Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Various Sections of the Exchange's Pricing Schedule, 28681-28686 [2013-11520]

Download as PDF Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Notices persons using such service. 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.10 IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: regulatory_filings/ ICEU_SEC_042413.pdf. 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–ICEEU–2013–07 and should be submitted on or before June 5, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Kevin M. O’Neill, Deputy Secretary . [FR Doc. 2013–11407 Filed 5–14–13; 8:45 am] TKELLEY on DSK3SPTVN1PROD with NOTICES 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–ICEEU–2013–07 on the subject line. BILLING CODE 8011–01–P 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–ICEEU–2013–07. 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 such filings also will be available for inspection and copying at the principal office of ICE Clear Europe and on ICE Clear Europe’s Web site at https:// www.theice.com/publicdocs/ Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Various Sections of the Exchange’s Pricing Schedule 10 15 U.S.C. 78s(b)(3)(C). VerDate Mar<15>2010 17:16 May 14, 2013 Jkt 229001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69548; File No. SR–Phlx– 2013–49] May 9, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 2 thereunder, notice is hereby given that on May 1, 2013, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange’s Pricing Schedule with respect to the Customer 3 Rebate Program in Section B, certain pricing in Section II entitled ‘‘Multiply Listed 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 The term ‘‘Customer’’ applies to any transaction that is identified by a member or member organization for clearing in the Customer range at The Options Clearing Corporation (‘‘OCC’’) which is not for the account of broker or dealer or for the account of a ‘‘Professional’’ (as that term is defined in Rule 1000(b)(14)). 1 15 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 28681 Options Fees,’’ 4 including Qualified Contingent Cross (‘‘QCC’’) Rebates,5 and Section IV, entitled ‘‘Other Transaction Fees,’’ PIXL 6 Pricing and FLEX Options 7 pricing. The Exchange also proposes to eliminate references to RUT and clarify the treatment of certain strategies. The text of the proposed rule change is 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 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. 4 The pricing in Section II includes options overlying equities, ETFs, ETNs and indexes which are Multiply Listed. 5 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 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). A Floor QCC Order must: (i) Be for at least 1,000 contracts, (ii) meet the six requirements of Rule 1080(o)(3) which are modeled on the QCT Exemption, (iii) be executed at a price at or between the National Best Bid and Offer (‘‘NBBO’’); and (iv) be rejected if a Customer order is resting on the Exchange book at the same price. In order to satisfy the 1,000-contract requirement, a Floor QCC Order must be for 1,000 contracts and could not be, for example, two 500-contract orders or two 500contract legs. See Rule 1064(e). See also Securities Exchange Act Release No. 64688 (June 16, 2011), 76 FR 36606 (June 22, 2011) (SR–Phlx–2011–56). 6 PIXL is the Exchange’s price improvement mechanism known as Price Improvement XL or (PIXLSM). See Rule 1080(n). 7 The term ‘‘FLEX option’’ means a FLEX option contract that is traded subject to this Rule. Although FLEX options are generally subject to the rules in this section, to the extent that the provisions of this Rule are inconsistent with other applicable Exchange rules, this Rule takes precedence with respect to FLEX options. See Exchange Rule 1079. E:\FR\FM\15MYN1.SGM 15MYN1 28682 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Notices 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 amend Category A of the Customer Rebate Program to offer increased rebate opportunities for PIXL Orders greater than 999 contracts in Section II symbols. The Exchange proposes to amend Section II to increase the maximum QCC rebate that will be paid by the Exchange, adopt a new fee and rebate for certain floor transactions, clarify the treatment of strategies and eliminate RUT from the Pricing Schedule. Finally, the Exchange proposes to amend its PIXL Pricing and relocate and adopt new FLEX Multiply Listed Options pricing. Customer Rebate Program Currently, the Exchange has in place a four tier structure Customer Rebate Program at Section B of the Pricing Schedule which pays Customer rebates on four Categories (A, B, C and D) of Customer rebate tiers TKELLEY on DSK3SPTVN1PROD with NOTICES Tier Tier Tier Tier Percentage thresholds of national customer volume in multiply-listed equity and ETF options classes (Monthly) 1 2 3 4 0.00%–0.75% ....................... Above 0.75%–1.60% ............ Above 1.60%–2.60% ............ Above 2.60% ........................ .................................... .................................... .................................... .................................... Today, the Exchange totals Customer volume in Multiply Listed Options (including Select Symbols) that are electronically-delivered and executed, except volume associated with electronic QCC Orders, as defined in Exchange Rule 1080(o) in the same manner.8 Members and member organizations under common ownership 9 may aggregate their Customer volume for purposes of calculating the Customer Rebate Tiers and receiving rebates. Category A rebates are paid to members executing electronically-delivered Customer Simple Orders in Penny Pilot Options and Customer Simple Orders in NonPenny Pilot Options in Section II. Rebates are paid on PIXL Orders in Section II symbols that execute against non-Initiating Order interest. Category B rebates are paid to members executing electronically-delivered Customer Complex Orders in Penny Pilot Options and Non-Penny Pilot Options in Section II. Category C rebates are paid to members executing electronicallydelivered Customer Complex Orders in Select Symbols in Section I. Category D rebates are paid to members executing electronically-delivered Customer Simple Orders in Select Symbols in Section I. Rebates are paid on PIXL Orders in Section I symbols that execute against non-Initiating Order interest. The Exchange proposes to amend Category A of the Customer Rebate 8 For clarity, the Exchange will calculate volume and pay rebates based on a member organization’s Phlx house account numbers. 9 Common ownership means 75% common ownership or control. VerDate Mar<15>2010 17:16 May 14, 2013 Jkt 229001 Category A Category B $0.00 0.11 0.13 0.15 Section II Amendments The Exchange proposes to remove references to FLEX Option pricing in Section II of the Pricing Schedule. The Exchange will adopt new FLEX Option pricing in Section IV of the Pricing Schedule, which will be described in additional detail below. The Exchange proposes to adopt new pricing for Specialists 10 and Market Makers 11 that are contra to a Customer Penny Pilot Options on Exchange Traded-Fund (‘‘ETFs’’) 12 on the Exchange’s floor of $0.25 per contract in 10 A Specialist is an Exchange member who is registered as an options specialist pursuant to Rule 1020(a). 11 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. 12 An ETF is an open-ended registered investment company under the Investment Company Act of 1940 that has received certain exemptive relief from the Commission to allow secondary market trading in the ETF shares. ETFs are generally index-based products, in that each ETF holds a portfolio of securities that is intended to provide investment results that, before fees and expenses, generally correspond to the price and yield performance of the underlying benchmark index. Frm 00107 Fmt 4703 Sfmt 4703 Category C $0.00 0.12 0.13 0.15 Program to instead pay on PIXL Orders in Section II symbols that execute against non-Initiating Order interest, except in the case of a PIXL Order that is greater than 999 contracts. All PIXL Orders that are greater than 999 contracts will be paid a rebate regardless of the contra party to the transaction. The Exchange is not proposing any additional amendments to the Customer Rebate Program. PO 00000 transactions. The four tier structure pays rebates based on percentage thresholds of national customer multiply-listed options volume by month based on the same four Categories (A, B, C and D) of transactions. Specifically, the Exchange bases a market participant’s qualification for a certain Rebate Tier on the percentage of total national customer volume in multiply-listed options which are transacted monthly on Phlx as follows: $0.00 0.13 0.14 0.15 Category D $0.00 0.08 0.08 0.09 addition to the Floor Options Transaction Charges in Section II of the Pricing Schedule.13 Additionally, the contra Customer order to the Specialist and Market Maker transaction will be entitled to a rebate of $0.25 per contract. The Exchange believes that this new pricing will encourage trading in Penny Pilot Options on ETFs on the Exchange’s trading floor. Finally, the Exchange is removing references the reference to options on the Russell 2000® Index (the ‘‘Full Value Russell Index’’ or ‘‘RUT’’) in Section II of the Pricing Schedule as the Exchange delisted RUT as of April 24, 2013. Section IV Amendments PIXL The Exchange proposes to amend PIXL pricing at Section IV, Part A of the Pricing Schedule. Currently, the Exchange assesses an Initiating Order 14 a $0.07 per contract or $0.05 per contract fee if the Customer Rebate Program Threshold Volume, defined in Section B, is greater than 100,000 13 Specialists and Market Makers are assessed a Floor Options Transaction Charge of $0.25 per contract. See Section II of the Pricing Schedule. 14 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). E:\FR\FM\15MYN1.SGM 15MYN1 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Notices contracts per day in a month. 15 The Exchange proposes to amend the PIXL pricing to state that an Initiating Order fee for a Firm that is contra to a Customer PIXL Order will be reduced to $0.00 if a Customer PIXL Order is greater than 999 contracts. The Exchange believes that this amendment will encourage Firms to transact a greater number of PIXL Orders. increased fee of $0.15 per contract when transacting FLEX Options.22 The Exchange will continue to apply the Monthly Firm Fee Cap,23 Monthly Market Maker Cap,24 and the Options Surcharge in PHLX/KBW Bank Index (‘‘BKX’’), options on the one-tenth value of the Nasdaq 100 Index traded under the symbol MNX (‘‘MNX’’) and options on the Nasdaq 100 Index traded under the symbol NDX (‘‘NDX’’) described in FLEX Section II 25 will apply to this Section The Exchange also proposes to add a IV, B. No other fees described in Section new Part B to Section IV entitled ‘‘FLEX II will apply to this Section IV, B. The Transaction Fees.’’ As mentioned Exchange will continue to waive FLEX herein, FLEX Options pricing is transaction fees for a Firm executing currently located in Section II of the facilitation orders pursuant to Exchange Pricing Schedule. Today, the Exchange Rule 1064 when such members are assesses Customers no fee for trading in their own proprietary transacting FLEX Options. All other account. The pricing in Section III, market participants, Professionals,16 entitled ‘‘Singly Listed Options’’ will Specialists, Market Makers, Brokercontinue to apply to FLEX Singly Listed Dealers 17 and Firms,18 are assessed Options, as is the case today.26 The $0.10 per contract when transacting Exchange assesses Options Transaction FLEX Options.19 Further, today the Firm Charges for Singly Listed Options as Floor Options Transaction Charges are follows: A Customer is assessed $0.35 waived for members executing per contract, a Specialist and Market facilitation orders pursuant to Exchange Maker is assessed $0.40 per contract and Rule 1064 when such members are a Professional, Firm and Broker-Dealer trading in their own proprietary account are assessed $0.60 per contract. (including FLEX and Cabinet Options The Exchange also proposes to clarify Transaction Charges).20 that FLEX Options are not eligible for The Exchange proposes to adopt new strategy treatment. Today, the Exchange FLEX Multiply Listed Options pricing 22 FLEX Option fees today are not in addition to in Section IV, Part B of the Pricing Options Transaction Charges. Schedule for Multiply Listed Options. 23 Firms are subject to a maximum fee of $75,000 FLEX Transaction Customer Fees for (‘‘Monthly Firm Fee Cap’’). Firm Floor Option Multiply Listed Orders on the Transaction Charges and QCC Transaction Fees, as Exchange’s trading floor 21 will continue defined in this section above, in the aggregate, for to be assessed no fee for transacting one billing month may not exceed the Monthly Firm Fee Cap per member organization when such FLEX Options. All other market members are trading in their own proprietary participants, Professionals, Specialists, account. All dividend, merger, and short stock Market Makers, Broker-Dealers and interest strategy executions (as defined in this Firms, will now be assessed an Section II) are excluded from the Monthly Firm Fee TKELLEY on DSK3SPTVN1PROD with NOTICES 15 Any member or member organization under Common Ownership with another member or member organization that qualifies for a Customer Rebate Tier discount in Section B receives the PIXL Initiating Order discount as described above. 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). 17 The term ‘‘Broker-Dealer’’ applies to any transaction which is not subject to any of the other transaction fees applicable within a particular category. 18 The term ‘‘Firm’’ applies to any transaction that is identified by a member or member organization for clearing in the Firm range at OCC. 19 FLEX Option fees today are not in addition to Options Transaction Charges. 20 The Firm Floor Options Transaction Charges is waived for the buy side of a transaction if the same member or its affiliates under Common Ownership represents both sides of a Firm transaction when such members are trading in their own proprietary account. 21 FLEX options are only executed on the Exchange’s trading floor and are not executed electronically on the Exchange. VerDate Mar<15>2010 17:16 May 14, 2013 Jkt 229001 Cap. Reversal and conversion strategy executions (as defined in this Section II) are included in the Monthly Firm Fee Cap. QCC Transaction Fees are included in the calculation of the Monthly Firm Fee Cap. 24 Specialists and Market Makers are subject to a ‘‘Monthly Market Maker Cap’’ of $550,000 for: (i) Electronic and floor Option Transaction Charges; (ii) QCC Transaction Fees (as defined in Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)); and (iii) fees related to an order or quote that is contra to a PIXL Order or specifically responding to a PIXL auction. The trading activity of separate Specialist and Market Maker member organizations is aggregated in calculating the Monthly Market Maker Cap if there is Common Ownership between the member organizations. All dividend, merger, short stock interest and reversal and conversion strategy executions (as defined in this Section II) are excluded from the Monthly Market Maker Cap. 25 Today, the Exchange pays an Options Surcharge in BKX of $0.10 per contract for all market participants except Customers. Also, the Exchange pays an Options Surcharge in RUT, MNX and NDX of $0.15 per contract for all market participants, except Customers. As noted herein, RUT is delisted. 26 Section III pricing includes options overlying currencies, equities, ETFs, ETNs treasury securities and indexes not listed on another exchange. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 28683 caps certain dividend,27 merger,28 short stock interest 29 and reversal and conversion 30 floor option transactions. FLEX Options are not eligible for strategy treatment today. There is no mechanism today to mark FLEX Option transactions for strategy caps, therefore today FLEX Options are not eligible for strategy treatment. The Exchange proposes to clarify in the new FLEX Pricing in Section IV, Part B that FLEX Options will not be eligible for strategy treatment. The Exchange proposes to rename Section IV, Part B, ‘‘Cancellation Fees,’’ as Part C and also proposes to rename Section IV, Part C, ‘‘Options Regulatory Fee,’’ as Part D. 2. Statutory Basis The Exchange believes that its proposal to amend its Pricing Schedule is consistent with Section 6(b) of the Act 31 in general, and furthers the objectives of Section 6(b)(4) of the Act 32 in particular, in that it provides for 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 Category A of the Customer Rebate Program to pay rebates on PIXL Orders in Section II symbols for orders that are greater than 999 contracts, regardless of the contra party, is reasonable because the Exchange seeks to incentivize market participants by offering additional opportunities to earn Customer rebates on PIXL Orders. The Exchange’s proposal to amend Category A of the Customer Rebate Program to pay rebates on PIXL Orders 27 A dividend strategy is defined as transactions done to achieve a dividend arbitrage involving the purchase, sale and exercise of in-the-money options of the same class, executed the first business day prior to the date on which the underlying stock goes ex-dividend. 28 A merger strategy is defined as transactions done to achieve a merger arbitrage involving the purchase, sale and exercise of options of the same class and expiration date, executed the first business day prior to the date on which shareholders of record are required to elect their respective form of consideration, i.e., cash or stock. 29 A short stock interest strategy is defined as transactions done to achieve a short stock interest arbitrage involving the purchase, sale and exercise of in-the-money options of the same class. 30 Reversal and conversion strategies are transactions that employ calls and puts of the same strike price and the underlying stock. Reversals are established by combining a short stock position with a short put and a long call position that shares the same strike and expiration. Conversions employ long positions in the underlying stock that accompany long puts and short calls sharing the same strike and expiration. 31 15 U.S.C. 78f(b). 32 15 U.S.C. 78f(b)(4). E:\FR\FM\15MYN1.SGM 15MYN1 28684 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Notices in Section II symbols for orders that are greater than 999 contracts, regardless of the contra party,33 is equitable and not unfairly discriminatory because the Exchange will pay Customer rebates to any market participant that transacts a PIXL Order greater than 999 contracts regardless of the contra party in Section II symbols. This proposal would pay a rebate for a Customer PIXL Order in a Section II symbol for orders greater than 999 contracts regardless of whether the Customer PIXL Order is contra to an Initiating Order or a non-Initiating Order. The Exchange will apply the Category A rebate uniformly with respect to market participants transacting qualifying orders. Section II Amendments TKELLEY on DSK3SPTVN1PROD with NOTICES The Exchange’s proposal to adopt new pricing for Specialists and Market Makers that are contra to a Customer Penny Pilot Options on ETFs transacted on the Exchange’s floor of $0.25 per contract in addition to the Options Transaction Charges 34 in Section II of the Pricing Schedule is reasonable because the Exchange seeks to encourage more orders in Penny Pilot Options on ETFs to be delivered and executed on the Exchange’s trading floor and therefore provides an opportunity for floor participants to interact with that order. Additionally, the proposed fees are in line with pricing at other options exchanges.35 The Exchange also proposes to assess this fee in order that it may offer a rebate to the Customer on the contra-side of a Specialist and Market Maker floor transaction in a Penny Pilot Option on an ETF. The Exchange believes that paying a rebate of $0.25 per contract to Customers on the contra-side of a Specialist and Market Maker Penny Pilot Options on an ETF order will encourage market participants to send Customer Penny Pilot Options on ETFs to the Exchange’s floor for execution to qualify for the rebate when they are contra to a Specialist or Market Maker order. 33 Today, a PIXL Order that is contra to a nonInitiating Order interest is entitled to the Customer rebate in Section B of the Pricing Schedule. 34 Specialists and Market Makers are assessed an Options Transaction Charge of $0.25 per contract for transacting floor trading ETFs in Penny Pilot Options. See Section II of the Pricing Schedule. The Exchange does not assess Payment for Order Flow fees for floor transactions. See Section II of the Pricing Schedule. 35 See the Chicago Board Options Exchange Incorporated (‘‘CBOE’’) Fees Schedule. CBOE assesses CBOE Market Makers transaction fees for floor trading of ETFs in Penny Pilot Options of $0.25 -$0.03 per contracts, depending on the number of contracts executed per month (Liquidity Provider Scale) in addition to a $0.25 per contract payment for order flow fee. VerDate Mar<15>2010 17:16 May 14, 2013 Jkt 229001 The Exchange’s proposal to adopt new pricing for Specialists and Market Makers that are contra to a Customer Penny Pilot Options on ETFs transacted on the Exchange’s trading floor of $0.25 per contract in addition to the Options Transaction Charges 36 in Section II of the Pricing Schedule is equitable and not unfairly discriminatory. Today, Customers do not pay transaction fees for Multiply Listed Penny and NonPenny Pilot Options, so Specialists and Market Makers will continue to be assessed higher transaction fees. Also, unlike Professionals and Broker-Dealers, the Exchange provides other pricing benefits to Specialists and Market Makers such as a Monthly Market Maker Cap. Also, when comparing Specialists and Market Makers to Firms and other market participants it is important to note that Specialists and Market Makers are assessed Payment for Order Flow fees (‘‘PFOF’’) when transacting Customer electronic orders, but not floor transactions. Specialists and Market Makers are assessed a higher fee in order to incentivize order flow, similar to the manner in which the PFOF 37 incentivizes order flow for electronic transactions. Specialists and Market Makers interact with that Customer order flow and benefit from it unlike other market participants. The Exchange’s proposal to pay a $0.25 per contract rebate to a Customer that is contra to a Specialist or Market Maker order in a Penny Pilot Options on an ETF transacted on the Exchange’s trading floor is equitable and not unfairly discriminatory because Customer order flow is unique and such order flow attracts liquidity to the market to the benefit of all market participants. The Exchange will uniformly pay all Customers the $0.25 per contract rebate if the order is contra to a Specialist or Market Maker order in Penny Pilot Options on ETFs transacted on the Exchange’s trading floor. The Exchange’s proposal to remove references to RUT in Section II of the Pricing Schedule is reasonable, equitable and not unfairly discriminatory because the Exchange 36 Specialists and Market Makers are assessed an Options Transaction Charge of $0.25 per contract for transacting Floor ETFs in Penny Pilot Options. See Section II of the Pricing Schedule. The Exchange does not assess Payment for Order Flow fees for floor transactions. See Section II of the Pricing Schedule. 37 The Exchange assesses a $0.25 per contract PFOF for options that are trading in the Penny Pilot Program and a $0.70 per contract fee for remaining equity options in addition to other transaction fees in Sections I and II of the Pricing Schedule with respect to Customer orders. No payment for order flow fees will be assessed on trades that are not delivered electronically. See Section II of the Pricing Schedule. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 delisted RUT as of April 24, 2013 and RUT is no longer traded on Phlx. The pricing is unnecessary. Section IV Amendments PIXL The Exchange’s proposal to amend PIXL pricing at Section IV, Part A of the Pricing Schedule to reduce the Initiating Order fee to $0.00 for a Firm that is contra to a Customer PIXL Order that is greater than 999 contracts is reasonable for the reasons stated below. The Exchange is attempting to attract PIXL order flow by incentivizing members. The Exchange believes that this amendment will encourage market participants to transact a greater number of larger sized orders in PIXL. Today, the Exchange incentivizes market participants to transact PIXL Orders by offering competitive pricing including Customer rebates in Section B of the Pricing Schedule. The Exchange is instead offering to reduce the PIXL Initiating Order Fee which is currently $0.07 or $0.05 per contract if Customer Rebate Program Threshold Volume defined in Section B is greater than 100,000 contracts per day in a month to $0.00 for a Firm that is a contra to a Customer PIXL Order which exceeds 999 contracts. The Exchange desires to incentivize Firms to offer Customer PIXL Orders with respect to large orders (greater than 999 contracts) price improvement opportunities via PIXL because Firms typically execute such large institutional orders as compared to other market participants. The proposed PIXL Initiation Order Firm Fee reduction to $0.00 per contract, when contra to a Customer PIXL Order, is similar to the manner in which the Exchange assesses transaction fees for Firm Floor Facilitation orders. Today, the Exchange waives Firm Floor Options Transaction Charges 38 for members executing facilitation orders pursuant to Exchange Rule 1064 39 when such members are trading in their own proprietary account. The Exchange waives Firm Facilitation Fees because such fees serve to encourage Firms to facilitate Customer order flow. Likewise, the Exchange seeks to similarly assess Firm fees for PIXL orders, which are electronic orders, as compared to floor 38 The Exchange assesses Firm Floor Options Transaction Charges in Penny and Non-Penny Pilot Options of $0.25 per contract. 39 Exchange Rule 1064, entitled ‘‘Crossing, Facilitation and Solicited Orders,’’ provides at Rule 1064(b) that except as provided in paragraph 1064(e), a Floor Broker holding an options order for a public customer and a contra-side order may cross such orders in accordance with Rule 1064(a) or may execute such orders as a facilitation cross as specified in Rule 1064(b)(i)–(iii). E:\FR\FM\15MYN1.SGM 15MYN1 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES orders, by encouraging Firms to initiate PIXL Orders within the PIXL auction mechanism in an effort to lower execution charges by transacting with a Customer PIXL Order. When a Firm enters an Initiating Order, similar to Firm Facilitation orders on the Exchange floor, market participants are afforded an opportunity to respond to the order which should in turn generate additional responders to a PIXL auction. All market participants are eligible to respond to an Initiating PIXL Orders. Therefore, offering Firms an opportunity to deliver orders into the PIXL auction, for purposes of price improvement, benefits all market participants by incentivizing order interaction in PIXL. Also, the Exchange’s proposal is similar to pricing at CBOE,40 except the Exchange is offering to reduce the Initiating Order Fee to $0.00 for a Firm only when the Initiating Order is contra to a Customer PIXL Order that is greater than 999 contracts, otherwise there is a fee. The Exchange’s proposal to amend PIXL pricing at Section IV, Part A of the Pricing Schedule to reduce the Initiating Order fee to $0.00 for a Firm that is contra to a Customer PIXL Order that is greater than 999 contracts is equitable and not unfairly discriminatory for the reasons which follow. With respect to the increased differential as between Firms and other market participants, except Customers, who will continue to pay either the $0.07 or the $0.05 per contract Initiating Order Fee,41 the Exchange believes that, as mentioned above, Firms typically execute such large institutional orders as compared to other market participants. Customers do not pay a fee when contra to an Initiating Order.42 It is only in a limited circumstance where the Firm would pay no fee because the Firm Initiating Orders must be contra to a Customer PIXL Order that is greater than 999 contracts, otherwise there is a fee. Further, by assessing no fees, Firms should be incentivized to execute more orders on the Exchange. To the extent that this purpose is achieved, all of the 40 For facilitation orders on CBOE, other than SPX, SPXpm, SRO, VIX or other volatility indexes, OEX or XEO, no Clearing Trading Permit Holder Proprietary transaction fees are assessed to a Firm. CBOE defines facilitation orders as any paired order in which a Clearing Trading Permit Holder (F) origin code is contra to any other origin code, provided the same executing broker and clearing firm are on both sides of the order) executed in AIM, open outcry, or as a QCC or FLEX transaction. See CBOE’s Fees Schedule. 41 The Initiating Order Fee is $0.07 per contract or $0.05 per contract depending on whether the Customer Rebate Program Threshold Volume defined in Section B is greater than 100,000 contracts per day in a month. 42 See Section IV, Part A of the Pricing Schedule. VerDate Mar<15>2010 17:16 May 14, 2013 Jkt 229001 Exchange’s market participants should benefit from the improved market liquidity. Likewise, the proposal would increase the differential as between other market participants, except Customers, that would pay the $0.30 per contract PIXL Order fee when they are contra to an Initiating Order 43 and the Firm that would not pay a fee, but only in the limited circumstance that the Firm is contra to a Customer PIXL Order and that order is greater than 999 contracts. Customers do not pay a fee when contra to an Initiating Order.44 Similar to Firm Facilitation on the Exchange’s trading floor, such fees serve to encourage Firms to facilitate Customer order flow. As noted herein, Exchange seeks to encourage Firms to initiate PIXL auctions within the PIXL auction mechanism in an effort to lower execution charges by transacting with a Customer PIXL Order. When a Firm enters an Initiating Order market participants are afforded an opportunity to respond to the order which should in turn generate additional responders to a PIXL auction. All market participants are eligible to respond to an Initiating PIXL Orders. Therefore, offering Firms an opportunity to deliver orders into the PIXL auction, for purposes of price improvement, benefits all market participants by incentivizing order interaction in PIXL. Today, the differential for Firm floor facilitation is $0.25 per contract.45 While this differential is wider, it is not applicable on all transactions but only in the limited circumstance that the Firm is contra to a Customer PIXL Order and that order is greater than 999 contracts. As explained herein, Firms typically execute such large institutional orders as compared to other market participants. For these reasons, the Exchange believes the proposal is equitable and not unfairly discriminatory. FLEX Pricing The Exchange’s proposal to add a new Part B to Section IV entitled ‘‘FLEX Transaction Fees’’ and to amend the FLEX pricing is reasonable for the reasons which follow. With respect to 43 Section IV, Part A of the Pricing Schedule provides when the PIXL Order is contra to the Initiating Order a Customer PIXL Order will be assessed $0.00 and all non-Customer market participant PIXL Orders will be assessed $0.30 per contract when contra to the Initiating Order for PIXL Order executions in Section I, Select Symbols, as well as in Section II, Multiply Listed Options. 44 See Section IV, Part A of the Pricing Schedule. 45 All market participants, except Customers, are assessed a Penny Pilot Option and Non-Penny Pilot Option Transaction Charge of $0.25 per contract for floor transactions. See Section II of the Pricing Schedule. PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 28685 Multiply Listed Options the Exchange is proposing to increase the FLEX Options pricing for Professionals, Specialists, Market Makers, Broker-Dealers and Firms from $0.10 to $0.15 per contract, which should not discourage market participants from transacting FLEX Options.46 The Exchange has not recently amended these fees. The FLEX Options are transacted on the Exchange’s trading floor and the process is not automated. Exchange staff is involved in the process of processing requests for FLEX Orders and costs associated with the Exchange’s trading floor have risen over the years. The Exchange believes that the increase will assist the Exchange in offsetting costs while keeping such costs competitive with other markets. The Exchange believes that its proposal to amend the Multiply Listed Options FLEX pricing is equitable and not unfairly discriminatory because the Exchange is assessing the same fees for Multiply Listed Options on all market participants, except Customers. Customers traditionally are not assessed transaction fees because Customer orders bring valuable liquidity to the market. The Exchange believes that the cost to transact FLEX Options remains competitive with costs at other options Exchanges.47 The Exchange is not otherwise proposing to amend its treatment of FLEX pricing. As is the case today, the Monthly Firm Fee Cap, the Monthly Market Maker Cap and the Options Surcharges in BKX, MNX and NDX will continue to apply. Also, the Exchange is not amending the FLEX pricing for Singly Listed Options, which will continue to be assessed the pricing in Section III of the Pricing Schedule. The Exchange will also continue to waive FLEX transaction fees for a Firm when such members are trading in their own proprietary accounts pursuant to Exchange Rule 1064, as is the case today. The Exchange’s proposal to clarify that FLEX Options are not eligible for strategy treatment is reasonable, equitable and not unfairly discriminatory because today market participants may not mark a FLEX Option as eligible for a strategy transaction. The Exchange believes that adding a clarifying sentence to specifically state that FLEX Options will not qualify for strategy treatment will clarify the Pricing Schedule to the benefit of all market participants. 46 FLEX Transaction Customer Fees for Multiply Listed Orders on the Exchange’s trading floor will continue to be assessed fee for transacting FLEX Options 47 See CBOE’s Fees Schedule. E:\FR\FM\15MYN1.SGM 15MYN1 TKELLEY on DSK3SPTVN1PROD with NOTICES 28686 Federal Register / Vol. 78, No. 94 / Wednesday, May 15, 2013 / Notices 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 believes that its proposal to amend Category A of the Customer Rebate Program does not impose an undue burden on competition because the Exchange is offering to pay Customer rebates on PIXL Orders greater than 999 contracts regardless of the contra party for all market participants. The Exchange believes that assessing additional fees to Specialists and Market Makers does not create an undue burden on competition because the Exchange is proposing to offer Customers a rebate which should attract Customer order flow to the benefit of Specialists, Market Makers and other market participants that interact with such order flow. Today, the Exchange assesses Specialists and Market Makers PFOF for electronic transaction to similarly attract order flow to the Exchange when the Specialist and Market Maker are contra to a Customer order. The PIXL pricing is proposed to incentivize Firms to bring Initiating Orders to a PIXL auction. The Exchange does not believe that the proposed PIXL pricing creates an undue burden on competition, but rather encourages competition among market participants to price improve the order. Other market participants may respond to a PIXL Initiating Order. The Exchange does not believe that the differentials created as between Firms and other market participants, in terms of the cost of participating in a PIXL transaction, while greater, creates an undue burden on competition because the Firm Initiating Order Fee will only be reduced in limited circumstances and most likely by a Firm. By reducing the Initiating Order Fee for a Firm in these limited circumstances, the Exchange is incentivizing Firms to execute more orders on the Exchange. To the extent that this purpose is achieved, all of the Exchange’s market participants should benefit from the improved market liquidity. The FLEX pricing in Multiply Listed Options is the same pricing for all market participants except Customers, who are not assessed FLEX Options transaction fees in Multiply Listed Options because Customer order brings liquidity to the market which benefits all market participants. The Exchange does not believe that the FLEX pricing creates an undue burden on competition. VerDate Mar<15>2010 17:16 May 14, 2013 Jkt 229001 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. 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. Comments may be submitted by any of the following methods: Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2013–49. 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 such 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– 2013–49 and should be submitted on or before June 5, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.49 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–11520 Filed 5–14–13; 8:45 am] BILLING CODE 8011–01–P 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–Phlx–2013–49 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, 48 15 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00111 Fmt 4703 Sfmt 9990 49 17 E:\FR\FM\15MYN1.SGM CFR 200.30–3(a)(12). 15MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 94 (Wednesday, May 15, 2013)]
[Notices]
[Pages 28681-28686]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11520]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69548; File No. SR-Phlx-2013-49]

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

May 9, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on May 1, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend the Exchange's Pricing Schedule with
respect to the Customer \3\ Rebate Program in Section B, certain
pricing in Section II entitled ``Multiply Listed Options Fees,'' \4\
including Qualified Contingent Cross (``QCC'') Rebates,\5\ and Section
IV, entitled ``Other Transaction Fees,'' PIXL \6\ Pricing and FLEX
Options \7\ pricing. The Exchange also proposes to eliminate references
to RUT and clarify the treatment of certain strategies.
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\3\ The term ``Customer'' applies to any transaction that is
identified by a member or member organization for clearing in the
Customer range at The Options Clearing Corporation (``OCC'') which
is not for the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Rule 1000(b)(14)).
\4\ The pricing in Section II includes options overlying
equities, ETFs, ETNs and indexes which are Multiply Listed.
\5\ 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 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). A Floor QCC
Order must: (i) Be for at least 1,000 contracts, (ii) meet the six
requirements of Rule 1080(o)(3) which are modeled on the QCT
Exemption, (iii) be executed at a price at or between the National
Best Bid and Offer (``NBBO''); and (iv) be rejected if a Customer
order is resting on the Exchange book at the same price. In order to
satisfy the 1,000-contract requirement, a Floor QCC Order must be
for 1,000 contracts and could not be, for example, two 500-contract
orders or two 500-contract legs. See Rule 1064(e). See also
Securities Exchange Act Release No. 64688 (June 16, 2011), 76 FR
36606 (June 22, 2011) (SR-Phlx-2011-56).
\6\ PIXL is the Exchange's price improvement mechanism known as
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
\7\ The term ``FLEX option'' means a FLEX option contract that
is traded subject to this Rule. Although FLEX options are generally
subject to the rules in this section, to the extent that the
provisions of this Rule are inconsistent with other applicable
Exchange rules, this Rule takes precedence with respect to FLEX
options. See Exchange Rule 1079.
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The text of the proposed rule change is 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 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.

[[Page 28682]]

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 amend Category A of
the Customer Rebate Program to offer increased rebate opportunities for
PIXL Orders greater than 999 contracts in Section II symbols. The
Exchange proposes to amend Section II to increase the maximum QCC
rebate that will be paid by the Exchange, adopt a new fee and rebate
for certain floor transactions, clarify the treatment of strategies and
eliminate RUT from the Pricing Schedule. Finally, the Exchange proposes
to amend its PIXL Pricing and relocate and adopt new FLEX Multiply
Listed Options pricing.
Customer Rebate Program
Currently, the Exchange has in place a four tier structure Customer
Rebate Program at Section B of the Pricing Schedule which pays Customer
rebates on four Categories (A, B, C and D) of transactions. The four
tier structure pays rebates based on percentage thresholds of national
customer multiply-listed options volume by month based on the same four
Categories (A, B, C and D) of transactions. Specifically, the Exchange
bases a market participant's qualification for a certain Rebate Tier on
the percentage of total national customer volume in multiply-listed
options which are transacted monthly on Phlx as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage thresholds of
national customer volume in
Customer rebate tiers multiply-listed equity and Category A Category B Category C Category D
ETF options classes
(Monthly)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tier 1...................................... 0.00%-0.75%................... $0.00 $0.00 $0.00 $0.00
Tier 2...................................... Above 0.75%-1.60%............. 0.11 0.12 0.13 0.08
Tier 3...................................... Above 1.60%-2.60%............. 0.13 0.13 0.14 0.08
Tier 4...................................... Above 2.60%................... 0.15 0.15 0.15 0.09
--------------------------------------------------------------------------------------------------------------------------------------------------------

Today, the Exchange totals Customer volume in Multiply Listed
Options (including Select Symbols) that are electronically-delivered
and executed, except volume associated with electronic QCC Orders, as
defined in Exchange Rule 1080(o) in the same manner.\8\ Members and
member organizations under common ownership \9\ may aggregate their
Customer volume for purposes of calculating the Customer Rebate Tiers
and receiving rebates. Category A rebates are 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. Category B rebates are paid to
members executing electronically-delivered Customer Complex Orders in
Penny Pilot Options and Non-Penny Pilot Options in Section II. Category
C rebates are paid to members executing electronically-delivered
Customer Complex Orders in Select Symbols in Section I. Category D
rebates are paid to members executing electronically-delivered Customer
Simple Orders in Select Symbols in Section I. Rebates are paid on PIXL
Orders in Section I symbols that execute against non-Initiating Order
interest.
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\8\ For clarity, the Exchange will calculate volume and pay
rebates based on a member organization's Phlx house account numbers.
\9\ Common ownership means 75% common ownership or control.
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The Exchange proposes to amend Category A of the Customer Rebate
Program to instead pay on PIXL Orders in Section II symbols that
execute against non-Initiating Order interest, except in the case of a
PIXL Order that is greater than 999 contracts. All PIXL Orders that are
greater than 999 contracts will be paid a rebate regardless of the
contra party to the transaction. The Exchange is not proposing any
additional amendments to the Customer Rebate Program.
Section II Amendments
The Exchange proposes to remove references to FLEX Option pricing
in Section II of the Pricing Schedule. The Exchange will adopt new FLEX
Option pricing in Section IV of the Pricing Schedule, which will be
described in additional detail below.
The Exchange proposes to adopt new pricing for Specialists \10\ and
Market Makers \11\ that are contra to a Customer Penny Pilot Options on
Exchange Traded-Fund (``ETFs'') \12\ on the Exchange's floor of $0.25
per contract in addition to the Floor Options Transaction Charges in
Section II of the Pricing Schedule.\13\ Additionally, the contra
Customer order to the Specialist and Market Maker transaction will be
entitled to a rebate of $0.25 per contract. The Exchange believes that
this new pricing will encourage trading in Penny Pilot Options on ETFs
on the Exchange's trading floor.
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\10\ A Specialist is an Exchange member who is registered as an
options specialist pursuant to Rule 1020(a).
\11\ 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.
\12\ An ETF is an open-ended registered investment company under
the Investment Company Act of 1940 that has received certain
exemptive relief from the Commission to allow secondary market
trading in the ETF shares. ETFs are generally index-based products,
in that each ETF holds a portfolio of securities that is intended to
provide investment results that, before fees and expenses, generally
correspond to the price and yield performance of the underlying
benchmark index.
\13\ Specialists and Market Makers are assessed a Floor Options
Transaction Charge of $0.25 per contract. See Section II of the
Pricing Schedule.
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Finally, the Exchange is removing references the reference to
options on the Russell 2000[supreg] Index (the ``Full Value Russell
Index'' or ``RUT'') in Section II of the Pricing Schedule as the
Exchange delisted RUT as of April 24, 2013.
Section IV Amendments
PIXL
The Exchange proposes to amend PIXL pricing at Section IV, Part A
of the Pricing Schedule. Currently, the Exchange assesses an Initiating
Order \14\ a $0.07 per contract or $0.05 per contract fee if the
Customer Rebate Program Threshold Volume, defined in Section B, is
greater than 100,000

[[Page 28683]]

contracts per day in a month. \15\ The Exchange proposes to amend the
PIXL pricing to state that an Initiating Order fee for a Firm that is
contra to a Customer PIXL Order will be reduced to $0.00 if a Customer
PIXL Order is greater than 999 contracts. The Exchange believes that
this amendment will encourage Firms to transact a greater number of
PIXL Orders.
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\14\ 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).
\15\ Any member or member organization under Common Ownership
with another member or member organization that qualifies for a
Customer Rebate Tier discount in Section B receives the PIXL
Initiating Order discount as described above.
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FLEX
The Exchange also proposes to add a new Part B to Section IV
entitled ``FLEX Transaction Fees.'' As mentioned herein, FLEX Options
pricing is currently located in Section II of the Pricing Schedule.
Today, the Exchange assesses Customers no fee for transacting FLEX
Options. All other market participants, Professionals,\16\ Specialists,
Market Makers, Broker-Dealers \17\ and Firms,\18\ are assessed $0.10
per contract when transacting FLEX Options.\19\ Further, today the Firm
Floor Options Transaction Charges are waived for members executing
facilitation orders pursuant to Exchange Rule 1064 when such members
are trading in their own proprietary account (including FLEX and
Cabinet Options Transaction Charges).\20\
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\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).
\17\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
\18\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at OCC.
\19\ FLEX Option fees today are not in addition to Options
Transaction Charges.
\20\ The Firm Floor Options Transaction Charges is waived for
the buy side of a transaction if the same member or its affiliates
under Common Ownership represents both sides of a Firm transaction
when such members are trading in their own proprietary account.
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The Exchange proposes to adopt new FLEX Multiply Listed Options
pricing in Section IV, Part B of the Pricing Schedule for Multiply
Listed Options. FLEX Transaction Customer Fees for Multiply Listed
Orders on the Exchange's trading floor \21\ will continue to be
assessed no fee for transacting FLEX Options. All other market
participants, Professionals, Specialists, Market Makers, Broker-Dealers
and Firms, will now be assessed an increased fee of $0.15 per contract
when transacting FLEX Options.\22\ The Exchange will continue to apply
the Monthly Firm Fee Cap,\23\ Monthly Market Maker Cap,\24\ and the
Options Surcharge in PHLX/KBW Bank Index (``BKX''), options on the one-
tenth value of the Nasdaq 100 Index traded under the symbol MNX
(``MNX'') and options on the Nasdaq 100 Index traded under the symbol
NDX (``NDX'') described in Section II \25\ will apply to this Section
IV, B. No other fees described in Section II will apply to this Section
IV, B. The Exchange will continue to waive FLEX transaction fees for a
Firm executing facilitation orders pursuant to Exchange Rule 1064 when
such members are trading in their own proprietary account. The pricing
in Section III, entitled ``Singly Listed Options'' will continue to
apply to FLEX Singly Listed Options, as is the case today.\26\ The
Exchange assesses Options Transaction Charges for Singly Listed Options
as follows: A Customer is assessed $0.35 per contract, a Specialist and
Market Maker is assessed $0.40 per contract and a Professional, Firm
and Broker-Dealer are assessed $0.60 per contract.
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\21\ FLEX options are only executed on the Exchange's trading
floor and are not executed electronically on the Exchange.
\22\ FLEX Option fees today are not in addition to Options
Transaction Charges.
\23\ Firms are subject to a maximum fee of $75,000 (``Monthly
Firm Fee Cap''). Firm Floor Option Transaction Charges and QCC
Transaction Fees, as defined in this section above, in the
aggregate, for one billing month may not exceed the Monthly Firm Fee
Cap per member organization when such members are trading in their
own proprietary account. All dividend, merger, and short stock
interest strategy executions (as defined in this Section II) are
excluded from the Monthly Firm Fee Cap. Reversal and conversion
strategy executions (as defined in this Section II) are included in
the Monthly Firm Fee Cap. QCC Transaction Fees are included in the
calculation of the Monthly Firm Fee Cap.
\24\ Specialists and Market Makers are subject to a ``Monthly
Market Maker Cap'' of $550,000 for: (i) Electronic and floor Option
Transaction Charges; (ii) QCC Transaction Fees (as defined in
Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e));
and (iii) fees related to an order or quote that is contra to a PIXL
Order or specifically responding to a PIXL auction. The trading
activity of separate Specialist and Market Maker member
organizations is aggregated in calculating the Monthly Market Maker
Cap if there is Common Ownership between the member organizations.
All dividend, merger, short stock interest and reversal and
conversion strategy executions (as defined in this Section II) are
excluded from the Monthly Market Maker Cap.
\25\ Today, the Exchange pays an Options Surcharge in BKX of
$0.10 per contract for all market participants except Customers.
Also, the Exchange pays an Options Surcharge in RUT, MNX and NDX of
$0.15 per contract for all market participants, except Customers. As
noted herein, RUT is delisted.
\26\ Section III pricing includes options overlying currencies,
equities, ETFs, ETNs treasury securities and indexes not listed on
another exchange.
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The Exchange also proposes to clarify that FLEX Options are not
eligible for strategy treatment. Today, the Exchange caps certain
dividend,\27\ merger,\28\ short stock interest \29\ and reversal and
conversion \30\ floor option transactions. FLEX Options are not
eligible for strategy treatment today. There is no mechanism today to
mark FLEX Option transactions for strategy caps, therefore today FLEX
Options are not eligible for strategy treatment. The Exchange proposes
to clarify in the new FLEX Pricing in Section IV, Part B that FLEX
Options will not be eligible for strategy treatment.
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\27\ A dividend strategy is defined as transactions done to
achieve a dividend arbitrage involving the purchase, sale and
exercise of in-the-money options of the same class, executed the
first business day prior to the date on which the underlying stock
goes ex-dividend.
\28\ A merger strategy is defined as transactions done to
achieve a merger arbitrage involving the purchase, sale and exercise
of options of the same class and expiration date, executed the first
business day prior to the date on which shareholders of record are
required to elect their respective form of consideration, i.e., cash
or stock.
\29\ A short stock interest strategy is defined as transactions
done to achieve a short stock interest arbitrage involving the
purchase, sale and exercise of in-the-money options of the same
class.
\30\ Reversal and conversion strategies are transactions that
employ calls and puts of the same strike price and the underlying
stock. Reversals are established by combining a short stock position
with a short put and a long call position that shares the same
strike and expiration. Conversions employ long positions in the
underlying stock that accompany long puts and short calls sharing
the same strike and expiration.
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The Exchange proposes to rename Section IV, Part B, ``Cancellation
Fees,'' as Part C and also proposes to rename Section IV, Part C,
``Options Regulatory Fee,'' as Part D.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act \31\ in general,
and furthers the objectives of Section 6(b)(4) of the Act \32\ in
particular, in that it provides for an equitable allocation of
reasonable fees and other charges among Exchange members and other
persons using its facilities.
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\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(4).
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Customer Rebate Program
The Exchange's proposal to amend Category A of the Customer Rebate
Program to pay rebates on PIXL Orders in Section II symbols for orders
that are greater than 999 contracts, regardless of the contra party, is
reasonable because the Exchange seeks to incentivize market
participants by offering additional opportunities to earn Customer
rebates on PIXL Orders.
The Exchange's proposal to amend Category A of the Customer Rebate
Program to pay rebates on PIXL Orders

[[Page 28684]]

in Section II symbols for orders that are greater than 999 contracts,
regardless of the contra party,\33\ is equitable and not unfairly
discriminatory because the Exchange will pay Customer rebates to any
market participant that transacts a PIXL Order greater than 999
contracts regardless of the contra party in Section II symbols. This
proposal would pay a rebate for a Customer PIXL Order in a Section II
symbol for orders greater than 999 contracts regardless of whether the
Customer PIXL Order is contra to an Initiating Order or a non-
Initiating Order. The Exchange will apply the Category A rebate
uniformly with respect to market participants transacting qualifying
orders.
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\33\ Today, a PIXL Order that is contra to a non-Initiating
Order interest is entitled to the Customer rebate in Section B of
the Pricing Schedule.
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Section II Amendments
The Exchange's proposal to adopt new pricing for Specialists and
Market Makers that are contra to a Customer Penny Pilot Options on ETFs
transacted on the Exchange's floor of $0.25 per contract in addition to
the Options Transaction Charges \34\ in Section II of the Pricing
Schedule is reasonable because the Exchange seeks to encourage more
orders in Penny Pilot Options on ETFs to be delivered and executed on
the Exchange's trading floor and therefore provides an opportunity for
floor participants to interact with that order. Additionally, the
proposed fees are in line with pricing at other options exchanges.\35\
The Exchange also proposes to assess this fee in order that it may
offer a rebate to the Customer on the contra-side of a Specialist and
Market Maker floor transaction in a Penny Pilot Option on an ETF. The
Exchange believes that paying a rebate of $0.25 per contract to
Customers on the contra-side of a Specialist and Market Maker Penny
Pilot Options on an ETF order will encourage market participants to
send Customer Penny Pilot Options on ETFs to the Exchange's floor for
execution to qualify for the rebate when they are contra to a
Specialist or Market Maker order.
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\34\ Specialists and Market Makers are assessed an Options
Transaction Charge of $0.25 per contract for transacting floor
trading ETFs in Penny Pilot Options. See Section II of the Pricing
Schedule. The Exchange does not assess Payment for Order Flow fees
for floor transactions. See Section II of the Pricing Schedule.
\35\ See the Chicago Board Options Exchange Incorporated
(``CBOE'') Fees Schedule. CBOE assesses CBOE Market Makers
transaction fees for floor trading of ETFs in Penny Pilot Options of
$0.25 -$0.03 per contracts, depending on the number of contracts
executed per month (Liquidity Provider Scale) in addition to a $0.25
per contract payment for order flow fee.
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The Exchange's proposal to adopt new pricing for Specialists and
Market Makers that are contra to a Customer Penny Pilot Options on ETFs
transacted on the Exchange's trading floor of $0.25 per contract in
addition to the Options Transaction Charges \36\ in Section II of the
Pricing Schedule is equitable and not unfairly discriminatory. Today,
Customers do not pay transaction fees for Multiply Listed Penny and
Non-Penny Pilot Options, so Specialists and Market Makers will continue
to be assessed higher transaction fees. Also, unlike Professionals and
Broker-Dealers, the Exchange provides other pricing benefits to
Specialists and Market Makers such as a Monthly Market Maker Cap. Also,
when comparing Specialists and Market Makers to Firms and other market
participants it is important to note that Specialists and Market Makers
are assessed Payment for Order Flow fees (``PFOF'') when transacting
Customer electronic orders, but not floor transactions. Specialists and
Market Makers are assessed a higher fee in order to incentivize order
flow, similar to the manner in which the PFOF \37\ incentivizes order
flow for electronic transactions. Specialists and Market Makers
interact with that Customer order flow and benefit from it unlike other
market participants.
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\36\ Specialists and Market Makers are assessed an Options
Transaction Charge of $0.25 per contract for transacting Floor ETFs
in Penny Pilot Options. See Section II of the Pricing Schedule. The
Exchange does not assess Payment for Order Flow fees for floor
transactions. See Section II of the Pricing Schedule.
\37\ The Exchange assesses a $0.25 per contract PFOF for options
that are trading in the Penny Pilot Program and a $0.70 per contract
fee for remaining equity options in addition to other transaction
fees in Sections I and II of the Pricing Schedule with respect to
Customer orders. No payment for order flow fees will be assessed on
trades that are not delivered electronically. See Section II of the
Pricing Schedule.
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The Exchange's proposal to pay a $0.25 per contract rebate to a
Customer that is contra to a Specialist or Market Maker order in a
Penny Pilot Options on an ETF transacted on the Exchange's trading
floor is equitable and not unfairly discriminatory because Customer
order flow is unique and such order flow attracts liquidity to the
market to the benefit of all market participants. The Exchange will
uniformly pay all Customers the $0.25 per contract rebate if the order
is contra to a Specialist or Market Maker order in Penny Pilot Options
on ETFs transacted on the Exchange's trading floor.
The Exchange's proposal to remove references to RUT in Section II
of the Pricing Schedule is reasonable, equitable and not unfairly
discriminatory because the Exchange delisted RUT as of April 24, 2013
and RUT is no longer traded on Phlx. The pricing is unnecessary.
Section IV Amendments
PIXL
The Exchange's proposal to amend PIXL pricing at Section IV, Part A
of the Pricing Schedule to reduce the Initiating Order fee to $0.00 for
a Firm that is contra to a Customer PIXL Order that is greater than 999
contracts is reasonable for the reasons stated below. The Exchange is
attempting to attract PIXL order flow by incentivizing members. The
Exchange believes that this amendment will encourage market
participants to transact a greater number of larger sized orders in
PIXL. Today, the Exchange incentivizes market participants to transact
PIXL Orders by offering competitive pricing including Customer rebates
in Section B of the Pricing Schedule. The Exchange is instead offering
to reduce the PIXL Initiating Order Fee which is currently $0.07 or
$0.05 per contract if Customer Rebate Program Threshold Volume defined
in Section B is greater than 100,000 contracts per day in a month to
$0.00 for a Firm that is a contra to a Customer PIXL Order which
exceeds 999 contracts. The Exchange desires to incentivize Firms to
offer Customer PIXL Orders with respect to large orders (greater than
999 contracts) price improvement opportunities via PIXL because Firms
typically execute such large institutional orders as compared to other
market participants. The proposed PIXL Initiation Order Firm Fee
reduction to $0.00 per contract, when contra to a Customer PIXL Order,
is similar to the manner in which the Exchange assesses transaction
fees for Firm Floor Facilitation orders. Today, the Exchange waives
Firm Floor Options Transaction Charges \38\ for members executing
facilitation orders pursuant to Exchange Rule 1064 \39\ when such
members are trading in their own proprietary account. The Exchange
waives Firm Facilitation Fees because such fees serve to encourage
Firms to facilitate Customer order flow. Likewise, the Exchange seeks
to similarly assess Firm fees for PIXL orders, which are electronic
orders, as compared to floor

[[Page 28685]]

orders, by encouraging Firms to initiate PIXL Orders within the PIXL
auction mechanism in an effort to lower execution charges by
transacting with a Customer PIXL Order. When a Firm enters an
Initiating Order, similar to Firm Facilitation orders on the Exchange
floor, market participants are afforded an opportunity to respond to
the order which should in turn generate additional responders to a PIXL
auction. All market participants are eligible to respond to an
Initiating PIXL Orders. Therefore, offering Firms an opportunity to
deliver orders into the PIXL auction, for purposes of price
improvement, benefits all market participants by incentivizing order
interaction in PIXL. Also, the Exchange's proposal is similar to
pricing at CBOE,\40\ except the Exchange is offering to reduce the
Initiating Order Fee to $0.00 for a Firm only when the Initiating Order
is contra to a Customer PIXL Order that is greater than 999 contracts,
otherwise there is a fee.
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\38\ The Exchange assesses Firm Floor Options Transaction
Charges in Penny and Non-Penny Pilot Options of $0.25 per contract.
\39\ Exchange Rule 1064, entitled ``Crossing, Facilitation and
Solicited Orders,'' provides at Rule 1064(b) that except as provided
in paragraph 1064(e), a Floor Broker holding an options order for a
public customer and a contra-side order may cross such orders in
accordance with Rule 1064(a) or may execute such orders as a
facilitation cross as specified in Rule 1064(b)(i)-(iii).
\40\ For facilitation orders on CBOE, other than SPX, SPXpm,
SRO, VIX or other volatility indexes, OEX or XEO, no Clearing
Trading Permit Holder Proprietary transaction fees are assessed to a
Firm. CBOE defines facilitation orders as any paired order in which
a Clearing Trading Permit Holder (F) origin code is contra to any
other origin code, provided the same executing broker and clearing
firm are on both sides of the order) executed in AIM, open outcry,
or as a QCC or FLEX transaction. See CBOE's Fees Schedule.
---------------------------------------------------------------------------

The Exchange's proposal to amend PIXL pricing at Section IV, Part A
of the Pricing Schedule to reduce the Initiating Order fee to $0.00 for
a Firm that is contra to a Customer PIXL Order that is greater than 999
contracts is equitable and not unfairly discriminatory for the reasons
which follow. With respect to the increased differential as between
Firms and other market participants, except Customers, who will
continue to pay either the $0.07 or the $0.05 per contract Initiating
Order Fee,\41\ the Exchange believes that, as mentioned above, Firms
typically execute such large institutional orders as compared to other
market participants. Customers do not pay a fee when contra to an
Initiating Order.\42\ It is only in a limited circumstance where the
Firm would pay no fee because the Firm Initiating Orders must be contra
to a Customer PIXL Order that is greater than 999 contracts, otherwise
there is a fee. Further, by assessing no fees, Firms should be
incentivized to execute more orders on the Exchange. To the extent that
this purpose is achieved, all of the Exchange's market participants
should benefit from the improved market liquidity. Likewise, the
proposal would increase the differential as between other market
participants, except Customers, that would pay the $0.30 per contract
PIXL Order fee when they are contra to an Initiating Order \43\ and the
Firm that would not pay a fee, but only in the limited circumstance
that the Firm is contra to a Customer PIXL Order and that order is
greater than 999 contracts. Customers do not pay a fee when contra to
an Initiating Order.\44\ Similar to Firm Facilitation on the Exchange's
trading floor, such fees serve to encourage Firms to facilitate
Customer order flow. As noted herein, Exchange seeks to encourage Firms
to initiate PIXL auctions within the PIXL auction mechanism in an
effort to lower execution charges by transacting with a Customer PIXL
Order. When a Firm enters an Initiating Order market participants are
afforded an opportunity to respond to the order which should in turn
generate additional responders to a PIXL auction. All market
participants are eligible to respond to an Initiating PIXL Orders.
Therefore, offering Firms an opportunity to deliver orders into the
PIXL auction, for purposes of price improvement, benefits all market
participants by incentivizing order interaction in PIXL. Today, the
differential for Firm floor facilitation is $0.25 per contract.\45\
While this differential is wider, it is not applicable on all
transactions but only in the limited circumstance that the Firm is
contra to a Customer PIXL Order and that order is greater than 999
contracts. As explained herein, Firms typically execute such large
institutional orders as compared to other market participants.
---------------------------------------------------------------------------

\41\ The Initiating Order Fee is $0.07 per contract or $0.05 per
contract depending on whether the Customer Rebate Program Threshold
Volume defined in Section B is greater than 100,000 contracts per
day in a month.
\42\ See Section IV, Part A of the Pricing Schedule.
\43\ Section IV, Part A of the Pricing Schedule provides when
the PIXL Order is contra to the Initiating Order a Customer PIXL
Order will be assessed $0.00 and all non-Customer market participant
PIXL Orders will be assessed $0.30 per contract when contra to the
Initiating Order for PIXL Order executions in Section I, Select
Symbols, as well as in Section II, Multiply Listed Options.
\44\ See Section IV, Part A of the Pricing Schedule.
\45\ All market participants, except Customers, are assessed a
Penny Pilot Option and Non-Penny Pilot Option Transaction Charge of
$0.25 per contract for floor transactions. See Section II of the
Pricing Schedule.
---------------------------------------------------------------------------

For these reasons, the Exchange believes the proposal is equitable
and not unfairly discriminatory.
FLEX Pricing
The Exchange's proposal to add a new Part B to Section IV entitled
``FLEX Transaction Fees'' and to amend the FLEX pricing is reasonable
for the reasons which follow. With respect to Multiply Listed Options
the Exchange is proposing to increase the FLEX Options pricing for
Professionals, Specialists, Market Makers, Broker-Dealers and Firms
from $0.10 to $0.15 per contract, which should not discourage market
participants from transacting FLEX Options.\46\ The Exchange has not
recently amended these fees. The FLEX Options are transacted on the
Exchange's trading floor and the process is not automated. Exchange
staff is involved in the process of processing requests for FLEX Orders
and costs associated with the Exchange's trading floor have risen over
the years. The Exchange believes that the increase will assist the
Exchange in offsetting costs while keeping such costs competitive with
other markets. The Exchange believes that its proposal to amend the
Multiply Listed Options FLEX pricing is equitable and not unfairly
discriminatory because the Exchange is assessing the same fees for
Multiply Listed Options on all market participants, except Customers.
Customers traditionally are not assessed transaction fees because
Customer orders bring valuable liquidity to the market. The Exchange
believes that the cost to transact FLEX Options remains competitive
with costs at other options Exchanges.\47\
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\46\ FLEX Transaction Customer Fees for Multiply Listed Orders
on the Exchange's trading floor will continue to be assessed fee for
transacting FLEX Options
\47\ See CBOE's Fees Schedule.
---------------------------------------------------------------------------

The Exchange is not otherwise proposing to amend its treatment of
FLEX pricing. As is the case today, the Monthly Firm Fee Cap, the
Monthly Market Maker Cap and the Options Surcharges in BKX, MNX and NDX
will continue to apply. Also, the Exchange is not amending the FLEX
pricing for Singly Listed Options, which will continue to be assessed
the pricing in Section III of the Pricing Schedule. The Exchange will
also continue to waive FLEX transaction fees for a Firm when such
members are trading in their own proprietary accounts pursuant to
Exchange Rule 1064, as is the case today. The Exchange's proposal to
clarify that FLEX Options are not eligible for strategy treatment is
reasonable, equitable and not unfairly discriminatory because today
market participants may not mark a FLEX Option as eligible for a
strategy transaction. The Exchange believes that adding a clarifying
sentence to specifically state that FLEX Options will not qualify for
strategy treatment will clarify the Pricing Schedule to the benefit of
all market participants.

[[Page 28686]]

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 believes that its
proposal to amend Category A of the Customer Rebate Program does not
impose an undue burden on competition because the Exchange is offering
to pay Customer rebates on PIXL Orders greater than 999 contracts
regardless of the contra party for all market participants. The
Exchange believes that assessing additional fees to Specialists and
Market Makers does not create an undue burden on competition because
the Exchange is proposing to offer Customers a rebate which should
attract Customer order flow to the benefit of Specialists, Market
Makers and other market participants that interact with such order
flow. Today, the Exchange assesses Specialists and Market Makers PFOF
for electronic transaction to similarly attract order flow to the
Exchange when the Specialist and Market Maker are contra to a Customer
order.
The PIXL pricing is proposed to incentivize Firms to bring
Initiating Orders to a PIXL auction. The Exchange does not believe that
the proposed PIXL pricing creates an undue burden on competition, but
rather encourages competition among market participants to price
improve the order. Other market participants may respond to a PIXL
Initiating Order. The Exchange does not believe that the differentials
created as between Firms and other market participants, in terms of the
cost of participating in a PIXL transaction, while greater, creates an
undue burden on competition because the Firm Initiating Order Fee will
only be reduced in limited circumstances and most likely by a Firm. By
reducing the Initiating Order Fee for a Firm in these limited
circumstances, the Exchange is incentivizing Firms to execute more
orders on the Exchange. To the extent that this purpose is achieved,
all of the Exchange's market participants should benefit from the
improved market liquidity.
The FLEX pricing in Multiply Listed Options is the same pricing for
all market participants except Customers, who are not assessed FLEX
Options transaction fees in Multiply Listed Options because Customer
order brings liquidity to the market which benefits all market
participants. The Exchange does not believe that the FLEX pricing
creates an undue burden on competition.
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.

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. 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-2013-49 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-2013-49. 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 such 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-2013-49 and should be
submitted on or before June 5, 2013.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
---------------------------------------------------------------------------

\49\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11520 Filed 5-14-13; 8:45 am]
BILLING CODE 8011-01-P

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