Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Pricing in Multiply Listed Options, 35391-35396 [2014-14421]
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Federal Register / Vol. 79, No. 119 / Friday, June 20, 2014 / Notices
OFFICE OF SCIENCE AND
TECHNOLOGY POLICY
Materials Genome Initiative Strategic
Plan
ACTION:
Notice for Public Comment.
The National Science and
Technology Council’s Committee on
Technology, Subcommittee on the
Materials Genome Initiative requests
public comments on the draft 2014
Materials Genome Initiative Strategic
Plan (https://www.nist.gov/mgi/upload/
MGI-StrategicPlan-2014.pdf).
DATES: Responses must be received by
July 21, 2014 to be considered.
ADDRESSES: You may submit comments
by any of the following methods:
• Email: mgi-strategicplan@ostp.gov.
Include [MGI Strategic Plan—Public
Comment] in the subject line of the
message.
• Fax: (202) 456–6027, Attn:
Meredith Drosback.
• Mail: Attn: Meredith Drosback,
Office of Science and Technology
Policy, Eisenhower Executive Office
Building, 1650 Pennsylvania Ave. NW.,
Washington, DC 20504.
Instructions: Response to this request
for public comment is voluntary.
Responses exceeding 500 words will not
be considered; please reference page
and line numbers in your response, as
appropriate. Please be aware that your
comments may be posted online. OSTP
therefore requests that no business
proprietary information, copyrighted
information, confidential, or personally
identifiable information be submitted in
response to this request. Please note that
the U.S. Government will not pay for
response preparation, or for the use of
any information contained in the
response.
SUMMARY:
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Meredith Drosback, (202) 456–4444,
mdrosback@ostp.eop.gov, OSTP.
SUPPLEMENTARY INFORMATION: In June
2011, President Obama launched the
Materials Genome Initiative (MGI) to
help scientists and innovators discover,
develop, and deploy new materials
twice as fast as today. What began with
a modest investment by four Federal
agencies only three years ago has now
expanded to include participation by a
wide range of public and private
stakeholders, including universities,
companies, professional scientific
societies, and Federal agencies.
At the Federal level, MGI is managed
within the framework of the National
Science and Technology Council
(NSTC), the Cabinet-level council that
coordinates science and technology
22:31 Jun 19, 2014
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Ted Wackler,
Deputy Chief of Staff and Assistant Director.
[FR Doc. 2014–14392 Filed 6–19–14; 8:45 am]
BILLING CODE 3270–F4–P
FOR FURTHER INFORMATION CONTACT:
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across the Federal government. The
Subcommittee on the Materials Genome
Initiative (SMGI), under the NSTC
Committee on Technology, coordinates
Federal efforts in support of the goals of
MGI and identifies policies that will
accelerate deployment of advanced
materials. The SMGI includes
representatives from each agency
participating in MGI.
The SMGI developed this strategic
plan to outline the near-term steps the
Federal government will take to achieve
the vision put forth by MGI. It defines
the high-level goals and priorities for
the Initiative by describing each of four
strategic goals and the objectives and
near-term milestones needed to meet
these goals. This strategic plan also
describes scientific and technical
challenges identified by experts from
the materials science and engineering
communities that impede progress in
nine materials classes and that MGI can
help address. This input came through
two Grand Challenge Summits held in
2013 for stakeholders from academia
and industry (details available online at
https://www.ibbr.umd.edu/
NISTMGISummit). The experimental
and computational tools and scientific
cultural evolution emerging from MGI
can be directly applied to overcoming
these scientific and technical
challenges, and others that will emerge
in the future, to meet the President’s
directive for more rapid discovery and
deployment of advanced materials. The
SMGI is seeking public comment on this
strategic plan (available at https://
www.nist.gov/mgi/upload/MGIStrategicPlan-2014.pdf) in advance of
finalizing the document for publication.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72395; File No. SR–Phlx–
2014–38]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Pricing in Multiply Listed Options
June 16, 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 June 2,
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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35391
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.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Section II of the Pricing Schedule which
pertains to Multiply Listed Options
fees.3
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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to amend
Section II of the Exchange’s Pricing
Schedule entitled ‘‘Multiply Listed
Options’’ to: (i) Amend Options
Transaction Charges in Penny Pilot
Options 4 and Non-Penny Pilot Options;
(ii) amend certain Complex Order 5 fees;
3 Multiply Listed Options fees includes options
overlying equities, ETFs, ETNs and indexes which
are multiply listed.
4 The Penny Pilot was established in January 2007
and was last extended in May 2014. See Securities
and Exchange Release No. 72245 (May 23, 2014), 79
FR 31164 (May 30, 2014) (SR–Phlx–2014–37).
5 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
Continued
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Federal Register / Vol. 79, No. 119 / Friday, June 20, 2014 / Notices
(iii) amend incentives related to
achieving certain Customer Rebate
Tiers; 6 (iv) amend the Monthly Market
Maker Cap; and (v) remove outdated
rule text related to the Qualified
Contingent Cross 7 Bonus.
Options Transaction Charges
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The Exchange proposes to increase
the electronic Professional,8 BrokerDealer 9 and Firm 10 Options
Transaction Charges in Penny Pilot
Options to $0.48 per contract. Currently,
a Professional is assessed an electronic
Options Transaction Charge of $0.30 per
contract and a Broker-Dealer and Firm
are assessed an electronic Options
Transaction Charge of $0.45 per
contract.
The Exchange also proposes to
increase the electronic Specialist 11 and
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).
6 The Exchange offers Customer Rebates in
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 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; and (iv) be rejected
if a Customer order is resting on the Exchange book
at the same price. In order to satisfy the 1,000contract 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).
8 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).
9 The term ‘‘Broker-Dealer’’ applies to any
transaction which is not subject to any of the other
transaction fees applicable within a particular
category.
10 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.
11 A ‘‘Specialist’’ is an Exchange member who is
registered as an options specialist pursuant to Rule
1020(a).
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22:31 Jun 19, 2014
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Market Maker 12 Options Transaction
Charge in Non-Penny Pilot Options from
$0.23 to $0.25 per contract. The
Exchange believes that these fee
increases will permit the Exchange to
incentivize market participants by
offering other incentives to lower prices
as described herein.
Complex Order Fees
The Exchange currently assesses
Professionals an electronic Complex
Order fee of $0.30 per contract in Penny
Pilot Options.13 The Exchange will
continue to offer Professionals this
$0.30 per contract fee for electronic
Penny Pilot Complex Orders, which will
represent a lower fee as compared to the
proposed Professional electronic
Options Transaction Charge of $0.48 per
contract. The Exchange will also offer
Broker-Dealers and Firms the
opportunity to lower the proposed $0.48
per contract electronic Penny Pilot
Options Transaction Charges to $0.30
per contract with respect to Complex
Orders.
With respect to Non-Penny Pilot
Options, the Exchange currently
assesses Professionals an electronic
Complex Order fee of $0.30 per contract
in Non-Penny Pilot Options.14 The
Exchange will continue to offer
Professionals this $0.30 per contract fee
for electronic Non-Penny Pilot Complex
Orders. The Exchange will also offer
Broker-Dealers and Firms the
opportunity to lower the current
electronic Options Transaction Charges
of $0.70 to $0.30 per contract with
respect to Complex Orders.
The Exchange believes that offering
these market participants the
opportunity to lower Complex Order
fees will encourage the transaction of
these types of orders on Phlx.
Customer Rebate Tier Incentives
Today the Exchange offers
Professionals, Broker-Dealers and Firms
the opportunity to reduce electronic
Options Transaction Charges in NonPenny 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.15
12 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.
13 See current note 13 of the Pricing Schedule.
14 See current note 14 of the Pricing Schedule.
15 See current note 14 of the Pricing Schedule as
related to a Professional and current note 15 of the
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The Exchange will continue to offer
these market participants the
opportunity to qualify for the Customer
Rebate Tiers and reduce these electronic
fees to $0.60 per contract.16
The Exchange also proposes to offer
Specialists and Market Makers an
opportunity to lower the electronic NonPenny Pilot Options Transaction Charge
from the proposed $0.25 per contract to
$0.23 per contract.17 Any Specialist or
Market Maker member or member
organization under Common Ownership
with another member or member
organization that qualifies for Customer
Rebate Tiers 2, 3, 4 or 5 in Section B of
the Pricing Schedule will be assessed a
$0.23 per contract electronic Non-Penny
Pilot Option Transaction Charge.
The Exchange believes that these
incentives will encourage Specialists
and Market Makers to transact a greater
number of orders on the Exchange.
Monthly Market Maker Cap
Today, 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 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 continue to
assess 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 a $0.17
Pricing Schedule as related to Broker-Dealers and
Firms.
16 See revised note 14 of the Pricing Schedule
which is being applied to Broker-Dealers and Firms
as well as Professionals within the Pricing
Schedule. Note 14 of the Pricing Schedule is being
added to the electronic Broker-Dealer and Firm
Non-Penny Pilot Options Transaction Charge.
17 The Exchange is adding note 15 of the Pricing
Schedule to the electronic Specialist and Market
Maker Non-Penny Pilot Options Transaction
Charge.
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Federal Register / Vol. 79, No. 119 / Friday, June 20, 2014 / Notices
per contract fee in both Penny and NonPenny Pilot Options, as is the case
today. The Exchange proposes to assess
no fee to 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 in the
following symbols: Apple, Inc.
(‘‘AAPL’’), Bank of American
Corporation (‘‘BAC’’), Facebook, Inc.
(‘‘FB’’), iShares Russell 2000 (‘‘IWM’’)
and PowerShares QQQ (‘‘QQQ’’). The
Exchange believes that assessing
Specialists and Market Makers no fee in
these symbols if they are on the contraside of an electronically-delivered and
executed Customer order; and have
reached the Monthly Market Maker Cap
will incentivize Specialists and Market
Makers to offer improved bids and offers
on the Exchange.
QCC Bonus
The Exchange previously filed an
immediately effective rule change 18 to
offer an additional rebate applicable to
both electronic QCC Orders (‘‘eQCC’’) 19
and Floor QCC Orders 20 (collectively
‘‘QCC Orders’’). The Exchange currently
offers an additional rebate of $35,000 if
the member organization transacts
1,750,000 of qualifying QCC contracts
(‘‘QCC Bonus’’).21 The QCC Bonus was
only available during the month of May
2014. The Exchange proposes to delete
the rule text applicable to the QCC
Bonus as that bonus is no longer
applicable.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Pricing Schedule
is consistent with Section 6(b) of the
Act 22 in general, and furthers the
objectives of Section 6(b)(4) and (b)(5) of
the Act 23 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
which Phlx operates or controls, and is
not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
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Options Transaction Charges
The Exchange’s proposal to increase
the electronic Professional, Broker18 See Securities Exchange Act Release No. 72136
(May 9, 2014), 79 FR 27968 (May 15, 2004) (SR–
Phlx–2014–31).
19 See Rule 1080(o).
20 See Rule 1064(e).
21 The QCC Bonus was in addition to the
maximum QCC Rebate of $375,000 and did not
count toward the maximum QCC Rebate of
$375,000.
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(4), (5).
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22:31 Jun 19, 2014
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Dealer and Firm Options Transaction
Charges in Penny Pilot Options to $0.48
per contract is reasonable because the
Exchange’s fees will remain competitive
with fees at other options markets.24
Today, a Professional is assessed an
electronic Options Transaction Charge
in Penny Pilot Options of $0.30 per
contract and a Broker-Dealer and Firm
are assessed an electronic Options
Transaction Charge in Penny Pilot
Options of $0.45 per contract. Despite
the fee increase, the proposal will allow
the Exchange to incentivize market
participants by offering the opportunity
to lower Options Transaction Charges as
described herein.
The Exchange’s proposal to increase
the electronic Professional, BrokerDealer and Firm Options Transaction
Charges in Penny Pilot Options to $0.48
per contract is equitable and not
unfairly discriminatory because the
Exchange will assess Professionals,
Broker-Dealers and Firms the same
electronic Options Transaction Charges
in Penny Pilot Options. The Exchange
does not assess Customers an electronic
Options Transaction Charge in 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 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.25 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
24 See the NASDAQ Options Market LLC’s
(‘‘NOM’’) pricing at Chapter XV of NOM’s
Rulebook.
25 See Rule 1014 titled ‘‘Obligations and
Restrictions Applicable to Specialists and
Registered Options Traders.’’
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35393
environment on the Exchange by these
market participants.
The Exchange’s proposal to increase
the electronic Specialist and Market
Maker Options Transaction Charge in
Non-Penny Pilot Options from $0.23 to
$0.25 per contract is reasonable because
the Exchange will continue to offer
Specialists and Market Makers other
incentives such as the Monthly Market
Maker Cap, which incentive is not
offered to other market participants. The
Exchange believes that despite the fee
increase, the fee remains competitive
with other market participant fees. Also,
the Exchange is offering Specialists and
Market Makers a means to reduce the
Options Transaction Charge to $0.23 per
contract in Non-Penny Pilot Options as
described in more detail below.26
The Exchange’s proposal to increase
the electronic Specialist and Market
Maker Options Transaction Charge in
Non-Penny Pilot Options from $0.23 to
$0.25 per contract is equitable and not
unfairly discriminatory because the
Exchange will continue to assess
Specialists and Market Makers the
lowest electronic Options Transaction
Charge in Non-Penny Pilot Options as
compared to the $0.70 per contract
electronic Options Transaction Charge
assessed to Professionals, BrokerDealers and Firms.27 Specialists and
Market Makers are assessed lower
electronic Options Transaction Charges
in 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.28
Complex Order Fees
The Exchange’s proposal to continue
to offer Professionals, and now BrokerDealers and Firms, the opportunity to
reduce electronic Complex Orders to a
fee of $0.30 per contract in Penny Pilot
Options is reasonable because the
Exchange is increasing fees for these
market participants with this proposal.
Professionals will have the opportunity
to lower the proposed $0.48 per contract
electronic Options Transaction Charge
in Penny Pilot Options to $0.30 per
contract with respect to Complex
Orders. This will represent a lower fee
as compared to the proposed electronic
26 Specialists and Market Makers could reduce
the Options Transaction Charge in Non-Penny Pilot
Options from $0.25 to $0.23 per contract by
qualifying for Customer Rebate Tiers 2, 3, 4 or 5 in
Section B of the Pricing Schedule, as proposed
herein. See proposed note 15 of the Pricing
Schedule.
27 Customers are not assessed a Non-Penny Pilot
Options Transaction Charge.
28 See note 25.
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Federal Register / Vol. 79, No. 119 / Friday, June 20, 2014 / Notices
Professional Options Transaction
Charge of $0.48 per contract that will
apply to Simple Orders in Penny Pilot
Options. Broker-Dealers and Firms will
likewise be offered the opportunity to
reduce the proposed increased
electronic Penny Pilot Options
Transaction Charges of $0.48 to $0.30
per contract with respect to Complex
Orders. Therefore, these market
participants that are assessed the
highest electronic fees will have an
opportunity to lower these rlectronic
[sic] fees in Penny Pilot Complex
Orders.
The Exchange’s proposal to offer
Broker-Dealers and Firms the same
opportunity as a Professional to reduce
electronic Complex Orders to a fee of
$0.30 per contract in Penny Pilot
Options is equitable and not unfairly
discriminatory because the Exchange
will assess Professionals, Broker-Dealers
and Firms the same electronic Options
Transaction Charge in Penny Pilot
Options of $0.30 per contract. The
Exchange does not assess Customers an
electronic Options Transaction Charge
in 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 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.29 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 Exchange’s proposal to continue
to offer Professionals, and now BrokerDealers and Firms, the opportunity to
reduce electronic Complex Orders from
$0.70 to $0.30 per contract in NonPenny Pilot Options is reasonable
because the Exchange desires to provide
these market participants the
opportunity to lower Complex Order
fees in Penny and Non-Penny Pilot
Options alike. This opportunity to lower
electronic Complex Order fees, which is
currently offered only to Professionals,
will be extended to Broker-Dealers and
Firms in Non-Penny Pilot Options.
Professionals, Broker-Dealers and Firms
are assessed the highest electronic
Options Transactions Charges in NonPenny Pilot Options of $0.70 per
contract, as compared to other market
29 See
note 25.
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22:31 Jun 19, 2014
Jkt 232001
participants. The Exchange believes that
offering these market participants the
opportunity to lower Non-Penny Pilot
electronic Complex Order fees will
encourage the transaction of these types
of orders on Phlx.
The Exchange’s proposal to offer
Broker-Dealers and Firms the same
opportunity as Professionals to reduce
electronic Complex Orders to a fee of
$0.30 per contract in Non-Penny Pilot
Options is equitable and not unfairly
discriminatory because the Exchange
will assess Professionals, Broker-Dealers
and Firms the same electronic Options
Transaction Charge in Non-Penny Pilot
Options of $0.30 per contract. 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.30
Customer Rebate Tier Incentives
The Exchange’s proposal to offer
Specialists and Market Makers an
opportunity to lower electronic Options
Transaction Charges in Non-Penny Pilot
Options from $0.25 to $0.23 per
contract, provided certain criteria are
met, is reasonable because the Exchange
desires to offer all market participants 31
an opportunity to lower Non-Penny
Pilot Options Transaction Fees. The
electronic Options Transaction Charges
in Non-Penny Pilot Options are higher
as compared to electronic Options
Transaction Charges in Penny Pilot
Options. The Exchange believes that
offering all market participants the
opportunity to lower electronic Options
Transaction Charges in Non-Penny Pilot
Options by incentivizing them to
transact Customer order flow in turn
benefits all market participants.
The Exchange’s proposal to offer
Specialists and Market Makers the
opportunity to lower electronic Options
30 See
note 25.
Professionals, Broker-Dealers and Firms
have an opportunity to reduce fees to $0.60 per
contract in Non-Penny Pilot Options provided
certain criteria are met Professionals, BrokerDealers and Firms are offered the opportunity to
reduce electronic Non-Penny Pilot Options
Transaction Charges 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.
31 Today,
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Transaction Charges in Non-Penny Pilot
Options from $0.25 to $0.23 per contract
is equitable and not unfairly
discriminatory because the Exchange
will offer all market participants,
excluding Customers,32 a means to
reduce Options Transaction Charges by
qualifying for a Customer Rebate in
Section B of the Pricing Schedule. Even
with the reduced rate for Professionals,
Broker-Dealers and Firms of $0.60 per
contract, Specialist and Market Makers
will continue to be assessed the lowest
electronic Options Transaction Charge
in Non-Penny Pilot Options because
they have obligations to the market and
regulatory requirements, which
normally do not apply to other market
participants.33
Monthly Market Maker Cap
The Exchange’s proposal to not assess
a fee to 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 in
AAPL, BAC, FB, IWM and QQQ is
reasonable because the Exchange desires
to incentivize Specialists and Market
Makers to transact more options in these
symbols and bring additional liquidity
to the Exchange. All market participants
will benefit from the increased
Customer liquidity brought to the
Exchange. The Exchange today
differentiates pricing by option
symbols.34 Specialists and Market
Makers will continue to pay the same
fee of $0.17 per contract in Penny and
Non-Penny Pilot Options, when the cap
is satisfied, except for the symbols noted
above.
The Exchange’s proposal to not assess
a fee to 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 in
AAPL, BAC, FB, IWM and QQQ is
equitable and not unfairly
discriminatory. Specialists and Market
Makers have burdensome quoting
obligations 35 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.
32 Customers are not assessed a Non-Penny Pilot
Options Transaction Charge.
33 See note 25.
34 See Section I of the Pricing Schedule which
differentiates pricing in SPDR S&P 500 (‘‘SPY’’)
options. See also Securities Exchange Release No.
66757 (April 6, 2012), 77 FR 22034 (April 12, 2012)
(SR–Phlx–2012–45).
35 See note 25.
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Additionally, Specialists and Market
Makers incur costs unlike other market
participants including, but not limited
to, Payment for Order Flow (‘‘PFOF’’) 36
and other costs associated with market
making activities, 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. 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 believes that
offering Specialists and Market Makers
the opportunity to cap fees in certain
highly liquidity Penny Pilot Options is
equitable and not unfairly
discriminatory for the reasons noted
above.
QCC Bonus
The Exchange’s proposal to remove
rule text related to the QCC Bonus is
reasonable because removing the
outdated rule text will add clarity to the
Pricing Schedule. The Exchange’s
proposal to remove rule text related to
the QCC Bonus is equitable and not
unfairly discriminatory because the
QCC Bonus is no longer in effect and
therefore not available to any market
participant.
mstockstill on DSK4VPTVN1PROD with 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’s proposal to increase
electronic Options Transaction Charges
for Professionals, Broker-Dealers and
Firms in Penny Pilot Options conforms
pricing for these market participants.
Customers continue not be assessed
Penny Pilot Options Transaction
Charges and Specialists and Market
Makers continue to be assessed the
lowest electronic Options Transaction
Charges in Penny Pilot Options due to
the obligations they bear in the
market.37
36 Specialists and Market Makers, as compared to
other market participants, are assessed PFOF when
transacting Customer electronic orders.
37 See note 25.
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22:31 Jun 19, 2014
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With respect to Non-Penny Pilot
Options, the increase to Specialists and
Market Makers for electronic orders is
offset by the ability to reduce those fees
by qualifying for certain Customer
Rebates in Section B of the Pricing
Schedule and also the ability to cap
certain fees. The Exchange is offering all
market participants that are assessed
Non-Penny Pilot Options Transaction
Charges the opportunity to reduce those
fees by qualifying for certain Customer
Rebates in Section B of the Pricing
Schedule.
Professionals, as is the case today, as
well as Broker-Dealers and Firms alike
will be offered the opportunity to
reduce electronic Complex Order fees in
both Penny and Non-Penny Pilot
Options as these market participants are
assessed the highest Penny and NonPenny Pilot Options Transaction
Charges.
Specialists and Market Makers will be
offered the opportunity to pay no fees,
after they have satisfied the obligations
related to the Monthly Market Maker
Cap, in the following symbols: AAPL,
BAC, FB, IWM and QQQ. Specialists
and Market Makers have burdensome
quoting obligations 38 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, 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. 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. For these reasons noted
above, the Exchange does not believe
that offering Specialists and Market
Makers the opportunity to cap fees in
certain symbols imposes an undue
burden on competition.
The Exchange operates in a highly
competitive market, comprised of
38 Id.
PO 00000
Frm 00086
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 described in the above
proposal are influenced by these robust
market forces and therefore must remain
competitive with fees charged d [sic] 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.39 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:
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–2014–38 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–2014–38. This file
39 15
Fmt 4703
Sfmt 4703
35395
E:\FR\FM\20JNN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
20JNN1
35396
Federal Register / Vol. 79, No. 119 / Friday, June 20, 2014 / Notices
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–
2014–38, and should be submitted on or
before July 11, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Kevin M. O’Neill,
Deputy Secretary.
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the selfregulatory organization. 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 ISE proposes to amend its rules
to require that market makers quoting
certain in-the-money options series
maintain quotes that are no wider than
the spread between the NBBO in the
underlying security. The text of the
proposed rule change is available on the
Exchange’s Web site (https://
www.ise.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
self-regulatory organization 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 self-regulatory organization has
prepared summaries, set forth in
sections A, B and C below, of the most
significant aspects of such statements.
BILLING CODE 8011–01–P
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
[FR Doc. 2014–14421 Filed 6–19–14; 8:45 am]
[Release No. 34–72399; File No. SR–ISE–
2014–31]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing of a Proposed
Rule Change on Bid/Offer Differentials
for In-The-Money Option Series
mstockstill on DSK4VPTVN1PROD with NOTICES
June 16, 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 June 4,
2014, the International Securities
Exchange, LLC (‘‘Exchange’’ or ‘‘ISE’’)
filed with the Securities and Exchange
40 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
22:31 Jun 19, 2014
Jkt 232001
The purpose of the proposed rule
change is to amend Rule 803(b)(4)(i) to
require that market makers quoting
certain in-the-money options series
maintain quotes that are no wider than
the spread between the national best bid
and offer (‘‘NBBO’’) in the underlying
security. The Exchange believes that
requiring that market makers post
tighter quotes in these option series will
improve market quality to the benefit of
investors that trade on the ISE.
In the course of maintaining fair and
orderly markets in appointed options
classes, market makers are generally
required to price options contracts fairly
by, among other things, bidding and
offering so as to create differences of no
more than $5 between the bid and offer
following the opening rotation in an
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
options contract.3 In addition, Rule
803(b)(4)(i) presently permits market
makers to submit quotes with wider bid/
offer differentials for in-the-money
options series where the market for the
underlying security is wider than the
market maker’s regular quotation
requirements. In particular, a market
maker quoting an in-the-money options
series may submit quotes that are as
wide as the quotation on the primary
market of the underlying security. For
example, if the primary market for ABC
has a quote of $65 (bid)—$73 (offer), ISE
market makers may quote in-the-money
option series on that security with a bid/
offer differential of $8. The wider bid/
offer differentials allowed in these
circumstances are intended to give
market makers more flexibility with
respect to their quoting obligations as
options are priced relative to the price
of the underlying security.
The Exchange proposes to change this
obligation to instead require that market
makers quoting these in-the-money
options series maintain quotes that are
no wider than the spread between the
NBBO in the underlying security. A
market maker quoting an in-the-money
options series can hedge its position by
trading in the underlying security at the
NBBO, which may be narrower than the
quotation on the primary market. For
instance, in the example above, other
exchanges that trade ABC may
collectively have a higher bid of $66 and
a lower offer of $72. Under the proposed
rule, ISE market makers would be
required to quote in-the-money option
series on ABC with a bid/offer
differential of no more than $6. The
Exchange believes that measuring the
permissible width of a market maker’s
quote against the NBBO more accurately
reflects the current trading environment
where multiple trading venues
contribute to the prevailing market price
of a security underlying an options
series traded on the ISE.
2. Basis
The Exchange believes that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder that
are applicable to a national securities
exchange, and, in particular, with the
requirements of Section 6(b) of the Act.4
In particular, the proposal is consistent
with Section 6(b)(5) of the Act,5 because
3 See Rule 803(b). Unless the ISE establishes
wider differentials for specific option classes, bid/
offer differentials prior to the opening rotation must
be no more than $0.25, $0.40, $0.50, $0.80, or $1,
with the larger bid/offer differentials permitted for
option contracts with higher priced bids. Id.
4 15 U.S.C. 78f(b).
5 15 U.S.C. 78f(b)(5).
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]]>Agencies
[Federal Register Volume 79, Number 119 (Friday, June 20, 2014)]
[Notices]
[Pages 35391-35396]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14421]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72395; File No. SR-Phlx-2014-38]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Pricing in Multiply Listed Options
June 16, 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 June 2, 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend Section II of the Pricing Schedule
which pertains to Multiply Listed Options fees.\3\
---------------------------------------------------------------------------
\3\ Multiply Listed Options fees includes options overlying
equities, ETFs, ETNs and indexes which are multiply listed.
---------------------------------------------------------------------------
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend Section II of the Exchange's
Pricing Schedule entitled ``Multiply Listed Options'' to: (i) Amend
Options Transaction Charges in Penny Pilot Options \4\ and Non-Penny
Pilot Options; (ii) amend certain Complex Order \5\ fees;
[[Page 35392]]
(iii) amend incentives related to achieving certain Customer Rebate
Tiers; \6\ (iv) amend the Monthly Market Maker Cap; and (v) remove
outdated rule text related to the Qualified Contingent Cross \7\ Bonus.
---------------------------------------------------------------------------
\4\ The Penny Pilot was established in January 2007 and was last
extended in May 2014. See Securities and Exchange Release No. 72245
(May 23, 2014), 79 FR 31164 (May 30, 2014) (SR-Phlx-2014-37).
\5\ 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).
\6\ The Exchange offers Customer Rebates in 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 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; 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).
---------------------------------------------------------------------------
Options Transaction Charges
The Exchange proposes to increase the electronic Professional,\8\
Broker-Dealer \9\ and Firm \10\ Options Transaction Charges in Penny
Pilot Options to $0.48 per contract. Currently, a Professional is
assessed an electronic Options Transaction Charge of $0.30 per contract
and a Broker-Dealer and Firm are assessed an electronic Options
Transaction Charge of $0.45 per contract.
---------------------------------------------------------------------------
\8\ 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).
\9\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
\10\ 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.
---------------------------------------------------------------------------
The Exchange also proposes to increase the electronic Specialist
\11\ and Market Maker \12\ Options Transaction Charge in Non-Penny
Pilot Options from $0.23 to $0.25 per contract. The Exchange believes
that these fee increases will permit the Exchange to incentivize market
participants by offering other incentives to lower prices as described
herein.
---------------------------------------------------------------------------
\11\ A ``Specialist'' is an Exchange member who is registered as
an options specialist pursuant to Rule 1020(a).
\12\ 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.
---------------------------------------------------------------------------
Complex Order Fees
The Exchange currently assesses Professionals an electronic Complex
Order fee of $0.30 per contract in Penny Pilot Options.\13\ The
Exchange will continue to offer Professionals this $0.30 per contract
fee for electronic Penny Pilot Complex Orders, which will represent a
lower fee as compared to the proposed Professional electronic Options
Transaction Charge of $0.48 per contract. The Exchange will also offer
Broker-Dealers and Firms the opportunity to lower the proposed $0.48
per contract electronic Penny Pilot Options Transaction Charges to
$0.30 per contract with respect to Complex Orders.
---------------------------------------------------------------------------
\13\ See current note 13 of the Pricing Schedule.
---------------------------------------------------------------------------
With respect to Non-Penny Pilot Options, the Exchange currently
assesses Professionals an electronic Complex Order fee of $0.30 per
contract in Non-Penny Pilot Options.\14\ The Exchange will continue to
offer Professionals this $0.30 per contract fee for electronic Non-
Penny Pilot Complex Orders. The Exchange will also offer Broker-Dealers
and Firms the opportunity to lower the current electronic Options
Transaction Charges of $0.70 to $0.30 per contract with respect to
Complex Orders.
---------------------------------------------------------------------------
\14\ See current note 14 of the Pricing Schedule.
---------------------------------------------------------------------------
The Exchange believes that offering these market participants the
opportunity to lower Complex Order fees will encourage the transaction
of these types of orders on Phlx.
Customer Rebate Tier Incentives
Today the Exchange offers Professionals, Broker-Dealers and Firms
the opportunity to reduce 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.\15\ The
Exchange will continue to offer these market participants the
opportunity to qualify for the Customer Rebate Tiers and reduce these
electronic fees to $0.60 per contract.\16\
---------------------------------------------------------------------------
\15\ See current note 14 of the Pricing Schedule as related to a
Professional and current note 15 of the Pricing Schedule as related
to Broker-Dealers and Firms.
\16\ See revised note 14 of the Pricing Schedule which is being
applied to Broker-Dealers and Firms as well as Professionals within
the Pricing Schedule. Note 14 of the Pricing Schedule is being added
to the electronic Broker-Dealer and Firm Non-Penny Pilot Options
Transaction Charge.
---------------------------------------------------------------------------
The Exchange also proposes to offer Specialists and Market Makers
an opportunity to lower the electronic Non-Penny Pilot Options
Transaction Charge from the proposed $0.25 per contract to $0.23 per
contract.\17\ Any Specialist or Market Maker member or member
organization under Common Ownership with another member or member
organization that qualifies for Customer Rebate Tiers 2, 3, 4 or 5 in
Section B of the Pricing Schedule will be assessed a $0.23 per contract
electronic Non-Penny Pilot Option Transaction Charge.
---------------------------------------------------------------------------
\17\ The Exchange is adding note 15 of the Pricing Schedule to
the electronic Specialist and Market Maker Non-Penny Pilot Options
Transaction Charge.
---------------------------------------------------------------------------
The Exchange believes that these incentives will encourage
Specialists and Market Makers to transact a greater number of orders on
the Exchange.
Monthly Market Maker Cap
Today, 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 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 continue to assess 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 a $0.17
[[Page 35393]]
per contract fee in both Penny and Non-Penny Pilot Options, as is the
case today. The Exchange proposes to assess no fee to 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 in the following symbols: Apple, Inc.
(``AAPL''), Bank of American Corporation (``BAC''), Facebook, Inc.
(``FB''), iShares Russell 2000 (``IWM'') and PowerShares QQQ (``QQQ'').
The Exchange believes that assessing Specialists and Market Makers no
fee in these symbols if they are on the contra-side of an
electronically-delivered and executed Customer order; and have reached
the Monthly Market Maker Cap will incentivize Specialists and Market
Makers to offer improved bids and offers on the Exchange.
QCC Bonus
The Exchange previously filed an immediately effective rule change
\18\ to offer an additional rebate applicable to both electronic QCC
Orders (``eQCC'') \19\ and Floor QCC Orders \20\ (collectively ``QCC
Orders''). The Exchange currently offers an additional rebate of
$35,000 if the member organization transacts 1,750,000 of qualifying
QCC contracts (``QCC Bonus'').\21\ The QCC Bonus was only available
during the month of May 2014. The Exchange proposes to delete the rule
text applicable to the QCC Bonus as that bonus is no longer applicable.
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 72136 (May 9,
2014), 79 FR 27968 (May 15, 2004) (SR-Phlx-2014-31).
\19\ See Rule 1080(o).
\20\ See Rule 1064(e).
\21\ The QCC Bonus was in addition to the maximum QCC Rebate of
$375,000 and did not count toward the maximum QCC Rebate of
$375,000.
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2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with Section 6(b) of the Act \22\ in general,
and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act
\23\ 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 which Phlx operates or
controls, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(4), (5).
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Options Transaction Charges
The Exchange's proposal to increase the electronic Professional,
Broker-Dealer and Firm Options Transaction Charges in Penny Pilot
Options to $0.48 per contract is reasonable because the Exchange's fees
will remain competitive with fees at other options markets.\24\ Today,
a Professional is assessed an electronic Options Transaction Charge in
Penny Pilot Options of $0.30 per contract and a Broker-Dealer and Firm
are assessed an electronic Options Transaction Charge in Penny Pilot
Options of $0.45 per contract. Despite the fee increase, the proposal
will allow the Exchange to incentivize market participants by offering
the opportunity to lower Options Transaction Charges as described
herein.
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\24\ See the NASDAQ Options Market LLC's (``NOM'') pricing at
Chapter XV of NOM's Rulebook.
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The Exchange's proposal to increase the electronic Professional,
Broker-Dealer and Firm Options Transaction Charges in Penny Pilot
Options to $0.48 per contract is equitable and not unfairly
discriminatory because the Exchange will assess Professionals, Broker-
Dealers and Firms the same electronic Options Transaction Charges in
Penny Pilot Options. The Exchange does not assess Customers an
electronic Options Transaction Charge in 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 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.\25\ 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.
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\25\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
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The Exchange's proposal to increase the electronic Specialist and
Market Maker Options Transaction Charge in Non-Penny Pilot Options from
$0.23 to $0.25 per contract is reasonable because the Exchange will
continue to offer Specialists and Market Makers other incentives such
as the Monthly Market Maker Cap, which incentive is not offered to
other market participants. The Exchange believes that despite the fee
increase, the fee remains competitive with other market participant
fees. Also, the Exchange is offering Specialists and Market Makers a
means to reduce the Options Transaction Charge to $0.23 per contract in
Non-Penny Pilot Options as described in more detail below.\26\
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\26\ Specialists and Market Makers could reduce the Options
Transaction Charge in Non-Penny Pilot Options from $0.25 to $0.23
per contract by qualifying for Customer Rebate Tiers 2, 3, 4 or 5 in
Section B of the Pricing Schedule, as proposed herein. See proposed
note 15 of the Pricing Schedule.
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The Exchange's proposal to increase the electronic Specialist and
Market Maker Options Transaction Charge in Non-Penny Pilot Options from
$0.23 to $0.25 per contract is equitable and not unfairly
discriminatory because the Exchange will continue to assess Specialists
and Market Makers the lowest electronic Options Transaction Charge in
Non-Penny Pilot Options as compared to the $0.70 per contract
electronic Options Transaction Charge assessed to Professionals,
Broker-Dealers and Firms.\27\ Specialists and Market Makers are
assessed lower electronic Options Transaction Charges in 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.\28\
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\27\ Customers are not assessed a Non-Penny Pilot Options
Transaction Charge.
\28\ See note 25.
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Complex Order Fees
The Exchange's proposal to continue to offer Professionals, and now
Broker-Dealers and Firms, the opportunity to reduce electronic Complex
Orders to a fee of $0.30 per contract in Penny Pilot Options is
reasonable because the Exchange is increasing fees for these market
participants with this proposal. Professionals will have the
opportunity to lower the proposed $0.48 per contract electronic Options
Transaction Charge in Penny Pilot Options to $0.30 per contract with
respect to Complex Orders. This will represent a lower fee as compared
to the proposed electronic
[[Page 35394]]
Professional Options Transaction Charge of $0.48 per contract that will
apply to Simple Orders in Penny Pilot Options. Broker-Dealers and Firms
will likewise be offered the opportunity to reduce the proposed
increased electronic Penny Pilot Options Transaction Charges of $0.48
to $0.30 per contract with respect to Complex Orders. Therefore, these
market participants that are assessed the highest electronic fees will
have an opportunity to lower these rlectronic [sic] fees in Penny Pilot
Complex Orders.
The Exchange's proposal to offer Broker-Dealers and Firms the same
opportunity as a Professional to reduce electronic Complex Orders to a
fee of $0.30 per contract in Penny Pilot Options is equitable and not
unfairly discriminatory because the Exchange will assess Professionals,
Broker-Dealers and Firms the same electronic Options Transaction Charge
in Penny Pilot Options of $0.30 per contract. The Exchange does not
assess Customers an electronic Options Transaction Charge in 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 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.\29\ 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.
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\29\ See note 25.
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The Exchange's proposal to continue to offer Professionals, and now
Broker-Dealers and Firms, the opportunity to reduce electronic Complex
Orders from $0.70 to $0.30 per contract in Non-Penny Pilot Options is
reasonable because the Exchange desires to provide these market
participants the opportunity to lower Complex Order fees in Penny and
Non-Penny Pilot Options alike. This opportunity to lower electronic
Complex Order fees, which is currently offered only to Professionals,
will be extended to Broker-Dealers and Firms in Non-Penny Pilot
Options. Professionals, Broker-Dealers and Firms are assessed the
highest electronic Options Transactions Charges in Non-Penny Pilot
Options of $0.70 per contract, as compared to other market
participants. The Exchange believes that offering these market
participants the opportunity to lower Non-Penny Pilot electronic
Complex Order fees will encourage the transaction of these types of
orders on Phlx.
The Exchange's proposal to offer Broker-Dealers and Firms the same
opportunity as Professionals to reduce electronic Complex Orders to a
fee of $0.30 per contract in Non-Penny Pilot Options is equitable and
not unfairly discriminatory because the Exchange will assess
Professionals, Broker-Dealers and Firms the same electronic Options
Transaction Charge in Non-Penny Pilot Options of $0.30 per contract.
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.\30\
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\30\ See note 25.
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Customer Rebate Tier Incentives
The Exchange's proposal to offer Specialists and Market Makers an
opportunity to lower electronic Options Transaction Charges in Non-
Penny Pilot Options from $0.25 to $0.23 per contract, provided certain
criteria are met, is reasonable because the Exchange desires to offer
all market participants \31\ an opportunity to lower Non-Penny Pilot
Options Transaction Fees. The electronic Options Transaction Charges in
Non-Penny Pilot Options are higher as compared to electronic Options
Transaction Charges in Penny Pilot Options. The Exchange believes that
offering all market participants the opportunity to lower electronic
Options Transaction Charges in Non-Penny Pilot Options by incentivizing
them to transact Customer order flow in turn benefits all market
participants.
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\31\ Today, Professionals, Broker-Dealers and Firms have an
opportunity to reduce fees to $0.60 per contract in Non-Penny Pilot
Options provided certain criteria are met Professionals, Broker-
Dealers and Firms are offered the opportunity to reduce electronic
Non-Penny Pilot Options Transaction Charges 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.
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The Exchange's proposal to offer Specialists and Market Makers the
opportunity to lower electronic Options Transaction Charges in Non-
Penny Pilot Options from $0.25 to $0.23 per contract is equitable and
not unfairly discriminatory because the Exchange will offer all market
participants, excluding Customers,\32\ a means to reduce Options
Transaction Charges by qualifying for a Customer Rebate in Section B of
the Pricing Schedule. Even with the reduced rate for Professionals,
Broker-Dealers and Firms of $0.60 per contract, Specialist and Market
Makers will continue to be assessed the lowest electronic Options
Transaction Charge in Non-Penny Pilot Options because they have
obligations to the market and regulatory requirements, which normally
do not apply to other market participants.\33\
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\32\ Customers are not assessed a Non-Penny Pilot Options
Transaction Charge.
\33\ See note 25.
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Monthly Market Maker Cap
The Exchange's proposal to not assess a fee to 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 in AAPL, BAC, FB, IWM and QQQ is reasonable
because the Exchange desires to incentivize Specialists and Market
Makers to transact more options in these symbols and bring additional
liquidity to the Exchange. All market participants will benefit from
the increased Customer liquidity brought to the Exchange. The Exchange
today differentiates pricing by option symbols.\34\ Specialists and
Market Makers will continue to pay the same fee of $0.17 per contract
in Penny and Non-Penny Pilot Options, when the cap is satisfied, except
for the symbols noted above.
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\34\ See Section I of the Pricing Schedule which differentiates
pricing in SPDR S&P 500 (``SPY'') options. See also Securities
Exchange Release No. 66757 (April 6, 2012), 77 FR 22034 (April 12,
2012) (SR-Phlx-2012-45).
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The Exchange's proposal to not assess a fee to 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 in AAPL, BAC, FB, IWM and QQQ is equitable and
not unfairly discriminatory. Specialists and Market Makers have
burdensome quoting obligations \35\ 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.
[[Page 35395]]
Additionally, Specialists and Market Makers incur costs unlike other
market participants including, but not limited to, Payment for Order
Flow (``PFOF'') \36\ and other costs associated with market making
activities, 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. 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 believes that offering Specialists and Market Makers the
opportunity to cap fees in certain highly liquidity Penny Pilot Options
is equitable and not unfairly discriminatory for the reasons noted
above.
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\35\ See note 25.
\36\ Specialists and Market Makers, as compared to other market
participants, are assessed PFOF when transacting Customer electronic
orders.
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QCC Bonus
The Exchange's proposal to remove rule text related to the QCC
Bonus is reasonable because removing the outdated rule text will add
clarity to the Pricing Schedule. The Exchange's proposal to remove rule
text related to the QCC Bonus is equitable and not unfairly
discriminatory because the QCC Bonus is no longer in effect and
therefore not available to any market participant.
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's proposal to
increase electronic Options Transaction Charges for Professionals,
Broker-Dealers and Firms in Penny Pilot Options conforms pricing for
these market participants. Customers continue not be assessed Penny
Pilot Options Transaction Charges and Specialists and Market Makers
continue to be assessed the lowest electronic Options Transaction
Charges in Penny Pilot Options due to the obligations they bear in the
market.\37\
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\37\ See note 25.
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With respect to Non-Penny Pilot Options, the increase to
Specialists and Market Makers for electronic orders is offset by the
ability to reduce those fees by qualifying for certain Customer Rebates
in Section B of the Pricing Schedule and also the ability to cap
certain fees. The Exchange is offering all market participants that are
assessed Non-Penny Pilot Options Transaction Charges the opportunity to
reduce those fees by qualifying for certain Customer Rebates in Section
B of the Pricing Schedule.
Professionals, as is the case today, as well as Broker-Dealers and
Firms alike will be offered the opportunity to reduce electronic
Complex Order fees in both Penny and Non-Penny Pilot Options as these
market participants are assessed the highest Penny and Non-Penny Pilot
Options Transaction Charges.
Specialists and Market Makers will be offered the opportunity to
pay no fees, after they have satisfied the obligations related to the
Monthly Market Maker Cap, in the following symbols: AAPL, BAC, FB, IWM
and QQQ. Specialists and Market Makers have burdensome quoting
obligations \38\ 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, 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. 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. For these reasons noted above, the Exchange does
not believe that offering Specialists and Market Makers the opportunity
to cap fees in certain symbols imposes an undue burden on competition.
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\38\ Id.
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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 described in the above proposal are
influenced by these robust market forces and therefore must remain
competitive with fees charged d [sic] 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.\39\ 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.
---------------------------------------------------------------------------
\39\ 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-2014-38 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-2014-38. This file
[[Page 35396]]
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-2014-38, and should be
submitted on or before July 11, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14421 Filed 6-19-14; 8:45 am]
BILLING CODE 8011-01-P
