Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Customer Rebate Program and Multiply Listed Options, 15372-15376 [2014-05983]

Download as PDF 15372 Federal Register / Vol. 79, No. 53 / Wednesday, March 19, 2014 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71716; File No. SR–Phlx– 2014–14] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Customer Rebate Program and Multiply Listed Options March 13, 2014. 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 March 5, 2014, 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. amend Section II of the Pricing Schedule entitled ‘‘Multiply Listed Options Fees.’’ 3 The text of the proposed rule change is available on the Exchange’s Web site at http://nasdaqomxphlx.cchwallstreet. com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The Exchange proposes to: (i) Amend the Customer Rebate Program in Section B of the Pricing Schedule; and (ii) 1. Purpose The Exchange proposes to amend certain Customer Rebate tier percentage 1 2 3 4 5 ................................................ ................................................ ................................................ ................................................ ................................................ 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 This includes options overlying equities, ETFs, ETNs and indexes that are multiply listed. 4 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 symbols. Rebates are paid on Customer PIXL Orders in Section II symbols that execute against non-Initiating Order interest. In the instance where member organizations qualify for Tier 3 or higher in the Customer Rebate Program, Customer PIXL Orders that execute against a PIXL Initiating Order are paid a rebate of $0.14 per contract. 5 Category B rebates are paid to members executing electronically-delivered Customer Complex Orders in Penny Pilot Options and NonPenny Pilot Options in Section II. Rebates are paid on Customer PIXL Complex Orders in Section II sroberts on DSK5TPTVN1PROD with NOTICES 2 17 18:28 Mar 18, 2014 Currently, the Exchange has a Customer Rebate Program consisting of five tiers that pays Customer rebates on two Categories, A 4 and B,5 of transactions.6 A Phlx member qualifies for a certain rebate tier based on the percentage of total national customer volume in multiply-listed options that it transacts monthly on Phlx. The Exchange calculates Customer volume in Multiply Listed Options by totaling electronically-delivered and executed volume, except volume associated with electronic Qualified Contingent Cross (‘‘QCC’’) Orders,7 as defined in Exchange Rule 1080(o).8 The Exchange pays the following rebates: 9 Category A 0.00%–0.45% ............................................................................................ Above 0.45%–1.00% ................................................................................. Above 1.00%–1.60% ................................................................................. Above 1.60%–2.50% ................................................................................. Above 2.50% ............................................................................................. The Exchange proposes to amend Tier 1 of the Customer Rebate Program to increase the percentage threshold from VerDate Mar<15>2010 Customer Rebate Program Percentage thresholds of national customer volume in multiplylisted equity and ETF options classes, excluding SPY options (Monthly) Customer rebate tiers Tier Tier Tier Tier Tier thresholds related to the ‘‘Customer Rebate Program,’’ in Section B of the Pricing Schedule to provide members a greater opportunity to receive Customer rebates. The Exchange also proposes to amend Section II of the Pricing Schedule to amend certain Non-Penny Pilot Options Transaction Charges in Multiply Listed Options in order to allow the Exchange to fund additional incentives in connection with the Customer Rebate Program in Section B of the Pricing Schedule. Jkt 232001 $0.00 $0.11 $0.12 $0.16 $0.17 Category B $0.00 $0.17 $0.17 $0.19 $0.19 0.00%–0.45% to 0.00%–0.60%. The Exchange would continue to not pay a rebate for Tier 1. The Exchange increasing the percentage threshold in Tier 1 in order to encourage market participants to direct a greater number symbols that execute against non-Initiating Order interest. In the instance where member organizations qualify for Tier 3 or higher in the Customer Rebate Program, Customer Complex PIXL Orders that execute against a Complex PIXL Initiating Order will be paid a rebate of $0.17 per contract. 6 See Section B of the Pricing Schedule. 7 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). 8 Members and member organizations under common ownership may aggregate their Customer volume for purposes of calculating the Customer Rebate Tiers and receiving rebates. Common ownership means members or member organizations under 75% common ownership or control. 9 SPY is included in the calculation of Customer volume in Multiply Listed Options that are electronically-delivered and executed for purposes of the Customer Rebate Program, however, the rebates do not apply to electronic executions in SPY. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 E:\FR\FM\19MRN1.SGM 19MRN1 Federal Register / Vol. 79, No. 53 / Wednesday, March 19, 2014 / Notices sroberts on DSK5TPTVN1PROD with NOTICES of Customer orders to the Exchange to qualify for the rebate. The Exchange proposes to amend Tier 2 of the Customer Rebate Program to increase the percentage threshold from above 0.45%–1.00% to above 0.60%– 1.10%. The Exchange is increasing the percentage threshold in Tier 2 in order to encourage market participants to direct a greater number of Customer orders to the Exchange to qualify for the rebate. The Exchange also proposes to decrease the Tier 2 Category A rebate from $0.11 to $0.10 per contract. The Category B rebate for Tier 2 will remain at $0.17 per contract. The Exchange proposes to offer a $0.02 per contract rebate in addition to the applicable Tier 2 rebate to a Specialist or Market Maker or its member or member organization affiliate under Common Ownership,10 provided the Specialist or Market Maker has reached the Monthly Market Maker Cap 11 as defined in Section II (‘‘$0.02 Rebate’’). The Exchange currently offers this $0.02 Rebate in connection with Tier 3 rebates and is proposing to extend this additional rebate in connection with qualifying for Tier 2 rebates. The additional $0.02 Rebate would increase the Category A Tier 2 rebate from $0.10 to $0.12 per contract. The additional $0.02 Rebate would increase the Category B Tier 2 rebate from $0.17 to $0.19 per contract. The Exchange believes that the rebate will incentivize Customer orders to be directed to the Exchange. The Exchange proposes to amend Tier 3 of the Customer Rebate Program to increase the percentage threshold from above 1.00%–1.60% to above 1.10%– 1.60%. The Exchange would continue to pay a Category A rebate of $0.12 per contract and a Category B rebate of $0.17 per contract. The Exchange is increasing the percentage threshold in Tier 3 to encourage market participants 10 The term ‘‘Common Ownership’’ means members or member organizations under 75% common ownership or control. 11 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, reversal and conversion, jelly roll and box spread strategy executions (as defined in this Section II) are excluded from the Monthly Market Maker Cap. In addition, Specialists or Market Makers that (i) are on the contra-side of an electronically-delivered and executed Customer order; and (ii) have reached the Monthly Market Maker Cap are assessed a $0.17 per contract fee. VerDate Mar<15>2010 18:28 Mar 18, 2014 Jkt 232001 to direct a greater number of Customer orders to the Exchange to qualify for the rebate. The Exchange is not proposing to amend Tiers 4 or 5 of the Customer Rebate Program. Section II—Multiply Listed Options Fees Options Transaction Charges The Exchange currently assesses Professionals,12 Broker-Dealers 13 and Firms 14 an Options Transaction Charge in Non-Penny Pilot Options of $0.60 per contract with respect to electronic orders. Professionals are assessed a reduced fee of $0.30 per contract with respect to electronic Complex Orders.15 The Exchange is proposing to increase Professional, Broker-Dealer and Firm Options Transaction Charges in NonPenny Pilot Options from $0.60 to $0.70 per contract with respect to electronic orders. Professionals will continue to be offered the reduced fee of $0.30 per contract with respect to electronic Complex Orders. Despite these increases, the Exchange believes that these fees remain competitive with other options exchanges 16 and permit the Exchange to incentivize its market participants by offering additional rebate incentives in Section B of the Pricing Schedule.17 Additionally, the Exchange proposes to offer Professionals, Broker-Dealers and Firms the opportunity to reduce the 12 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). 13 The term ‘‘Broker-Dealer’’ applies to any transaction which is not subject to any of the other transaction fees applicable within a particular category. 14 The term ‘‘Firm’’ applies to any transaction that is identified by a member or member organization for clearing in the Firm range at The Options Clearing Corporation. 15 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). 16 See The NASDAQ Options Market LLC’s (‘‘NOM’’) Rules at Chapter XV, Section 2 and BATS Exchange, Inc.’s (‘‘BATS’’) Fee Schedule. NOM assesses an $0.89 transaction fee to remove liquidity in Non-Penny Pilot Options to Professionals, Firms and Broker-Dealers. BATS assesses an $0.89 charge per contract for a Professional or Firm that removes liquidity from the BATS Options order book. 17 The Exchange is offering an additional rebate in connection with qualifying for Tier 2 rebates to encourage additional Customer order flow, as described in this proposal. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 15373 proposed electronic Options Transaction Charge in Non-Penny Pilot Options from $0.70 to $0.60 per contract if the member or member organization under Common Ownership with another member or member organization qualifies, in a given month, for Customer Rebate Tiers 2, 3, 4, or 5 in Section B of the Pricing Schedule. With respect to Professionals, electronic Complex Orders will continue to be assessed $0.30 per contract, regardless of any Customer Rebate qualification. The Exchange believes that this incentive will encourage market participants to transact a greater number of electronic Customer orders to obtain the lower fee. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,18 in general, and with Section 6(b)(4) and 6(b)(5) of the Act,19 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system that the Exchange operates or controls, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange’s proposal to amend Tier 1 of the Customer Rebate Program to increase the percentage threshold from 0.00%–0.45% to 0.00%–0.60% is reasonable because the Exchange recently lowered certain Customer Rebate Tier percentage thresholds and even adopted a new tier.20 The Exchange does not believe that those amendments to lower certain percentage thresholds resulted in a greater amount of Customer liquidity to the market and is now proposing to increase those percentage thresholds. With this proposal, members that currently qualify for a non-paying Tier 1 rebate may qualify for a Tier 2 rebate by transacting greater than 0.60% of national customer volume in multiply listed equity and ETF options (excluding SPY). The Exchange desires to increase the Tier 1 percentage thresholds to encourage market participants to direct a greater amount of Customer orders to Phlx to obtain a Tier 2 or higher rebate. Members qualifying for Tier 1 will not receive a rebate. The Exchange’s proposal to amend Tier 1 of the Customer Rebate Program 18 15 U.S.C. 78f. U.S.C. 78f(b)(4) and (5). 20 See Securities Exchange Act Release No. 71257 (January 8, 2014), 79 FR 2489 (January 14, 2014) (SR–Phlx–2014–03). 19 15 E:\FR\FM\19MRN1.SGM 19MRN1 sroberts on DSK5TPTVN1PROD with NOTICES 15374 Federal Register / Vol. 79, No. 53 / Wednesday, March 19, 2014 / Notices to increase the percentage threshold from 0.00%–0.45% to 0.00%–0.60% is equitable and not unfairly discriminatory because it will be applied to all market participants in a uniform matter. Any market participant is eligible to receive the rebate provided they transact a qualifying amount of electronic Customer volume. The Exchange’s proposal to amend Tier 2 of the Customer Rebate Program to increase the percentage threshold from above 0.45%–1.00% to above 0.60%–1.10% is reasonable because the Exchange recently lowered certain Customer Rebate Tier percentage thresholds and even adopted a new tier.21 The Exchange does not believe that those amendments to lower certain percentage thresholds resulted in a greater amount of Customer liquidity to the market and is now proposing to increase those percentage thresholds. With this proposal, members that currently qualify for a Tier 2 would need to increase the amount of Customer volume by transacting greater than 0.60% of national customer volume in multiply listed equity and ETF options (excluding SPY). The Exchange is also lowering the Category A Tier 2 rebate from $0.11 to $0.10 per contract, but is also offering the opportunity to earn an additional $0.02 Rebate, when qualifying for Tier 2 rebates, as described in this proposal. The Exchange believes that despite the increased volume required to qualify for a Tier 2 rebate and the reduced Tier 2 Category A rebate, market participants will continue to be encouraged to direct electronic Customer liquidity to Phlx to earn rebates. The Exchange’s proposal to amend Tier 2 of the Customer Rebate Program to increase the percentage threshold from above 0.45%–1.00% to above 0.60%–1.10% is equitable and not unfairly discriminatory because it will be applied to all market participants in a uniform matter. Any market participant is eligible to receive the rebate, provided they transact a qualifying amount of electronic Customer volume. In addition, the Exchange’s proposal to lower the Category A Tier 2 rebate from $0.11 to $0.10 per contract is equitable and not unfairly discriminatory because it will be applied to all market participants in a uniform matter. The Exchange believes that its proposal to pay a $0.02 Rebate in addition to Tier 2 rebates to a Specialist or Market Maker, or its affiliate under Common Ownership, provided the Specialist or Market Maker has reached 21 See note 19 [sic]. VerDate Mar<15>2010 18:28 Mar 18, 2014 Jkt 232001 the Monthly Market Maker Cap, is reasonable because the Exchange desires to encourage market participants to transact a greater number of Customer orders on the Exchange to receive the enhanced rebate. Today, the Exchange offers this enhanced rebate to Specialists and Market Makers that qualify for a Tier 3 rebate. The Exchange proposes to expand this offer to Tier 2 rebates to further encourage these market participants to direct Customer order flow to the Exchange. The Exchange believes that its proposal to pay a $0.02 Rebate in addition to the applicable Tier 2 rebate to a Specialist or Market Maker, or its affiliate under Common Ownership, provided the Specialist or Market Maker has reached the Monthly Market Maker Cap, is equitable and not unfairly discriminatory because unlike other market participants, Specialists and Market Makers have burdensome quoting obligations 22 to the market that do not apply to Customers, Professionals, Firms and Broker-Dealers. Specialists and Market Makers serve an important role on the Exchange with regard to order interaction and they provide liquidity in the marketplace. Additionally, Specialists and Market Makers incur costs unlike other market participants including, but not limited to, PFOF and other costs associated with market making activities,23 which results in a higher average cost per execution as compared to Firms, BrokerDealers and Professionals. The proposed differentiation as between Specialists and Market Makers as compared to other market participants recognizes the differing contributions made to the trading environment on the Exchange by these market participants. The Exchange is continuing to offer the Tier 2 rebate to all market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attract Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange’s proposal to amend Tier 3 of the Customer Rebate Program to increase the percentage threshold 22 See Rule 1014 titled ‘‘Obligations and Restrictions Applicable to Specialists and Registered Options Traders.’’ 23 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. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 from above 1.00%–1.60% to above 1.10%–1.60% is reasonable because the Exchange recently lowered certain Customer Rebate Tier percentage thresholds and even adopted a new tier.24 The Exchange does not believe that those amendments to lower certain percentage thresholds resulted in a greater amount of Customer liquidity to the market and is now proposing to increase those percentage thresholds. With this proposal, members that currently qualify for a Tier 3 rebate would need to increase the amount of Customer volume by transacting greater than 1.10% of national customer volume in multiply listed equity and ETF options (excluding SPY) to continue to receive a Tier 3 rebate. The Exchange believes that despite the increased Customer volume required to qualify for Tier 3 rebate, market participants will continue to be encouraged to direct electronic Customer liquidity to Phlx to earn rebates. The Exchange’s proposal to amend Tier 3 of the Customer Rebate Program to increase the percentage threshold from above 1.00%–1.60% to above 1.10%–1.60% is equitable and not unfairly discriminatory because it will be applied to all market participants in a uniform matter. Any market participant is eligible to receive the rebate provided they transact a qualifying amount of electronic Customer volume. Section II—Multiply Listed Options Fees Options Transaction Charges The Exchange’s proposal to increase electronic Professional, Broker-Dealer and Firm Options Transaction Charges in Non-Penny Pilot Options from $0.60 to $0.70 per contract is reasonable because the Exchange’s fees will remain competitive with fees at other options markets,25 despite the fee increase, and will allow the Exchange to incentivize market participants by offering additional rebate incentives in Section B of the Pricing Schedule.26 The Exchange’s proposal to increase electronic Professional, Broker-Dealer and Firm Options Transaction Charges in Non-Penny Pilot Options from $0.60 to $0.70 per contract is equitable and not unfairly discriminatory because the Exchange will assess Professionals, Broker-Dealers and Firms the same electronic Options Transaction Charge 24 See note 19 [sic]. note 16. 26 The Exchange is offering an additional $0.02 Rebate in connection with Tier 2 to further incentivize market participants to direct Customer orders to the Exchange. The $0.02 Rebate will be paid to Exchange member organizations. 25 See E:\FR\FM\19MRN1.SGM 19MRN1 sroberts on DSK5TPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 53 / Wednesday, March 19, 2014 / Notices in Non-Penny Pilot Options. The Exchange does not assess Customers an electronic Options Transaction Charge in Non-Penny Pilot Options because Customer order flow enhances liquidity on the Exchange for the benefit of all market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Specialists and Market Makers are assessed lower electronic Options Transaction Charges in NonPenny Pilot Options as compared to Professionals, Broker-Dealers and Firms because they have obligations to the market and regulatory requirements, which normally do not apply to other market participants.27 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The proposed differentiation as between Customers, Specialists and Market Makers and other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. The Exchange’s proposal to offer Professionals, Broker-Dealers and Firms the opportunity to reduce the proposed electronic Options Transaction Charges in Non-Penny Pilot Options from $0.70 to $0.60 per contract, if the member or member organization under Common Ownership with another member or member organization qualifies, in a given month, for Customer Rebate Tiers 2, 3, 4, or 5 in Section B of the Pricing Schedule, is reasonable because the Exchange is offering these market participants an opportunity to lower the proposed fees by transacting a certain amount of Customer orders. The Exchange believes that this incentive will encourage market participants to transact a greater number of electronic Non-Penny Pilot Options Customer orders to obtain the lower fees. The Exchange would continue to assess Professionals a $0.30 per contract Options Transaction Charge for electronic Complex Orders, regardless of any Customer Rebate qualification. Today, a Professional is assessed a $0.30 per contract electronic Options Transaction Charge in Non-Penny Pilot 27 See note 22. VerDate Mar<15>2010 18:28 Mar 18, 2014 Jkt 232001 Options when transacting Complex Orders as compared to a $0.60 per contract electronic Options Transaction Charge in Non-Penny Pilot Options when transacting Simple Orders. The reduced fee assessed to Professionals is comparable with electronic Professional fees at other options exchanges.28 The Exchange’s proposal to offer Professionals, Broker-Dealers and Firms the opportunity to reduce the proposed electronic Options Transaction Charges in Non-Penny Pilot Options from $0.70 to $0.60 per contract if the member or member organization under Common Ownership with another member or member organization qualifies, in a given month, for Customer Rebate Tiers 2, 3, 4, or 5 in Section B of the Pricing Schedule, is equitable and not unfairly discriminatory because the Exchange is offering these market participants, that are assessed the highest fees, the opportunity to reduce these fees.29 The Exchange is proposing to offer Professionals, Broker-Dealers and Firms an opportunity to reduce the proposed electronic Options Transaction Charges in Non-Penny Pilot Options by transacting Customer orders, which would also benefit these market participants in terms of a potential Section B rebates, which they may qualify for by adding Customer liquidity on Phlx. As previously mentioned, Customers are not assessed an electronic Options Transaction Charge in NonPenny Pilot Options and Specialists and Market Makers pay lower Options Transaction Charges as compared to Professionals, Broker-Dealers and Firms. The Exchange believes that it is equitable and not unfairly discriminatory to continue to assess Professionals a reduced fee of $0.30 per contract for electronic Complex Orders in Non-Penny Pilot Options because Professionals engage in trading activity similar to that conducted by Specialists or Market Makers. For example, Professionals continue to join bids and offers on the Exchange and thus compete for incoming order flow. For these reasons, the Exchange assesses Professionals a Non-Penny Pilot 28 The Chicago Board Options Exchange, Incorporated (‘‘CBOE’’) assesses a Professional and Voluntary Professional a $0.30 per contract electronic fee in Penny and Non-Penny Classes. See CBOE’s Fees Schedule. Also, NYSE MKT LLC (‘‘NYSE Amex’’) assesses a tiered electronic Professional Customer rate starting at $.32 per contract for electronic orders which take liquidity from 0 to 16,999 contracts. See NYSE Amex’s Options Fee Schedule. 29 Customers are not assessed a Non-Penny Pilot Options Transaction Charge and Specialists and Market Makers are assessed a lower electronic NonPenny Pilot Options Transaction Charge of $0.23 per contract. PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 15375 electronic Options Transaction Charge at a rate that is greater than fees assessed to a Specialist and Market Maker and equal to electronic fees assessed to a Firm and Broker-Dealer. Specialists and Market Makers are assessed lower electronic fees as compared to nonCustomer market participants, because Specialists and Market Makers have burdensome quoting obligations 30 to the market that do not apply to Customers, Professionals, Firms and Broker-Dealers. Customers are not assessed Options Transactions Charges in Non-Penny Pilot Options because Customer order flow brings liquidity to the market, which in turn benefits all market participants. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose an undue burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the Customer Rebate Program will continue to encourage Customer order flow to be directed to the Exchange. Market participants will be encouraged to transact a greater number of Customer orders to qualify for a rebate. By incentivizing members to route Customer orders to the Exchange, the Exchange desires to attract liquidity to the Exchange, which in turn benefits all market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. All market participants are eligible to qualify for a Customer Rebate. The Exchange believes the proposed amendments will continue to encourage market participants to direct Customer liquidity to Phlx despite the increase in the tier volumes and also the Tier 2 rebate decrease. The Exchange believes this pricing amendment does not impose a burden on competition but rather that the proposed rule change will continue to promote competition on the Exchange. A market participant will be required to transact more Customer volume to earn certain Customer rebates. While some participants will be required to transact a greater number of Customer orders to continue to earn a Tier 2 or 3 rebate, and some will earn a lower Tier 2 Category A rebate, the Exchange believes that 30 See E:\FR\FM\19MRN1.SGM note 22. 19MRN1 sroberts on DSK5TPTVN1PROD with NOTICES 15376 Federal Register / Vol. 79, No. 53 / Wednesday, March 19, 2014 / Notices members will be encouraged to transact a greater number of Customer contracts to continue to earn rebates, which will promote competition. In addition, Specialists and Market Makers may qualify for a $0.02 Rebate by qualifying for Tier 2, which should incentivize Specialists and Market Makers to transact a greater number of Customer orders on the Exchange to achieve the $0.02 Rebate and therefore would not create an undue burden on competition, but would instead encourage competition. The Exchange’s proposal to increase electronic Professional, Broker-Dealer and Firm Options Transaction Charges in Non-Penny Pilot Options from $0.60 to $0.70 per will not impose an undue burden on competition because the Exchange will assess Professionals, Broker-Dealers and Firms the same electronic Options Transaction Charge in Non-Penny Pilot Options. The Exchange does not assess Customers an electronic Options Transaction Charge in Non-Penny Pilot Options because Customer order flow enhances liquidity on the Exchange for the benefit of all market participants. Specialists and Market Makers are assessed lower electronic Options Transaction Charges in Non-Penny Pilot Options as compared to Professionals, BrokerDealers and Firms because they have obligations to the market and regulatory requirements, which normally do not apply to other market participants.31 The differentiation as between Customers, Specialists and Market Makers and other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. Additionally, Professionals, Broker-Dealers and Firms may reduce their Options Transaction Charges to $0.60 per contract provided they qualify for Customer Rebate Tiers 2, 3, 4 or 5 in Section B of the Pricing Schedule. This incentive encourages these participants to add Customer liquidity on Phlx which liquidity benefits all market participants. The Exchange operates in a highly competitive market, comprised of twelve options 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 31 See note 22. VerDate Mar<15>2010 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.32 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. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.33 Kevin M. O’Neill, Deputy Secretary. IV. Solicitation of Comments [FR Doc. 2014–05983 Filed 3–18–14; 8:45 am] 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: BILLING CODE 8011–01–P Electronic Comments Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the NYSE Arca Equities Schedule of Fees and Charges for Exchange Services To Establish Pricing for the Retail Liquidity Program and Make Certain Changes Relating to Open Orders • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2014–14 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2014–14. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements 32 15 18:28 Mar 18, 2014 Jkt 232001 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 offices 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– 2014–14, and should be submitted on or before April 9, 2014. PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00074 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71722; File No. SR– NYSEARCA–2014–22] March 13, 2014. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on February 28, 2014, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. The 33 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 E:\FR\FM\19MRN1.SGM 19MRN1

Agencies

[Federal Register Volume 79, Number 53 (Wednesday, March 19, 2014)]
[Notices]
[Pages 15372-15376]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05983]



[[Page 15372]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71716; File No. SR-Phlx-2014-14]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Customer Rebate Program and Multiply Listed Options

March 13, 2014.
    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 March 5, 2014, 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 proposes to: (i) Amend the Customer Rebate Program in 
Section B of the Pricing Schedule; and (ii) amend Section II of the 
Pricing Schedule entitled ``Multiply Listed Options Fees.'' \3\
---------------------------------------------------------------------------

    \3\ This includes options overlying equities, ETFs, ETNs and 
indexes that are multiply listed.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend certain Customer Rebate tier 
percentage thresholds related to the ``Customer Rebate Program,'' in 
Section B of the Pricing Schedule to provide members a greater 
opportunity to receive Customer rebates. The Exchange also proposes to 
amend Section II of the Pricing Schedule to amend certain Non-Penny 
Pilot Options Transaction Charges in Multiply Listed Options in order 
to allow the Exchange to fund additional incentives in connection with 
the Customer Rebate Program in Section B of the Pricing Schedule.
Customer Rebate Program
    Currently, the Exchange has a Customer Rebate Program consisting of 
five tiers that pays Customer rebates on two Categories, A \4\ and 
B,\5\ of transactions.\6\ A Phlx member qualifies for a certain rebate 
tier based on the percentage of total national customer volume in 
multiply-listed options that it transacts monthly on Phlx. The Exchange 
calculates Customer volume in Multiply Listed Options by totaling 
electronically-delivered and executed volume, except volume associated 
with electronic Qualified Contingent Cross (``QCC'') Orders,\7\ as 
defined in Exchange Rule 1080(o).\8\ The Exchange pays the following 
rebates: \9\
---------------------------------------------------------------------------

    \4\ 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 symbols. Rebates are paid on Customer PIXL Orders in 
Section II symbols that execute against non-Initiating Order 
interest. In the instance where member organizations qualify for 
Tier 3 or higher in the Customer Rebate Program, Customer PIXL 
Orders that execute against a PIXL Initiating Order are paid a 
rebate of $0.14 per contract.
    \5\ 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. Rebates are paid 
on Customer PIXL Complex Orders in Section II symbols that execute 
against non-Initiating Order interest. In the instance where member 
organizations qualify for Tier 3 or higher in the Customer Rebate 
Program, Customer Complex PIXL Orders that execute against a Complex 
PIXL Initiating Order will be paid a rebate of $0.17 per contract.
    \6\ See Section B of the Pricing Schedule.
    \7\ 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).
    \8\ Members and member organizations under common ownership may 
aggregate their Customer volume for purposes of calculating the 
Customer Rebate Tiers and receiving rebates. Common ownership means 
members or member organizations under 75% common ownership or 
control.
    \9\ SPY is included in the calculation of Customer volume in 
Multiply Listed Options that are electronically-delivered and 
executed for purposes of the Customer Rebate Program, however, the 
rebates do not apply to electronic executions in SPY.

----------------------------------------------------------------------------------------------------------------
                                              Percentage thresholds of national
                                             customer volume in multiply- listed
           Customer rebate tiers               equity and ETF options classes,      Category A      Category B
                                               excluding SPY options (Monthly)
----------------------------------------------------------------------------------------------------------------
Tier 1.....................................  0.00%-0.45%........................           $0.00           $0.00
Tier 2.....................................  Above 0.45%-1.00%..................           $0.11           $0.17
Tier 3.....................................  Above 1.00%-1.60%..................           $0.12           $0.17
Tier 4.....................................  Above 1.60%-2.50%..................           $0.16           $0.19
Tier 5.....................................  Above 2.50%........................           $0.17           $0.19
----------------------------------------------------------------------------------------------------------------

    The Exchange proposes to amend Tier 1 of the Customer Rebate 
Program to increase the percentage threshold from 0.00%-0.45% to 0.00%-
0.60%. The Exchange would continue to not pay a rebate for Tier 1. The 
Exchange increasing the percentage threshold in Tier 1 in order to 
encourage market participants to direct a greater number

[[Page 15373]]

of Customer orders to the Exchange to qualify for the rebate.
    The Exchange proposes to amend Tier 2 of the Customer Rebate 
Program to increase the percentage threshold from above 0.45%-1.00% to 
above 0.60%-1.10%. The Exchange is increasing the percentage threshold 
in Tier 2 in order to encourage market participants to direct a greater 
number of Customer orders to the Exchange to qualify for the rebate. 
The Exchange also proposes to decrease the Tier 2 Category A rebate 
from $0.11 to $0.10 per contract. The Category B rebate for Tier 2 will 
remain at $0.17 per contract. The Exchange proposes to offer a $0.02 
per contract rebate in addition to the applicable Tier 2 rebate to a 
Specialist or Market Maker or its member or member organization 
affiliate under Common Ownership,\10\ provided the Specialist or Market 
Maker has reached the Monthly Market Maker Cap \11\ as defined in 
Section II (``$0.02 Rebate''). The Exchange currently offers this $0.02 
Rebate in connection with Tier 3 rebates and is proposing to extend 
this additional rebate in connection with qualifying for Tier 2 
rebates. The additional $0.02 Rebate would increase the Category A Tier 
2 rebate from $0.10 to $0.12 per contract. The additional $0.02 Rebate 
would increase the Category B Tier 2 rebate from $0.17 to $0.19 per 
contract. The Exchange believes that the rebate will incentivize 
Customer orders to be directed to the Exchange.
---------------------------------------------------------------------------

    \10\ The term ``Common Ownership'' means members or member 
organizations under 75% common ownership or control.
    \11\ 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, reversal and conversion, 
jelly roll and box spread strategy executions (as defined in this 
Section II) are excluded from the Monthly Market Maker Cap. In 
addition, Specialists or Market Makers that (i) are on the contra-
side of an electronically-delivered and executed Customer order; and 
(ii) have reached the Monthly Market Maker Cap are assessed a $0.17 
per contract fee.
---------------------------------------------------------------------------

    The Exchange proposes to amend Tier 3 of the Customer Rebate 
Program to increase the percentage threshold from above 1.00%-1.60% to 
above 1.10%-1.60%. The Exchange would continue to pay a Category A 
rebate of $0.12 per contract and a Category B rebate of $0.17 per 
contract. The Exchange is increasing the percentage threshold in Tier 3 
to encourage market participants to direct a greater number of Customer 
orders to the Exchange to qualify for the rebate.
    The Exchange is not proposing to amend Tiers 4 or 5 of the Customer 
Rebate Program.
Section II--Multiply Listed Options Fees Options Transaction Charges
    The Exchange currently assesses Professionals,\12\ Broker-Dealers 
\13\ and Firms \14\ an Options Transaction Charge in Non-Penny Pilot 
Options of $0.60 per contract with respect to electronic orders. 
Professionals are assessed a reduced fee of $0.30 per contract with 
respect to electronic Complex Orders.\15\ The Exchange is proposing to 
increase Professional, Broker-Dealer and Firm Options Transaction 
Charges in Non-Penny Pilot Options from $0.60 to $0.70 per contract 
with respect to electronic orders. Professionals will continue to be 
offered the reduced fee of $0.30 per contract with respect to 
electronic Complex Orders. Despite these increases, the Exchange 
believes that these fees remain competitive with other options 
exchanges \16\ and permit the Exchange to incentivize its market 
participants by offering additional rebate incentives in Section B of 
the Pricing Schedule.\17\
---------------------------------------------------------------------------

    \12\ 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).
    \13\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \14\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation.
    \15\ 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).
    \16\ See The NASDAQ Options Market LLC's (``NOM'') Rules at 
Chapter XV, Section 2 and BATS Exchange, Inc.'s (``BATS'') Fee 
Schedule. NOM assesses an $0.89 transaction fee to remove liquidity 
in Non-Penny Pilot Options to Professionals, Firms and Broker-
Dealers. BATS assesses an $0.89 charge per contract for a 
Professional or Firm that removes liquidity from the BATS Options 
order book.
    \17\ The Exchange is offering an additional rebate in connection 
with qualifying for Tier 2 rebates to encourage additional Customer 
order flow, as described in this proposal.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to offer Professionals, Broker-
Dealers and Firms the opportunity to reduce the proposed electronic 
Options Transaction Charge in Non-Penny Pilot Options from $0.70 to 
$0.60 per contract if the member or member organization under Common 
Ownership with another member or member organization qualifies, in a 
given month, for Customer Rebate Tiers 2, 3, 4, or 5 in Section B of 
the Pricing Schedule. With respect to Professionals, electronic Complex 
Orders will continue to be assessed $0.30 per contract, regardless of 
any Customer Rebate qualification. The Exchange believes that this 
incentive will encourage market participants to transact a greater 
number of electronic Customer orders to obtain the lower fee.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\18\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\19\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility or system that the Exchange operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange's proposal to amend Tier 1 of the Customer Rebate 
Program to increase the percentage threshold from 0.00%-0.45% to 0.00%-
0.60% is reasonable because the Exchange recently lowered certain 
Customer Rebate Tier percentage thresholds and even adopted a new 
tier.\20\ The Exchange does not believe that those amendments to lower 
certain percentage thresholds resulted in a greater amount of Customer 
liquidity to the market and is now proposing to increase those 
percentage thresholds. With this proposal, members that currently 
qualify for a non-paying Tier 1 rebate may qualify for a Tier 2 rebate 
by transacting greater than 0.60% of national customer volume in 
multiply listed equity and ETF options (excluding SPY). The Exchange 
desires to increase the Tier 1 percentage thresholds to encourage 
market participants to direct a greater amount of Customer orders to 
Phlx to obtain a Tier 2 or higher rebate. Members qualifying for Tier 1 
will not receive a rebate.
---------------------------------------------------------------------------

    \20\ See Securities Exchange Act Release No. 71257 (January 8, 
2014), 79 FR 2489 (January 14, 2014) (SR-Phlx-2014-03).
---------------------------------------------------------------------------

    The Exchange's proposal to amend Tier 1 of the Customer Rebate 
Program

[[Page 15374]]

to increase the percentage threshold from 0.00%-0.45% to 0.00%-0.60% is 
equitable and not unfairly discriminatory because it will be applied to 
all market participants in a uniform matter. Any market participant is 
eligible to receive the rebate provided they transact a qualifying 
amount of electronic Customer volume.
    The Exchange's proposal to amend Tier 2 of the Customer Rebate 
Program to increase the percentage threshold from above 0.45%-1.00% to 
above 0.60%-1.10% is reasonable because the Exchange recently lowered 
certain Customer Rebate Tier percentage thresholds and even adopted a 
new tier.\21\ The Exchange does not believe that those amendments to 
lower certain percentage thresholds resulted in a greater amount of 
Customer liquidity to the market and is now proposing to increase those 
percentage thresholds. With this proposal, members that currently 
qualify for a Tier 2 would need to increase the amount of Customer 
volume by transacting greater than 0.60% of national customer volume in 
multiply listed equity and ETF options (excluding SPY). The Exchange is 
also lowering the Category A Tier 2 rebate from $0.11 to $0.10 per 
contract, but is also offering the opportunity to earn an additional 
$0.02 Rebate, when qualifying for Tier 2 rebates, as described in this 
proposal. The Exchange believes that despite the increased volume 
required to qualify for a Tier 2 rebate and the reduced Tier 2 Category 
A rebate, market participants will continue to be encouraged to direct 
electronic Customer liquidity to Phlx to earn rebates.
---------------------------------------------------------------------------

    \21\ See note 19 [sic].
---------------------------------------------------------------------------

    The Exchange's proposal to amend Tier 2 of the Customer Rebate 
Program to increase the percentage threshold from above 0.45%-1.00% to 
above 0.60%-1.10% is equitable and not unfairly discriminatory because 
it will be applied to all market participants in a uniform matter. Any 
market participant is eligible to receive the rebate, provided they 
transact a qualifying amount of electronic Customer volume. In 
addition, the Exchange's proposal to lower the Category A Tier 2 rebate 
from $0.11 to $0.10 per contract is equitable and not unfairly 
discriminatory because it will be applied to all market participants in 
a uniform matter.
    The Exchange believes that its proposal to pay a $0.02 Rebate in 
addition to Tier 2 rebates to a Specialist or Market Maker, or its 
affiliate under Common Ownership, provided the Specialist or Market 
Maker has reached the Monthly Market Maker Cap, is reasonable because 
the Exchange desires to encourage market participants to transact a 
greater number of Customer orders on the Exchange to receive the 
enhanced rebate. Today, the Exchange offers this enhanced rebate to 
Specialists and Market Makers that qualify for a Tier 3 rebate. The 
Exchange proposes to expand this offer to Tier 2 rebates to further 
encourage these market participants to direct Customer order flow to 
the Exchange.
    The Exchange believes that its proposal to pay a $0.02 Rebate in 
addition to the applicable Tier 2 rebate to a Specialist or Market 
Maker, or its affiliate under Common Ownership, provided the Specialist 
or Market Maker has reached the Monthly Market Maker Cap, is equitable 
and not unfairly discriminatory because unlike other market 
participants, Specialists and Market Makers have burdensome quoting 
obligations \22\ to the market that do not apply to Customers, 
Professionals, Firms and Broker-Dealers. Specialists and Market Makers 
serve an important role on the Exchange with regard to order 
interaction and they provide liquidity in the marketplace. 
Additionally, Specialists and Market Makers incur costs unlike other 
market participants including, but not limited to, PFOF and other costs 
associated with market making activities,\23\ which results in a higher 
average cost per execution as compared to Firms, Broker-Dealers and 
Professionals. The proposed differentiation as between Specialists and 
Market Makers as compared to other market participants recognizes the 
differing contributions made to the trading environment on the Exchange 
by these market participants. The Exchange is continuing to offer the 
Tier 2 rebate to all market participants. Customer liquidity benefits 
all market participants by providing more trading opportunities, which 
attract Specialists and Market Makers. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants.
---------------------------------------------------------------------------

    \22\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
    \23\ 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 Tier 3 of the Customer Rebate 
Program to increase the percentage threshold from above 1.00%-1.60% to 
above 1.10%-1.60% is reasonable because the Exchange recently lowered 
certain Customer Rebate Tier percentage thresholds and even adopted a 
new tier.\24\ The Exchange does not believe that those amendments to 
lower certain percentage thresholds resulted in a greater amount of 
Customer liquidity to the market and is now proposing to increase those 
percentage thresholds. With this proposal, members that currently 
qualify for a Tier 3 rebate would need to increase the amount of 
Customer volume by transacting greater than 1.10% of national customer 
volume in multiply listed equity and ETF options (excluding SPY) to 
continue to receive a Tier 3 rebate. The Exchange believes that despite 
the increased Customer volume required to qualify for Tier 3 rebate, 
market participants will continue to be encouraged to direct electronic 
Customer liquidity to Phlx to earn rebates.
---------------------------------------------------------------------------

    \24\ See note 19 [sic].
---------------------------------------------------------------------------

    The Exchange's proposal to amend Tier 3 of the Customer Rebate 
Program to increase the percentage threshold from above 1.00%-1.60% to 
above 1.10%-1.60% is equitable and not unfairly discriminatory because 
it will be applied to all market participants in a uniform matter. Any 
market participant is eligible to receive the rebate provided they 
transact a qualifying amount of electronic Customer volume.
Section II--Multiply Listed Options Fees Options Transaction Charges
    The Exchange's proposal to increase electronic Professional, 
Broker-Dealer and Firm Options Transaction Charges in Non-Penny Pilot 
Options from $0.60 to $0.70 per contract is reasonable because the 
Exchange's fees will remain competitive with fees at other options 
markets,\25\ despite the fee increase, and will allow the Exchange to 
incentivize market participants by offering additional rebate 
incentives in Section B of the Pricing Schedule.\26\
---------------------------------------------------------------------------

    \25\ See note 16.
    \26\ The Exchange is offering an additional $0.02 Rebate in 
connection with Tier 2 to further incentivize market participants to 
direct Customer orders to the Exchange. The $0.02 Rebate will be 
paid to Exchange member organizations.
---------------------------------------------------------------------------

    The Exchange's proposal to increase electronic Professional, 
Broker-Dealer and Firm Options Transaction Charges in Non-Penny Pilot 
Options from $0.60 to $0.70 per contract is equitable and not unfairly 
discriminatory because the Exchange will assess Professionals, Broker-
Dealers and Firms the same electronic Options Transaction Charge

[[Page 15375]]

in Non-Penny Pilot Options. The Exchange does not assess Customers an 
electronic Options Transaction Charge in Non-Penny Pilot Options 
because Customer order flow enhances liquidity on the Exchange for the 
benefit of all market participants. Customer liquidity benefits all 
market participants by providing more trading opportunities, which 
attracts Specialists and Market Makers. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants. Specialists and Market Makers are assessed lower 
electronic Options Transaction Charges in Non-Penny Pilot Options as 
compared to Professionals, Broker-Dealers and Firms because they have 
obligations to the market and regulatory requirements, which normally 
do not apply to other market participants.\27\ They have obligations to 
make continuous markets, engage in a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and not make bids or offers or enter into transactions that are 
inconsistent with a course of dealings. The proposed differentiation as 
between Customers, Specialists and Market Makers and other market 
participants recognizes the differing contributions made to the 
liquidity and trading environment on the Exchange by these market 
participants.
---------------------------------------------------------------------------

    \27\ See note 22.
---------------------------------------------------------------------------

    The Exchange's proposal to offer Professionals, Broker-Dealers and 
Firms the opportunity to reduce the proposed electronic Options 
Transaction Charges in Non-Penny Pilot Options from $0.70 to $0.60 per 
contract, if the member or member organization under Common Ownership 
with another member or member organization qualifies, in a given month, 
for Customer Rebate Tiers 2, 3, 4, or 5 in Section B of the Pricing 
Schedule, is reasonable because the Exchange is offering these market 
participants an opportunity to lower the proposed fees by transacting a 
certain amount of Customer orders. The Exchange believes that this 
incentive will encourage market participants to transact a greater 
number of electronic Non-Penny Pilot Options Customer orders to obtain 
the lower fees. The Exchange would continue to assess Professionals a 
$0.30 per contract Options Transaction Charge for electronic Complex 
Orders, regardless of any Customer Rebate qualification. Today, a 
Professional is assessed a $0.30 per contract electronic Options 
Transaction Charge in Non-Penny Pilot Options when transacting Complex 
Orders as compared to a $0.60 per contract electronic Options 
Transaction Charge in Non-Penny Pilot Options when transacting Simple 
Orders. The reduced fee assessed to Professionals is comparable with 
electronic Professional fees at other options exchanges.\28\
---------------------------------------------------------------------------

    \28\ The Chicago Board Options Exchange, Incorporated (``CBOE'') 
assesses a Professional and Voluntary Professional a $0.30 per 
contract electronic fee in Penny and Non-Penny Classes. See CBOE's 
Fees Schedule. Also, NYSE MKT LLC (``NYSE Amex'') assesses a tiered 
electronic Professional Customer rate starting at $.32 per contract 
for electronic orders which take liquidity from 0 to 16,999 
contracts. See NYSE Amex's Options Fee Schedule.
---------------------------------------------------------------------------

    The Exchange's proposal to offer Professionals, Broker-Dealers and 
Firms the opportunity to reduce the proposed electronic Options 
Transaction Charges in Non-Penny Pilot Options from $0.70 to $0.60 per 
contract if the member or member organization under Common Ownership 
with another member or member organization qualifies, in a given month, 
for Customer Rebate Tiers 2, 3, 4, or 5 in Section B of the Pricing 
Schedule, is equitable and not unfairly discriminatory because the 
Exchange is offering these market participants, that are assessed the 
highest fees, the opportunity to reduce these fees.\29\ The Exchange is 
proposing to offer Professionals, Broker-Dealers and Firms an 
opportunity to reduce the proposed electronic Options Transaction 
Charges in Non-Penny Pilot Options by transacting Customer orders, 
which would also benefit these market participants in terms of a 
potential Section B rebates, which they may qualify for by adding 
Customer liquidity on Phlx. As previously mentioned, Customers are not 
assessed an electronic Options Transaction Charge in Non-Penny Pilot 
Options and Specialists and Market Makers pay lower Options Transaction 
Charges as compared to Professionals, Broker-Dealers and Firms. The 
Exchange believes that it is equitable and not unfairly discriminatory 
to continue to assess Professionals a reduced fee of $0.30 per contract 
for electronic Complex Orders in Non-Penny Pilot Options because 
Professionals engage in trading activity similar to that conducted by 
Specialists or Market Makers. For example, Professionals continue to 
join bids and offers on the Exchange and thus compete for incoming 
order flow. For these reasons, the Exchange assesses Professionals a 
Non-Penny Pilot electronic Options Transaction Charge at a rate that is 
greater than fees assessed to a Specialist and Market Maker and equal 
to electronic fees assessed to a Firm and Broker-Dealer. Specialists 
and Market Makers are assessed lower electronic fees as compared to 
non-Customer market participants, because Specialists and Market Makers 
have burdensome quoting obligations \30\ to the market that do not 
apply to Customers, Professionals, Firms and Broker-Dealers. Customers 
are not assessed Options Transactions Charges in Non-Penny Pilot 
Options because Customer order flow brings liquidity to the market, 
which in turn benefits all market participants.
---------------------------------------------------------------------------

    \29\ Customers are not assessed a Non-Penny Pilot Options 
Transaction Charge and Specialists and Market Makers are assessed a 
lower electronic Non-Penny Pilot Options Transaction Charge of $0.23 
per contract.
    \30\ See note 22.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose an undue burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
Customer Rebate Program will continue to encourage Customer order flow 
to be directed to the Exchange. Market participants will be encouraged 
to transact a greater number of Customer orders to qualify for a 
rebate. By incentivizing members to route Customer orders to the 
Exchange, the Exchange desires to attract liquidity to the Exchange, 
which in turn benefits all market participants. Customer liquidity 
benefits all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
All market participants are eligible to qualify for a Customer Rebate.
    The Exchange believes the proposed amendments will continue to 
encourage market participants to direct Customer liquidity to Phlx 
despite the increase in the tier volumes and also the Tier 2 rebate 
decrease. The Exchange believes this pricing amendment does not impose 
a burden on competition but rather that the proposed rule change will 
continue to promote competition on the Exchange. A market participant 
will be required to transact more Customer volume to earn certain 
Customer rebates. While some participants will be required to transact 
a greater number of Customer orders to continue to earn a Tier 2 or 3 
rebate, and some will earn a lower Tier 2 Category A rebate, the 
Exchange believes that

[[Page 15376]]

members will be encouraged to transact a greater number of Customer 
contracts to continue to earn rebates, which will promote competition.
    In addition, Specialists and Market Makers may qualify for a $0.02 
Rebate by qualifying for Tier 2, which should incentivize Specialists 
and Market Makers to transact a greater number of Customer orders on 
the Exchange to achieve the $0.02 Rebate and therefore would not create 
an undue burden on competition, but would instead encourage 
competition.
    The Exchange's proposal to increase electronic Professional, 
Broker-Dealer and Firm Options Transaction Charges in Non-Penny Pilot 
Options from $0.60 to $0.70 per will not impose an undue burden on 
competition because the Exchange will assess Professionals, Broker-
Dealers and Firms the same electronic Options Transaction Charge in 
Non-Penny Pilot Options. The Exchange does not assess Customers an 
electronic Options Transaction Charge in Non-Penny Pilot Options 
because Customer order flow enhances liquidity on the Exchange for the 
benefit of all market participants. Specialists and Market Makers are 
assessed lower electronic Options Transaction Charges in Non-Penny 
Pilot Options as compared to Professionals, Broker-Dealers and Firms 
because they have obligations to the market and regulatory 
requirements, which normally do not apply to other market 
participants.\31\ The differentiation as between Customers, Specialists 
and Market Makers and other market participants recognizes the 
differing contributions made to the liquidity and trading environment 
on the Exchange by these market participants. Additionally, 
Professionals, Broker-Dealers and Firms may reduce their Options 
Transaction Charges to $0.60 per contract provided they qualify for 
Customer Rebate Tiers 2, 3, 4 or 5 in Section B of the Pricing 
Schedule. This incentive encourages these participants to add Customer 
liquidity on Phlx which liquidity benefits all market participants.
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    \31\ See note 22.
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    The Exchange operates in a highly competitive market, comprised of 
twelve options 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.\32\ 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.
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    \32\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2014-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2014-14. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices 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-2014-14, 
and should be submitted on or before April 9, 2014.
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    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05983 Filed 3-18-14; 8:45 am]
BILLING CODE 8011-01-P