Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Phlx Permit Fee, Order Entry Port Fee, Clearing Trade Interface Port Fee, and Active Specialized Quote Feed Port Fee, 25749-25755 [2015-10403]
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asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 86 / Tuesday, May 5, 2015 / Notices
under Commission service contracts
with a dollar value of $100,000 or
more.8 These subcontractors may
already be subject to similar
recordkeeping requirements as principal
contractors. Consequently, the
Commission believes that any
additional requirements imposed on
subcontractors would not significantly
add to the burden estimates discussed
above.
With respect to the reporting burden,
the Commission estimates that it would
take all contractors on average
approximately one hour to retrieve and
submit to the OMWI Director the
documentation specified in the Contract
Standard. The Commission expects to
request documentation from up to 100
contractors each year and therefore the
Commission estimates the total annual
reporting burden would be 100 hours.
The estimated annualized cost to
contractors for the recordkeeping and
reporting burden hours resulting from
the information collection requirement
under the Contract Standard is based on
Bureau of Labor Statistics data in the
publication ‘‘Employer Costs for
Employee Compensation’’ (2014), which
lists total compensation for
management, professional, and related
occupations as $55 per hour and
administrative support as $25.9 With
respect to the recordkeeping burden for
developing, updating, and maintaining
the workforce inclusion plan, the
Commission estimates that 75 percent of
the burden hours would be
management, professional, and related
occupations and 25 percent would be
administrative support. The
Commission estimates that the
annualized cost related to the burden
hours for the initial development of a
workforce inclusion plan is $19,000,
and that the annualized cost for the
recurring recordkeeping burden is
$16,625. Thus, the Commission
estimates that the annualized
recordkeeping cost related to
compliance with the Contract Standard
is $35,625 (50 contractors x $712.50 per
contractor).
As for the reporting burden, the
Commission estimates that 75 percent of
the burden hours for retrieving and
submitting documentation to the OMWI
Director would be administrative
support and 25 percent would be
8 A search of subcontract awards on the
usaspending.gov Web site showed that four
subcontractors in FY 2012 and three subcontractors
in FY 2013 had subcontracts of $100K or more. See
data on subcontract awards available at https://
usaspending.gov.
9 For purposes of these calculations, the average
salaries of $54.95 and $24.76 have been rounded
up.
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17:18 May 04, 2015
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professional, management, and related
occupations. The Commission estimates
that the annual reporting cost related to
compliance with the Contract Standard
is $3250 (100 responses each year ×
$32.50 per response).10
On February 13, 2015, the
Commission published for public
comment a notice of the proposed
Contract Standard, which also included
the notice required under the Paperwork
Reduction Act and allowed the public
60 days to submit comments.11 The
Commission received no comments on
the proposed information collection.
Written comments continue to be
invited on: (a) Whether this collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden imposed by the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid OMB
control number.
Background documentation for this
information collection may be viewed at
the following Web site,
www.reginfo.gov. Please direct general
comments to the following persons: (i)
Desk Officer for the Securities and
Exchange Commission, Office of
Management and Budget, Room 10102,
New Executive Office Building,
Washington, DC 20503 or send an email
to Shagufta Ahmed at Shagufta_
Ahmed@omb.eop.gov; and (ii) Pamela
Dyson, Chief Information Officer,
Securities and Exchange Commission,
c/o Remi Pavlik-Simon, 100 F Street
NE., Washington, DC 20549 or send an
email to: PRA_Mailbox@sec.gov.
Comments must be submitted within 30
days of this notice.
10 The estimates of average burden hours and
associated costs are made solely for the purposes of
the Paperwork Reduction Act and are not derived
from a survey or study of the paperwork burdens
and costs associated with the proposed information
collection.
11 See Contract Standard for Contractor Workforce
Inclusion and Request for Public Comment Release
No. 34–74239 (February 10, 2015), 80 FR 8119
(February 13, 2015).
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25749
Dated: April 29, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015–10398 Filed 5–4–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74833; File No. SR–Phlx–
2015–36]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to the
Phlx Permit Fee, Order Entry Port Fee,
Clearing Trade Interface Port Fee, and
Active Specialized Quote Feed Port
Fee
April 29, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 20,
2015, 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 the
Phlx Pricing Schedule (‘‘Pricing
Schedule’’) at Section VI pertaining to
the Phlx Permit Fee and at Section VII
pertaining to the Order Entry Port Fee,
the Clearing Trade Interface (‘‘CTI’’) Port
Fee, and the Active Specialized Quote
Feed (‘‘SQF’’) Port Fee.3 The Exchange
also proposes technical changes to the
language of the Pricing Schedule.
While the changes proposed herein
are effective upon filing, the Exchange
has designated the amendments become
operative on May 1, 2015.
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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 References in the proposal are to the Exchange’s
Pricing Schedule, unless otherwise noted.
2 17
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Federal Register / Vol. 80, No. 86 / Tuesday, May 5, 2015 / Notices
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
Order Entry Port Fee—Section VII B. of
the Pricing Schedule
1. Purpose
The Exchange proposes to amend the
Exchange’s Pricing Schedule at Section
VI pertaining to the Phlx Permit Fee and
at Section VII pertaining to the Order
Entry Port Fee, the CTI Port Fee, and the
Active SQF Port Fee. The Exchange also
proposes technical changes to the
language of the Pricing Schedule. The
proposed changes are discussed below.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Phlx Permit Fee—Section VI A. of the
Pricing Schedule
The Exchange currently has a Permit
Fee for Phlx members, which is $2,150
for Specialists 4 and Market Makers 5
and $2,150 for Floor Brokers 6 per
month. The Exchange proposes to
increase the Permit Fee for Specialist
and Market Makers, as well as for Floor
Brokers, to $2,300.7
Phlx Permit Fees for all other member
and member organizations are currently
$4,000 in a given month, unless the
member or member organization or
member organizations under Common
Ownership 8 executes at least 100
4 A ‘‘Specialist’’ is an Exchange member who is
registered as an options specialist pursuant to
Exchange Rule 1020(a).
5 A ‘‘Market Maker’’ includes Registered Options
Traders (Exchange Rule 1014(b)(i) and (ii)), which
includes Streaming Quote Traders (Exchange Rule
1014(b)(ii)(A)) and Remote Streaming Quote
Traders (Exchange Rule 1014(b)(ii)(B)).
6 A ‘‘Floor Broker’’ is defined in Exchange Rule
1060 as an individual who is registered with the
Exchange for the purpose, while on the Options
Floor, of accepting and handling options orders
received from members and member organizations.
7 In addition, a member or member organization
will pay an additional Permit Fee for each
sponsored options participant, which fee will be the
Permit Fee that is assessed to the member or
member organization sponsoring the options
participant. See note 16 to section VI A. of the
Pricing Schedule.
8 The term ‘‘Common Ownership’’ means
members or member organizations under 75%
common ownership or control. See Preface to
Pricing Schedule.
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options in a Phlx house account that is
assigned to one of the member
organizations in a given month, in
which case the Permit Fee will be
$2,150 for that month. Commensurate
with the increased Permit Fees for
Specialists, Market Makers, and Floor
Brokers, the Exchange proposes to
increase to $2,300 the Permit Fee for all
other Common Ownership members or
member organizations that execute a
large number of options on the
Exchange.9
The Exchange is seeking to recoup
costs incurred from the membership
administration function while
continuing to encourage bringing
options liquidity to the Exchange.
The Exchange currently has an Order
Entry Port Fee that is $600 per month
per mnemonic.10 The Exchange
proposes to modestly increase the Order
Entry Port Fee to $650 per month per
mnemonic.
The Order Entry Port Fee is a
connectivity fee related to routing
orders to the Exchange via an external
order entry port. Phlx members access
the Exchange’s network through order
entry ports. A Phlx member may have
more than one order entry port. Today,
the Exchange assesses members an
Order Entry Port Fee of $600 per month
per mnemonic. The Exchange proposes
to increase the Order Entry Port Fee to
$650 per month per mnemonic. The
current practice will continue whereby
the Order Entry Port Fee will be waived
for mnemonics that are used exclusively
for Complex Orders 11 where one of the
components of the Complex Order is the
9 No change is proposed to Permit Fees for PSX
only members and member organizations. These
fees would continue to be $4,000 unless the
member or member organization averages at least
1,000 shares executed per day in a given month, in
which case the Permit Fee will be $0.00 in a given
month. This volume will be calculated by averaging
the shares over a one month period. The Exchange
believes 1,000 shares per day in a given month is
a reasonable level given the lower volume of
business transacted on PSX as compared to other
mature equities markets such as The NASDAQ
Stock Market LLC.
10 Mnemonics are codes that identify member
organization order entry ports.
11 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 .07(a)(i).
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underlying security.12 In addition, the
current practice will continue whereby
member organizations are not being
assessed an Order Entry Port Fee for
additional ports acquired for only ten
business days for the purpose of
transitioning technology.13
CTI Port Fees—Section VII B. of the
Pricing Schedule
The Exchange currently has a CTI Port
Fee that is $600 per port per month for
each of the first 5 CTI ports, and $100
per port for each port thereafter. The
Exchange proposes to modestly increase
the CTI Port Fee from $600 to $650 and
to continue to charge a smaller amount
for the subsequent ports in order to
encourage use of CTI ports on the
Exchange.
CTI offers real-time clearing trade
updates. A real-time clearing trade
update is a message that is sent to a
member after an execution has occurred
and contains trade details. The message
containing the trade details is also
simultaneously sent to The Options
Clearing Corporation (‘‘OCC’’). The
trade messages are routed to a member’s
connection containing certain
information. The administrative and
market event messages include, but are
not limited to: System event messages to
communicate operational-related
events; options directory messages to
relay basic option symbol and contract
information for options traded on the
Exchange; complex strategy messages to
relay information for those strategies
traded on the Exchange; trading action
messages to inform market participants
when a specific option or strategy is
halted or released for trading on the
Exchange; and an indicator which
distinguishes electronic and nonelectronically delivered orders. This
information will be available to
members on a real-time basis.14
The Exchange assesses port fees for
similar ports, namely the Order Entry
Ports, CTI Ports and Active SQF Ports,
12 See note 25 to section VII B. of the Pricing
Schedule.
13 Similarly, member organizations will continue
to be required to provide the Exchange with written
notification of the transition and all additional ports
which were provided at no cost will be removed at
the end of the ten business days. See Order Entry
Port Fee in section VII B. of the Pricing Schedule.
14 Other data that is available includes: (1)
Options Auction Notifications (e.g., opening
imbalance, market exhaust, PIXL or other
information); (2) Options Symbol Directory
Messages; (3) System Event Messages (e.g., start of
messages, start of system hours, start of quoting,
start of opening); (4) Complex Order Strategy
Auction Notifications (‘‘COLA’’); (5) Complex Order
Strategy messages; (6) Option Trading Action
Messages (e.g., trading halts, resumption of trading);
and (7) Complex Strategy Trading Action Message
(e.g., trading halts, resumption of trading).
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discussed below. The Exchange desires
to continue assessing the fees on Phlx in
order to recoup costs associated with
these ports while encouraging members
to participate in the market.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Active SQF Port Fee—Section VII B. of
the Pricing Schedule
SQF is an interface that enables
Specialists, Streaming Quote Traders
(‘‘SQTs’’) 15 and Remote Streaming
Quote Traders (‘‘RSQTs’’) 16 to connect
and send quotes into Phlx XL.17 Active
SQF ports are ports that receive inbound
quotes at any time within that month.
Active SQF Ports allow member
organizations to access, information
such as execution reports, execution
report messages, auction notifications,
and administrative data through a single
feed.
Last year, as discussed below, the
Exchange underwent a technology
refresh (‘‘refresh’’ or ‘‘technology
refresh’’), which is completed. During
the technology refresh, Exchange
members had to use old Active SQF
Ports and new Active SQF Ports as these
were being developed, tested, and
implemented. Where the Exchange had
been offering Active SQF Ports in sets
of four to accommodate the connections
necessary to access the match engine, as
a result of the refresh (discussed below)
firms could use fewer ports for a
connection.
To help Exchange members through
the refresh period, the Exchange last
year filed an immediately effective
proposal regarding Active SQF Port Fees
(the ‘‘prior SQF filing’’).18 In the prior
SQF filing, the Exchange added
language into Section VII B. of the
Pricing Schedule to help avoid things
such as double charging during the
refresh transition period (‘‘refresh
accommodation language’’). First,
Section VII B. of the Pricing Schedule
currently states that Specialists and
15 An SQT is defined in Exchange Rule
1014(b)(ii)(A) as a Registered Options Trader
(‘‘ROT’’) who has received permission from the
Exchange to generate and submit option quotations
electronically in options to which such SQT is
assigned.
16 An RSQT is defined in Exchange Rule in
1014(b)(ii)(B) as an ROT that is a member or
member organization with no physical trading floor
presence who has received permission from the
Exchange to generate and submit option quotations
electronically in options to which such RSQT has
been assigned. An RSQT may only submit such
quotations electronically from off the floor of the
Exchange.
17 See Securities Exchange Act Release No. 63034
(October 4, 2010), 75 FR 62441 (October 8, 2010)
(SR-Phlx-2010–124).
18 See Securities Exchange Act Release No. 73687
(November 25, 2014), 79 FR 71485 (December 2,
2014) (SR–Phlx–2014–73) (notice of filing and
immediate effectiveness regarding Active SQF Port
Fee).
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25751
Market Makers that are subject to the
Active SQF Port Fee as of December 1,
2014 will be subject to an Active SQF
Port Fee that reflects the average of fees
assessed to them for the months of
August, September and October 2014
(known as the ‘‘Fixed Active SQF Port
Fee’’). This Fixed Active SQF Port Fee
will be assessed to these Specialists and
Market Makers from December 1, 2014
through March 31, 2015. Second,
Section VII B. of the Pricing Schedule
currently states that Specialists and
Market Makers will not be assessed a fee
for their use of the new version of the
Active SQF Port through March 31,
2015. And third, a Specialist or Market
Maker who was not subject to Fixed
Active SQF Port Fees prior to December
1, 2014 will be provided new ports and
assessed the above [sic] Active SQF Port
Fees as of December 1, 2014. These
instances of the refresh accommodation
language are no longer needed (e.g., the
timing has expired) and are therefore
being deleted.
Currently, Section VII B. of the
Pricing Schedule states that as of April
1, 2015 all Specialists and Market
Makers are subject to the following
tiered Active SQF Port Fee (‘‘variable
Active SQF Port Fee’’):
At the time that the variable Active
SQF Port Fees were put into current
Section VII B. of the Pricing Schedule
during the technology refresh, four ports
were needed to connect to the matching
engine; after the refresh, only one port
is needed. As noted in the prior SQF
filing, the technology refresh was
instituted last year in order that the
Exchange may provide an equal
opportunity to Specialists and Market
Makers to access SQF data at a lower
cost. The goal was to deploy state-ofthe-art hardware and software
architecture for a more efficient and
robust infrastructure that would support
the growing needs of market
participants. The refresh changed the
previously-needed multi-port
connection to the matching engine to
only one port. The functionality did not
change as a result of the concluded
refresh. As the Exchange had
anticipated,21 Specialists and Market
Makers certainly benefitted from the
efficiency of the service that would be
available to them as a result of the
refresh. While Specialists and Market
Makers were required to make network
and other technical changes in order to
connect to the Phlx system via SQF, the
Exchange believes that member costs
Monthly fee
Number of active SQF port
declined overall as a result of the more
per port
efficient connectivity offered by the
1 ............................................
$2,500 refresh.22 During the technology refresh,
2–6 ........................................
4,000 the Exchange provided Specialists and
7 and over ............................
15,000 Market Makers with new SQF ports for
connectivity and functionality testing so
Instead of continuing implementation of that Specialists and Market Makers
the variable Active SQF Port Fees that
could migrate from the old Active SQF
were put into place during the refresh,
Ports to the new Active SQF Ports over
the Exchange proposes to assess
a reasonable period of time.23 As
Specialists and Market Makers an
discussed, during the refresh period the
Active SQF Port Fee of $1,250 per port
Exchange implemented refresh
per month (‘‘Active SQF Port Fee’’).
accommodation language and a variable
This Active SQF Port Fee replaces the
Active SQF Port Fee. The refresh is
variable Active SQF Port Fee and is
successfully completed and the
applicable to all that would be assessed
Exchange is therefore deleting the
for the Active SQF Port.19 Thus, with
refresh accommodation language and
the proposal, the Active SQF Port Fee
would be a set fee of $1,250 per port per the variable Active SQF Port Fee, and
proposing the above-described Active
month, capped at $42,000.20
SQF Port Fee changes. The Exchange
believes, as discussed in more detail
19 The Exchange notes that the variable Active
below, that the Active SQF Port Fee
SQF Fee could, in fact, be more expensive that the
proposed Active SQF Fee. For example, where the
changes, like the Order Entry Port Fee
fixed Active SQF Port Fee for one port per month
would be $1,250, the variable Active SQF Port Fee
(as applicable to Specialists and Market Makers)
would be $2,500; and where the fixed Active SQF
Port Fee for 3 ports per month would be $3,750, the
variable Active SQF Port Fee would be $4,000 per
port.
20 Currently, per note 26 to Section VII of the
Pricing Schedule, the Active SQF Port Fee is
capped at $42,000, but includes language that the
fee is capped at $41,000 per month through March
31, 2015 (‘‘Active SQF Port Fee Cap’’). The
Exchange proposes to delete the unnecessary
language referring to March 31, 2015.
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Fmt 4703
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21 See
prior SQF filing.
discussed, the increased efficiency in
connectivity did not require the same infrastructure
on the part of members to connect to the Exchange;
members have not need to have the same level of
connectivity after the conversion to the new ports
per the refresh, and this has provided an overall
cost reduction.
23 The Exchange migrated on a symbol by symbol
basis thereby requiring the use of both new and old
Active SQF Ports for a period of time. Post refresh
only new ports are utilized.
22 As
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Federal Register / Vol. 80, No. 86 / Tuesday, May 5, 2015 / Notices
and CTI Port Fee changes, are
reasonable.24
In addition, the Exchange proposes
some technical housekeeping changes.
First, the Exchange proposes to delete a
bullet point in note 26 to Section VII B.
of the Pricing Schedule, which is
applicable to the Active SQF Port Fee
section; the bullet point is not
necessary. Second, the Exchange
proposes to fix a typographical error by
adding an ‘‘l’’ in the word ‘‘wil’’ in note
26.
The Exchange proposes to amend the
Phlx Permit Fee, Order Entry Port Fee
and CTI Port Fee. This proposal reflects
a modest price increase to members and
member organizations while allowing
the Exchange to recoup a certain portion
of costs associated with permits and
ports, namely the Order Entry Port and
the CTI Port. The Exchange proposes to
also delete the variable Active SQF Port
Fee that is applicable to Specialists and
Market Makers as of April 1, 2015, and
the refresh accommodation language
that is no longer necessary. The
Exchange believes that the proposed
changes are in conformity with the Act.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,25
in general, and with Section 6(b)(4) and
6(b)(5) of the Act,26 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 the Exchange operates or
controls, and is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The proposal regarding Phlx Permit
Fees allows the Exchange to recoup
costs incurred from the membership
administration function. The proposals
regarding the Order Entry Port Fee and
CTI Port Fee allow the Exchange to
recoup costs associated with these ports
while encouraging members to
participate in the market. The proposals
regarding deleting the variable Active
SQF Port Fee and using the proposed
new Active SQF Port Fee instead,27 and
asabaliauskas on DSK5VPTVN1PROD with NOTICES
24 For
example, just as the Exchange believes that
it was reasonable to allow Specialists and Market
Makers to utilize new ports at no cost for a period
of time to transition their current SQF ports to the
new ports that were offered as a result of the
technology refresh, so the Exchange believes that it
is reasonable to delete such provisions when no
longer needed.
25 15 U.S.C. 78f.
26 15 U.S.C. 78f(b)(4) and (5).
27 The concept of a fixed fee for the Active SQF
Port is not novel. A fixed monthly fee was
previously adopted, for example, in connection
with a specialist unit fee on Phlx. See Securities
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Jkt 235001
deleting the refresh accommodation
language that is no longer necessary, are
made while continuing to encourage
members to bring options liquidity to
the Exchange.
Phlx Permit Fee
The Exchange’s proposal to amend
Phlx Permit Fees is reasonable because
the Exchange is seeking to recoup costs
that are incurred by the Exchange.
The Exchange believes it is reasonable
to assess different market participants
different Permit Fees because each
market participant has a different
business model and, as a result, pays
various other fees to the Exchange to
maintain his or her business. Certain
market participants such as Floor
Brokers, Specialists and Market Makers
pay other types of fees. For example, a
Floor Broker requires space on the
Exchange’s trading floor, and
infrastructure to support floor trading.28
A Specialist and Market Maker will
similarly incur costs for certain data
feeds, remote specialist fees, RSQT Fees
and SQF Port Fees, amongst other
charges.29 Taking into account the
overall costs incurred by Floor Brokers,
Specialists and Market Makers to simply
access and conduct their business on
the Exchange, it is reasonable to assess
these market participants a proposed
Permit Fee of $2,300 (rather than
$2,150) per month as compared to
market participants other than Floor
Brokers, Specialists and Market Makers
(‘‘Other Market Participants’’). The
Exchange believes that it is reasonable
to assess Other Market Participants a
higher Permit Fee of $4,000 in a given
month unless they transact a certain
volume on the Exchange because these
market participants do not incur the
higher costs to conduct their business as
do Floor Brokers, Specialists and Market
Makers. The Exchange also believes that
it is reasonable to provide Other Market
Participants an opportunity to lower
Permit Fees from $4,000 to the same
proposed effective rate of $2,300 (rather
than $2,150) if they transact a certain
volume on Phlx in a given month. The
Exchange believes this volume brings
revenue to the Exchange, which in turn
benefits other market participants
because they are able to interact with
that volume. The Exchange believes that
the continued 100 options threshold in
a given month is an achievable hurdle
for a majority of options participants on
Exchange Act Release No. 48459 (September 8,
2003), 68 FR 54034 (September 15, 2003) (SR–Phlx–
2003–61) (notice of filing and immediate
effectiveness).
28 Floor Brokers are subject to a Floor Facility Fee
in Section VII of the Pricing Schedule.
29 See Section VI and VII of the Pricing Schedule.
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Phlx today, who are capable of meeting
this threshold. Finally, assessing
different Permit Fee rates to different
types of market participants is not novel
among options markets.30
The Exchange’s proposal to amend
Phlx Permit Fees is equitable and not
unfairly discriminatory for the reasons
which follow. The Exchange believes
that continuing to assess Floor Brokers,
Specialists and Market Participants
effectively the same proposed rate of
$2,300 (rather than $2,150) for a Permit
Fee recognizes the overall total fee
structure of these market participants on
Phlx. As mentioned herein, Floor
Brokers, Specialists and Market Makers
incur fees which are not borne by other
market participants.31 The Exchange
believes that the proposed fee structure
recognizes the costs that are incurred by
these market participants in
determining the Permit Fee for Floor
Brokers, Specialists and Market Makers.
The Exchange believes that Floor
Brokers, Specialists and Market Makers
serve an important function on the
Exchange and already pay a significant
portion of the non-transaction fees
assessed by the Exchange today.
Specialists and Market Makers serve an
important role on the Exchange with
regard to order interaction and they
provide liquidity in the marketplace.
Floor Brokers are registered with the
Exchange for the purpose, while on the
options floor, of accepting and
executing options orders received from
members and member organizations.32
These market participants incur greater
costs as compared to Professionals,
Firms and Broker-Dealers because the
type of business they conduct requires
them to incur more cost to access the
Exchange as compared to others. Other
Market Participants (Professionals,
Firms and Broker-Dealers) do not incur
the same fees as Floor Brokers,
Specialists and Market Makers and
therefore, in order to allocate fees, the
Exchange continues to assess these
Other Market Participants an increased
fee of $4,000, unless they are able to
transact at least 100 options in a given
month. The Exchange believes that
30 The Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’), the International Securities
Exchange, LLC (‘‘ISE’’) and Miami International
Securities Exchange LLC (‘‘MIAX’’) assess different
Trading Permit Fees to different market
participants. See CBOE’s Fees Schedule, ISE’s Fee
Schedule and MIAX’s Fee Schedule.
31 Floor Brokers require space on the Exchange’s
trading floor, and infrastructure to support floor
trading. Floor Brokers are subject to a Floor Facility
Fee in Section VII of the Pricing Schedule.
Specialists and Market Makers similarly incur costs
for certain data feeds, remote specialist fees, RSQT
Fees and SQF Port Fees amongst other charges. See,
e.g., Sections VI and VII of the Pricing Schedule.
32 See Exchange Rule 1060.
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assessing Other Market Participants the
higher fee of $4,000 and offering the
opportunity to lower the Permit Fee by
executing a certain amount of volume is
equitable and not unfairly
discriminatory because transacting
volume on Phlx brings liquidity to the
Exchange, which in turn benefits other
market participants. The Exchange
believes that Other Market Participant
members, member organizations and
those under Common Ownership that
add liquidity to the market place also
bring revenue to the Exchange by
incurring transaction fees.
The Exchange believes it is equitable
and not unfairly discriminatory to
assess effectively the same proposed
Permit Fee of $2,300 (rather than
$2,150) to Other Market Participants,
equivalent to the fee assessed on Floor
Brokers, Specialists and Market Makers,
in any given month in which the Other
Market Participants achieve the
requisite volume because of the
liquidity and revenue they bring to
Phlx. The opportunity to lower Permit
Fees affords Other Market Participants
the opportunity to lower their fees by
offering a means to benefit the Exchange
by bringing liquidity to the
marketplace.33
asabaliauskas on DSK5VPTVN1PROD with NOTICES
CTI Port Fee and Order Entry Port Fee
The Exchange’s proposal to amend
CTI Port Fees and Order Entry Port Fees
is reasonable because the Exchange is
seeking to recoup costs that are incurred
by the Exchange.
The Exchange believes that
continuing to assess a CTI Port Fee on
the Exchange at a proposed $650 (rather
that $600) per port per month for each
of the first 5 CTI ports, and $100 per
port for each port thereafter, is
reasonable because it would allow the
Exchange to recoup costs associated
with offering the CTI ports. The
Exchange notes that until recently it had
a Real-Time Risk Management Fee,34
but this fee was deleted in favor of using
Port Fees.35 The Exchange has found
33 As discussed, the Exchange continuation to
assess PSX only members no Permit Fee provided
they transact an average of at least 1,000 shares
executed per day in a given month is reasonable
because the Exchange seeks to continue to attract
market participants to the PSX market by assessing
no fee.
34 The Real-Time Risk Management Fee was
adopted well over a decade ago for members
receiving option trading information on-line (i.e.,
electronically) from the Exchange. See Securities
Exchange Act Release No. 43719 (December 13,
2000), 65 FR 80975 (December 22, 2000) (SR–Phlx–
00–97) (notice of filing and immediate
effectiveness).
35 See Securities Exchange Act Release No. 74000
(January 6, 2015), 80 FR 1570 (January 12, 2015)
(SR–Phlx–2014–83) (notice of filing and immediate
effectiveness).
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Jkt 235001
that the use of Port Fees is an effective
way to recoup costs. This proposal
reflects a modest price increase to
members and member organizations
while allowing the Exchange to recoup
a certain portion of costs associated
with ports, namely the Order Entry Port
and CTI Port. Members and member
organizations will be able to continue to
obtain real-time information via CTI and
SQF as discussed.
As with other port fees in subsection
Section VII B. of the Pricing Schedule,
the CTI Port Fees reflect a portion of the
costs that the Exchange bears with
respect to offering and maintaining the
CTI ports. The CTI Port Fees are
reasonable because they enable the
Exchange to offset, in part, its
connectivity costs associated with
making such ports available, including
costs based on gateway software and
hardware enhancements and resources
dedicated to gateway development,
quality assurance, and support. The
proposal to modestly increase the fees is
reasonable to continue to recoup costs
while encouraging members to connect
to the Exchange.
The Exchange believes that
continuing to assess an Order Entry Port
Fee on the Exchange at a proposed $650
per port per mnemonic is, similarly to
the CTI Port Fee, reasonable because it
would allow the Exchange to recoup
costs associated with offering the Order
Entry Ports. As noted, until recently the
Exchange had a Real-Time Risk
Management Fee that was deleted in
favor of using Port Fees, which the
Exchange has found is an effective way
to recoup costs. This proposal reflects a
modest price increase while allowing
the Exchange to recoup a certain portion
of costs associated with ports, namely
the Order Entry Port and CTI Port.36
Members and member organizations
will be able to continue to obtain realtime information via CTI and SQF.
The Exchange believes that the CTI
Port Fees for the CTI ports at a proposed
$650 per port per month for each of the
first 5 CTI ports, and $100 per port for
each port thereafter, is equitable and not
unfairly discriminatory because the
Exchange will assess the same fees for
all CTI ports to all members.
The Exchange believes that the Order
Entry Fees for the Order Entry Ports at
36 As noted, the current practice will continue
whereby the Order Entry Port Fee will be waived
for mnemonics that are used exclusively for
Complex Orders where one of the components of
the Complex Order is the underlying security.
Similarly, member organizations will continue to be
required to provide the Exchange with written
notification of the transition and all additional ports
which were provided at no cost will be removed at
the end of the ten business days. See note 25 to
section VII B. of the Pricing Schedule.
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25753
a proposed $650 per month per
mnemonic is similarly equitable and not
unfairly discriminatory because the
Exchange will assess the same fees for
all Order Entry Ports to all members.
As with other port fees in Section VII
B. of the Pricing Schedule, the CTI Port
Fee and the Order Entry Port Fee reflect
a portion of the costs that the Exchange
bears with respect to offering and
maintaining the ports; such fees allow
the Exchange to keep pace with
increasing technology costs. These fees
enable the Exchange to offset, in part, its
connectivity costs associated with
making such ports available, including
costs based on gateway software and
hardware enhancements.
Active SQF Port Fee
The Exchange believes that it is
reasonable to delete the variable Active
SQF Port Fees. The variable Active SQF
Port Fees were, as discussed, put into
current Section VII B. of the Pricing
Schedule during the technology refresh
of the Phlx trading system, which,
among other things, allowed the use of
one port to connect to the match engine
as compared to a set of four ports. The
functionality did not change as a result
of the refresh. The Exchange properly
anticipated that Specialists and Market
Makers would benefit from the
efficiency of the service that will be
available to them as a result of the
refresh.37 While Specialists and Market
Makers were required to make network
and other technical changes in order to
connect to the Phlx system via SQF, the
Exchange believes that members costs
declined overall as a result of the more
efficient connectivity offered by the
refresh.38
Currently, as of April 1, 2015,
Specialists and Market Makers are
subject to a variable Active SQF Port
Fee based on the number of active ports
per month as follows: $2,500 for 1 port,
$4,000 for 2–6 ports and $15,000 for 7
or more ports. The Exchange believes
that it is reasonable to delete the
variable Active SQF Port Fee applicable
to Specialists and Market Makers, and
replace it with the proposed $1,250 per
port per month Active SQF Port Fee
applicable to all.39 The Exchange
believes that it is reasonable to assess all
firms the same Active SQF Port Fee as
opposed to a variable fee because, as
37 See
prior SQF filing.
noted, and as discussed in the prior SQF
filing, the increased efficiency in connectivity did
not require the same infrastructure on the part of
members to connect to the Exchange; members did
not need to have the same level of connectivity after
the conversion to the new ports and this provided
an overall cost reduction.
39 The Active SQF Port Fee is capped at $42,000.
38 As
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discussed, the variable Active SQF Port
Fee could, in fact, be more expensive.40
The Exchange believes it is equitable
and not unfairly discriminatory to
delete the variable Active SQF Port Fee,
and replace it with the proposed Active
SQF Port Fee because all Specialists and
Market Makers would be subject to the
same Active SQF Port Fee.
Because of the technology refresh, the
Exchange added refresh accommodation
language into Section VII B. of the
Pricing Schedule to avoid double
charging and to enable firms to get
through the refresh transition period.41
Because the refresh is now completed
and the refresh accommodation
language is no longer needed, the
Exchange believes that it is reasonable
to delete the refresh accommodation
language. The Exchange believes that
just as it was reasonable to allow
Specialists and Market Makers to utilize
new ports at no cost for a period of time
to transition their current SQF ports to
the new ports that were offered as a
result of the technology refresh, so it is
reasonable to delete such provisions
when no longer needed. In order to ease
the transition during the refresh from
the old SQF ports to new SQF ports,
Specialists and Market Makers were
given an extended period to test
functionality and connectivity and
resolve any issues that may arise during
the testing phase with the new ports.
With the refresh completed, and
because of the time periods in the
refresh accommodation language as
discussed, there is no longer any need
for the language and the Exchange
believes that it is reasonable to delete it.
The Exchange believes that deletion
of the refresh accommodation language
is equitable and not unfairly
discriminatory because with the deleted
refresh accommodation language, the
asabaliauskas on DSK5VPTVN1PROD with NOTICES
40 For
example, where the fixed Active SQF Port
Fee for one port per month would be $1,250, the
variable Active SQF Port Fee (as applicable to
Specialists and Market Makers) would be $2,500;
and where the fixed Active SQF Port Fee for 3 ports
per month would be $3,750, the variable Active
SQF Port Fee would be $4,000 per port.
41 The refresh accommodation language in
Section VII B. of the Pricing Schedule states that
Specialists and Market Makers that are subject to
the Active SQF Port Fee as of December 1, 2014 will
be subject to an Active SQF Port Fee that reflects
the average of fees assessed to them for the months
of August, September and October 2014. This Fixed
Active SQF Port Fee will be assessed to these
Specialists and Market Makers from December 1,
2014 through March 31, 2015. Specialists and
Market Makers will not be assessed a fee for their
use of the new version of the Active SQF Port
through March 31, 2015. In addition, a Specialist
or Market Maker who was not subject to Fixed
Active SQF Port Fees prior to December 1, 2014
will be provided new ports and assessed the above
Active SQF Port Fees as of December 1, 2014. See
also prior SQF filing.
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17:18 May 04, 2015
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Exchange will assess all current users of
Active SQF Ports a fee based on the
same criteria.
Currently, per note 26 to Section VII
of the Pricing Schedule, the Active SQF
Port Fee is capped at $42,000, but
includes language that the fee is capped
at $41,000 per month through March 31,
2015. The Exchange proposes to delete
the unnecessary language referring to
March 31, 2015. The Exchange believes
that this is reasonable because the
$42,000 Active SQF Port Fee Cap is
currently in effect and the Exchange is
just taking the unneeded language out
the Active SQF Port Fee Cap provision.
The Exchange believes that deleting
the unnecessary language referring to
March 31, 2015 is equitable and not
unfairly discriminatory because the
Exchange is simply cleaning up the
language and will apply the Active SQF
Port Fee Cap to all Specialists and
Market Makers uniformly.
Finally, the Exchange proposes two
technical housekeeping changes. First,
the Exchange proposes to delete a bullet
point in note 26 to Section VII of the
Pricing Schedule, which is applicable to
the Active SQF Port Fee section; the
bullet point is not necessary. Second,
the Exchange proposes to fix a
typographical error by adding an ‘‘l’’ in
the word ‘‘wil’’ in note 26; the word is
misspelled. The Exchange believes that
the changes are reasonable because they
will delete unneeded language and
clarify it.
The Exchange believes that the
technical housekeeping changes are
equitable and not unfairly
discriminatory because the Exchange
will apply them equally per the Pricing
Schedule.
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 offering
Specialists and Market Makers the
opportunity to utilize certain Active
SQF ports, during this transition with
XL, at no cost ensured that the
transition was done smoothly.
Specialists and Market Makers
continued to be assessed the Active SQF
Port Fees for current ports at a rate that
is representative of their typical usage.
The Exchange allowed these market
participants to utilize new ports at no
cost without limit. As discussed, the
Exchange used certain refresh
accommodation language to help the
refresh go forward. The Exchange
believes that deletion of these unneeded
PO 00000
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Fmt 4703
Sfmt 4703
provisions will not impose an undue
burden on competition. Similarly, the
modest proposed increases in fees and
establishing that all are liable for the
proposed Active SQF Port Fee will not
impose an undue burden on
competition. Moreover, deleting the
unnecessary language that the Active
SQF Port Fee is capped at $41,000 per
month through March 31, 2015 will not
impose an undue burden on
competition because the Active SQF
Port Fee is already capped at $42,000
per month and the Exchange is merely
taking out the unneeded language;
moreover, the Active SQF Port Fee Cap
would be applied uniformly to all
market participants. Finally, the CTI
Port Fee and the Order Entry Port Fee
reflect a portion of the costs that the
Exchange bears with respect to offering
and maintaining the Order Entry Ports.
Such fees allow the Exchange to keep
pace with increasing technology costs,
and will not impose an undue burden
on competition because the fees would
be applied uniformly to 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 above-described fees that are
assessed by the Exchange (as also the
rebates paid by the Exchange) 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.42 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
42 15
E:\FR\FM\05MYN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
05MYN1
Federal Register / Vol. 80, No. 86 / Tuesday, May 5, 2015 / Notices
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:
asabaliauskas on DSK5VPTVN1PROD with NOTICES
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–2015–36 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–2015–36. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2015–36, and should be submitted on or
before May 26, 2015.
VerDate Sep<11>2014
17:18 May 04, 2015
Jkt 235001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
Brent J. Fields,
Secretary.
[FR Doc. 2015–10403 Filed 5–4–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74840; File No. SR–
NYSEMKT–2015–31]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Modifying Its Rules To
Provide for the Use of Ports That
Provide Connectivity to the
Exchange’s Trading Systems Solely
for the Cancellation or ‘‘Takedown’’ of
Quotes and Changes to the NYSE
Amex Options Fee Schedule Related to
This Quote Takedown Service
April 29, 2015.
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 April 17,
2015, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which have been prepared by the
self-regulatory 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 Exchange proposes to modify its
rules to provide for the use of ports that
provide connectivity to the Exchange’s
trading systems solely for the
cancellation or ‘‘takedown’’ of quotes. In
addition, the proposed rule change
reflects changes to the NYSE Amex
Options Fee Schedule (‘‘Fee Schedule’’)
related to this quote takedown service.
The text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
43 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
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25755
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 those 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 parts 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 modify its
rules to provide for the use of ports that
provide connectivity to the Exchange’s
trading systems solely for the
cancellation or ‘‘takedown’’ of quotes. In
addition, the proposed rule change
reflects changes to the Fee Schedule
related to this quote takedown service.
Order/Quote Entry Ports
The Exchange currently makes
available to ATP Holders order/quote
entry ports for connectivity to Exchange
trading systems (each an ‘‘order/quote
entry port’’). ATP Holders may be
authorized to utilize order/quote entry
ports for option activity on NYSE Amex
Options and incur monthly Port Fees.
Currently, the Exchange charges $450
per month, per order/quote entry port
for the first 40 ports and $150 per
month, per order/quote entry port for
any additional ports in excess of 40 (i.e.,
ports 41 and greater).4
While order/quote entry ports may be
used by ATP Holders registered as
Market Makers to both enter and cancel
or remove quotes, Market Makers may
dedicate certain ports solely to the
removal of quotes, i.e., a ‘‘quote
takedown port,’’ 5 and, until now, the
4 See Fee Schedule, available at, https://
www.nyse.com/publicdocs/nyse/markets/amexoptions/NYSE_Amex_Options_Fee_Schedule.pdf.
Unutilized order/quote entry ports that connect to
the Exchange via its backup datacenter are
considered established for backup purposes and are
not subject to Port Fees. In addition, for purpose of
calculating the number of order/quote entry ports,
the Exchange shall aggregate the ports of Affiliates.
See id.
5 See Trader Update regarding Options Pre-Trade
and Post-Trade Risk Controls, available at, https://
www.nyse.com/publicdocs/nyse/markets/amexoptions/US_Options_Risk_Controls_Client_
Document.pdf (announcing availability of ports
dedicated to quote takedown to minimize latency
for quote takedowns).
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]]>Agencies
[Federal Register Volume 80, Number 86 (Tuesday, May 5, 2015)]
[Notices]
[Pages 25749-25755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10403]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74833; File No. SR-Phlx-2015-36]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Phlx Permit Fee, Order Entry Port Fee, Clearing Trade Interface
Port Fee, and Active Specialized Quote Feed Port Fee
April 29, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 20, 2015, 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 the Phlx Pricing Schedule (``Pricing
Schedule'') at Section VI pertaining to the Phlx Permit Fee and at
Section VII pertaining to the Order Entry Port Fee, the Clearing Trade
Interface (``CTI'') Port Fee, and the Active Specialized Quote Feed
(``SQF'') Port Fee.\3\ The Exchange also proposes technical changes to
the language of the Pricing Schedule.
---------------------------------------------------------------------------
\3\ References in the proposal are to the Exchange's Pricing
Schedule, unless otherwise noted.
---------------------------------------------------------------------------
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on May 1, 2015.
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.
[[Page 25750]]
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 the Exchange's Pricing Schedule at
Section VI pertaining to the Phlx Permit Fee and at Section VII
pertaining to the Order Entry Port Fee, the CTI Port Fee, and the
Active SQF Port Fee. The Exchange also proposes technical changes to
the language of the Pricing Schedule. The proposed changes are
discussed below.
Phlx Permit Fee--Section VI A. of the Pricing Schedule
The Exchange currently has a Permit Fee for Phlx members, which is
$2,150 for Specialists \4\ and Market Makers \5\ and $2,150 for Floor
Brokers \6\ per month. The Exchange proposes to increase the Permit Fee
for Specialist and Market Makers, as well as for Floor Brokers, to
$2,300.\7\
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\4\ A ``Specialist'' is an Exchange member who is registered as
an options specialist pursuant to Exchange Rule 1020(a).
\5\ A ``Market Maker'' includes Registered Options Traders
(Exchange Rule 1014(b)(i) and (ii)), which includes Streaming Quote
Traders (Exchange Rule 1014(b)(ii)(A)) and Remote Streaming Quote
Traders (Exchange Rule 1014(b)(ii)(B)).
\6\ A ``Floor Broker'' is defined in Exchange Rule 1060 as an
individual who is registered with the Exchange for the purpose,
while on the Options Floor, of accepting and handling options orders
received from members and member organizations.
\7\ In addition, a member or member organization will pay an
additional Permit Fee for each sponsored options participant, which
fee will be the Permit Fee that is assessed to the member or member
organization sponsoring the options participant. See note 16 to
section VI A. of the Pricing Schedule.
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Phlx Permit Fees for all other member and member organizations are
currently $4,000 in a given month, unless the member or member
organization or member organizations under Common Ownership \8\
executes at least 100 options in a Phlx house account that is assigned
to one of the member organizations in a given month, in which case the
Permit Fee will be $2,150 for that month. Commensurate with the
increased Permit Fees for Specialists, Market Makers, and Floor
Brokers, the Exchange proposes to increase to $2,300 the Permit Fee for
all other Common Ownership members or member organizations that execute
a large number of options on the Exchange.\9\
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\8\ The term ``Common Ownership'' means members or member
organizations under 75% common ownership or control. See Preface to
Pricing Schedule.
\9\ No change is proposed to Permit Fees for PSX only members
and member organizations. These fees would continue to be $4,000
unless the member or member organization averages at least 1,000
shares executed per day in a given month, in which case the Permit
Fee will be $0.00 in a given month. This volume will be calculated
by averaging the shares over a one month period. The Exchange
believes 1,000 shares per day in a given month is a reasonable level
given the lower volume of business transacted on PSX as compared to
other mature equities markets such as The NASDAQ Stock Market LLC.
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The Exchange is seeking to recoup costs incurred from the
membership administration function while continuing to encourage
bringing options liquidity to the Exchange.
Order Entry Port Fee--Section VII B. of the Pricing Schedule
The Exchange currently has an Order Entry Port Fee that is $600 per
month per mnemonic.\10\ The Exchange proposes to modestly increase the
Order Entry Port Fee to $650 per month per mnemonic.
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\10\ Mnemonics are codes that identify member organization order
entry ports.
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The Order Entry Port Fee is a connectivity fee related to routing
orders to the Exchange via an external order entry port. Phlx members
access the Exchange's network through order entry ports. A Phlx member
may have more than one order entry port. Today, the Exchange assesses
members an Order Entry Port Fee of $600 per month per mnemonic. The
Exchange proposes to increase the Order Entry Port Fee to $650 per
month per mnemonic. The current practice will continue whereby the
Order Entry Port Fee will be waived for mnemonics that are used
exclusively for Complex Orders \11\ where one of the components of the
Complex Order is the underlying security.\12\ In addition, the current
practice will continue whereby member organizations are not being
assessed an Order Entry Port Fee for additional ports acquired for only
ten business days for the purpose of transitioning technology.\13\
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\11\ 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 .07(a)(i).
\12\ See note 25 to section VII B. of the Pricing Schedule.
\13\ Similarly, member organizations will continue to be
required to provide the Exchange with written notification of the
transition and all additional ports which were provided at no cost
will be removed at the end of the ten business days. See Order Entry
Port Fee in section VII B. of the Pricing Schedule.
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CTI Port Fees--Section VII B. of the Pricing Schedule
The Exchange currently has a CTI Port Fee that is $600 per port per
month for each of the first 5 CTI ports, and $100 per port for each
port thereafter. The Exchange proposes to modestly increase the CTI
Port Fee from $600 to $650 and to continue to charge a smaller amount
for the subsequent ports in order to encourage use of CTI ports on the
Exchange.
CTI offers real-time clearing trade updates. A real-time clearing
trade update is a message that is sent to a member after an execution
has occurred and contains trade details. The message containing the
trade details is also simultaneously sent to The Options Clearing
Corporation (``OCC''). The trade messages are routed to a member's
connection containing certain information. The administrative and
market event messages include, but are not limited to: System event
messages to communicate operational-related events; options directory
messages to relay basic option symbol and contract information for
options traded on the Exchange; complex strategy messages to relay
information for those strategies traded on the Exchange; trading action
messages to inform market participants when a specific option or
strategy is halted or released for trading on the Exchange; and an
indicator which distinguishes electronic and non-electronically
delivered orders. This information will be available to members on a
real-time basis.\14\
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\14\ Other data that is available includes: (1) Options Auction
Notifications (e.g., opening imbalance, market exhaust, PIXL or
other information); (2) Options Symbol Directory Messages; (3)
System Event Messages (e.g., start of messages, start of system
hours, start of quoting, start of opening); (4) Complex Order
Strategy Auction Notifications (``COLA''); (5) Complex Order
Strategy messages; (6) Option Trading Action Messages (e.g., trading
halts, resumption of trading); and (7) Complex Strategy Trading
Action Message (e.g., trading halts, resumption of trading).
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The Exchange assesses port fees for similar ports, namely the Order
Entry Ports, CTI Ports and Active SQF Ports,
[[Page 25751]]
discussed below. The Exchange desires to continue assessing the fees on
Phlx in order to recoup costs associated with these ports while
encouraging members to participate in the market.
Active SQF Port Fee--Section VII B. of the Pricing Schedule
SQF is an interface that enables Specialists, Streaming Quote
Traders (``SQTs'') \15\ and Remote Streaming Quote Traders (``RSQTs'')
\16\ to connect and send quotes into Phlx XL.\17\ Active SQF ports are
ports that receive inbound quotes at any time within that month. Active
SQF Ports allow member organizations to access, information such as
execution reports, execution report messages, auction notifications,
and administrative data through a single feed.
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\15\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as a
Registered Options Trader (``ROT'') who has received permission from
the Exchange to generate and submit option quotations electronically
in options to which such SQT is assigned.
\16\ An RSQT is defined in Exchange Rule in 1014(b)(ii)(B) as an
ROT that is a member or member organization with no physical trading
floor presence who has received permission from the Exchange to
generate and submit option quotations electronically in options to
which such RSQT has been assigned. An RSQT may only submit such
quotations electronically from off the floor of the Exchange.
\17\ See Securities Exchange Act Release No. 63034 (October 4,
2010), 75 FR 62441 (October 8, 2010) (SR-Phlx-2010-124).
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Last year, as discussed below, the Exchange underwent a technology
refresh (``refresh'' or ``technology refresh''), which is completed.
During the technology refresh, Exchange members had to use old Active
SQF Ports and new Active SQF Ports as these were being developed,
tested, and implemented. Where the Exchange had been offering Active
SQF Ports in sets of four to accommodate the connections necessary to
access the match engine, as a result of the refresh (discussed below)
firms could use fewer ports for a connection.
To help Exchange members through the refresh period, the Exchange
last year filed an immediately effective proposal regarding Active SQF
Port Fees (the ``prior SQF filing'').\18\ In the prior SQF filing, the
Exchange added language into Section VII B. of the Pricing Schedule to
help avoid things such as double charging during the refresh transition
period (``refresh accommodation language''). First, Section VII B. of
the Pricing Schedule currently states that Specialists and Market
Makers that are subject to the Active SQF Port Fee as of December 1,
2014 will be subject to an Active SQF Port Fee that reflects the
average of fees assessed to them for the months of August, September
and October 2014 (known as the ``Fixed Active SQF Port Fee''). This
Fixed Active SQF Port Fee will be assessed to these Specialists and
Market Makers from December 1, 2014 through March 31, 2015. Second,
Section VII B. of the Pricing Schedule currently states that
Specialists and Market Makers will not be assessed a fee for their use
of the new version of the Active SQF Port through March 31, 2015. And
third, a Specialist or Market Maker who was not subject to Fixed Active
SQF Port Fees prior to December 1, 2014 will be provided new ports and
assessed the above [sic] Active SQF Port Fees as of December 1, 2014.
These instances of the refresh accommodation language are no longer
needed (e.g., the timing has expired) and are therefore being deleted.
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\18\ See Securities Exchange Act Release No. 73687 (November 25,
2014), 79 FR 71485 (December 2, 2014) (SR-Phlx-2014-73) (notice of
filing and immediate effectiveness regarding Active SQF Port Fee).
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Currently, Section VII B. of the Pricing Schedule states that as of
April 1, 2015 all Specialists and Market Makers are subject to the
following tiered Active SQF Port Fee (``variable Active SQF Port
Fee''):
------------------------------------------------------------------------
Monthly fee
Number of active SQF port per port
------------------------------------------------------------------------
1....................................................... $2,500
2-6..................................................... 4,000
7 and over.............................................. 15,000
------------------------------------------------------------------------
Instead of continuing implementation of the variable Active SQF Port
Fees that were put into place during the refresh, the Exchange proposes
to assess Specialists and Market Makers an Active SQF Port Fee of
$1,250 per port per month (``Active SQF Port Fee''). This Active SQF
Port Fee replaces the variable Active SQF Port Fee and is applicable to
all that would be assessed for the Active SQF Port.\19\ Thus, with the
proposal, the Active SQF Port Fee would be a set fee of $1,250 per port
per month, capped at $42,000.\20\
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\19\ The Exchange notes that the variable Active SQF Fee could,
in fact, be more expensive that the proposed Active SQF Fee. For
example, where the fixed Active SQF Port Fee for one port per month
would be $1,250, the variable Active SQF Port Fee (as applicable to
Specialists and Market Makers) would be $2,500; and where the fixed
Active SQF Port Fee for 3 ports per month would be $3,750, the
variable Active SQF Port Fee would be $4,000 per port.
\20\ Currently, per note 26 to Section VII of the Pricing
Schedule, the Active SQF Port Fee is capped at $42,000, but includes
language that the fee is capped at $41,000 per month through March
31, 2015 (``Active SQF Port Fee Cap''). The Exchange proposes to
delete the unnecessary language referring to March 31, 2015.
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At the time that the variable Active SQF Port Fees were put into
current Section VII B. of the Pricing Schedule during the technology
refresh, four ports were needed to connect to the matching engine;
after the refresh, only one port is needed. As noted in the prior SQF
filing, the technology refresh was instituted last year in order that
the Exchange may provide an equal opportunity to Specialists and Market
Makers to access SQF data at a lower cost. The goal was to deploy
state-of-the-art hardware and software architecture for a more
efficient and robust infrastructure that would support the growing
needs of market participants. The refresh changed the previously-needed
multi-port connection to the matching engine to only one port. The
functionality did not change as a result of the concluded refresh. As
the Exchange had anticipated,\21\ Specialists and Market Makers
certainly benefitted from the efficiency of the service that would be
available to them as a result of the refresh. While Specialists and
Market Makers were required to make network and other technical changes
in order to connect to the Phlx system via SQF, the Exchange believes
that member costs declined overall as a result of the more efficient
connectivity offered by the refresh.\22\ During the technology refresh,
the Exchange provided Specialists and Market Makers with new SQF ports
for connectivity and functionality testing so that Specialists and
Market Makers could migrate from the old Active SQF Ports to the new
Active SQF Ports over a reasonable period of time.\23\ As discussed,
during the refresh period the Exchange implemented refresh
accommodation language and a variable Active SQF Port Fee. The refresh
is successfully completed and the Exchange is therefore deleting the
refresh accommodation language and the variable Active SQF Port Fee,
and proposing the above-described Active SQF Port Fee changes. The
Exchange believes, as discussed in more detail below, that the Active
SQF Port Fee changes, like the Order Entry Port Fee
[[Page 25752]]
and CTI Port Fee changes, are reasonable.\24\
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\21\ See prior SQF filing.
\22\ As discussed, the increased efficiency in connectivity did
not require the same infrastructure on the part of members to
connect to the Exchange; members have not need to have the same
level of connectivity after the conversion to the new ports per the
refresh, and this has provided an overall cost reduction.
\23\ The Exchange migrated on a symbol by symbol basis thereby
requiring the use of both new and old Active SQF Ports for a period
of time. Post refresh only new ports are utilized.
\24\ For example, just as the Exchange believes that it was
reasonable to allow Specialists and Market Makers to utilize new
ports at no cost for a period of time to transition their current
SQF ports to the new ports that were offered as a result of the
technology refresh, so the Exchange believes that it is reasonable
to delete such provisions when no longer needed.
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In addition, the Exchange proposes some technical housekeeping
changes. First, the Exchange proposes to delete a bullet point in note
26 to Section VII B. of the Pricing Schedule, which is applicable to
the Active SQF Port Fee section; the bullet point is not necessary.
Second, the Exchange proposes to fix a typographical error by adding an
``l'' in the word ``wil'' in note 26.
The Exchange proposes to amend the Phlx Permit Fee, Order Entry
Port Fee and CTI Port Fee. This proposal reflects a modest price
increase to members and member organizations while allowing the
Exchange to recoup a certain portion of costs associated with permits
and ports, namely the Order Entry Port and the CTI Port. The Exchange
proposes to also delete the variable Active SQF Port Fee that is
applicable to Specialists and Market Makers as of April 1, 2015, and
the refresh accommodation language that is no longer necessary. The
Exchange believes that the proposed changes are in conformity with the
Act.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\25\ in general, and with
Section 6(b)(4) and 6(b)(5) of the Act,\26\ 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 the Exchange operates or controls, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The proposal regarding Phlx Permit Fees allows the
Exchange to recoup costs incurred from the membership administration
function. The proposals regarding the Order Entry Port Fee and CTI Port
Fee allow the Exchange to recoup costs associated with these ports
while encouraging members to participate in the market. The proposals
regarding deleting the variable Active SQF Port Fee and using the
proposed new Active SQF Port Fee instead,\27\ and deleting the refresh
accommodation language that is no longer necessary, are made while
continuing to encourage members to bring options liquidity to the
Exchange.
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\25\ 15 U.S.C. 78f.
\26\ 15 U.S.C. 78f(b)(4) and (5).
\27\ The concept of a fixed fee for the Active SQF Port is not
novel. A fixed monthly fee was previously adopted, for example, in
connection with a specialist unit fee on Phlx. See Securities
Exchange Act Release No. 48459 (September 8, 2003), 68 FR 54034
(September 15, 2003) (SR-Phlx-2003-61) (notice of filing and
immediate effectiveness).
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Phlx Permit Fee
The Exchange's proposal to amend Phlx Permit Fees is reasonable
because the Exchange is seeking to recoup costs that are incurred by
the Exchange.
The Exchange believes it is reasonable to assess different market
participants different Permit Fees because each market participant has
a different business model and, as a result, pays various other fees to
the Exchange to maintain his or her business. Certain market
participants such as Floor Brokers, Specialists and Market Makers pay
other types of fees. For example, a Floor Broker requires space on the
Exchange's trading floor, and infrastructure to support floor
trading.\28\ A Specialist and Market Maker will similarly incur costs
for certain data feeds, remote specialist fees, RSQT Fees and SQF Port
Fees, amongst other charges.\29\ Taking into account the overall costs
incurred by Floor Brokers, Specialists and Market Makers to simply
access and conduct their business on the Exchange, it is reasonable to
assess these market participants a proposed Permit Fee of $2,300
(rather than $2,150) per month as compared to market participants other
than Floor Brokers, Specialists and Market Makers (``Other Market
Participants''). The Exchange believes that it is reasonable to assess
Other Market Participants a higher Permit Fee of $4,000 in a given
month unless they transact a certain volume on the Exchange because
these market participants do not incur the higher costs to conduct
their business as do Floor Brokers, Specialists and Market Makers. The
Exchange also believes that it is reasonable to provide Other Market
Participants an opportunity to lower Permit Fees from $4,000 to the
same proposed effective rate of $2,300 (rather than $2,150) if they
transact a certain volume on Phlx in a given month. The Exchange
believes this volume brings revenue to the Exchange, which in turn
benefits other market participants because they are able to interact
with that volume. The Exchange believes that the continued 100 options
threshold in a given month is an achievable hurdle for a majority of
options participants on Phlx today, who are capable of meeting this
threshold. Finally, assessing different Permit Fee rates to different
types of market participants is not novel among options markets.\30\
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\28\ Floor Brokers are subject to a Floor Facility Fee in
Section VII of the Pricing Schedule.
\29\ See Section VI and VII of the Pricing Schedule.
\30\ The Chicago Board Options Exchange, Incorporated
(``CBOE''), the International Securities Exchange, LLC (``ISE'') and
Miami International Securities Exchange LLC (``MIAX'') assess
different Trading Permit Fees to different market participants. See
CBOE's Fees Schedule, ISE's Fee Schedule and MIAX's Fee Schedule.
---------------------------------------------------------------------------
The Exchange's proposal to amend Phlx Permit Fees is equitable and
not unfairly discriminatory for the reasons which follow. The Exchange
believes that continuing to assess Floor Brokers, Specialists and
Market Participants effectively the same proposed rate of $2,300
(rather than $2,150) for a Permit Fee recognizes the overall total fee
structure of these market participants on Phlx. As mentioned herein,
Floor Brokers, Specialists and Market Makers incur fees which are not
borne by other market participants.\31\ The Exchange believes that the
proposed fee structure recognizes the costs that are incurred by these
market participants in determining the Permit Fee for Floor Brokers,
Specialists and Market Makers. The Exchange believes that Floor
Brokers, Specialists and Market Makers serve an important function on
the Exchange and already pay a significant portion of the non-
transaction fees assessed by the Exchange today. Specialists and Market
Makers serve an important role on the Exchange with regard to order
interaction and they provide liquidity in the marketplace. Floor
Brokers are registered with the Exchange for the purpose, while on the
options floor, of accepting and executing options orders received from
members and member organizations.\32\ These market participants incur
greater costs as compared to Professionals, Firms and Broker-Dealers
because the type of business they conduct requires them to incur more
cost to access the Exchange as compared to others. Other Market
Participants (Professionals, Firms and Broker-Dealers) do not incur the
same fees as Floor Brokers, Specialists and Market Makers and
therefore, in order to allocate fees, the Exchange continues to assess
these Other Market Participants an increased fee of $4,000, unless they
are able to transact at least 100 options in a given month. The
Exchange believes that
[[Page 25753]]
assessing Other Market Participants the higher fee of $4,000 and
offering the opportunity to lower the Permit Fee by executing a certain
amount of volume is equitable and not unfairly discriminatory because
transacting volume on Phlx brings liquidity to the Exchange, which in
turn benefits other market participants. The Exchange believes that
Other Market Participant members, member organizations and those under
Common Ownership that add liquidity to the market place also bring
revenue to the Exchange by incurring transaction fees.
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\31\ Floor Brokers require space on the Exchange's trading
floor, and infrastructure to support floor trading. Floor Brokers
are subject to a Floor Facility Fee in Section VII of the Pricing
Schedule. Specialists and Market Makers similarly incur costs for
certain data feeds, remote specialist fees, RSQT Fees and SQF Port
Fees amongst other charges. See, e.g., Sections VI and VII of the
Pricing Schedule.
\32\ See Exchange Rule 1060.
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The Exchange believes it is equitable and not unfairly
discriminatory to assess effectively the same proposed Permit Fee of
$2,300 (rather than $2,150) to Other Market Participants, equivalent to
the fee assessed on Floor Brokers, Specialists and Market Makers, in
any given month in which the Other Market Participants achieve the
requisite volume because of the liquidity and revenue they bring to
Phlx. The opportunity to lower Permit Fees affords Other Market
Participants the opportunity to lower their fees by offering a means to
benefit the Exchange by bringing liquidity to the marketplace.\33\
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\33\ As discussed, the Exchange continuation to assess PSX only
members no Permit Fee provided they transact an average of at least
1,000 shares executed per day in a given month is reasonable because
the Exchange seeks to continue to attract market participants to the
PSX market by assessing no fee.
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CTI Port Fee and Order Entry Port Fee
The Exchange's proposal to amend CTI Port Fees and Order Entry Port
Fees is reasonable because the Exchange is seeking to recoup costs that
are incurred by the Exchange.
The Exchange believes that continuing to assess a CTI Port Fee on
the Exchange at a proposed $650 (rather that $600) per port per month
for each of the first 5 CTI ports, and $100 per port for each port
thereafter, is reasonable because it would allow the Exchange to recoup
costs associated with offering the CTI ports. The Exchange notes that
until recently it had a Real-Time Risk Management Fee,\34\ but this fee
was deleted in favor of using Port Fees.\35\ The Exchange has found
that the use of Port Fees is an effective way to recoup costs. This
proposal reflects a modest price increase to members and member
organizations while allowing the Exchange to recoup a certain portion
of costs associated with ports, namely the Order Entry Port and CTI
Port. Members and member organizations will be able to continue to
obtain real-time information via CTI and SQF as discussed.
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\34\ The Real-Time Risk Management Fee was adopted well over a
decade ago for members receiving option trading information on-line
(i.e., electronically) from the Exchange. See Securities Exchange
Act Release No. 43719 (December 13, 2000), 65 FR 80975 (December 22,
2000) (SR-Phlx-00-97) (notice of filing and immediate
effectiveness).
\35\ See Securities Exchange Act Release No. 74000 (January 6,
2015), 80 FR 1570 (January 12, 2015) (SR-Phlx-2014-83) (notice of
filing and immediate effectiveness).
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As with other port fees in subsection Section VII B. of the Pricing
Schedule, the CTI Port Fees reflect a portion of the costs that the
Exchange bears with respect to offering and maintaining the CTI ports.
The CTI Port Fees are reasonable because they enable the Exchange to
offset, in part, its connectivity costs associated with making such
ports available, including costs based on gateway software and hardware
enhancements and resources dedicated to gateway development, quality
assurance, and support. The proposal to modestly increase the fees is
reasonable to continue to recoup costs while encouraging members to
connect to the Exchange.
The Exchange believes that continuing to assess an Order Entry Port
Fee on the Exchange at a proposed $650 per port per mnemonic is,
similarly to the CTI Port Fee, reasonable because it would allow the
Exchange to recoup costs associated with offering the Order Entry
Ports. As noted, until recently the Exchange had a Real-Time Risk
Management Fee that was deleted in favor of using Port Fees, which the
Exchange has found is an effective way to recoup costs. This proposal
reflects a modest price increase while allowing the Exchange to recoup
a certain portion of costs associated with ports, namely the Order
Entry Port and CTI Port.\36\ Members and member organizations will be
able to continue to obtain real-time information via CTI and SQF.
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\36\ As noted, the current practice will continue whereby the
Order Entry Port Fee will be waived for mnemonics that are used
exclusively for Complex Orders where one of the components of the
Complex Order is the underlying security. Similarly, member
organizations will continue to be required to provide the Exchange
with written notification of the transition and all additional ports
which were provided at no cost will be removed at the end of the ten
business days. See note 25 to section VII B. of the Pricing
Schedule.
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The Exchange believes that the CTI Port Fees for the CTI ports at a
proposed $650 per port per month for each of the first 5 CTI ports, and
$100 per port for each port thereafter, is equitable and not unfairly
discriminatory because the Exchange will assess the same fees for all
CTI ports to all members.
The Exchange believes that the Order Entry Fees for the Order Entry
Ports at a proposed $650 per month per mnemonic is similarly equitable
and not unfairly discriminatory because the Exchange will assess the
same fees for all Order Entry Ports to all members.
As with other port fees in Section VII B. of the Pricing Schedule,
the CTI Port Fee and the Order Entry Port Fee reflect a portion of the
costs that the Exchange bears with respect to offering and maintaining
the ports; such fees allow the Exchange to keep pace with increasing
technology costs. These fees enable the Exchange to offset, in part,
its connectivity costs associated with making such ports available,
including costs based on gateway software and hardware enhancements.
Active SQF Port Fee
The Exchange believes that it is reasonable to delete the variable
Active SQF Port Fees. The variable Active SQF Port Fees were, as
discussed, put into current Section VII B. of the Pricing Schedule
during the technology refresh of the Phlx trading system, which, among
other things, allowed the use of one port to connect to the match
engine as compared to a set of four ports. The functionality did not
change as a result of the refresh. The Exchange properly anticipated
that Specialists and Market Makers would benefit from the efficiency of
the service that will be available to them as a result of the
refresh.\37\ While Specialists and Market Makers were required to make
network and other technical changes in order to connect to the Phlx
system via SQF, the Exchange believes that members costs declined
overall as a result of the more efficient connectivity offered by the
refresh.\38\
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\37\ See prior SQF filing.
\38\ As noted, and as discussed in the prior SQF filing, the
increased efficiency in connectivity did not require the same
infrastructure on the part of members to connect to the Exchange;
members did not need to have the same level of connectivity after
the conversion to the new ports and this provided an overall cost
reduction.
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Currently, as of April 1, 2015, Specialists and Market Makers are
subject to a variable Active SQF Port Fee based on the number of active
ports per month as follows: $2,500 for 1 port, $4,000 for 2-6 ports and
$15,000 for 7 or more ports. The Exchange believes that it is
reasonable to delete the variable Active SQF Port Fee applicable to
Specialists and Market Makers, and replace it with the proposed $1,250
per port per month Active SQF Port Fee applicable to all.\39\ The
Exchange believes that it is reasonable to assess all firms the same
Active SQF Port Fee as opposed to a variable fee because, as
[[Page 25754]]
discussed, the variable Active SQF Port Fee could, in fact, be more
expensive.\40\
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\39\ The Active SQF Port Fee is capped at $42,000.
\40\ For example, where the fixed Active SQF Port Fee for one
port per month would be $1,250, the variable Active SQF Port Fee (as
applicable to Specialists and Market Makers) would be $2,500; and
where the fixed Active SQF Port Fee for 3 ports per month would be
$3,750, the variable Active SQF Port Fee would be $4,000 per port.
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The Exchange believes it is equitable and not unfairly
discriminatory to delete the variable Active SQF Port Fee, and replace
it with the proposed Active SQF Port Fee because all Specialists and
Market Makers would be subject to the same Active SQF Port Fee.
Because of the technology refresh, the Exchange added refresh
accommodation language into Section VII B. of the Pricing Schedule to
avoid double charging and to enable firms to get through the refresh
transition period.\41\ Because the refresh is now completed and the
refresh accommodation language is no longer needed, the Exchange
believes that it is reasonable to delete the refresh accommodation
language. The Exchange believes that just as it was reasonable to allow
Specialists and Market Makers to utilize new ports at no cost for a
period of time to transition their current SQF ports to the new ports
that were offered as a result of the technology refresh, so it is
reasonable to delete such provisions when no longer needed. In order to
ease the transition during the refresh from the old SQF ports to new
SQF ports, Specialists and Market Makers were given an extended period
to test functionality and connectivity and resolve any issues that may
arise during the testing phase with the new ports. With the refresh
completed, and because of the time periods in the refresh accommodation
language as discussed, there is no longer any need for the language and
the Exchange believes that it is reasonable to delete it.
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\41\ The refresh accommodation language in Section VII B. of the
Pricing Schedule states that Specialists and Market Makers that are
subject to the Active SQF Port Fee as of December 1, 2014 will be
subject to an Active SQF Port Fee that reflects the average of fees
assessed to them for the months of August, September and October
2014. This Fixed Active SQF Port Fee will be assessed to these
Specialists and Market Makers from December 1, 2014 through March
31, 2015. Specialists and Market Makers will not be assessed a fee
for their use of the new version of the Active SQF Port through
March 31, 2015. In addition, a Specialist or Market Maker who was
not subject to Fixed Active SQF Port Fees prior to December 1, 2014
will be provided new ports and assessed the above Active SQF Port
Fees as of December 1, 2014. See also prior SQF filing.
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The Exchange believes that deletion of the refresh accommodation
language is equitable and not unfairly discriminatory because with the
deleted refresh accommodation language, the Exchange will assess all
current users of Active SQF Ports a fee based on the same criteria.
Currently, per note 26 to Section VII of the Pricing Schedule, the
Active SQF Port Fee is capped at $42,000, but includes language that
the fee is capped at $41,000 per month through March 31, 2015. The
Exchange proposes to delete the unnecessary language referring to March
31, 2015. The Exchange believes that this is reasonable because the
$42,000 Active SQF Port Fee Cap is currently in effect and the Exchange
is just taking the unneeded language out the Active SQF Port Fee Cap
provision.
The Exchange believes that deleting the unnecessary language
referring to March 31, 2015 is equitable and not unfairly
discriminatory because the Exchange is simply cleaning up the language
and will apply the Active SQF Port Fee Cap to all Specialists and
Market Makers uniformly.
Finally, the Exchange proposes two technical housekeeping changes.
First, the Exchange proposes to delete a bullet point in note 26 to
Section VII of the Pricing Schedule, which is applicable to the Active
SQF Port Fee section; the bullet point is not necessary. Second, the
Exchange proposes to fix a typographical error by adding an ``l'' in
the word ``wil'' in note 26; the word is misspelled. The Exchange
believes that the changes are reasonable because they will delete
unneeded language and clarify it.
The Exchange believes that the technical housekeeping changes are
equitable and not unfairly discriminatory because the Exchange will
apply them equally per the Pricing Schedule.
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 offering Specialists and Market Makers
the opportunity to utilize certain Active SQF ports, during this
transition with XL, at no cost ensured that the transition was done
smoothly. Specialists and Market Makers continued to be assessed the
Active SQF Port Fees for current ports at a rate that is representative
of their typical usage. The Exchange allowed these market participants
to utilize new ports at no cost without limit. As discussed, the
Exchange used certain refresh accommodation language to help the
refresh go forward. The Exchange believes that deletion of these
unneeded provisions will not impose an undue burden on competition.
Similarly, the modest proposed increases in fees and establishing that
all are liable for the proposed Active SQF Port Fee will not impose an
undue burden on competition. Moreover, deleting the unnecessary
language that the Active SQF Port Fee is capped at $41,000 per month
through March 31, 2015 will not impose an undue burden on competition
because the Active SQF Port Fee is already capped at $42,000 per month
and the Exchange is merely taking out the unneeded language; moreover,
the Active SQF Port Fee Cap would be applied uniformly to all market
participants. Finally, the CTI Port Fee and the Order Entry Port Fee
reflect a portion of the costs that the Exchange bears with respect to
offering and maintaining the Order Entry Ports. Such fees allow the
Exchange to keep pace with increasing technology costs, and will not
impose an undue burden on competition because the fees would be applied
uniformly to 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 above-described fees that are assessed by the Exchange
(as also the rebates paid by the Exchange) 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.\42\ 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
[[Page 25755]]
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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\42\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2015-36 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-2015-36. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2015-36, and should be
submitted on or before May 26, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-10403 Filed 5-4-15; 8:45 am]
BILLING CODE 8011-01-P
