the PHLX book was entered during the
Auction, the PIXL Order would be
assessed the Fee for Adding Liquidity in
Section I and the resting order or quote
would be assessed the Fee for Removing
Liquidity not to exceed $0.30 per
contract.
The Exchange proposes to eliminate
the payment of rebates, not assess fees
and lower the Threshold Volume to
100,000 contracts per day in a month in
order to incentivize market participants
to transact PIXL Orders.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Pricing Schedule
is consistent with Section 6(b) of the
Act 25 in general, and furthers the
objectives of Section 6(b)(4) of the Act 26
in particular, in that it is an equitable
allocation of reasonable fees and other
charges among Exchange members and
other persons using its facilities.
Customer Rebate Program
The Exchange’s proposal to amend its
Customer Rebate Program in Section A
of the Pricing Schedule is reasonable
because the Exchange believes that the
amended Customer Rebate Program,
including the addition of Category D,
would further incentivize market
participants to transact Customer order
flow on the Exchange, which liquidity
will benefit all market participants. The
Exchange believes that reducing the
Customer Rebate Program to a threetiered rebate structure and amending the
tier volumes is reasonable because it
should incentivize market participants
to increase the amount of Customer
orders that are transacted on the
Exchange to obtain a rebate. The
Exchange proposes herein to amend the
Average Daily Volume Threshold to
only exclude QCC Orders,27 which
25 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
27 Today, the Average Daily Volume Threshold is
calculated by totaling Customer volume in Multiply
Listed Options (including Select Symbols) that are
electronically-delivered and executed, except
26 15
E:\FR\FM\23JAN1.SGM
23JAN1
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
wreier-aviles on DSK5TPTVN1PROD with
should permit market participants to
include additional orders in the Average
Daily Volume Threshold and obtain
larger rebates on eligible contracts. In
addition, other exchanges employ
similar incentive programs.28
The Exchange believes that the
proposal to amend the rebate tiers is
equitable and not unfairly
discriminatory because while market
participants would need to transact a
greater number of contracts to achieve a
Tier 2 or 3 rebate, the Exchange is also
amending the Average Daily Volume
Threshold to allow market participants
to receive a rebate on a greater number
of eligible contracts. The Exchange’s
proposal to amend its rebates is
equitable and not unfairly
discriminatory for the following
reasons. With respect to Tier 1 which is
currently 0 to 49,999 contracts in a
month and would be 0 to 99,999
contracts in a month pursuant to this
proposal, the Exchange would continue
to pay no rebate. For those market
participants executing from 1 to 49,999
contracts, this is the same as today. For
those market participants that currently
transact 50,000 to 99,999 contracts, they
would not be eligible for a rebate under
the proposal. The Exchange believes
that market participants would be
incentivized to transact a greater
number of contracts in order to obtain
a rebate in Tiers 2 or 3. With respect to
Tier 2 which is currently 50,000 to
99,999 contracts in a month, the
proposal would amend the contract
volume to 100,000 to 349,999 contracts
in a month which today is the volume
necessary to obtain a Tier 2 rebate or a
Tier 3 rebate if the number of contracts
is greater than 275,000. A Category A 29
rebate would remain the same as the
Exchange proposes to increase Tier 2 in
Category A from $0.07 to $0.10 per
contract. The Exchange would pay a
volume associated with: (i) Electronically-delivered
and executed Customer Simple Orders in Select
Symbols that remove liquidity; and (ii) electronic
QCC Orders, as defined in Exchange Rule 1080(o).
28 See the Chicago Board Options Exchange,
Incorporated’s (‘‘CBOE’’) Fees Schedule. CBOE
offers each Trading Permit Holder (‘‘TPH’’) a credit
for each public customer order transmitted by the
TPH which is executed electronically in all
multiply-listed option classes, excluding QCC
trades and executions related to contracts that are
routed to one or more exchanges in connection with
the Options Order Protection and Locked/Crossed
Market Plan, provided the TPH meets certain
volume thresholds in a month (Volume Incentive
Program).
29 A Category A rebate is paid to members
executing electronically-delivered Customer Simple
Orders in Penny Pilot Options and Customer
Simple Orders in Non-Penny Pilot Options in
Section II. Rebates are paid on PIXL Orders in
Section II symbols that execute against nonInitiating Order interest.
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
lower rebate in Category B 30 which
would increase from $0.10 to $0.12 per
contract. Today, a Tier 2, Category B
rebate receives a $0.14 per contract
rebate up to 274,999 contracts. A market
participant executing between 100,000
to 274,999 contracts today would
receive a lower rebate ($0.12 per
contract as compared to $0.14 per
contract). A Category C 31 rebate would
increase for those market participants
transacting between 100,000 to 274,999
contracts. Today, a market participant
receives no rebate for transacting up to
99,999 contracts in Category C. The
Exchange is proposing to pay $0.13 per
contract in Category C to market
participants that execute between
100,000 and 349,999 contracts in a
month. The Exchange also proposes to
increase the volume required for current
Tier 4 which awards rebates over
275,000 contracts in a month to create
a new Tier 3 to award rebates over
350,000 contracts in a month. A market
participant executing over 275,000
contracts today in Category A would
receive a $0.12 per contract rebate. As
mentioned, that rebate would decrease
between 100,000 to 349,999 contracts to
$0.10 per contract, but would increase
over 350,000 contracts to $0.15 per
contract. A market participant executing
over 275,000 contracts today in Category
B would receive $0.15 per contract. As
mentioned, that rebate would decrease
between 100,000 to 349,999 contracts to
$0.12 per contract and would remain
the same over 350,000 contracts. A
market participant executing over
275,000 contracts today in Category C
would receive a $0.06 rebate. As
mentioned, that rebate would increase
between 100,000 to 349,999 contracts to
$0.13 per contract and would also
increase over 350,000 contracts to $0.15
per contract. The Exchange believes that
while market participants in Categories
A and B would need to execute
additional contracts to receive the same
or greater rebates, the Exchange believes
that it continues to incentivize those
market participants to direct Customer
orders to the Exchange. With respect to
Category C, the Exchange is providing
greater incentives to transact Customer
Complex Orders in Select Symbols.
The Exchange believes that the
addition of Category D is reasonable
because the Exchange is incentivizing
market participants to transact Customer
Simple Orders in Select Symbols by
30 A Category B rebate is paid to members
executing electronically-delivered Customer
Complex Orders in Penny Pilot Options and NonPenny Pilot Options in Section II.
31 A Category C rebate is paid to members
executing electronically-delivered Customer
Complex Orders in Select Symbols in Section I.
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
4931
offering a rebate. The Exchange also
believes that the Category D rebates are
equitable and not unfairly
discriminatory because all market
participants that direct Customer
Simple Orders in Select Symbols are
eligible for the rebates. The Exchange
would pay a Category D rebate of $0.05
per contract to a market participant that
transacts between 100,000 and 349,999
contracts in a month. Additionally, the
Exchange would pay a Category D rebate
of $0.07 per contract to a market
participant that transacts over 350,000
contracts in a month.32
The Exchange’s amended rebate
calculation is reasonable because the
Exchange proposes to include Customer
volume in Multiply Listed Options
(including Select Symbols) that are
electronically-delivered and executed,
except volume associated with QCC
Orders as defined in Exchange Rule
1080(o). Volume associated with
electronically-delivered Customer
Simple Orders in Select Symbols that
remove liquidity would be included as
part of this proposal. This volume is
currently excluded. The Exchange
believes that the inclusion of the
electronically-delivered Customer
Simple Orders in Select Symbols that
remove liquidity would allow market
participants to obtain greater rebates. In
addition, the Exchange believes that the
amended rebate calculation is equitable
and not unfairly discriminatory because
the calculation would apply uniformly
to all market participants.
The Exchange’s proposal to reduce
Routing Fees 33 in Section V of the
Exchange’s Pricing Schedule for
member organizations that qualify for a
Tier 2 or Tier 3 Customer Rebate in
Section A of the Pricing Schedule is
reasonable because the Exchange
proposes to provide an additional
incentive for transacting Customer
orders on the Exchange. The Exchange
believes that providing a credit of $0.04
per contract toward the Routing Fee
specified in Section V of the Pricing
Schedule if a Customer order is routed
to BX Options or NOM and a $0.10 per
contract credit toward the Routing Fee
specified in Section V of the Pricing
32 The Exchange would not pay a Category D
rebate for contract volume below 100,000 contracts.
33 Each destination market’s transaction charge
varies and there is a cost incurred by the Exchange
when routing orders to away markets. The costs to
the Exchange include clearing costs, administrative
and technical costs associated with operating NOS
that are assessed on the Exchange, membership fees
at away markets, and technical costs associated
with routing options. The Routing Fees enable the
Exchange to recover the costs it incurs to route
orders to away markets in addition to transaction
fees assessed to market participants for the
execution of orders by the away market.
E:\FR\FM\23JAN1.SGM
23JAN1
4932
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
Schedule if the Customer order is routed
to away market other than BX Options
or NOM would encourage market
participants to transact their Customer
orders on the Exchange because they
have the opportunity to receive a Tier 2
or Tier 3 rebate and also reduce Routing
Fees. The Exchange believes that the
proposal to reduce Routing Fees in
Section V of the Exchange’s Pricing
Schedule for members that qualify for a
Tier 2 or Tier 3 Customer Rebate in
Section A of the Pricing Schedule is
equitable and not unfairly
discriminatory because any market
participant that transacts Customer
orders may qualify for the credit. Also,
the Routing Fees specified in Section V
of the Pricing Schedule are lower for a
Customer order routed to BX Options or
NOM today and higher for an away
market other than BX Options or
NOM.34
Section I Amendments
wreier-aviles on DSK5TPTVN1PROD with
The Exchange believes that it is
reasonable to remove the Proposed
Deleted Symbols from its list of Select
Symbols to attract additional order flow
to the Exchange. The Exchange believes
that applying the pricing in Section II of
the Pricing Schedule to the Proposed
Deleted Symbols, including the
opportunity to receive payment for
order flow, will attract order flow to the
Exchange.
The Exchange believes that it is
equitable and not unfairly
discriminatory to amend its list of Select
Symbols to remove the Proposed
Deleted Symbols because the list of
Select Symbols would apply uniformly
to all categories of participants in the
same manner. All market participants
who trade the Select Symbols would be
subject to the rebates and fees in Section
I of the Pricing Schedule, which would
not include the Proposed Deleted
Symbols. Also, all market participants
would be uniformly subject to the fees
34 The Exchange assesses a fixed fee of $0.10 per
contract for non-NASDAQ OMX exchanges and a
$0.04 per contract fee for BX Options and NOM.
These fixed costs represent overall cost to the
Exchange for technical, administrative, clearing,
regulatory, compliance and other costs, which are
in addition to the transaction fee assessed by the
away market. Also, market participants whose
orders routed to away markets are entitled to
receive rebates offered by away markets, which
rebates would net against fees assessed by the
Exchange for routing orders. As explained in a
previous rule change, the actual cash outlays for the
Exchange to route to BX Options and NOM is lower
as compared to routing to other non-NASDAQ OMX
exchanges. See Securities Exchange Act Release No.
68213 (November 13, 2012), 77 FR 69530
(November 19, 2012) (SR–Phlx–2012–129). The
Exchange noted in that rule change that the costs
related to connectivity to route orders to other
NASDAQ OMX exchanges are de minimis.
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
in Section II, which would include the
Proposed Deleted Symbols.
The Exchange’s proposal to amend
the Simple Order rebates and fees in
Section I, Part A of the Pricing Schedule
is reasonable because the Exchange is
proposing to only pay rebates to
Specialists and Market Makers in
limited circumstances and only when
the Exchange is able to fund that rebate
with a Simple Order Fee for Removing
Liquidity. In other words, if a Specialist
or Market Maker is contra to a
Specialist, Market Maker, Firm, BrokerDealer or Professional, these market
participants pay Simple Order Fees for
Removing Liquidity, which fund the
rebate to the Specialist or Market Maker.
When a Specialist or Market Maker is
contra to a Customer, then the Specialist
or Market Maker would pay the Simple
Order Fee for Adding Liquidity because
the Customer is assessed no Simple
Order Fee for Removing Liquidity
pursuant to this proposal and instead
receives the rebates defined in Category
D. The Exchange is reducing the Simple
Order Fees for Removing Liquidity
because it is no longer paying certain
Simple Order rebates to Customers or
Professionals. The Exchange believes
that its proposal to assess Simple Order
Fees for Adding Liquidity is reasonable
because as explained herein, the
Exchange is funding the rebates it offers
to Specialists and Market Makers with
those Simple Order Fees for Adding
Liquidity.
The Exchange’s proposal to amend
the Simple Order rebates and fees in
Section I, Part A of the Pricing Schedule
is equitable and not unfairly
discriminatory for the reasons which
follow. With respect to Customers, the
Exchange would no longer assess a
Customer the $0.43 per contract Simple
Order Fee for Removing Liquidity, the
Exchange would continue not to assess
a Customer a Simple Order Fee for
Adding Liquidity, as is the case today.
In light of eliminating these fees, the
Exchange proposes to no longer pay the
$0.26 per contract Simple Order Rebate
for Adding Liquidity. Customer order
flow is assessed no fee because
incentivizing members to continue to
offer Customer trading opportunities in
Simple Orders benefits all market
participants through increased liquidity.
The Exchange instead proposes to pay
Customer rebates for Simple Orders in
Select Symbols as part of proposed
Category D to the Customer Rebate
Program in Section A.35 Market
35 The Exchange believes that market participants
would continue to be incentivized to send
Customer order flow to the Exchange because the
Customer Rebate Program would pay rebates on
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
participants would continue to be
incentivized to send Customer order
flow to the Exchange and would receive
rebates as part of the Customer Rebate
Program and would also not pay fees.
With respect to the Simple Order
Rebate for Adding Liquidity, the
Exchange proposes to reduce the rebates
for Specialists and Market Makers from
$0.23 to $0.20 per contract and not pay
a Professional a rebate 36 because the
Exchange proposes to offer market
participants greater rebates as part of the
Customer Rebate Program in Section A.
The Exchange proposes to only pay
Specialists and Market Makers a Simple
Order Rebate for Adding Liquidity, in
limited circumstances, because unlike
other market participants, Specialists
and Market Makers have burdensome
quoting obligations 37 to the market.
Specialists and Market Makers would
only be paid a Simple Order Rebate for
Adding Liquidity when the Specialist or
Market Maker is contra to a Specialist,
Market Maker, Firm, Broker-Dealer and
Professional. The Exchange believes that
its proposal to only pay a Specialist or
Market Maker a Simple Order Rebate for
Adding Liquidity as long as the
Specialist or Market Maker is not contra
to a Customer is equitable and not
unfairly discriminatory because the
Exchange is only paying Specialists and
Market Makers a Simple Order Rebate to
Add Liquidity when it is able to fund
that rebate with a Fee for Removing
Liquidity. In the case of a Customer, the
Exchange proposes not to assess a
Customer a Simple Order Fee for
Removing Liquidity and therefore in
that instance the Exchange would assess
the Specialist or Market Maker the
Simple Order Fee for Adding Liquidity.
With respect to the Simple Order Fees
for Adding Liquidity, the Exchange
currently only assesses Firms, BrokerDealer and Professionals a $0.05 per
contract fee. The Exchange proposes to
increase those fees to $0.45 per contract
for Firms, Broker-Dealer and
Professionals to permit the Exchange to
continue to pay Customer rebates as
proposed in Section A of the Pricing
Schedule. The Exchange would assess
electronic orders, as is the case today for the rebates
that are being eliminated in Section I, Parts A and
B. Transactions in the Select Symbols originating
on the Exchange floor are subject to pricing in
Section II and would not be subject to the rebates
in the Customer Rebate Program, as is the case
today. The rebates in Section I, Parts A and B are
paid on electronic orders today. Also, the Customer
Rebate Program would pay rebates on both adding
and removing liquidity similar to the rebates that
are being eliminated in Section I, Parts A and B.
36 Today, a Professional is paid a $0.23 per
contract Simple Order Rebate for Adding Liquidity.
37 See Rule 1014 titled ‘‘Obligations and
Restrictions Applicable to Specialists and
Registered Options Traders.’’
E:\FR\FM\23JAN1.SGM
23JAN1
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
wreier-aviles on DSK5TPTVN1PROD with
these market participants the same fee
because as explained herein the
proposed differentiation as between
Customers, Specialists and Market
Makers and other market participants
(Professionals, Firms and BrokerDealers) recognizes the differing
contributions made to the liquidity and
trading environment on the Exchange by
these market participants. As noted
previously, the Exchange is proposing
not to assess Customers Simple Order
fees. The Exchange proposes to assess
Specialists and Market Makers a lower
fee of $0.10 per contract to recognize the
obligations born by these market
participants.
With respect to the Simple Order Fees
for Removing Liquidity, the Exchange
proposes to decrease the fee from $0.45
to $0.44 per contract for Specialists,
Market Makers, Professionals, Firms and
Broker-Dealers. The Exchange proposes
to continue to assess, uniformly, the
same fees for all market participants
except Customers, as is the case today.
As noted previously, the Exchange is
proposing not to assess Customers
Simple Order fees.38
The Exchange’s proposal to make
technical amendments to the Simple
Order Fees for Adding Liquidity to
remove ‘‘N/A’’ and instead note the fee
as ‘‘$0.00’’ on the Pricing Schedule is
reasonable, equitable and not unfairly
discriminatory because the Exchange
proposes to indicate that no fee is being
assessed to clarify the Pricing Schedule.
As stated herein, the Exchange’s
proposal to amend Complex Order
rebates and fees in Section I, Part B of
the Pricing Schedule are reasonable
because the Exchange is proposing to
only pay rebates in limited
circumstances 39 and only when the
Exchange is able to fund that rebate
with a Complex Order Fee for Removing
Liquidity as described more fully above.
The Exchange is proposing to decrease
certain fees to incentivize Specialists
and Market Makers to add Complex
Order liquidity to the market and the
Exchange is proposing to increase
certain fees for Firms, Broker-Dealers
and Professionals in order that it may
offer additional rebates in the Customer
Rebate Program in Section A as
described herein.
The Exchange’s proposal to amend
the Complex Order rebates and fees in
38 Today, the Exchange reduces its Fees for
Removing Liquidity, applicable to Specialists and
Market Makers, by $0.05 per contract when the
Specialist or Market Maker transacts against a
Customer Order directed to that Specialist or
Market Maker for execution. This is not changing
with this proposal.
39 The Exchange is only proposing to pay rebates
to Specialists and Market Makers when they are not
contra to a Customer order as described herein.
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
Section I, Part B of the Pricing Schedule
are equitable and not unfairly
discriminatory for the reasons which
follow. The Exchange is proposing to
eliminate the Complex Order Rebate for
Adding Liquidity and the Rebate for
Removing Liquidity because the
Exchange is amending its Customer
Rebate Program in Section A of the
Pricing Schedule to include an
opportunity to obtain greater rebates.
The Exchange is proposing to adopt a
Complex Order Fee for Adding
Liquidity and assess all market
participants, except Customers a fee of
$0.10 per contract. The Exchange
believes that uniformly assessing market
participants, other than Customers, a
$0.10 per contract Complex Order Fee
for Adding Liquidity is equitable and
not unfairly discriminatory. The
Exchange proposes to no longer assess
Customers Complex Order fees. Today,
the Exchange does not assess a
Customer Complex Order Fee for
Removing Liquidity and would likewise
assess no Customer Complex Order Fee
for Adding Liquidity with this proposal.
Customer order flow is assessed no fee
because incentivizing members to
continue to offer Customer trading
opportunities in Complex Orders
benefits all market participants through
increased liquidity.
With respect to the Complex Order
Fees for Removing Liquidity, as
previously noted, the Exchange would
continue to not assess a Customer a
Complex Order Fee for Removing
Liquidity. Today, Specialists, Market
Makers, Firms, Broker-Dealers and
Professionals all pay a $0.39 per
contract Complex Order Fee for
Removing Liquidity. The Exchange
proposes to reduce the Specialist and
Market Maker fee to $0.25 per contract
and increase the Firm, Broker-Dealer
and Professional fees to $0.50 per
contract. The Exchange assesses
Specialists and Market Maker lower fees
as compared to other market
participants, other than Customers,
because Specialists and Market Makers
have burdensome quoting obligations 40
to the market. In this case, the Exchange
is proposing to increase the fee
differential in assessing the Complex
Order Fee for Removing Liquidity as
between Specialist and Market Makers
and other non-Customer market
participants from 0 to $0.25 per contract
($0.25 vs. $0.50 per contract). The
Exchange believes that this fee
differential is equitable and not unfairly
discriminatory because Specialists and
40 See Rule 1014 titled ‘‘Obligations and
Restrictions Applicable to Specialists and
Registered Options Traders.’’
PO 00000
Frm 00106
Fmt 4703
Sfmt 4703
4933
Market Makers are valuable market
participants that provide liquidity in the
marketplace and incur costs unlike
other market participants including, but
not limited to, PFOF and other costs
associated with market making
activities,41 which results in a higher
average cost per execution as compared
to Firms, Broker-Dealers and
Professionals. The Exchange believes
that the fees assessed to Specialists and
Market Makers in Complex Orders
remain aligned with fees assessed to
Firms, Broker-Dealer and Professionals
when other costs are taken into account.
The Exchange’s proposal to amend
the Pricing Schedule to change ‘‘Single
contra-side’’ in Part B of Section II of the
Pricing Schedule to ‘‘Simple’’ is
reasonable, equitable and not unfairly
discriminatory because it would further
clarify the Pricing Schedule.
The Exchange’s proposal to amend
Part C of Section I of the Pricing
Schedule to no longer pay rebates for
Customer executions that occur as part
of a Complex electronic auction, the
opening process or a non-Complex
auction is reasonable because the
Exchange proposes to pay Customer
rebates as proposed in Section A of the
Pricing Schedule. Also, the Exchange
has proposed a similar elimination of
Customer rebates in Section I, Parts A
and B of the Pricing Schedule. In
addition, the Exchange’s proposal to not
assess any fees for transactions that
occur as part of a Complex electronic
auction, the opening process or a nonComplex electronic auction is
reasonable because those transactions
would not be subject to rebates. Today,
the Exchange does not assess Customer
fees on Complex electronic auctions, the
opening process or non-Complex
electronic auctions. The Exchange
believes that it is reasonable to neither
pay rebates nor assess fees on these
types of transactions and market
participants would continue to be
incentivized to transact these types of
orders on the Exchange.
The Exchange believes that its
proposal to no longer pay rebates for
Customer executions that occur as part
of a Complex electronic auction, the
opening process or a non-Complex
auction and to no longer assess fees for
transactions that occur as part of a
Complex electronic auction, the opening
process or a non-Complex electronic
auction is equitable and not unfairly
41 Specialists and Market Makers pay for certain
data feeds including the SQF Port Fee. SQF Port
Fees are listed in the Exchange’s Pricing Schedule
at Section VII. SQF is an interface that allows
Specialists and Market Makers to connect and send
quotes into Phlx XL and assists them in responding
to auctions and providing liquidity to the market.
E:\FR\FM\23JAN1.SGM
23JAN1
wreier-aviles on DSK5TPTVN1PROD with
4934
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
discriminatory because the Exchange
proposes to not pay rebates or assess
fees during auctions and opening, as
specified herein, uniformly with respect
to all market participants.
The Exchange’s proposal to collect
Payment for Order Flow Fees on
transactions in Select Symbols, except
when a Specialist or Market Maker is
assessed the Simple Order Fee for
Removing Liquidity, is reasonable
because it would attract additional
Customer order flow to the Exchange
because of the benefit that order flow
providers would obtain from the
Payment for Order Flow Program.42
The Exchange’s proposal to assess
Specialists and Market Makers the
Simple Order Fee for Adding Liquidity
if contra to a Customer during the
opening process is reasonable because
the Exchange desires to incentivize
Specialists and Market Makers to
transact orders during the opening
process by lowering costs when the
Specialist or Market Maker trades
against a Customer.
The Exchange’s proposal to assess
Specialists and Market Makers the
Simple Order Fee for Adding Liquidity
if contra to a Customer during the
opening process is equitable and not
unfairly discriminatory because
Specialists and Market Makers serve an
important role on the Exchange with
regard to order interaction. The
Exchange believes that incentivizing
Specialists and Market Makers to
transact a greater number of orders at
the open by offering lower pricing
would benefit all market participants
through increased order interaction.
The Exchange’s proposal to collect
Payment for Order Flow Fees on
transactions in Select Symbols, except
when a Specialist or Market Maker is
assessed the Simple Order Fee for
Removing Liquidity is equitable and not
unfairly discriminatory because the
Exchange today collects assesses
Specialists and Market Makers Payment
for Order Flow Fees on all Multiply
Listed Options except Select Symbols.
The Exchange believes that not
assessing Specialists and Market Makers
Payment for Order Flow Fees when the
Simple Order Fee for Removing
Liquidity is assessed is equitable and
not unfairly discriminatory because the
Exchange does not desire to unfairly
disadvantage Specialists and Market
Makers by assessing them a $0.44 per
contract Simple Order Fee for Removing
Liquidity as well as a $0.25 per contract
42 The PFOF Program assists Specialists and
Market Maker establish PFOF arrangements with an
order flow provider in exchange for that order flow
provider directing some or all of its order flow to
that Specialist or Market Maker.
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
Payment for Order Flow fee. The
Exchange believes that in this instance
the fee would be much higher as
compared to other market participants
and does not proposes to assess the fee.
The Exchange’s proposal to not assess
PFOF on transactions which execute
against an order for which the Exchange
broadcast an order exposure alert in
Penny Pilot Options is reasonable the
Exchange believes that it would serve to
incentivize Specialists and Market
Makers to remove liquidity from the
Phlx Book. The Exchange believes that
the broadcast message, which alerts
market participants to orders placed on
the Phlx book combined with the
opportunity to not be assessed PFOF in
Penny Pilot Options would serve to
incentivize participants to remove
liquidity. The Exchange believes that all
market participants would benefit from
such an incentive which would lead to
greater order interaction and may
further reduce fees related to routing.
The Exchange’s proposal to not assess
PFOF on transactions which execute
against an order for which the Exchange
broadcast an order exposure alert in
Penny Pilot Options is equitable and not
unfairly discriminatory because the
Exchange would not assess any
Specialist or Market Maker such a PFOF
fee regardless of whether or not that
Specialist or Market Maker was aware of
the alert at the time of execution.
Section IV Amendments
The Exchange’s proposal to amend
Section IV of the Pricing Schedule at
Part A to decrease the Threshold
Volume from 275,000 to 100,000
contracts per day in a month is
reasonable because the lower Threshold
Volume should allow a greater number
of market participants to obtain the
requisite volume to be assessed the
lower $0.05 per contract fee. The
Exchange’s proposal to amend Section
IV of the Pricing Schedule at Part A to
decrease the Threshold Volume from
275,000 to 100,000 contracts per day in
a month is equitable and not unfairly
discriminatory because it would be
uniformly assessed on all market
participants.
In addition, the Exchange’s proposal
to permit Phlx members and member
organizations under common
ownership 43 to aggregate their
Customer Rebate Program Threshold
Volume in order to determine if they
qualify for the $0.07 or $0.05 per
contract Initiating Order fee is
reasonable because the Exchange desires
to provide all market participants the
43 Common ownership is defined as 75 percent
common ownership or control.
PO 00000
Frm 00107
Fmt 4703
Sfmt 4703
ability to obtain the lower Initiating
Order Fee. The Exchange believes that
its proposal to permit Phlx members
and member organizations under
common ownership to aggregate their
Customer Rebate Program Threshold
Volume for purposes of the Initiating
Order fee is equitable and not unfairly
discriminatory because the Exchange
would permit all market participants the
ability to aggregate for purposes of the
fee even if certain members and member
organizations chose to operate under
separate entities. The Exchange
currently permits such aggregation in
the calculation of the Monthly Market
Maker Cap.44
The Exchange’s proposal to amend
the PIXL pricing for order executions in
Select Symbols by assessing a PIXL
Order the Fee for Adding Liquidity in
Section I and the Responder the $0.30
per contract fee unless the Responder is
a Customer, in which case no fee is
assessed, when a PIXL Order in a Select
Symbol is contra to a PIXL Auction
Responder is reasonable because the
Exchange is proposing to only pay
Rebates to Add Liquidity in Section I to
Specialists and Market Makers in
certain circumstances 45 and is not
otherwise paying rebates except as
proposed in Section A of the Pricing
Schedule as part of the Customer Rebate
Program. The Exchange does not desire
to assess Customers fees and therefore is
amending the PIXL pricing to not assess
a fee if the Responder is contra to a
Customer. The Exchange desires to
incentivize market participants to send
Customer order flow by offering the
Customer Rebates in Section A and not
assessing Customers fees in Section I of
the Pricing Schedule. Customer order
flow benefits all market participants by
increased liquidity. In addition, the
Exchange believes that the proposed
amendments to Section IV would align
the pricing with respect to Select
Symbols to the amendments that are
proposed herein in Section I, Parts A
and B. The Exchange also believes that
market participants would still be able
to obtain rebates for PIXL orders
44 See Section II of the Pricing Schedule.
Specialists and Market Makers are subject to a
‘‘Monthly Market Maker Cap’’ of $550,000 for: (i)
Equity option transaction fees; (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 will be
aggregated in calculating the Monthly Market Maker
Cap if there is at least 75% common ownership
between the member organizations.
45 The Rebate for Adding Liquidity will be paid
to a Specialist or Market Maker only when the
Specialist or Market Maker is contra to a Specialist,
Market Maker, Firm, Broker-Dealer or Professional.
E:\FR\FM\23JAN1.SGM
23JAN1
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
wreier-aviles on DSK5TPTVN1PROD with
because the Exchange proposes to pay
rebates on PIXL Orders in Section I
symbols that execute against nonInitiating Order interest as part of
proposed Category D of the Customer
Rebate Program.
The Exchange’s proposal to amend
the PIXL pricing for order executions in
Select Symbols by assessing the Fee for
Removing Liquidity not to exceed $0.30
per contract when the PIXL Order is
contra to a resting order or quote that
was on the PHLX book prior to the
auction and assessing the resting order
or quote the Fee for Adding Liquidity in
Section I is reasonable because the
Exchange has amended certain of its
Fees for Removing Liquidity in Section
I below $0.30 per contract and desires
to assess the lower fee where applicable
to market participants to further
incentivize market participants to
transact PIXL orders in Select Symbols.
The Exchange’s elimination of the
Rebate to Add Liquidity with respect to
PIXL Orders and the resting order or
quote is reasonable because the
Exchange is proposing to only pay
Rebates to Add Liquidity in Section I to
Specialists and Market Makers in
certain circumstances 46 and is not
otherwise paying rebates except as
proposed in Section A of the Pricing
Schedule.47
The Exchange’s proposal to amend
the PIXL Pricing by eliminating the
Rebates to Add Liquidity in Select
Symbols and assess the Fee for
Removing Liquidity not to exceed $0.30
per contract is equitable and not
unfairly discriminatory because the
Exchange would uniformly apply the
pricing to all market participants
transacting PIXL orders. The Exchange’s
elimination of the Rebates for Adding
Liquidity would impact Specialists and
Market Makers because they are the
only market participants entitled to
rebates in certain circumstances in
Section I. The Exchange believes this is
equitable and not unfairly
discriminatory because Specialists and
Market Makers also benefit from being
assessed the lower Fee for Removing
Liquidity in Complex Orders as
proposed herein, while other market
participants are assessed $0.30 per
contract. The Exchange assessed this
lower fee because these market
46 The Rebate for Adding Liquidity will be paid
to a Specialist or Market Maker only when the
Specialist or Market Maker is contra to a Specialist,
Market Maker, Firm, Broker-Dealer or Professional.
47 Market participants would still be able to
obtain rebates for PIXL orders because the Exchange
proposes to pay rebates on PIXL Orders in Section
I symbols that execute against non-Initiating Order
interest as part of proposed Category D of the
Customer Rebate Program.
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
participants bear obligations not born by
other market participants. The Exchange
also believes that assessing the Fee for
Removing Liquidity not to exceed $0.30
per contract specifically benefits
Customers because they would not be
assessed a fee pursuant to this proposal
with respect to Simple Orders.
Incentivizing Customer order flow
benefits all market participants through
increased liquidity.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange operates in a highly
competitive market, comprised of
eleven exchanges, in which market
participants can easily and readily
direct order flow to competing venues if
they deem fee levels at a particular
venue to be excessive or rebates to be
inadequate. Accordingly, the fees that
are assessed and the rebates paid by the
Exchange described in the above
proposal are influenced by these robust
market forces and therefore must remain
competitive with fees charged and
rebates paid by other venues and
therefore must continue to be reasonable
and equitably allocated to those
members that opt to direct orders to the
Exchange rather than competing venues.
The Exchange believes that the
Customer Rebate Program will
encourage Customer order flow to be
directed to the Exchange, which will
benefit all market participants. The
Exchange believes that not assessing
Customers fees in Section I would also
encourage market participants to direct
Customer orders to the Exchange. The
Exchange also believes that encouraging
Specialists and Market Makers to
remove liquidity from the book by
incentivizing them with lower fees
would benefit order interaction on the
Exchange to the benefit of all market
participants and therefore does not
create a burden on competition. To the
extent that the Exchange is increasing
certain fees, those fees would permit the
Exchange to offer the proposed
Customer Rebate Program which
benefits the market. Further, the fee
increases impact all non-Customer
members in a similar fashion and are
comparable to fees assessed at other
venues for transactions in similarly
situated options. With respect to the
Complex Order Fee for Removing
Liquidity, the Exchange believes that
the differential as between Specialists
and Market Makers as compared to
Firms, Broker-Dealers and Professionals
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
4935
must be considered in light of other fees
which are applied to Specialists and
Makers and are not assessed on Firms,
Broker-Dealers and Professionals, such
as the PFOF fee of $0.25 per contract.
When this additional fee and other fees
paid by Specialists and Market Makers
are taken into consideration, the
Exchange does not believe that the
proposed increase to the Complex Order
Fee for Removing Liquidity creates a
burden on these market participants.
Rather, the cost to transact orders for
non-Customers become more closely
aligned when the total costs is
transacting a Complex Order is taken
into account as Specialists and Market
Makers are contra to a Customer in most
cases. Additionally, a $0.25 per contract
differential among non-Customers is not
uncommon when competing for order
flow. The Exchange notes that its floor
fees for non-Customers in MultiplyListed Options is $0.25 per contract,
except for Firms which are not assessed
a fee when facilitating a Customer order
pursuant to Exchange Rule 1064. The
Exchange believes that other pricing
amendments impact all market
participants alike as proposed. The
Exchange believes that the proposed
rule change will continue to promote
competition on the Exchange.
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.48 At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
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.
48 15
E:\FR\FM\23JAN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
23JAN1
4936
Federal Register / Vol. 78, No. 15 / Wednesday, January 23, 2013 / Notices
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–68653; File No. SR–CHX–
2012–13]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–Phlx–2013–01 on the
subject line.
Paper Comments
wreier-aviles on DSK5TPTVN1PROD with
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–Phlx–2013–01. 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–2013–01 and should
be submitted on or before February 13,
2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.49
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–01226 Filed 1–22–13; 8:45 am]
BILLING CODE 8011–01–P
49 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
15:22 Jan 22, 2013
Jkt 229001
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing of Amendment No. 3, and
Order Granting Accelerated Approval
for Proposed Rule Change, as Modified
by Amendment Nos. 1, 2 and 3, To
Amend the Listing Rules for
Compensation Committees To Comply
With Securities Exchange Act Rule 10–
C–1 and Make Other Related Changes
January 14, 2013.
I. Introduction
On September 26, 2012, Chicago
Stock Exchange, Inc. (‘‘Exchange’’ or
‘‘CHX’’) 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 modify the
Exchange’s rules for compensation
committees of listed issuers to comply
with Rule 10C–1 under the Act and
make other related changes. On October
10, 2012, CHX filed Amendment Nos. 1
and 2 to the proposed rule change.3 The
proposed rule change, as modified by
Amendment Nos. 1 and 2 thereto, was
published for comment in the Federal
Register on October 16, 2012.4 The
Commission subsequently extended the
time period in which to either approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change, to
January 14, 2013.5 The Commission
received no comment letters on the
proposal.6 On January 7, 2013, the
Exchange filed Amendment No. 3 to the
proposed rule change.7
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Amendment No. 1 indicated that the proposal
had been approved by CHX’s board of directors on
September 27, 2012. Amendment No. 2 replaced the
original filing in full.
4 See Securities Exchange Act Release No. 68033
(October 10, 2012), 77 FR 63370 (‘‘Notice’’).
5 See Securities Exchange Act Release No. 68311
(November 28, 2012), 77 FR 71852 (December 4,
2012).
6 The Commission notes that comments were
received on substially similar proposals filed by
New York Stock Exchange, LLC and The Nasdaq
Stock Market LLC. For a discussion and summary
of these comments see Securities Exchange Act
Release Nos. 68011 (October 9, 2012) (‘‘NYSE
Notice) (File No. SR–NYSE–2012–49); 68013
(October 9, 2012) (‘‘Nasdaq Notice’’) (File No. SR–
NASDAQ–2012–109); 68639 (January 11, 2013)
(‘‘NYSE Approval Order’’); and 68640 (January 11,
2013) (‘‘Nasdaq Approval Order’’).
7 In Amendment No. 3 to SR–CHX–2012–013,
CHX: (a) Removed a proposed amendment to Rule
2 17
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
This order approves the proposed rule
change, as modified by Amendment
Nos. 1, 2, and 3 thereto, on an
accelerated basis.
II. Description of the Proposed Rule
Change
A. Background: Rule 10C–1 under the
Act
On March 30, 2011, to implement
Section 10C of the Act, as added by
Section 952 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act of 2010 (‘‘Dodd-Frank Act’’),8 the
Commission proposed Rule 10C–1
under the Act,9 which directs each
national securities exchange
(hereinafter, ‘‘exchange’’) to prohibit the
listing of any equity security of any
issuer, with certain exceptions, that
does not comply with the rule’s
requirements regarding compensation
committees of listed issuers and related
requirements regarding compensation
advisers. On June 20, 2012, the
Commission adopted Rule 10C–1.10
Rule 10C–1 requires, among other
things, each exchange to adopt rules
providing that each member of the
compensation committee 11 of a listed
issuer must be a member of the board
of directors of the issuer, and must
otherwise be independent.12 In
determining the independence
standards for members of compensation
committees of listed issuers, Rule 10C–
4 concerning delisting standards, see infra notes
21–22 and accompanying text; (b) added
commentary to state that the independence
assessment of compensation advisers required of
compensation committees does not need to be
conducted for in-house counsel and advisers whose
roles are limited to those entitled to an exception
from the adviser disclosure rules under Item
407(e)(3)(iii) of Regulation S–K, see infra notes 53–
55 and accompanying text; and (c) added
commentary to state that the independence
assessment of compensation advisers required of
compensation committees does not require the
adviser to be independent, only that the
compensation committee consider the enumerated
factors before selecting or receiving advise from the
adviser; see infra notes 56–58 and accompanying
text; (d) removed a proposed exemption from the
rule; and (e) reincorporated existing Rules 19(d) and
19(p)(3) as ‘‘sunset provisions’’ with text that would
be effective until July 1, 2013, rather than delete
them in their entirety and otherwise modified the
transition schedule for currently listed companies
with provisions of the proposed rule. See infra
notes 72–74 and accompanying text.
8 Public Law 111–203, 124 Stat. 1900 (2010).
9 See Securities Act Release No. 9199, Securities
Exchange Act Release No. 64149 (March 30, 2011),
76 FR 18966 (April 6, 2011) (‘‘Rule 10C–1
Proposing Release’’).
10 See Securities Act Release No. 9330, Securities
Exchange Act Release No. 67220 (June 20, 2012), 77
FR 38422 (June 27, 2012) (‘‘Rule 10C–1 Adopting
Release’’).
11 For a definition of the term ‘‘compensation
committee’’ for purposes of Rule 10C–1, see Rule
10C–1(c)(2)(i)–(iii).
12 See Rule 10C–1(a) and (b)(1).
E:\FR\FM\23JAN1.SGM
23JAN1
]]>Agencies
[Federal Register Volume 78, Number 15 (Wednesday, January 23, 2013)]
[Notices]
[Pages 4926-4936]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01226]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68674; File No. SR- Phlx-2013-01]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Its Pricing Schedule
January 16, 2013.
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 January 2, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange to amend the Exchange's Pricing Schedule at Section A,
entitled ``Customer Rebate Program,'' Section I entitled ``Rebates and
Fees for Adding and Removing Liquidity in Select Symbols,'' \3\ Section
II entitled ``Multiply Listed Options Fees'' \4\ and at Section IV
entitled ``Other Transaction Fees.'' Specifically, the Exchange
proposes to amend the Customer Rebate Program, Select Symbols,\5\
Simple and Complex Order \6\ fees and rebates, the applicability of
Payment for Order Flow \7\ and PIXL \8\ Pricing.
---------------------------------------------------------------------------
\3\ The rebates and fees in Section I apply to certain Select
Symbols which are listed in Section I of the Pricing Schedule.
\4\ The pricing in Section II includes options overlying
equities, ETFs, ETNs and indexes which are Multiply Listed.
\5\ The Select Symbols are listed in Section I of the Pricing
Schedule.
\6\ A Complex Order is any order involving the simultaneous
purchase and/or sale of two or more different options series in the
same underlying security, priced at a net debit or credit based on
the relative prices of the individual components, for the same
account, for the purpose of executing a particular investment
strategy. Furthermore, a Complex Order can also be a stock-option
order, which is an order to buy or sell a stated number of units of
an underlying stock or exchange-traded fund (``ETF'') coupled with
the purchase or sale of options contract(s). See Exchange Rule 1080,
Commentary .08(a)(i).
\7\ The Payment for Order Flow program started on July 1, 2005
as a pilot and after a series of orders extending the pilot became
effective on April 29, 2012. See Securities Exchange Act Release No.
52114 (July 22, 2005), 70 FR 44138 (August 1, 2005) (SR-Phlx-2005-
44); 57851 (May 22, 2008), 73 FR 31177 (May 20, 2008) (SR-Phlx-2008-
38); 55891 (June 11, 2007), 72 FR 333271 (June 15, 2007) (SR-Phlx-
2007-39); 53754 (May 3, 2006), 71 FR 27301 (May 10, 2006) (SR-Phlx-
2006-25); 53078 (January 9, 2006), 71 FR 2289 (January 13, 2006)
(SR-Phlx-2005-88); 52568 (October 6, 2005), 70 FR 60120 (October 14,
2005) (SR-Phlx-2005-58); and 59841 (April 29, 2009), 74 FR 21035
(May 6, 2009) (SR-Phlx-2009-38).
\8\ PIXL is the Exchange's price improvement mechanism known as
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
---------------------------------------------------------------------------
The text of the proposed rule change is provided in Exhibit 5. The
text of the proposed rule change is also available on the Exchange's
Web site at https://nasdaqomxphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for
[[Page 4927]]
the proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to accomplish various
objectives. First, the Exchange proposes to amend the Customer Rebate
Program to incentivize market participants to increase the amount of
Customer order flow they transact on the Exchange. Towards this end,
the Exchange proposes the addition of Category D to the Customer Rebate
Program relating to Customer Simple Orders in Select Symbols. The
Exchange also proposes to offer certain credits when an order, which is
sent to the Exchange, is routed to an away market. Second, the Exchange
proposes to remove certain Select Symbols from Section I and instead
assess the fees and offer caps as specified in Section II of the
Pricing Schedule. The Exchange believes that the pricing in Section II,
coupled with the proposed enhancements to the Customer Rebate Program
may encourage an increase in Customer transactions in those symbols.
Third, the Exchange proposes to amend the Section I pricing in Simple
and Complex Orders and PIXL Pricing to also encourage additional
Customer order flow by not assessing fees to Customers. The Exchange
proposes to lower the Simple Order Fees for Removing Liquidity and
certain PIXL Pricing to encourage additional Simple Order transactions.
Fourth, the Exchange proposes to increase the Simple Order Fees for
Adding Liquidity, adopt Complex Order Fees for Adding Liquidity and
increase certain Complex Orders Fees for Removing Liquidity to permit
the Exchange to offer additional rebates in the Customer Rebate Program
in Section A. Fifth, the Exchange proposes to lower the Complex Order
Specialist and Market Fees for Removing Liquidity in Select Symbols, as
well as auctions and openings, and amend the applicability of Payment
for Order Flow Fee for Select Symbols and broadcast messages to
encourage greater Customer order interaction on the Exchange.
Customer Rebate Program
The Exchange is proposing to amend its Customer Rebate Program in
Section A of the Pricing Schedule. Currently, the Exchange has a four-
tiered Customer Rebate Program as follows:
----------------------------------------------------------------------------------------------------------------
Rebate per contract categories
Average daily volume threshold -----------------------------------------------
Category A Category B Category C
----------------------------------------------------------------------------------------------------------------
0 to 49,999 contracts in a month................................ $0.00 $0.00 $0.00
50,000 to 99,999 contracts in a month........................... 0.07 0.10 0.00
100,000 to 274,999 contracts in a month......................... 0.10 0.14 0.05
over 275,000 contracts in a month............................... 0.12 0.15 0.06
----------------------------------------------------------------------------------------------------------------
(a) Changes to the Tiers and Rebate Rates
At this time, the Exchange proposes to reduce the Customer Rebate
Program to a three-tiered rebate structure. The Exchange proposes to
amend Tier 1 which is currently 0 to 49,999 contracts in a month to 0
to 99,999 contracts in a month. The Exchange is not proposing to amend
the rebate rates in Categories A, B or C for Tier 1. Those rebates will
remain at $0.00 per contract. Next, the Exchange is proposing to amend
Tier 2 which is currently 50,000 to 99,999 contracts in a month to
100,000 to 349,999 contracts in a month. The Exchange proposes to amend
the Tier 2 rate in Category A from $0.07 to $0.10 per contract. The
Exchange proposes to amend the Tier 2 rate in Category B from $0.10 to
$0.12 per contract. The Exchange proposes to amend the Tier 2 rate in
Category C from $0.00 to $0.13 per contract. The Exchange proposes to
eliminate Tier 3 which is currently 100,000 to 274,999 contracts in a
month.\9\ The Exchange proposes to amend current Tier 4 which awards
rebates over 275,000 contracts in a month and rename it Tier 3 and
award rebates over 350,000 contracts in a month. The Exchange proposes
to amend the new Tier 3 rate in Category A from $0.12 to $0.15 per
contract. The Exchange would not amend the Tier 3 rate in Category B.
The Exchange proposes to amend the Tier 3 rate in Category C from $0.06
to $0.15 per contract. The Exchange is not proposing to amend the types
of orders that qualify for Categories A, B or C.\10\
---------------------------------------------------------------------------
\9\ Currently, Tier 3 pays the following rebates: A Category A
rebate of $0.10 per contract, a Category B rebate of $0.14 per
contract and a Category C rebate of $0.05 per contract.
\10\ The Exchange notes that it will evaluate the tiers monthly
and may file modifications to the tiers periodically depending on
market conditions.
---------------------------------------------------------------------------
The Exchange also proposes to add another Category of orders
eligible for rebates entitled ``Category D.'' This new category would
pay rebates to members executing electronically-delivered Customer
Simple Orders in Select Symbols in Section I. Also, the rebate would be
paid on PIXL Orders in Section I symbols that execute against non-
Initiating Order interest.\11\ The Exchange proposes to pay the
following Category D rebates: no rebate for Tier 1, a $0.05 per
contract rebate for Tier 2 and a $0.07 per contract rebate for Tier 3.
The Exchange also proposes to add the words ``Tier 1,'' ``Tier 2,'' and
``Tier 3'' to the Pricing Schedule to further clarify the tiers. The
proposed Customer Rebate Program would be as follows:
---------------------------------------------------------------------------
\11\ This application of the Category D rebate to PIXL Orders is
similar to the current application of the Category A rebate to PIXL
Orders.
----------------------------------------------------------------------------------------------------------------
Rebate per contract categories
Average daily volume threshold ---------------------------------------------------------------
Category A Category B Category C Category D
----------------------------------------------------------------------------------------------------------------
Tier 1: 0 to 99,999 contracts in a month........ $0.00 $0.00 $0.00 $0.00
[[Page 4928]]
Tier 2: 100,000 to 349,999 contracts in a month. 0.10 0.12 0.13 0.05
Tier 3: over 350,000 contracts in a month....... 0.15 0.15 0.15 0.07
----------------------------------------------------------------------------------------------------------------
(b) Changes to Average Daily Volume Calculation
Currently, the Exchange calculates Average Daily Volume Threshold
by totaling Customer volume in Multiply Listed Options (including
Select Symbols) that are electronically-delivered and executed, except
volume associated with the following: (i) Electronically-delivered and
executed Customer Simple Orders in Select Symbols that remove
liquidity; and (ii) electronic Qualified Contingent Cross Orders (``QCC
Orders''),\12\ as defined in Exchange Rule 1080(o) (``Threshold
Volume''). Rebates are paid on Threshold Volume.
---------------------------------------------------------------------------
\12\ A QCC Order is comprised of an order to buy or sell at
least 1000 contracts that is identified as being part of a qualified
contingent trade, as that term is defined in Rule 1080(o)(3),
coupled with a contra-side order to buy or sell an equal number of
contracts. The QCC Order must be executed at a price at or between
the National Best Bid and Offer (``NBBO'') and be rejected if a
Customer order is resting on the Exchange book at the same price. A
QCC Order shall only be submitted electronically from off the floor
to the PHLX XL II System. See Rule 1080(o). See also Securities
Exchange Act Release No. 64249 (April 7, 2011), 76 FR 20773 (April
13, 2011) (SR-Phlx-2011-47) (a rule change to establish a QCC Order
to facilitate the execution of stock/option Qualified Contingent
Trades (``QCTs'') that satisfy the requirements of the trade through
exemption in connection with Rule 611(d) of the Regulation NMS).
---------------------------------------------------------------------------
The Exchange proposes to amend the Average Daily Volume Calculation
by eliminating Customer volume in Multiply-Listed Options that are
electronically-delivered and executed except for volume associated with
electronically-delivered and executed Simple Orders in Select Symbols
that remove liquidity. The Exchange is proposing to amend the Average
Daily Volume by eliminating the exclusion of the electronically-
delivered and executed Customer Simple Orders in Select Symbols that
remove liquidity. The QCC Orders would be the only exception when
calculating Customer volume in Multiply-Listed Options that are
electronically-delivered in the Average Daily Volume Threshold
calculation.\13\
---------------------------------------------------------------------------
\13\ QCC Orders are excluded today.
---------------------------------------------------------------------------
(c) Credit for Member Qualifying for Tier 2 and 3 Rebates
The Exchange proposes to reduce Routing Fees in Section V of the
Exchange's Pricing Schedule for member organizations that qualify for
Tier 2 or Tier 3 of the Customer Rebate Program. Specifically, the
Exchange proposes to credit member organizations that qualify for
either a Tier 2 or Tier 3 rebate with a credit of $0.04 per contract,
which credit would be applied to Routing Fees, as specified in Section
V of the Pricing Schedule, when a Customer order is routed to NASDAQ
OMX BX, Inc. (``BX Options'') or the NASDAQ Options Market LLC
(``NOM''). Member organizations that qualify for either a Tier 2 or
Tier 3 rebate would be entitled to receive a $0.10 per contract credit,
which credit would be applied to Routing Fees, specified in Section V
of the Pricing Schedule, when a Customer order is routed to an away
market other than BX Options or NOM.
The Exchange believes that the proposed amendments to the Customer
Rebate Program, including the credit proposed for Routing Fees, would
further incentivize members to transact Customer orders on the
Exchange. The Exchange believes the proposed amendments will attract
additional Customer order flow to the Exchange for the benefit of all
market participants.
Section I Amendments
(a) Select Symbols
The Exchange displays a list of Select Symbols in its Pricing
Schedule at Section I, which symbols are subject to the rebates and
fees in that section. The Exchange is proposing to delete the following
symbols from the list of Select Symbols in Section I of the Pricing
Schedule: Arena Pharmaceuticals, Inc. (``ARNA''), Alcoa, Inc. (``AA''),
Advanced Micro Devices, Inc. (``AMD''), Cisco Systems, Inc. (``CSCO''),
SPDR DOW Jones Industrial Average (``DIA''), iShares MSCI EAFE Index
Fund (``EFA''), iShares MSCI Brazil Index Fund (``EWZ''), Ford Motor
Co. (``F''), (Direxion Daily Financial Bull 3x Shares (``FAS''),
Direxion Daily Financial Bear 3X Shares (``FAZ''), iShares FTSE China
25 Index Fund (``FXI''), Market Vectors Gold Miners ETF (``GDX''),
General Electric Company (``GE''), Intel Corporation (``INTC''), Nokia
Corporation (``NOK''), Oracle Corporation (``ORCL''), Pfizer, Inc.
(``PFE''),Research in Motion Limited (``RIMM''), ProShares UltraShort
S&P 500 (``SDS''), Sirius XM Radio Inc. (``SIRI''), iShares Silver
Trust (``SLV''), ProShares UltraShort 20+ Year Treasury (``TBT''),
iShares Barclays 20 Year Treasury (``TLT''), Direxion Daily Small Cap
Bear 3X Shares (``TZA''), United States Natural Gas (``UNG''), United
States Oil (``USO''), Vale S.A. (``VALE''), iPath S&P 500 VIX ST
Futures ETN (``VXX''), Verizon Communications Inc. (``VZ''), SPDR
Select Sector Fund--Energy (``XLE''), SPDR Select Sector Fund (``XLI'')
and Yahoo! Inc. (``YHOO'') (collectively, ``Proposed Deleted
Symbols''). These Proposed Deleted Symbols would be subject to the
fees, fee caps and related discounts in Section II of the Pricing
Schedule entitled ``Multiply Listed Options Fees.'' The Exchange
believes that by assessing the Proposed Deleted Symbols the pricing in
Section II of the Pricing Schedule the Exchange will attract order flow
to the Exchange.
(b) Simple Orders
The Exchange proposes to amend the Simple Order rebates and fees in
Section I, Part A of the Pricing Schedule. Currently, the Exchange pays
the following Simple Order Rebates for Adding Liquidity: Customer $0.26
per contract, Specialist \14\ and Market Maker \15\ $0.23 per contract,
Firm and Broker-Dealer receive no rebate and Professional \16\ receives
a $0.23 per contract rebate. The Exchange proposes to not pay a
Customer or Professional rebate and decrease the Specialist and Market
Maker rebate from $0.23 to $0.20 per contract, however the Exchange
would only pay a Specialist or Market Maker Rebate for Adding Liquidity
in Simple Orders if the Specialist or Market Maker is contra to a
Specialist, Market Maker, Firm, Broker-Dealer or Professional. In other
words, the
[[Page 4929]]
Specialist or Market Maker would not receive a Simple Order Rebate for
Adding Liquidity if they are contra to a Customer and instead would be
assessed the Simple Order Fee for Adding Liquidity, which will be
discussed below. The Rebate for Adding Liquidity for Customer, Broker-
Dealer, Firm and Professional would be marked ``N/A'' as those market
participants would be assessed a Fee for Adding Liquidity to be
discussed below. In addition, the Exchange proposes to add a note to
the Pricing Schedule indicating the above exception to the payment of
the Specialist and Market Maker Rebate for Adding Liquidity in Simple
Orders.
---------------------------------------------------------------------------
\14\ A ``Specialist'' is an Exchange member who is registered as
an options specialist pursuant to Rule 1020(a).
\15\ A ``Market Maker'' includes Registered Options Traders
(Rule 1014(b)(i) and (ii)), which includes Streaming Quote Traders
(see Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see
Rule 1014(b)(ii)(B)). Directed Participants are also market makers.
\16\ The term ``Professional'' means any person or entity that
(i) is not a broker or dealer in securities, and (ii) places more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s). See Rule
1000(b)(14).
---------------------------------------------------------------------------
Currently, the Exchange assesses the following Simple Order Fees
for Adding Liquidity: Customer, Specialist, Professional and Market
Maker pay no fee, a Firm and Broker-Dealer pay $0.05 per contract. The
Exchange proposes to amend the Simple Order Fees for Adding Liquidity
as follows: a Customer would continue to not be assessed however
instead of ``N/A'' the Exchange would reflect the fee as ``$0.00'' on
the Pricing Schedule. A Specialist and Market Maker would be assessed a
$0.10 per contract Simple Order Fee for Adding Liquidity, but only when
contra to a Customer order. If the Specialist or Market Maker is contra
to a Specialist, Market Maker, Firm, Broker-Dealer or Professional,
then the Specialist or Market Maker would be entitled to the Simple
Order Rebate for Adding Liquidity.
As explained above, Specialists and Market Makers receive a Rebate
for Adding Liquidity when contra to a Specialist, Market Maker, Firm,
Broker-Dealer and Professional. The Firm and Broker-Dealer Fees for
Adding Liquidity would be increased from $0.05 to $0.45 per contract. A
Professional would be assessed $0.45 per contract pursuant to this
proposal as compared to no fee.
Currently the Exchange assesses the following Simple Orders Fees
for Removing Liquidity: A Customer is assessed $0.43 per contract, a
Specialist, Market Maker, Firm, Broker-Dealer and Professional are
assessed $0.45 per contract. The Exchange proposes to decrease the
Customer Fee for Removing Liquidity from $0.43 to $0.00 per contract.
The Exchange also proposes to decrease the Specialist, Market Maker,
Firm, Broker-Dealer and Professional fees from $0.45 to $0.44 per
contract.
The Exchange believes that decreasing certain Simple Order fees
will incentivize market participants to send order flow to the
Exchange, particularly Customer order flow. In addition, the Exchange
believes that the increased fees would allow the Exchange to offer
additional Customer rebates as proposed in the Customer Rebate Program
to attract liquidity to the Exchange.
(c) Complex Orders
The Exchange proposes to amend the Complex Order rebates and fees
in Section I, Part B of the Pricing Schedule. The Exchange currently
pays the following Complex Order Rebates for Adding Liquidity: a
Customer is paid $0.32 per contract and Specialists, Market Makers,
Firms, Broker-Dealers and Professionals are paid $0.10 per contract.
The Exchange proposes to eliminate the Rebates for Adding Liquidity in
Complex Orders. Currently, Customers are paid a $0.06 Complex Order
Rebate for Removing Liquidity. No other market participant is paid a
Complex Order Rebate for Removing Liquidity. The Exchange proposes to
eliminate the Customer Complex Order Rebate for Removing Liquidity. The
Exchange's proposal would therefore pay no rebates in Section I, Part B
with respect to Complex Orders.
The Exchange proposes to adopt a Complex Order Fee for Adding
Liquidity of $0.10 per contract that will be applicable to Specialists,
Market Makers, Firms, Broker-Dealers and Professionals. Customers would
not be assessed a Complex Order Fee for Adding Liquidity.
The Exchange currently assesses the following Complex Order Fees
for Removing Liquidity: $0.39 per contract for Specialists, Market
Makers, Firms, Broker-Dealers and Professionals. Customers are not
assessed a Complex Order Fee for Removing Liquidity. The Exchange is
proposing to decrease the Specialist and Market Maker Complex Order
Fees for Removing Liquidity from $0.39 to $0.25 per contract. The
Exchange proposes to increase the Complex Order Fees for Removing
Liquidity for Firms, Broker-Dealers and Professionals from $0.39 to
$0.50 per contract. A Customer would continue to not be assessed a
Complex Order Fee for Removing Liquidity. The Exchange is proposing to
decrease certain fees to incentivize market participants to transact
Complex Orders on the Exchange and the Exchange is proposing to
increase certain fees in order that it may offer additional rebates in
the Customer Rebate Program as described herein.
(d) Complex Auctions, Non-Complex Auctions and the Opening Process
Today the Exchange pays market participants for Customer executions
that occur as part of a Complex electronic auction \17\ and the opening
process the Complex Order Rebate for Removing Liquidity. Customer
executions that occur as part of a non-Complex auction \18\ are paid
the Simple Order Rebate for Removing Liquidity, except when contra to
another Customer order. Today, the Exchange does not assess a Fee for
Removing Liquidity for transactions that occur either as part of a
Complex electronic auction or a non-Complex electronic auction.
---------------------------------------------------------------------------
\17\ A Complex electronic auction includes, but is not limited
to, the Complex Order Live Auction (``COLA'').
\18\ A non-Complex electronic auction includes the Quote Exhaust
auction and, for purposes of these fees, the opening process.
---------------------------------------------------------------------------
The Exchange proposes to no longer pay rebates for Customer
executions that occur as part of a Complex electronic auction, the
opening process or a Complex Order or a non-Complex auction. In
addition, the Exchange would not assess any fees for transactions that
occur as part of a Complex electronic auction, the opening process or a
non-Complex electronic auction, as is the case today for Customer
orders. The Exchange believes that assessing no fees and paying no
rebates for transactions executed during certain auctions and the
opening process would benefit market participants. While no rebates
would be paid, there would also be no fees assessed.
Currently, the Specialists and Market Makers pay the Simple Order
Fee for Removing Liquidity during the opening the process. The Exchange
proposes to assess Specialists and Market Makers the Simple Order Fee
for Adding Liquidity if contra to a Customer during the opening
process. Specialists and Market Makers will continue to pay the Simple
Order Fee for Removing Liquidity during the opening the process if
contra to a Specialist, Market Maker, Firm, Broker-Dealer or
Professional.
(e) Payment for Order Flow Fees
Currently, Payment for Order Flow \19\ Fees are not collected on
transactions in
[[Page 4930]]
Select Symbols.\20\ The Exchange is proposing to amend the Pricing
Schedule to collect Payment for Order Flow Fees on transactions in
Select Symbols, except when a Specialist or Market Maker is assessed
the Simple Order Fee for Removing Liquidity, in which case the Payment
for Order Flow fees would not apply. The Exchange believes that
assessing Payment for Order Flow Fees on Select Symbols, similar to
other Multiply Listed Symbols, except when a Specialist or Market Maker
is assessed the Simple Order Fee for Removing Liquidity would attract
additional Customer order flow to the Exchange.
---------------------------------------------------------------------------
\19\ The Payment for Order Flow (``PFOF'') Program assesses fees
to Specialists and Market Makers resulting from Customer orders
(``PFOF Fees''). The PFOF fees are available to be disbursed by the
Exchange according to the instructions of the Specialist or Market
Maker to order flow providers who are members or member
organizations who submit, as agent, Customer orders to the Exchange
through a member or member organization who is acting as agent for
those customer orders. Any excess PFOF funds billed but not utilized
by the Specialist or Market Maker are carried forward unless the
Specialist or Market Maker elects to have those funds rebated on a
pro rata basis, reflected as a credit on the monthly invoices. At
the end of each calendar quarter, the Exchange calculates the amount
of excess funds from the previous quarter and subsequently rebates
excess funds on a pro-rata basis to the applicable Specialist or
Market Maker who paid into that pool of funds.
\20\ The Select Symbols are listed in Section I of the Pricing
Schedule.
---------------------------------------------------------------------------
The Exchange also proposes to make a technical amendment in Section
II of the Pricing Schedule to amend the Pricing Schedule to change the
term ``Single contra-side'' in Part B of Section II of the Pricing
Schedule to ``Simple Order'' for consistency in use of its terms.
(f) Order Exposure Alert
The Exchange recently filed to amend Rule 1080(m) to provide for
the broadcast of certain orders that are on the Phlx Book.\21\ The
Exchange proposed to broadcast orders on the Phlx Book by issuing order
exposure alerts to all Phlx XL II \22\ participants and market
participants that subscribe to certain data feeds. The Exchange
proposes to specify in Section II of its Pricing Schedule that no
Payment for Order Flow Fees would be assessed on transactions which
execute against an order for which the Exchange broadcast an order
exposure alert in Penny Pilot Options, including Select Symbols. By
eliminating Payment for Order Flow Fees the Exchange desires to spur
Specialists and Market Makers to transact against orders that triggered
the broadcast message.
---------------------------------------------------------------------------
\21\ See Securities Exchange Act Release No. 68517 (December 21,
2012), 77 FR 77134 (December 31, 2012) (SR-Phlx-2012-136).
\22\ This proposal refers to ``PHLX XL[supreg]'' as the
Exchange's automated options trading system. In May 2009 the
Exchange enhanced the system and adopted corresponding rules
referring to the system as ``Phlx XL II.'' See Securities Exchange
Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009)
(SR-Phlx-2009-32). The Exchange intends to submit a separate
technical proposed rule change that would change all references to
the system from ``Phlx XL II'' to ``PHLX XL'' for branding purposes.
---------------------------------------------------------------------------
Section IV Amendments
(a) PIXL
The Exchange proposes to amend Section IV of the Pricing Schedule
at Part A. Currently, the Exchange assesses an Initiating Order \23\ a
$0.07 per contract or $0.05 per contract fee if the Customer Rebate
Program Threshold Volume, defined in Section A, is greater than 275,000
contracts per day in a month. The Exchange is proposing to instead
assess an Initiating Order a $0.07 per contract or $0.05 per contract
fee if the Customer Rebate Program Threshold Volume defined in Section
A is greater than 100,000 contracts per day in a month.
---------------------------------------------------------------------------
\23\ A member may electronically submit for execution an order
it represents as agent on behalf of a public customer, broker-
dealer, or any other entity (``PIXL Order'') against principal
interest or against any other order (except as provided in Rule
1080(n)(i)(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. See Exchange Rule
1080(n).
---------------------------------------------------------------------------
In addition, the Exchange also proposes to permit Phlx members and
member organizations under common ownership to aggregate their Customer
Rebate Program Threshold Volume in order to determine if they qualify
for the $0.07 or $0.05 per contract Initiating Order fee. Common
ownership is defined as 75 percent common ownership or control.
Today, when a PIXL order in a Select Symbol \24\ is contra to a
PIXL Auction Responder, the Exchange will either pay a Rebate for
Adding Liquidity or assess a Fee for Adding Liquidity in Section I of
the Pricing Schedule. Today, a Responder is assessed $0.30 per
contract. The Exchange proposes to amend the PIXL pricing for order
executions in Select Symbols as follows: when a PIXL Order in a Select
Symbol is contra to a PIXL Auction Responder, the PIXL Order would be
assessed the Fee for Adding Liquidity in Section I and the Responder
would be assessed $0.30 per contract, unless the Responder is a
Customer, in which case the fee would be $0.00 per contract.
---------------------------------------------------------------------------
\24\ Select Symbols are subject to the rebates and fees in
Section I of the Pricing Schedule.
---------------------------------------------------------------------------
Additionally, today when a PIXL Order in a Select Symbol is contra
to a resting order or quote that was on the PHLX book prior to the
auction, the PIXL Order is assessed $0.30 per contract and the resting
order or quote is either paid the Rebate for Adding Liquidity or
assessed the Fee for Adding Liquidity in Section I. Today, if the
resting order or quote that was on the PHLX book was entered during the
Auction, the PIXL Order receives the Rebate for Adding Liquidity or is
assessed the Fee for Adding Liquidity in Section I and the resting
order or quote is assessed $0.30 per contract. The Exchange proposes to
amend the PIXL pricing for order executions in Select Symbols as
follows: when the PIXL Order is contra to a resting order or quote that
was on the PHLX book prior to the auction, the PIXL Order would be
assessed the Fee for Removing Liquidity not to exceed $0.30 per
contract and the resting order or quote would be assessed the Fee for
Adding Liquidity in Section I. Further, the Exchange proposes that if
the resting order or quote that was on the PHLX book was entered during
the Auction, the PIXL Order would be assessed the Fee for Adding
Liquidity in Section I and the resting order or quote would be assessed
the Fee for Removing Liquidity not to exceed $0.30 per contract.
The Exchange proposes to eliminate the payment of rebates, not
assess fees and lower the Threshold Volume to 100,000 contracts per day
in a month in order to incentivize market participants to transact PIXL
Orders.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act \25\ in general,
and furthers the objectives of Section 6(b)(4) of the Act \26\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members and other persons using its
facilities.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Customer Rebate Program
The Exchange's proposal to amend its Customer Rebate Program in
Section A of the Pricing Schedule is reasonable because the Exchange
believes that the amended Customer Rebate Program, including the
addition of Category D, would further incentivize market participants
to transact Customer order flow on the Exchange, which liquidity will
benefit all market participants. The Exchange believes that reducing
the Customer Rebate Program to a three-tiered rebate structure and
amending the tier volumes is reasonable because it should incentivize
market participants to increase the amount of Customer orders that are
transacted on the Exchange to obtain a rebate. The Exchange proposes
herein to amend the Average Daily Volume Threshold to only exclude QCC
Orders,\27\ which
[[Page 4931]]
should permit market participants to include additional orders in the
Average Daily Volume Threshold and obtain larger rebates on eligible
contracts. In addition, other exchanges employ similar incentive
programs.\28\
---------------------------------------------------------------------------
\27\ Today, the Average Daily Volume Threshold is calculated by
totaling Customer volume in Multiply Listed Options (including
Select Symbols) that are electronically-delivered and executed,
except volume associated with: (i) Electronically-delivered and
executed Customer Simple Orders in Select Symbols that remove
liquidity; and (ii) electronic QCC Orders, as defined in Exchange
Rule 1080(o).
\28\ See the Chicago Board Options Exchange, Incorporated's
(``CBOE'') Fees Schedule. CBOE offers each Trading Permit Holder
(``TPH'') a credit for each public customer order transmitted by the
TPH which is executed electronically in all multiply-listed option
classes, excluding QCC trades and executions related to contracts
that are routed to one or more exchanges in connection with the
Options Order Protection and Locked/Crossed Market Plan, provided
the TPH meets certain volume thresholds in a month (Volume Incentive
Program).
---------------------------------------------------------------------------
The Exchange believes that the proposal to amend the rebate tiers
is equitable and not unfairly discriminatory because while market
participants would need to transact a greater number of contracts to
achieve a Tier 2 or 3 rebate, the Exchange is also amending the Average
Daily Volume Threshold to allow market participants to receive a rebate
on a greater number of eligible contracts. The Exchange's proposal to
amend its rebates is equitable and not unfairly discriminatory for the
following reasons. With respect to Tier 1 which is currently 0 to
49,999 contracts in a month and would be 0 to 99,999 contracts in a
month pursuant to this proposal, the Exchange would continue to pay no
rebate. For those market participants executing from 1 to 49,999
contracts, this is the same as today. For those market participants
that currently transact 50,000 to 99,999 contracts, they would not be
eligible for a rebate under the proposal. The Exchange believes that
market participants would be incentivized to transact a greater number
of contracts in order to obtain a rebate in Tiers 2 or 3. With respect
to Tier 2 which is currently 50,000 to 99,999 contracts in a month, the
proposal would amend the contract volume to 100,000 to 349,999
contracts in a month which today is the volume necessary to obtain a
Tier 2 rebate or a Tier 3 rebate if the number of contracts is greater
than 275,000. A Category A \29\ rebate would remain the same as the
Exchange proposes to increase Tier 2 in Category A from $0.07 to $0.10
per contract. The Exchange would pay a lower rebate in Category B \30\
which would increase from $0.10 to $0.12 per contract. Today, a Tier 2,
Category B rebate receives a $0.14 per contract rebate up to 274,999
contracts. A market participant executing between 100,000 to 274,999
contracts today would receive a lower rebate ($0.12 per contract as
compared to $0.14 per contract). A Category C \31\ rebate would
increase for those market participants transacting between 100,000 to
274,999 contracts. Today, a market participant receives no rebate for
transacting up to 99,999 contracts in Category C. The Exchange is
proposing to pay $0.13 per contract in Category C to market
participants that execute between 100,000 and 349,999 contracts in a
month. The Exchange also proposes to increase the volume required for
current Tier 4 which awards rebates over 275,000 contracts in a month
to create a new Tier 3 to award rebates over 350,000 contracts in a
month. A market participant executing over 275,000 contracts today in
Category A would receive a $0.12 per contract rebate. As mentioned,
that rebate would decrease between 100,000 to 349,999 contracts to
$0.10 per contract, but would increase over 350,000 contracts to $0.15
per contract. A market participant executing over 275,000 contracts
today in Category B would receive $0.15 per contract. As mentioned,
that rebate would decrease between 100,000 to 349,999 contracts to
$0.12 per contract and would remain the same over 350,000 contracts. A
market participant executing over 275,000 contracts today in Category C
would receive a $0.06 rebate. As mentioned, that rebate would increase
between 100,000 to 349,999 contracts to $0.13 per contract and would
also increase over 350,000 contracts to $0.15 per contract. The
Exchange believes that while market participants in Categories A and B
would need to execute additional contracts to receive the same or
greater rebates, the Exchange believes that it continues to incentivize
those market participants to direct Customer orders to the Exchange.
With respect to Category C, the Exchange is providing greater
incentives to transact Customer Complex Orders in Select Symbols.
---------------------------------------------------------------------------
\29\ A Category A rebate is paid to members executing
electronically-delivered Customer Simple Orders in Penny Pilot
Options and Customer Simple Orders in Non-Penny Pilot Options in
Section II. Rebates are paid on PIXL Orders in Section II symbols
that execute against non-Initiating Order interest.
\30\ A Category B rebate is paid to members executing
electronically-delivered Customer Complex Orders in Penny Pilot
Options and Non-Penny Pilot Options in Section II.
\31\ A Category C rebate is paid to members executing
electronically-delivered Customer Complex Orders in Select Symbols
in Section I.
---------------------------------------------------------------------------
The Exchange believes that the addition of Category D is reasonable
because the Exchange is incentivizing market participants to transact
Customer Simple Orders in Select Symbols by offering a rebate. The
Exchange also believes that the Category D rebates are equitable and
not unfairly discriminatory because all market participants that direct
Customer Simple Orders in Select Symbols are eligible for the rebates.
The Exchange would pay a Category D rebate of $0.05 per contract to a
market participant that transacts between 100,000 and 349,999 contracts
in a month. Additionally, the Exchange would pay a Category D rebate of
$0.07 per contract to a market participant that transacts over 350,000
contracts in a month.\32\
---------------------------------------------------------------------------
\32\ The Exchange would not pay a Category D rebate for contract
volume below 100,000 contracts.
---------------------------------------------------------------------------
The Exchange's amended rebate calculation is reasonable because the
Exchange proposes to include Customer volume in Multiply Listed Options
(including Select Symbols) that are electronically-delivered and
executed, except volume associated with QCC Orders as defined in
Exchange Rule 1080(o). Volume associated with electronically-delivered
Customer Simple Orders in Select Symbols that remove liquidity would be
included as part of this proposal. This volume is currently excluded.
The Exchange believes that the inclusion of the electronically-
delivered Customer Simple Orders in Select Symbols that remove
liquidity would allow market participants to obtain greater rebates. In
addition, the Exchange believes that the amended rebate calculation is
equitable and not unfairly discriminatory because the calculation would
apply uniformly to all market participants.
The Exchange's proposal to reduce Routing Fees \33\ in Section V of
the Exchange's Pricing Schedule for member organizations that qualify
for a Tier 2 or Tier 3 Customer Rebate in Section A of the Pricing
Schedule is reasonable because the Exchange proposes to provide an
additional incentive for transacting Customer orders on the Exchange.
The Exchange believes that providing a credit of $0.04 per contract
toward the Routing Fee specified in Section V of the Pricing Schedule
if a Customer order is routed to BX Options or NOM and a $0.10 per
contract credit toward the Routing Fee specified in Section V of the
Pricing
[[Page 4932]]
Schedule if the Customer order is routed to away market other than BX
Options or NOM would encourage market participants to transact their
Customer orders on the Exchange because they have the opportunity to
receive a Tier 2 or Tier 3 rebate and also reduce Routing Fees. The
Exchange believes that the proposal to reduce Routing Fees in Section V
of the Exchange's Pricing Schedule for members that qualify for a Tier
2 or Tier 3 Customer Rebate in Section A of the Pricing Schedule is
equitable and not unfairly discriminatory because any market
participant that transacts Customer orders may qualify for the credit.
Also, the Routing Fees specified in Section V of the Pricing Schedule
are lower for a Customer order routed to BX Options or NOM today and
higher for an away market other than BX Options or NOM.\34\
---------------------------------------------------------------------------
\33\ Each destination market's transaction charge varies and
there is a cost incurred by the Exchange when routing orders to away
markets. The costs to the Exchange include clearing costs,
administrative and technical costs associated with operating NOS
that are assessed on the Exchange, membership fees at away markets,
and technical costs associated with routing options. The Routing
Fees enable the Exchange to recover the costs it incurs to route
orders to away markets in addition to transaction fees assessed to
market participants for the execution of orders by the away market.
\34\ The Exchange assesses a fixed fee of $0.10 per contract for
non-NASDAQ OMX exchanges and a $0.04 per contract fee for BX Options
and NOM. These fixed costs represent overall cost to the Exchange
for technical, administrative, clearing, regulatory, compliance and
other costs, which are in addition to the transaction fee assessed
by the away market. Also, market participants whose orders routed to
away markets are entitled to receive rebates offered by away
markets, which rebates would net against fees assessed by the
Exchange for routing orders. As explained in a previous rule change,
the actual cash outlays for the Exchange to route to BX Options and
NOM is lower as compared to routing to other non-NASDAQ OMX
exchanges. See Securities Exchange Act Release No. 68213 (November
13, 2012), 77 FR 69530 (November 19, 2012) (SR-Phlx-2012-129). The
Exchange noted in that rule change that the costs related to
connectivity to route orders to other NASDAQ OMX exchanges are de
minimis.
---------------------------------------------------------------------------
Section I Amendments
The Exchange believes that it is reasonable to remove the Proposed
Deleted Symbols from its list of Select Symbols to attract additional
order flow to the Exchange. The Exchange believes that applying the
pricing in Section II of the Pricing Schedule to the Proposed Deleted
Symbols, including the opportunity to receive payment for order flow,
will attract order flow to the Exchange.
The Exchange believes that it is equitable and not unfairly
discriminatory to amend its list of Select Symbols to remove the
Proposed Deleted Symbols because the list of Select Symbols would apply
uniformly to all categories of participants in the same manner. All
market participants who trade the Select Symbols would be subject to
the rebates and fees in Section I of the Pricing Schedule, which would
not include the Proposed Deleted Symbols. Also, all market participants
would be uniformly subject to the fees in Section II, which would
include the Proposed Deleted Symbols.
The Exchange's proposal to amend the Simple Order rebates and fees
in Section I, Part A of the Pricing Schedule is reasonable because the
Exchange is proposing to only pay rebates to Specialists and Market
Makers in limited circumstances and only when the Exchange is able to
fund that rebate with a Simple Order Fee for Removing Liquidity. In
other words, if a Specialist or Market Maker is contra to a Specialist,
Market Maker, Firm, Broker-Dealer or Professional, these market
participants pay Simple Order Fees for Removing Liquidity, which fund
the rebate to the Specialist or Market Maker. When a Specialist or
Market Maker is contra to a Customer, then the Specialist or Market
Maker would pay the Simple Order Fee for Adding Liquidity because the
Customer is assessed no Simple Order Fee for Removing Liquidity
pursuant to this proposal and instead receives the rebates defined in
Category D. The Exchange is reducing the Simple Order Fees for Removing
Liquidity because it is no longer paying certain Simple Order rebates
to Customers or Professionals. The Exchange believes that its proposal
to assess Simple Order Fees for Adding Liquidity is reasonable because
as explained herein, the Exchange is funding the rebates it offers to
Specialists and Market Makers with those Simple Order Fees for Adding
Liquidity.
The Exchange's proposal to amend the Simple Order rebates and fees
in Section I, Part A of the Pricing Schedule is equitable and not
unfairly discriminatory for the reasons which follow. With respect to
Customers, the Exchange would no longer assess a Customer the $0.43 per
contract Simple Order Fee for Removing Liquidity, the Exchange would
continue not to assess a Customer a Simple Order Fee for Adding
Liquidity, as is the case today. In light of eliminating these fees,
the Exchange proposes to no longer pay the $0.26 per contract Simple
Order Rebate for Adding Liquidity. Customer order flow is assessed no
fee because incentivizing members to continue to offer Customer trading
opportunities in Simple Orders benefits all market participants through
increased liquidity. The Exchange instead proposes to pay Customer
rebates for Simple Orders in Select Symbols as part of proposed
Category D to the Customer Rebate Program in Section A.\35\ Market
participants would continue to be incentivized to send Customer order
flow to the Exchange and would receive rebates as part of the Customer
Rebate Program and would also not pay fees.
---------------------------------------------------------------------------
\35\ The Exchange believes that market participants would
continue to be incentivized to send Customer order flow to the
Exchange because the Customer Rebate Program would pay rebates on
electronic orders, as is the case today for the rebates that are
being eliminated in Section I, Parts A and B. Transactions in the
Select Symbols originating on the Exchange floor are subject to
pricing in Section II and would not be subject to the rebates in the
Customer Rebate Program, as is the case today. The rebates in
Section I, Parts A and B are paid on electronic orders today. Also,
the Customer Rebate Program would pay rebates on both adding and
removing liquidity similar to the rebates that are being eliminated
in Section I, Parts A and B.
---------------------------------------------------------------------------
With respect to the Simple Order Rebate for Adding Liquidity, the
Exchange proposes to reduce the rebates for Specialists and Market
Makers from $0.23 to $0.20 per contract and not pay a Professional a
rebate \36\ because the Exchange proposes to offer market participants
greater rebates as part of the Customer Rebate Program in Section A.
The Exchange proposes to only pay Specialists and Market Makers a
Simple Order Rebate for Adding Liquidity, in limited circumstances,
because unlike other market participants, Specialists and Market Makers
have burdensome quoting obligations \37\ to the market. Specialists and
Market Makers would only be paid a Simple Order Rebate for Adding
Liquidity when the Specialist or Market Maker is contra to a
Specialist, Market Maker, Firm, Broker-Dealer and Professional. The
Exchange believes that its proposal to only pay a Specialist or Market
Maker a Simple Order Rebate for Adding Liquidity as long as the
Specialist or Market Maker is not contra to a Customer is equitable and
not unfairly discriminatory because the Exchange is only paying
Specialists and Market Makers a Simple Order Rebate to Add Liquidity
when it is able to fund that rebate with a Fee for Removing Liquidity.
In the case of a Customer, the Exchange proposes not to assess a
Customer a Simple Order Fee for Removing Liquidity and therefore in
that instance the Exchange would assess the Specialist or Market Maker
the Simple Order Fee for Adding Liquidity.
---------------------------------------------------------------------------
\36\ Today, a Professional is paid a $0.23 per contract Simple
Order Rebate for Adding Liquidity.
\37\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------
With respect to the Simple Order Fees for Adding Liquidity, the
Exchange currently only assesses Firms, Broker-Dealer and Professionals
a $0.05 per contract fee. The Exchange proposes to increase those fees
to $0.45 per contract for Firms, Broker-Dealer and Professionals to
permit the Exchange to continue to pay Customer rebates as proposed in
Section A of the Pricing Schedule. The Exchange would assess
[[Page 4933]]
these market participants the same fee because as explained herein the
proposed differentiation as between Customers, Specialists and Market
Makers and other market participants (Professionals, Firms and Broker-
Dealers) recognizes the differing contributions made to the liquidity
and trading environment on the Exchange by these market participants.
As noted previously, the Exchange is proposing not to assess Customers
Simple Order fees. The Exchange proposes to assess Specialists and
Market Makers a lower fee of $0.10 per contract to recognize the
obligations born by these market participants.
With respect to the Simple Order Fees for Removing Liquidity, the
Exchange proposes to decrease the fee from $0.45 to $0.44 per contract
for Specialists, Market Makers, Professionals, Firms and Broker-
Dealers. The Exchange proposes to continue to assess, uniformly, the
same fees for all market participants except Customers, as is the case
today. As noted previously, the Exchange is proposing not to assess
Customers Simple Order fees.\38\
---------------------------------------------------------------------------
\38\ Today, the Exchange reduces its Fees for Removing
Liquidity, applicable to Specialists and Market Makers, by $0.05 per
contract when the Specialist or Market Maker transacts against a
Customer Order directed to that Specialist or Market Maker for
execution. This is not changing with this proposal.
---------------------------------------------------------------------------
The Exchange's proposal to make technical amendments to the Simple
Order Fees for Adding Liquidity to remove ``N/A'' and instead note the
fee as ``$0.00'' on the Pricing Schedule is reasonable, equitable and
not unfairly discriminatory because the Exchange proposes to indicate
that no fee is being assessed to clarify the Pricing Schedule.
As stated herein, the Exchange's proposal to amend Complex Order
rebates and fees in Section I, Part B of the Pricing Schedule are
reasonable because the Exchange is proposing to only pay rebates in
limited circumstances \39\ and only when the Exchange is able to fund
that rebate with a Complex Order Fee for Removing Liquidity as
described more fully above. The Exchange is proposing to decrease
certain fees to incentivize Specialists and Market Makers to add
Complex Order liquidity to the market and the Exchange is proposing to
increase certain fees for Firms, Broker-Dealers and Professionals in
order that it may offer additional rebates in the Customer Rebate
Program in Section A as described herein.
---------------------------------------------------------------------------
\39\ The Exchange is only proposing to pay rebates to
Specialists and Market Makers when they are not contra to a Customer
order as described herein.
---------------------------------------------------------------------------
The Exchange's proposal to amend the Complex Order rebates and fees
in Section I, Part B of the Pricing Schedule are equitable and not
unfairly discriminatory for the reasons which follow. The Exchange is
proposing to eliminate the Complex Order Rebate for Adding Liquidity
and the Rebate for Removing Liquidity because the Exchange is amending
its Customer Rebate Program in Section A of the Pricing Schedule to
include an opportunity to obtain greater rebates. The Exchange is
proposing to adopt a Complex Order Fee for Adding Liquidity and assess
all market participants, except Customers a fee of $0.10 per contract.
The Exchange believes that uniformly assessing market participants,
other than Customers, a $0.10 per contract Complex Order Fee for Adding
Liquidity is equitable and not unfairly discriminatory. The Exchange
proposes to no longer assess Customers Complex Order fees. Today, the
Exchange does not assess a Customer Complex Order Fee for Removing
Liquidity and would likewise assess no Customer Complex Order Fee for
Adding Liquidity with this proposal. Customer order flow is assessed no
fee because incentivizing members to continue to offer Customer trading
opportunities in Complex Orders benefits all market participants
through increased liquidity.
With respect to the Complex Order Fees for Removing Liquidity, as
previously noted, the Exchange would continue to not assess a Customer
a Complex Order Fee for Removing Liquidity. Today, Specialists, Market
Makers, Firms, Broker-Dealers and Professionals all pay a $0.39 per
contract Complex Order Fee for Removing Liquidity. The Exchange
proposes to reduce the Specialist and Market Maker fee to $0.25 per
contract and increase the Firm, Broker-Dealer and Professional fees to
$0.50 per contract. The Exchange assesses Specialists and Market Maker
lower fees as compared to other market participants, other than
Customers, because Specialists and Market Makers have burdensome
quoting obligations \40\ to the market. In this case, the Exchange is
proposing to increase the fee differential in assessing the Complex
Order Fee for Removing Liquidity as between Specialist and Market
Makers and other non-Customer market participants from 0 to $0.25 per
contract ($0.25 vs. $0.50 per contract). The Exchange believes that
this fee differential is equitable and not unfairly discriminatory
because Specialists and Market Makers are valuable market participants
that provide liquidity in the marketplace and incur costs unlike other
market participants including, but not limited to, PFOF and other costs
associated with market making activities,\41\ which results in a higher
average cost per execution as compared to Firms, Broker-Dealers and
Professionals. The Exchange believes that the fees assessed to
Specialists and Market Makers in Complex Orders remain aligned with
fees assessed to Firms, Broker-Dealer and Professionals when other
costs are taken into account.
---------------------------------------------------------------------------
\40\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
\41\ Specialists and Market Makers pay for certain data feeds
including the SQF Port Fee. SQF Port Fees are listed in the
Exchange's Pricing Schedule at Section VII. SQF is an interface that
allows Specialists and Market Makers to connect and send quotes into
Phlx XL and assists them in responding to auctions and providing
liquidity to the market.
---------------------------------------------------------------------------
The Exchange's proposal to amend the Pricing Schedule to change
``Single contra-side'' in Part B of Section II of the Pricing Schedule
to ``Simple'' is reasonable, equitable and not unfairly discriminatory
because it would further clarify the Pricing Schedule.
The Exchange's proposal to amend Part C of Section I of the Pricing
Schedule to no longer pay rebates for Customer executions that occur as
part of a Complex electronic auction, the opening process or a non-
Complex auction is reasonable because the Exchange proposes to pay
Customer rebates as proposed in Section A of the Pricing Schedule.
Also, the Exchange has proposed a similar elimination of Customer
rebates in Section I, Parts A and B of the Pricing Schedule. In
addition, the Exchange's proposal to not assess any fees for
transactions that occur as part of a Complex electronic auction, the
opening process or a non-Complex electronic auction is reasonable
because those transactions would not be subject to rebates. Today, the
Exchange does not assess Customer fees on Complex electronic auctions,
the opening process or non-Complex electronic auctions. The Exchange
believes that it is reasonable to neither pay rebates nor assess fees
on these types of transactions and market participants would continue
to be incentivized to transact these types of orders on the Exchange.
The Exchange believes that its proposal to no longer pay rebates
for Customer executions that occur as part of a Complex electronic
auction, the opening process or a non-Complex auction and to no longer
assess fees for transactions that occur as part of a Complex electronic
auction, the opening process or a non-Complex electronic auction is
equitable and not unfairly
[[Page 4934]]
discriminatory because the Exchange proposes to not pay rebates or
assess fees during auctions and opening, as specified herein, uniformly
with respect to all market participants.
The Exchange's proposal to collect Payment for Order Flow Fees on
transactions in Select Symbols, except when a Specialist or Market
Maker is assessed the Simple Order Fee for Removing Liquidity, is
reasonable because it would attract additional Customer order flow to
the Exchange because of the benefit that order flow providers would
obtain from the Payment for Order Flow Program.\42\
---------------------------------------------------------------------------
\42\ The PFOF Program assists Specialists and Market Maker
establish PFOF arrangements with an order flow provider in exchange
for that order flow provider directing some or all of its order flow
to that Specialist or Market Maker.
---------------------------------------------------------------------------
The Exchange's proposal to assess Specialists and Market Makers the
Simple Order Fee for Adding Liquidity if contra to a Customer during
the opening process is reasonable because the Exchange desires to
incentivize Specialists and Market Makers to transact orders during the
opening process by lowering costs when the Specialist or Market Maker
trades against a Customer.
The Exchange's proposal to assess Specialists and Market Makers the
Simple Order Fee for Adding Liquidity if contra to a Customer during
the opening process is equitable and not unfairly discriminatory
because Specialists and Market Makers serve an important role on the
Exchange with regard to order interaction. The Exchange believes that
incentivizing Specialists and Market Makers to transact a greater
number of orders at the open by offering lower pricing would benefit
all market participants through increased order interaction.
The Exchange's proposal to collect Payment for Order Flow Fees on
transactions in Select Symbols, except when a Specialist or Market
Maker is assessed the Simple Order Fee for Removing Liquidity is
equitable and not unfairly discriminatory because the Exchange today
collects assesses Specialists and Market Makers Payment for Order Flow
Fees on all Multiply Listed Options except Select Symbols. The Exchange
believes that not assessing Specialists and Market Makers Payment for
Order Flow Fees when the Simple Order Fee for Removing Liquidity is
assessed is equitable and not unfairly discriminatory because the
Exchange does not desire to unfairly disadvantage Specialists and
Market Makers by assessing them a $0.44 per contract Simple Order Fee
for Removing Liquidity as well as a $0.25 per contract Payment for
Order Flow fee. The Exchange believes that in this instance the fee
would be much higher as compared to other market participants and does
not proposes to assess the fee.
The Exchange's proposal to not assess PFOF on transactions which
execute against an order for which the Exchange broadcast an order
exposure alert in Penny Pilot Options is reasonable the Exchange
believes that it would serve to incentivize Specialists and Market
Makers to remove liquidity from the Phlx Book. The Exchange believes
that the broadcast message, which alerts market participants to orders
placed on the Phlx book combined with the opportunity to not be
assessed PFOF in Penny Pilot Options would serve to incentivize
participants to remove liquidity. The Exchange believes that all market
participants would benefit from such an incentive which would lead to
greater order interaction and may further reduce fees related to
routing.
The Exchange's proposal to not assess PFOF on transactions which
execute against an order for which the Exchange broadcast an order
exposure alert in Penny Pilot Options is equitable and not unfairly
discriminatory because the Exchange would not assess any Specialist or
Market Maker such a PFOF fee regardless of whether or not that
Specialist or Market Maker was aware of the alert at the time of
execution.
Section IV Amendments
The Exchange's proposal to amend Section IV of the Pricing Schedule
at Part A to decrease the Threshold Volume from 275,000 to 100,000
contracts per day in a month is reasonable because the lower Threshold
Volume should allow a greater number of market participants to obtain
the requisite volume to be assessed the lower $0.05 per contract fee.
The Exchange's proposal to amend Section IV of the Pricing Schedule at
Part A to decrease the Threshold Volume from 275,000 to 100,000
contracts per day in a month is equitable and not unfairly
discriminatory because it would be uniformly assessed on all market
participants.
In addition, the Exchange's proposal to permit Phlx members and
member organizations under common ownership \43\ to aggregate their
Customer Rebate Program Threshold Volume in order to determine if they
qualify for the $0.07 or $0.05 per contract Initiating Order fee is
reasonable because the Exchange desires to provide all market
participants the ability to obtain the lower Initiating Order Fee. The
Exchange believes that its proposal to permit Phlx members and member
organizations under common ownership to aggregate their Customer Rebate
Program Threshold Volume for purposes of the Initiating Order fee is
equitable and not unfairly discriminatory because the Exchange would
permit all market participants the ability to aggregate for purposes of
the fee even if certain members and member organizations chose to
operate under separate entities. The Exchange currently permits such
aggregation in the calculation of the Monthly Market Maker Cap.\44\
---------------------------------------------------------------------------
\43\ Common ownership is defined as 75 percent common ownership
or control.
\44\ See Section II of the Pricing Schedule. Specialists and
Market Makers are subject to a ``Monthly Market Maker Cap'' of
$550,000 for: (i) Equity option transaction fees; (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 will be aggregated in calculating
the Monthly Market Maker Cap if there is at least 75% common
ownership between the member organizations.
---------------------------------------------------------------------------
The Exchange's proposal to amend the PIXL pricing for order
executions in Select Symbols by assessing a PIXL Order the Fee for
Adding Liquidity in Section I and the Responder the $0.30 per contract
fee unless the Responder is a Customer, in which case no fee is
assessed, when a PIXL Order in a Select Symbol is contra to a PIXL
Auction Responder is reasonable because the Exchange is proposing to
only pay Rebates to Add Liquidity in Section I to Specialists and
Market Makers in certain circumstances \45\ and is not otherwise paying
rebates except as proposed in Section A of the Pricing Schedule as part
of the Customer Rebate Program. The Exchange does not desire to assess
Customers fees and therefore is amending the PIXL pricing to not assess
a fee if the Responder is contra to a Customer. The Exchange desires to
incentivize market participants to send Customer order flow by offering
the Customer Rebates in Section A and not assessing Customers fees in
Section I of the Pricing Schedule. Customer order flow benefits all
market participants by increased liquidity. In addition, the Exchange
believes that the proposed amendments to Section IV would align the
pricing with respect to Select Symbols to the amendments that are
proposed herein in Section I, Parts A and B. The Exchange also believes
that market participants would still be able to obtain rebates for PIXL
orders
[[Page 4935]]
because the Exchange proposes to pay rebates on PIXL Orders in Section
I symbols that execute against non-Initiating Order interest as part of
proposed Category D of the Customer Rebate Program.
---------------------------------------------------------------------------
\45\ The Rebate for Adding Liquidity will be paid to a
Specialist or Market Maker only when the Specialist or Market Maker
is contra to a Specialist, Market Maker, Firm, Broker-Dealer or
Professional.
---------------------------------------------------------------------------
The Exchange's proposal to amend the PIXL pricing for order
executions in Select Symbols by assessing the Fee for Removing
Liquidity not to exceed $0.30 per contract when the PIXL Order is
contra to a resting order or quote that was on the PHLX book prior to
the auction and assessing the resting order or quote the Fee for Adding
Liquidity in Section I is reasonable because the Exchange has amended
certain of its Fees for Removing Liquidity in Section I below $0.30 per
contract and desires to assess the lower fee where applicable to market
participants to further incentivize market participants to transact
PIXL orders in Select Symbols. The Exchange's elimination of the Rebate
to Add Liquidity with respect to PIXL Orders and the resting order or
quote is reasonable because the Exchange is proposing to only pay
Rebates to Add Liquidity in Section I to Specialists and Market Makers
in certain circumstances \46\ and is not otherwise paying rebates
except as proposed in Section A of the Pricing Schedule.\47\
---------------------------------------------------------------------------
\46\ The Rebate for Adding Liquidity will be paid to a
Specialist or Market Maker only when the Specialist or Market Maker
is contra to a Specialist, Market Maker, Firm, Broker-Dealer or
Professional.
\47\ Market participants would still be able to obtain rebates
for PIXL orders because the Exchange proposes to pay rebates on PIXL
Orders in Section I symbols that execute against non-Initiating
Order interest as part of proposed Category D of the Customer Rebate
Program.
---------------------------------------------------------------------------
The Exchange's proposal to amend the PIXL Pricing by eliminating
the Rebates to Add Liquidity in Select Symbols and assess the Fee for
Removing Liquidity not to exceed $0.30 per contract is equitable and
not unfairly discriminatory because the Exchange would uniformly apply
the pricing to all market participants transacting PIXL orders. The
Exchange's elimination of the Rebates for Adding Liquidity would impact
Specialists and Market Makers because they are the only market
participants entitled to rebates in certain circumstances in Section I.
The Exchange believes this is equitable and not unfairly discriminatory
because Specialists and Market Makers also benefit from being assessed
the lower Fee for Removing Liquidity in Complex Orders as proposed
herein, while other market participants are assessed $0.30 per
contract. The Exchange assessed this lower fee because these market
participants bear obligations not born by other market participants.
The Exchange also believes that assessing the Fee for Removing
Liquidity not to exceed $0.30 per contract specifically benefits
Customers because they would not be assessed a fee pursuant to this
proposal with respect to Simple Orders. Incentivizing Customer order
flow benefits all market participants through increased liquidity.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange operates in a
highly competitive market, comprised of eleven exchanges, in which
market participants can easily and readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or rebates to be inadequate. Accordingly, the fees that are
assessed and the rebates paid by the Exchange described in the above
proposal are influenced by these robust market forces and therefore
must remain competitive with fees charged and rebates paid by other
venues and therefore must continue to be reasonable and equitably
allocated to those members that opt to direct orders to the Exchange
rather than competing venues.
The Exchange believes that the Customer Rebate Program will
encourage Customer order flow to be directed to the Exchange, which
will benefit all market participants. The Exchange believes that not
assessing Customers fees in Section I would also encourage market
participants to direct Customer orders to the Exchange. The Exchange
also believes that encouraging Specialists and Market Makers to remove
liquidity from the book by incentivizing them with lower fees would
benefit order interaction on the Exchange to the benefit of all market
participants and therefore does not create a burden on competition. To
the extent that the Exchange is increasing certain fees, those fees
would permit the Exchange to offer the proposed Customer Rebate Program
which benefits the market. Further, the fee increases impact all non-
Customer members in a similar fashion and are comparable to fees
assessed at other venues for transactions in similarly situated
options. With respect to the Complex Order Fee for Removing Liquidity,
the Exchange believes that the differential as between Specialists and
Market Makers as compared to Firms, Broker-Dealers and Professionals
must be considered in light of other fees which are applied to
Specialists and Makers and are not assessed on Firms, Broker-Dealers
and Professionals, such as the PFOF fee of $0.25 per contract. When
this additional fee and other fees paid by Specialists and Market
Makers are taken into consideration, the Exchange does not believe that
the proposed increase to the Complex Order Fee for Removing Liquidity
creates a burden on these market participants. Rather, the cost to
transact orders for non-Customers become more closely aligned when the
total costs is transacting a Complex Order is taken into account as
Specialists and Market Makers are contra to a Customer in most cases.
Additionally, a $0.25 per contract differential among non-Customers is
not uncommon when competing for order flow. The Exchange notes that its
floor fees for non-Customers in Multiply-Listed Options is $0.25 per
contract, except for Firms which are not assessed a fee when
facilitating a Customer order pursuant to Exchange Rule 1064. The
Exchange believes that other pricing amendments impact all market
participants alike as proposed. The Exchange believes that the proposed
rule change will continue to promote competition on the Exchange.
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.\48\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act.
[[Page 4936]]
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-2013-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2013-01. 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-2013-01 and
should be submitted on or before February 13, 2013.
---------------------------------------------------------------------------
\49\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01226 Filed 1-22-13; 8:45 am]
BILLING CODE 8011-01-P
