Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Sections I and II of the Pricing Schedule, 10933-10940 [2017-03099]

Download as PDF Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices other things, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and to protect investors and the public interest. As noted above, the Commission received two comment letters on the proposed rule change.8 Both comment letters express support for Commission approval of the proposed rule change. The Commission notes that the proposal would amend the Exchange’s rules to conform to the amendment that the Commission has proposed to Rule 15c6–1(a) under the Act 9 and support a move to a T+2 standard settlement cycle. In the T+2 Proposing Release the Commission stated its preliminary belief that shortening the standard settlement cycle from T+3 to T+2 will result in a reduction of credit, market, and liquidity risk,10 and as a result a reduction in systemic risk for U.S. market participants.11 The Commission also notes that it has not yet adopted the proposed amendment to Rule 15c6–1(a) under the Act and that the Exchange has, accordingly, not proposed to make its amended rules operative at present. Instead, the Exchange has proposed to announce the operative date of the Exchange’s proposal via Information Memo and by filing a separate proposed rule change. The Commission expects that the operative date of the proposed rule change would correspond with the compliance date of any amendment to Rule 15c6–1(a) that is adopted by the Commission. The Commission notes that, in October 2014, Depository Trust and Clearing Corporation, in collaboration with the Investment Company Institute, SIFMA, and other market participants, formed an Industry Steering Group (‘‘ISC’’) and an industry working group to facilitate the transition asabaliauskas on DSK3SPTVN1PROD with NOTICES 8 See supra note 5. 9 See supra note 3. 10 Credit risk refers to the risk that the credit quality of one party to a transaction will deteriorate to the extent that it is unable to fulfill its obligations to its counterparty on settlement date. Market risk refers to the risk that the value of securities bought and sold will change between trade execution and settlement such that the completion of the trade would result in a financial loss. Liquidity risk describes the risk that an entity will be unable to meet financial obligations on time due to an inability to deliver funds or securities in the form required though it may possess sufficient financial resources in other forms. See T+2 Proposing Release, supra note 3, 81 FR at 69241 n. 3. 11 See T+2 Proposing Release, supra note 3, 81 FR at 69241. VerDate Sep<11>2014 19:05 Feb 15, 2017 Jkt 241001 to a T+2 settlement cycle for U.S. trades in equities, corporate and municipal bonds, and unit investment trusts.12 The ISC has identified September 5, 2017, as the target date for the transition to a T+2 settlement cycle to occur.13 For the reasons noted above, the Commission finds that the proposal is consistent with the requirements of the Act and would foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and to protect investors and the public interest. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,14 that the proposed rule change (SR–NYSE–2016– 87), be and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–03110 Filed 2–15–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80008; File No. SR–Phlx– 2017–09] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Sections I and II of the Pricing Schedule February 10, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that, on February 1, 2017, NASDAQ 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 12 See Press Release, DTCC, Industry Steering Committee and Working Group Formed to Drive Implementation of T+2 in the U.S. (Oct. 2014), http://www.dtcc.com/news/2014/october/16/ ust2.aspx. 13 See Press Release, ISC, US T+2 ISC Recommends Move to Shorter Settlement Cycle On September 5, 2017 (Mar. 7, 2016), http:// www.ust2.com/pdfs/T2-ISC-recommends-shortersettlement-030716.pdf. 14 15 U.S.C. 78s(b)(2). 15 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 10933 prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange’s Pricing Schedule at Section I, entitled ‘‘Rebates and Fees for Adding and Removing Liquidity in SPY,’’ and Section II, entitled ‘‘Multiply Listed Options Fees’’ 3 to amend various transaction fees and rebates. The text of the proposed rule change is available on the Exchange’s Web site at http://nasdaqphlx.cchwallstreet .com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the Exchange’s Pricing Schedule at Section I, entitled ‘‘Rebates and Fees for Adding and Removing Liquidity in SPY,’’ to (i) amend the Simple Order Rebate for Adding Liquidity which is paid to Specialists 4 and Market Makers; 5 3 Multiply Listed Options includes options overlying equities, ETFs, ETNs and indexes which are Multiply Listed. 4 The term ‘‘Specialist’’ applies to transactions for the account of a Specialist (as defined in Exchange Rule 1020(a)). 5 The term ‘‘Market Maker’’ describes fees and rebates applicable to Registered Options Traders (‘‘ROT’’), Streaming Quote Traders (‘‘SQT’’) and Remote Streaming Quote Traders (‘‘RSQT’’). A ROT is defined in Exchange Rule 1014(b) as a regular member of the Exchange located on the trading floor who has received permission from the Exchange to trade in options for his own account. A ROT includes SQTs and RSQTs as well as on and off-floor ROTS. An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT who has received permission from the Exchange to generate and E:\FR\FM\16FEN1.SGM Continued 16FEN1 10934 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES (ii) increase the Specialist, Market Maker, Firm,6 Broker-Dealer 7 and Professional 8 Simple Order Fees for Removing Liquidity; and (iii) increase the Specialist and Market Maker Complex Order 9 Fees for Removing Liquidity. The amendments will be described in greater detail below. The Exchange also proposes to amend the Exchange’s Pricing Schedule at Section II, entitled ‘‘Multiply Listed Options Fees,’’ to: (i) Remove the applicability of note 2 in the Pricing Schedule and thereby increase the Professional, Broker-Dealer and Firm electronic Complex Orders in nonPenny Pilot Options; (ii) amend the lower transaction fee for Professional, Broker-Dealer and Firm electronic Complex Orders in Penny Pilot Options; and (iii) amend the transaction fee assessed to Professional, Broker-Dealer and Firm electronic Complex Orders in non-Penny Pilot Options if they are under Common Ownership with another member or member organization or an Appointed OFP of an Affiliated Entity that qualifies for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule.10 The submit option quotations electronically in options to which such SQT is assigned. An RSQT is defined in Exchange Rule in 1014(b)(ii)(B) as an ROT that is a member affiliated with an RSQTO 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. A Remote Streaming Quote Trader Organization or ‘‘RSQTO,’’ which may also be referred to as a Remote Market Making Organization (‘‘RMO’’), is a member organization in good standing that satisfies the RSQTO readiness requirements in Rule 507(a). 6 The term ‘‘Firm’’ applies to any transaction that is identified by a member or member organization for clearing in the Firm range at The Options Clearing Corporation. 7 The term ‘‘Broker-Dealer’’ applies to any transaction which is not subject to any of the other transaction fees applicable within a particular category. 8 The term ‘‘Professional’’ applies to transactions for the accounts of Professionals, as defined in Exchange Rule 1000(b)(14). 9 A Complex Order is an order involving the simultaneous purchase and/or sale of two or more different options series in the same underlying security, priced as 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. 10 Section B of the Pricing Schedule contains Customer Rebate Tiers which are calculated by totaling Customer volume in Multiply Listed Options (including SPY) that are electronicallydelivered and executed, except volume associated with electronic QCC Orders, as defined in Exchange Rule 1080(o). Rebates are paid on Customer Rebate Tiers according to certain categories. Members and member organizations under Common Ownership may aggregate their Customer volume for purposes of calculating the Customer Rebate Tiers and receiving rebates. Affiliated Entities may aggregate their Customer volume for purposes of calculating the Customer Rebate Tiers and receiving rebates. See Section B of the Pricing Schedule. VerDate Sep<11>2014 19:05 Feb 15, 2017 Jkt 241001 amendments will be described in greater detail below. Proposed Amendments to Section I: Rebates and Fees for Adding and Removing Liquidity in SPY Section I of the Pricing Schedule contains fees and rebates applicable to options overlying Standard and Poor’s Depositary Receipts/SPDRs (‘‘SPY’’).11 The Exchange specifies which fees and rebates apply to Simple Orders and Complex Orders within this section. Simple Order Today, Simple Order Rebates for Adding Liquidity are paid as noted below to Specialists and Market Makers adding the requisite amount of electronically executed Specialist and Market Maker Simple Order contracts per day in a month in SPY: Tiers 1 2 3 4 5 6 ........... ........... ........... ........... ........... ........... Monthly volume Rebate for adding liquidity 1 to 2,499 ........... 2,500 to 4,999 .... 5,000 to 19,999 .. 20,000 to 34,999 35,000 to 49,999 greater than 49,999. $0.15 0.20 0.25 0.30 0.32 0.35 All other market participants do not receive a SPY Simple Order Rebate for Adding Liquidity. The Exchange proposes to amend the Simple Order Rebates for Adding Liquidity which are paid to Specialists and Market Makers by reducing the number of tiers from 6 tiers to 5 tiers. The Exchange proposes to amend Tier 2 to reduce the Rebate for Adding Liquidity from $0.20 to $0.18 per contract. The Exchange proposes to amend Tier 3 to reduce the Rebate for Adding Liquidity from $0.25 to $0.21 per contract. The monthly volume per day for Tiers 2 and 3 are not being amended. With respect to Tier 4, the Exchange proposes to amend the monthly volume per day from 20,000 to 34,999 contracts to 20,000 to 49,999 contracts. The Exchange proposes to increase the Tier 4 rebate from $0.30 to $0.31 per contract. The Exchange proposes to eliminate current Tier 5. The Exchange proposes to rename Tier 6 to be new Tier 5. No other amendments are proposed to new renamed Tier 5.12 The Exchange also proposes to rename the column entitled ‘‘Monthly Volume’’ as ‘‘Average Daily Volume 11 Options overlying Standard and Poor’s Depositary Receipts/SPDRs (‘‘SPY’’) are based on the SPDR exchange-traded fund (‘‘ETF’’), which is designed to track the performance of the S&P 500 Index. 12 Tier 1 is not being amended. PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 (‘‘ADV’’).’’ The Exchange believes that this title more accurately describes the manner in which the rebate is calculated, which is adding the requisite amount of electronically executed Specialist and Market Maker Simple Order contracts per day in a month in SPY, as noted in Part A of Section I of the Pricing Schedule. This proposed change does not impact the manner in which the Exchange calculates these rebates today. The Exchange’s proposal for the Simple Order Rebates for Adding Liquidity which are paid to Specialists and Market Makers would be as follows: Average daily volume (‘‘ADV’’) Tiers 1 2 3 4 5 ........... ........... ........... ........... ........... 1 to 2,499 ........... 2,500 to 4,999 .... 5,000 to 19,999 .. 20,000 to 49,999 greater than 49,999. Rebate for adding liquidity $0.15 0.18 0.21 0.31 0.35 The Exchange believes that the proposed five tier rebate structure will incentivize market participants to add a greater amount of Specialist and Market Maker liquidity in SPY on the Exchange to obtain higher rebates. The Exchange also proposes to amend the Simple Order Fees for Removing Liquidity in SPY for Specialists, Market Makers, Firms, Broker Dealers and Professionals by increasing the fees from $0.47 to $0.48 per contract. The Customer 13 Simple Order Fee for Removing Liquidity is not being amended and will remain at $0.45 per contract. Despite the increased fee, the Exchange believes that its fees for Simple Orders in SPY remain competitive. Complex Order The Exchange proposes to amend its Complex Order Fees for Removing Liquidity in SPY for Specialists and Market Makers by increasing the fees from $0.40 to $0.43 per contract. The Exchange would not increase the fees for Firms, Broker-Dealers or Professionals; those fees will remain at $0.50 per contract. Today, Customers are not assessed a Complex Order Fee for Removing Liquidity. Despite the increased fee, the Exchange believes that its fees for Complex Orders in SPY remain competitive. 13 The term ‘‘Customer’’ applies to any transaction that is identified by a member or member organization for clearing in the Customer range at The Options Clearing Corporation which is not for the account of a broker or dealer or for the account of a ‘‘Professional’’ (as that term is defined in Rule 1000(b)(14)). E:\FR\FM\16FEN1.SGM 16FEN1 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices Proposed Amendments to Section II: Multiple Listed Options Fees asabaliauskas on DSK3SPTVN1PROD with NOTICES Penny Pilot Options The Exchange proposes to amend its Professional, Broker-Dealer and Firm electronic Penny Pilot Options Transaction Charges for Complex Orders. Today, the Exchange assesses Professionals, Broker-Dealers and Firms an electronic Penny Pilot Options Transaction Charges for Complex Orders of $0.35 per contract. The Exchange proposes to increase the Professional, Broker-Dealer and Firm electronic Penny Pilot Options Transaction Charges for Complex Orders to $0.40 per contract. Despite the increase to this fee, the Exchange believes the Penny Pilot Options Transaction Charges for electronic Complex Order transactions remain competitive. Professionals, Broker-Dealers and Firms will continue to be offered a discounted rate as compared to Simple Orders.14 Non-Penny Pilot Options The Exchange proposes to amend its Professional, Broker-Dealer and Firm electronic non-Penny Pilot Options Transaction Charges for Complex Orders. Today, the Exchange assesses Professionals, Broker-Dealers and Firms an electronic non-Penny Pilot Options Transaction Charges for Complex Orders of $0.35 per contract. The Exchange is proposing to remove the applicability of note 2 in the Pricing Schedule from the non-Penny Pilot Options Transaction Charges for Professionals, BrokerDealers and Firms. With this proposal, Professional, Broker-Dealer and Firm electronic non-Penny Pilot Options Transaction Charges for Complex Orders would be increased to $0.75 per contract because the reduced rate would no longer apply. Members may still lower this rate if they qualified for the reduced rebate offered in note 3 in the Pricing Schedule, which note is also being amended with this proposal as noted below. As proposed, the Options Transaction Charge for Simple and Complex Order electronic non-Penny Pilot Options Transaction Charges would be the same fee of $0.75 per contract fee. The Exchange also proposes to amend its Professional, Broker-Dealer and Firm electronic non-Penny Pilot Options Transaction Charges by amending note 3 in the Pricing Schedule. Today, note 3 provides that any member or member organization under Common Ownership with another member or member 14 The Exchange would continue to assess an electronic Penny Pilot Options Transaction Charges to Professionals, Broker-Dealers and Firms of $0.48 per contract for Simple Orders. VerDate Sep<11>2014 19:05 Feb 15, 2017 Jkt 241001 organization or an Appointed OFP of an Affiliated Entity that qualifies for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule 15 will be assessed a Professional, Broker-Dealer or Firm electronic non-Penny Pilot Options Transaction Charge of $0.60 per contract. The Exchange proposes to amend the fee to assess $0.65 per contract. The qualifications for the reduced rate remain the same. Professionals, Broker-Dealers and Firms that do not qualify for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule would continue to pay an electronic non-Penny Pilot Options Transaction Charge of $0.75 per contract. While the Exchange is amending the fee so that the reduction is not as great as today, the Exchange will continue to offer a reduced rate to Professionals, Broker-Dealers and Firms that qualify by sending the requisite order flow to the Exchange. Finally, the Exchange is adding a period at end of the sentence in footnote 3 to correct a typographical error. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,16 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,17 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, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 18 Likewise, in NetCoalition v. Securities and Exchange Commission 19 (‘‘NetCoalition’’) the D.C. Circuit upheld the Commission’s use of a market-based 15 See note 10 above. U.S.C. 78f(b). 17 15 U.S.C. 78f(b)(4) and (5). 18 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 19 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). 10935 approach in evaluating the fairness of market data fees against a challenge claiming that Congress mandated a costbased approach.20 As the court emphasized, the Commission ‘‘intended in Regulation NMS that ‘market forces, rather than regulatory requirements’ play a role in determining the market data . . . to be made available to investors and at what cost.’’ 21 Further, ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the brokerdealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers’ . . . .’’ 22 Although the court and the SEC were discussing the cash equities markets, the Exchange believes that these views apply with equal force to the options markets. Proposed Amendments to Section I: Rebates and Fees for Adding and Removing Liquidity in SPY Simple Order The Exchange’s proposal to amend the Simple Order Rebates for Adding Liquidity which are paid to Specialists and Market Makers by reducing the number of tiers from 6 tiers to 5 tiers and reducing the Tier 2 rebate to $0.18 per contract, reducing the Tier 3 rebate to $0.21 per contract, amending the Tier 4 monthly volume to 20,000 to 49,999 contracts per day and the rebate to $0.31 per contract, eliminating Tier 5 and renaming Tier 6 to new Tier 5 is reasonable because the Exchange believes that the proposed five tier rebate structure will incentivize market participants to add a greater amount of Specialist and Market Maker liquidity in SPY on the Exchange to obtain higher rebates. A Specialist or Market Maker would continue to receive a rebate with this proposal provided they execute one electronic Simple Order SPY contract. In some cases, the rebate will be lower. When 2,500 to 4,999 electronic Simple Order SPY contracts per day are added, the SPY Simple Order Rebate for Adding Liquidity for Specialists and Market Makers will be $0.18 per contract as compared to $0.20 per 16 15 PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 20 See NetCoalition, at 534—535. at 537. 22 Id. at 539 (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782–83 (December 9, 2008) (SR– NYSEArca–2006–21)). 21 Id. E:\FR\FM\16FEN1.SGM 16FEN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES 10936 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices contract (today’s rebate). With this proposal, the rebate would be lower for members currently submitting 5,000 to 19,999 SPY contracts per day, the rebate would be $0.21 per contract as compared to $.25 per contract. Members currently submitting between 20,000 and 34,999 SPY contracts would receive a $0.31 per contract as compared to $0.30 per contract rebate with this proposal, an increased rebate of $0.01 per contract. Finally, with this proposal, market participants currently submitting between 35,000 and 49,999 SPY contracts per day would receive a lower rebate of $0.31 per contract as compared to $0.32 per contract. Despite this decrease, the Exchange believes that participants will continue to be incentivized to add SPY order flow to the Exchange to receive the rebate. The Exchange’s proposal to amend the Simple Order Rebates for Adding Liquidity which are paid to Specialists and Market Makers by reducing the number of tiers from 6 tiers to 5 tiers and reducing the Tier 2 rebate to $0.18 per contract, reducing the Tier 3 rebate to $0.21 per contract, amending the Tier 4 monthly volume to 20,000 to 49,999 contracts per day and the rebate to $0.31 per contract, eliminating Tier 5 and renaming Tier 6 to new Tier 5 is equitable and not unfairly discriminatory because Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.23 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange’s proposal to rename the column entitled ‘‘Monthly Volume’’ as ‘‘Average Daily Volume (‘‘ADV’’)’’ is reasonable, equitable and not unfairly discriminatory because the title more accurately describes the manner in which the rebate is calculated, which is 23 See Rule 1014 titled ‘‘Obligations and Restrictions Applicable to Specialists and Registered Options Traders.’’ VerDate Sep<11>2014 19:05 Feb 15, 2017 Jkt 241001 adding the requisite amount of electronically executed Specialist and Market Maker Simple Order contracts per day in a month in SPY, as noted in Part A of Section I of the Pricing Schedule. This proposed change does not impact the manner in which the Exchange calculates these rebates today. The Exchange’s proposal to amend the Simple Order Fees for Removing Liquidity for Specialists, Market Makers, Firms, Broker Dealers and Professionals by increasing the fees from $0.47 to $0.48 per contract is reasonable because despite the increased fee, the Exchange believes that its fees for Simple Orders in SPY remain competitive. The Customer Simple Order Fee for Removing Liquidity is not being amended and will remain at $0.45 per contract. Also, the increase in the Simple Order Fees for Removing Liquidity will continue to support the rebate structure proposed herein, which as stated above, attracts Specialists and Market Makers. An increase in the activity of Specialists and Market Makers in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange’s proposal to amend the Simple Order Fees for Removing Liquidity for Specialists, Market Makers, Firms, Broker Dealers and Professionals by increasing the fees from $0.47 to $0.48 per contract is equitable and not unfairly discriminatory because all participants would continue to be assessed a similar fee, except for Customers. The Exchange believes that assessing Customers a lower fee is equitable and not unfairly discriminatory because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Complex Order The Exchange’s proposal to amend its Complex Order Fees for Removing Liquidity for Specialists and Market Makers by increasing the fees from $0.40 to $0.43 per contract is reasonable because despite the increased fee, the Exchange believes that its fees for Complex Orders in SPY remain competitive. Also, Specialists and Market Makers continue to be assessed a lower fee as compared to Firms, PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 Broker-Dealers or Professionals; who are assessed $0.50 per contract. The Exchange’s proposal to amend its Complex Order Fees for Removing Liquidity for Specialists and Market Makers by increasing the fees from $0.40 to $0.43 per contract is equitable and not unfairly discriminatory. Unlike other market participants, Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.24 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Customers continue to be assessed no Complex Order Fee for Removing Liquidity because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Proposed Amendments to Section II: Multiple Listed Options Fees Penny Pilot Options The Exchange’s proposal to amend its Professional, Broker-Dealer and Firm electronic Penny Pilot Options Transaction Charges for Complex Orders from $0.35 per contract to $0.40 per contract is reasonable because despite the increase to this fee, the Exchange believes the Penny Pilot Options Transaction Charges for electronic Complex Order transactions remain competitive. Professionals, BrokerDealers and Firms and will continue to be offered a discounted rate as compared to Simple Orders which will continue to be assessed $0.48 per contract. 24 Id. E:\FR\FM\16FEN1.SGM 16FEN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices The Exchange’s proposal to amend its Professional, Broker-Dealer and Firm electronic Penny Pilot Options Transaction Charges for Complex Orders from $0.35 per contract to $0.40 per contract is equitable and not unfairly discriminatory because Professionals, Broker-Dealers and Firms would be uniformly assessed $0.40 per contract. Specialists and Market Makers would continue to be assessed a lower electronic Penny Pilot Options Transaction Charge of $0.22 per contract. Unlike other market participants, Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.25 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Customers continue to be assessed no Penny Pilot Options Transaction Charge because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange believes that it is reasonable, equitable and not unfairly discriminatory to continue to offer Professionals, Broker-Dealers and Firms the opportunity to reduce electronic Complex Orders in Penny Pilot Options as compared to non-Penny Pilot Options because the Exchange seeks to incentivize Professionals, BrokerDealers and Firms to execute Complex Penny Pilot Options orders. Also, lowering the electronic Options Transaction Charges for Complex Orders, as compared to Simple Orders is reasonable, equitable and not unfairly discriminatory because the Exchange 25 Id. VerDate Sep<11>2014 desires to continue to incentivize these market participants to transact Complex Orders on the Exchange. The fees will be applied uniformly to all market participants. Non-Penny Pilot The Exchange’s proposal to amend its Professional, Broker-Dealer and Firm electronic non-Penny Pilot Options Transaction Charges for Complex Orders by removing the applicability of note 2 in the Pricing Schedule and increasing the fee to $0.75 per contract is reasonable because Professionals, Broker-Dealers and Firms transacting electronic non-Penny Pilot Options Transaction Charges would be uniformly assessed a fee of $0.75 per contract for Simple and Complex Orders. Members may still lower this rate if they qualified for the reduced rebate offered in note 3 in the Pricing Schedule, which note is also being amended with this proposal. Despite the inapplicability of note 2, the Exchange believes the non-Penny Pilot Options Transaction Charges for electronic Complex Order transactions remain competitive. The Exchange’s proposal to amend its Professional, Broker-Dealer and Firm electronic non-Penny Pilot Options Transaction Charges for Complex Orders by removing the applicability of note 2 in the Pricing Schedule and increasing the fee to $0.75 per contract is equitable and not unfairly discriminatory because Professionals, Broker-Dealers and Firms transacting electronic non-Penny Pilot Options Transaction Charges would be uniformly assessed a fee of $0.75 per contract for Simple and Complex Orders. Specialists and Market Makers would continue to be assessed a lower electronic non-Penny Pilot Options Transaction Charge of $0.25 per contract. Unlike other market participants, Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.26 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. An increase in the activity of these market participants in turn 26 Id. 19:05 Feb 15, 2017 Jkt 241001 PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 10937 facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Customers continue to be assessed no non-Penny Pilot Options Transaction Charge because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange’s proposal to amend note 3 in the Pricing Schedule to increase the amount a member or member organization under Common Ownership with another member or member organization or an Appointed OFP of an Affiliated Entity that qualifies for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule will be assessed and increase the Professional, Broker-Dealer or Firm electronic non-Penny Pilot Options Transaction Charge of from $0.60 to $0.65 per contract is reasonable because Professionals, Broker-Dealers and Firms may continue to qualify for a lower rate. Professionals, Broker-Dealers and Firms that do not qualify for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule would continue to pay an electronic non-Penny Pilot Options Transaction Charge of $0.75 per contract. While amendment reduces the savings, the Exchange will continue to offer Professionals, Broker-Dealers and Firms that qualify by sending the requisite order flow to the Exchange a lower transaction fee. In addition, attracting Customer order flow benefits all market participants with increased order flow with which to interact. The Exchange’s proposal to amend note 3 in the Pricing Schedule to increase the amount a member or member organization under Common Ownership with another member or member organization or an Appointed OFP of an Affiliated Entity that qualifies for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule will be assessed and increase the Professional, Broker-Dealer or Firm electronic non-Penny Pilot Options Transaction Charge of [sic] from $0.60 to $0.65 per contract is equitable and not unfairly discriminatory because these market participants are subject to the highest transaction fees of $0.75 per contract. The Exchange’s proposal to correct the typographical error in footnote 3 is E:\FR\FM\16FEN1.SGM 16FEN1 10938 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices reasonable, equitable and not unfairly discriminatory because it correct [sic] a grammatical error. B. Self-Regulatory Organization’s Statement on Burden on Competition asabaliauskas on DSK3SPTVN1PROD with NOTICES The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. In sum, if the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. In terms of intra-market competition, the Exchange believes that its proposed rebates and fees continue to remain competitive in SPY and Multiply Listed Options. In sum, if the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Accordingly, the Exchange does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their competitive standing in the financial markets. Proposed Amendments to Section I: Rebates and Fees for Adding and Removing Liquidity in SPY Simple Order The Exchange’s proposal to amend the Simple Order Rebates for Adding Liquidity which are paid to Specialists and Market Makers by reducing the number of tiers from 6 tiers to 5 tiers and reducing the Tier 2 rebate to $0.18 VerDate Sep<11>2014 19:05 Feb 15, 2017 Jkt 241001 per contract, reducing the Tier 3 rebate to $0.21 per contract, amending the Tier 4 monthly volume to 20,000 to 49,999 contracts per day and the rebate to $0.31 per contract, eliminating Tier 5 and renaming Tier 6 to new Tier 5 does not impose an undue burden on intramarket competition because Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.27 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange’s proposal to rename the column entitled ‘‘Monthly Volume’’ as ‘‘Average Daily Volume (‘‘ADV’’)’’ does not impose an undue burden on intra-market competition because the title more accurately describes the manner in which the rebate is calculated, which is adding the requisite amount of electronically executed Specialist and Market Maker Simple Order contracts per day in a month in SPY, as noted in Part A of Section I of the Pricing Schedule. This proposed change does not impact the manner in which the Exchange calculates these rebates today. The Exchange’s proposal to amend the Simple Order Fees for Removing Liquidity for Specialists, Market Makers, Firms, Broker Dealers and Professionals by increasing the fees from $0.47 to $0.48 per contract does not impose an undue burden on intramarket competition because all participants would continue to be assessed a similar fee, except for Customers. The Exchange believes that assessing Customers a lower fee does not impose a burden on intra-market competition because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. 27 Id. PO 00000 Frm 00068 An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Complex Order The Exchange’s proposal to amend its Complex Order Fees for Removing Liquidity for Specialists and Market Makers by increasing the fees from $0.40 to $0.43 per contract does not impose an undue burden on intramarket competition. Unlike other market participants, Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.28 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Customers continue to be assessed no Complex Order Fee for Removing Liquidity because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Proposed Amendments to Section II: Multiple Listed Options Fees Penny Pilot Options The Exchange’s proposal to amend its Professional, Broker-Dealer and Firm electronic Penny Pilot Options Transaction Charges for Complex Orders from $0.35 per contract to $0.40 per contract does not impose an undue burden on intra-market competition because Professionals, Broker-Dealers and Firms would be uniformly assessed 28 Id. Fmt 4703 Sfmt 4703 E:\FR\FM\16FEN1.SGM 16FEN1 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices $0.40 per contract. Specialists and Market Makers would continue to be assessed a lower electronic Penny Pilot Options Transaction Charge of $0.22 per contract. Unlike other market participants, Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market participants.29 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Customers continue to be assessed no Penny Pilot Options Transaction Charge because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. asabaliauskas on DSK3SPTVN1PROD with NOTICES Non-Penny Pilot Options The Exchange’s proposal to amend its Professional, Broker-Dealer and Firm electronic non-Penny Pilot Options Transaction Charges for Complex Orders by removing the applicability of note 2 in the Pricing Schedule and increasing the fee to $0.75 per contract does not impose an undue burden on intramarket competition because Professionals, Broker-Dealers and Firms transacting electronic non-Penny Pilot Options Transaction Charges would be uniformly assessed a fee of $0.75 per contract. Specialists and Market Makers would continue to be assessed a lower electronic non-Penny Pilot Options Transaction Charge of $0.25 per contract. Unlike other market participants, Specialists and Market Makers have obligations to the market and regulatory requirements, which normally do not apply to other market 29 Id. VerDate Sep<11>2014 participants.30 They have obligations to make continuous markets, engage in a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and not make bids or offers or enter into transactions that are inconsistent with a course of dealings. The differentiation as between Specialists and Market Makers and all other market participants recognizes the differing contributions made to the liquidity and trading environment on the Exchange by these market participants. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Customers continue to be assessed no non-Penny Pilot Options Transaction Charge because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange believes that it does not impose an undue burden on intramarket competition to continue to offer Professionals, Broker-Dealers and Firms the opportunity to reduce electronic Complex Orders in non-Penny Pilot Options as compared to Penny Pilot Options because the Options Transaction Charges for non-Penny Pilot Options are higher. Also, only lowering the electronic Options Transaction Charges for Complex Orders, as compared to Simple Orders does not impose an undue burden on intramarket competition because the Exchange desires to continue to incentivize these market participants to transact Complex Orders on the Exchange. The Exchange’s proposal to amend note 3 in the Pricing Schedule to increase the amount a member or member organization under Common Ownership with another member or member organization or an Appointed OFP of an Affiliated Entity that qualifies for Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule will be assessed and increase the Professional, Broker-Dealer or Firm electronic non-Penny Pilot Options Transaction Charge of from $0.60 to $0.65 per contract does not impose an undue burden on intra-market 30 Id. 19:05 Feb 15, 2017 Jkt 241001 PO 00000 Frm 00069 competition because these market participants are subject to the highest transaction fees of $0.75 per contract. The Exchange’s proposal to correct the typographical error in footnote 3 does not impose an undue burden on intra-market competition because it correct [sic] a grammatical error. 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.31 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2017–09 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2017–09. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ 31 15 Fmt 4703 Sfmt 4703 10939 E:\FR\FM\16FEN1.SGM U.S.C. 78s(b)(3)(A)(ii). 16FEN1 10940 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices 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– 2017–09, and should be submitted on or before March 9, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–03099 Filed 2–15–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80020; File No. SR– NYSEMKT–2016–119] Self-Regulatory Organizations; NYSE MKT LLC; Order Granting Approval of a Proposed Rule Change To Conform to Proposed Amendment to Rule 15c6– 1(a) Under the Securities Exchange Act of 1934 To Shorten the Standard Settlement Cycle for Most BrokerDealer Transactions From Three Business Days After the Trade Date (‘‘T+3’’) to Two Business Days After the Trade Date (‘‘T+2’’) asabaliauskas on DSK3SPTVN1PROD with NOTICES On December 15, 2016, NYSE MKT LLC (‘‘NYSE MKT’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 32 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 19:05 Feb 15, 2017 CFR 240.19b–4. Securities Exchange Act Release No. 78962 (Sept. 28, 2016), 81 FR 69240 (Oct. 5, 2016) (File No. S7–22–16) (‘‘T+2 Proposing Release’’). 4 See Securities Exchange Act Release No. 79659 (Dec. 22, 2016), 81 FR 84635 (Dec. 29, 2016). 5 See Letters from Manisha Kimmel, Chief Regulatory Officer, Wealth Management, Thomson Reuters, dated January 19, 2017; and Thomas F. Price, Managing Director, Operations, Technology & BCP, Securities Industry and Financial Markets Association (‘‘SIFMA’’), dated January 19, 2017. 6 The Exchange also proposes to make several non-substantive changes. As reflected in proposed Exchange Rule 64T(a)(i)—Equities, italics would be 3 See I. Introduction VerDate Sep<11>2014 II. Description of the Proposal The Exchange proposes to adopt Equities Rules 14T—Equities (NonRegular Way Settlement Instructions for Orders); 64T—Equities (Bonds, Rights and 100-Share-Unit Stocks); 235T— Equities (Ex-Dividend, Ex-Rights); 236T—Equities (Ex-Warrants); 257T— Equities (Deliveries After ‘‘Ex’’ Date); 282.65T—Equities (Failure to Deliver and Liability Notice Procedures); and Sections 510T (Three Day Delivery Plan) and 512T (Ex-Dividend Procedure) of the NYSE MKT Company Guide, in order to conform the Exchange’s rulebook to the Commission’s proposed amendment to Rule 15c6–1(a) under the Act, which would shorten the standard settlement cycle from T+3 to T+2 for most broker-dealer transactions. Exchange Rule 14—Equities defines ‘‘non-regular way’’ settlement instructions as instructions that allow for settlement other than ‘‘regular way’’ (i.e., other than settlement on the third business day following trade date for securities other than U.S. Government Securities). Proposed Exchange Rule 14T—Equities would amend this definition to replace ‘‘third business day’’ with ‘‘second business day.’’ Similarly, Exchange Rule 64(a)— Equities defines ‘‘regular way’’ as ‘‘for delivery on the third business day following the day of the contract.’’ Proposed Exchange Rule 64T(a)— Equities would replace ‘‘third business day’’ with ‘‘second business day.’’ 6 2 17 February 10, 2017. 1 15 19b–4 thereunder,2 a proposed rule change to conform its rules to an amendment proposed by the Commission to Rule 15c6–1(a) under the Act to shorten the standard settlement cycle for most broker-dealer transactions from three business days after the trade date (‘‘T+3’’) to two business days after the trade date (‘‘T+2’’).3 The proposed rule change was published for comment in the Federal Register on December 29, 2016.4 The Commission received two comments on the proposal, each of which supports the proposed rule change.5 This order approves the proposed rule change. Jkt 241001 PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 Exchange Rule 64(a)(ii)—Equities currently provides that on the second and third business days preceding the final day for subscription, bids and offers in rights to subscribe shall be made only ‘‘next day.’’ To conform with the move to a T+2 settlement cycle, proposed Exchange Rule 64T(a)(ii)— Equities would delete the reference to the third business day preceding the final day for subscription because in a T+2 settlement cycle, bids and offers in rights to subscribe on that day would simply be subject to ‘‘regular way’’ settlement. Under Current Exchange Rule 64(c)—Equities, all ‘‘seller’s option’’ trades, for delivery between 2 and 60 business days, should be reported to the tape only in calendar days. The Exchange proposes to amend Exchange Rule 64T(c)—Equities to replace the reference to ‘‘two’’ with a reference to ‘‘three.’’ Exchange Rule 235—Equities provides that transactions in stocks, except those made for ‘‘cash’’ as prescribed in Exchange Rule 14— Equities, shall be ex-dividend or exrights on the second business day preceding the record date fixed by the corporation or the date of the closing of transfer books. The Exchange proposes in Exchange Rule 235T—Equities to change ‘‘second business day preceding’’ to ‘‘business day preceding.’’ The current Exchange Rule 235— Equities further provides that, if the record date or closing of transfer books occurs upon a day other than a business day, Exchange Rule 235 shall apply for the third preceding business day. The Exchange proposes to change ‘‘third preceding business day’’ to ‘‘second preceding business day’’ in proposed Exchange Rule 235T—Equities.7 Exchange Rule 236—Equities pertaining to ex-warrants similarly provides that transactions in securities that have subscription warrants attached, except those made for cash, shall be ex-warrants on the second business day preceding the date of expiration of the warrants, except that when the date of expiration occurs on a day other than a business day, the removed from the single quote before the words ‘‘issued’’ and ‘‘regular’’ and a missing parenthesis added before the word ‘‘See’’ in the second sentence of the second paragraph. Italics would also be removed from the single quote before the word ‘‘seller’s’’ in five places in proposed Exchange Rule 64T(c)—Equities as well as before the word ‘‘regular’’ in the last sentence. Finally, as reflected in proposed Exchange Rule 64T(a)(1), (a)(ii) and (b)—Equities, bold would be removed from ‘‘(a)(i),’’ ‘‘(ii)’’ and ‘‘(b).’’ 7 The Exchange also proposes to make nonsubstantive changes to correct punctuation in proposed Exchange Rule 235T—Equities by removing italics from the single quote before the word ‘‘cash’’ in two places. E:\FR\FM\16FEN1.SGM 16FEN1

Agencies

[Federal Register Volume 82, Number 31 (Thursday, February 16, 2017)]
[Notices]
[Pages 10933-10940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03099]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80008; File No. SR-Phlx-2017-09]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Sections I 
and II of the Pricing Schedule

February 10, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on February 1, 2017, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
Section I, entitled ``Rebates and Fees for Adding and Removing 
Liquidity in SPY,'' and Section II, entitled ``Multiply Listed Options 
Fees'' \3\ to amend various transaction fees and rebates.
---------------------------------------------------------------------------

    \3\ Multiply Listed Options includes options overlying equities, 
ETFs, ETNs and indexes which are Multiply Listed.
---------------------------------------------------------------------------

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

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

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

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

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
Pricing Schedule at Section I, entitled ``Rebates and Fees for Adding 
and Removing Liquidity in SPY,'' to (i) amend the Simple Order Rebate 
for Adding Liquidity which is paid to Specialists \4\ and Market 
Makers; \5\
---------------------------------------------------------------------------

    \4\ The term ``Specialist'' applies to transactions for the 
account of a Specialist (as defined in Exchange Rule 1020(a)).
    \5\ The term ``Market Maker'' describes fees and rebates 
applicable to Registered Options Traders (``ROT''), Streaming Quote 
Traders (``SQT'') and Remote Streaming Quote Traders (``RSQT''). A 
ROT is defined in Exchange Rule 1014(b) as a regular member of the 
Exchange located on the trading floor who has received permission 
from the Exchange to trade in options for his own account. A ROT 
includes SQTs and RSQTs as well as on and off-floor ROTS. An SQT is 
defined in Exchange Rule 1014(b)(ii)(A) as an ROT who has received 
permission from the Exchange to generate and submit option 
quotations electronically in options to which such SQT is assigned. 
An RSQT is defined in Exchange Rule in 1014(b)(ii)(B) as an ROT that 
is a member affiliated with an RSQTO 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. A Remote Streaming Quote Trader Organization 
or ``RSQTO,'' which may also be referred to as a Remote Market 
Making Organization (``RMO''), is a member organization in good 
standing that satisfies the RSQTO readiness requirements in Rule 
507(a).

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[[Page 10934]]

    (ii) increase the Specialist, Market Maker, Firm,\6\ Broker-Dealer 
\7\ and Professional \8\ Simple Order Fees for Removing Liquidity; and 
(iii) increase the Specialist and Market Maker Complex Order \9\ Fees 
for Removing Liquidity. The amendments will be described in greater 
detail below.
---------------------------------------------------------------------------

    \6\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation.
    \7\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category.
    \8\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Exchange Rule 1000(b)(14).
    \9\ A Complex Order is an order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced as 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.
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    The Exchange also proposes to amend the Exchange's Pricing Schedule 
at Section II, entitled ``Multiply Listed Options Fees,'' to: (i) 
Remove the applicability of note 2 in the Pricing Schedule and thereby 
increase the Professional, Broker-Dealer and Firm electronic Complex 
Orders in non-Penny Pilot Options; (ii) amend the lower transaction fee 
for Professional, Broker-Dealer and Firm electronic Complex Orders in 
Penny Pilot Options; and (iii) amend the transaction fee assessed to 
Professional, Broker-Dealer and Firm electronic Complex Orders in non-
Penny Pilot Options if they are under Common Ownership with another 
member or member organization or an Appointed OFP of an Affiliated 
Entity that qualifies for Customer Rebate Tiers 4 or 5 in Section B of 
the Pricing Schedule.\10\ The amendments will be described in greater 
detail below.
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    \10\ Section B of the Pricing Schedule contains Customer Rebate 
Tiers which are calculated by totaling Customer volume in Multiply 
Listed Options (including SPY) that are electronically-delivered and 
executed, except volume associated with electronic QCC Orders, as 
defined in Exchange Rule 1080(o). Rebates are paid on Customer 
Rebate Tiers according to certain categories. Members and member 
organizations under Common Ownership may aggregate their Customer 
volume for purposes of calculating the Customer Rebate Tiers and 
receiving rebates. Affiliated Entities may aggregate their Customer 
volume for purposes of calculating the Customer Rebate Tiers and 
receiving rebates. See Section B of the Pricing Schedule.
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Proposed Amendments to Section I: Rebates and Fees for Adding and 
Removing Liquidity in SPY
    Section I of the Pricing Schedule contains fees and rebates 
applicable to options overlying Standard and Poor's Depositary 
Receipts/SPDRs (``SPY'').\11\ The Exchange specifies which fees and 
rebates apply to Simple Orders and Complex Orders within this section.
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    \11\ Options overlying Standard and Poor's Depositary Receipts/
SPDRs (``SPY'') are based on the SPDR exchange-traded fund 
(``ETF''), which is designed to track the performance of the S&P 500 
Index.
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Simple Order
    Today, Simple Order Rebates for Adding Liquidity are paid as noted 
below to Specialists and Market Makers adding the requisite amount of 
electronically executed Specialist and Market Maker Simple Order 
contracts per day in a month in SPY:

------------------------------------------------------------------------
                                                            Rebate for
               Tiers                   Monthly volume         adding
                                                             liquidity
------------------------------------------------------------------------
1.................................  1 to 2,499..........           $0.15
2.................................  2,500 to 4,999......            0.20
3.................................  5,000 to 19,999.....            0.25
4.................................  20,000 to 34,999....            0.30
5.................................  35,000 to 49,999....            0.32
6.................................  greater than 49,999.            0.35
------------------------------------------------------------------------

    All other market participants do not receive a SPY Simple Order 
Rebate for Adding Liquidity. The Exchange proposes to amend the Simple 
Order Rebates for Adding Liquidity which are paid to Specialists and 
Market Makers by reducing the number of tiers from 6 tiers to 5 tiers. 
The Exchange proposes to amend Tier 2 to reduce the Rebate for Adding 
Liquidity from $0.20 to $0.18 per contract. The Exchange proposes to 
amend Tier 3 to reduce the Rebate for Adding Liquidity from $0.25 to 
$0.21 per contract. The monthly volume per day for Tiers 2 and 3 are 
not being amended. With respect to Tier 4, the Exchange proposes to 
amend the monthly volume per day from 20,000 to 34,999 contracts to 
20,000 to 49,999 contracts. The Exchange proposes to increase the Tier 
4 rebate from $0.30 to $0.31 per contract. The Exchange proposes to 
eliminate current Tier 5. The Exchange proposes to rename Tier 6 to be 
new Tier 5. No other amendments are proposed to new renamed Tier 5.\12\
---------------------------------------------------------------------------

    \12\ Tier 1 is not being amended.
---------------------------------------------------------------------------

    The Exchange also proposes to rename the column entitled ``Monthly 
Volume'' as ``Average Daily Volume (``ADV'').'' The Exchange believes 
that this title more accurately describes the manner in which the 
rebate is calculated, which is adding the requisite amount of 
electronically executed Specialist and Market Maker Simple Order 
contracts per day in a month in SPY, as noted in Part A of Section I of 
the Pricing Schedule. This proposed change does not impact the manner 
in which the Exchange calculates these rebates today.
    The Exchange's proposal for the Simple Order Rebates for Adding 
Liquidity which are paid to Specialists and Market Makers would be as 
follows:

------------------------------------------------------------------------
                                                            Rebate for
               Tiers                    Average daily         adding
                                      volume  (``ADV'')      liquidity
------------------------------------------------------------------------
1.................................  1 to 2,499..........           $0.15
2.................................  2,500 to 4,999......            0.18
3.................................  5,000 to 19,999.....            0.21
4.................................  20,000 to 49,999....            0.31
5.................................  greater than 49,999.            0.35
------------------------------------------------------------------------

The Exchange believes that the proposed five tier rebate structure will 
incentivize market participants to add a greater amount of Specialist 
and Market Maker liquidity in SPY on the Exchange to obtain higher 
rebates.
    The Exchange also proposes to amend the Simple Order Fees for 
Removing Liquidity in SPY for Specialists, Market Makers, Firms, Broker 
Dealers and Professionals by increasing the fees from $0.47 to $0.48 
per contract. The Customer \13\ Simple Order Fee for Removing Liquidity 
is not being amended and will remain at $0.45 per contract. Despite the 
increased fee, the Exchange believes that its fees for Simple Orders in 
SPY remain competitive.
---------------------------------------------------------------------------

    \13\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation which is not for 
the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Rule 1000(b)(14)).
---------------------------------------------------------------------------

Complex Order
    The Exchange proposes to amend its Complex Order Fees for Removing 
Liquidity in SPY for Specialists and Market Makers by increasing the 
fees from $0.40 to $0.43 per contract. The Exchange would not increase 
the fees for Firms, Broker-Dealers or Professionals; those fees will 
remain at $0.50 per contract. Today, Customers are not assessed a 
Complex Order Fee for Removing Liquidity. Despite the increased fee, 
the Exchange believes that its fees for Complex Orders in SPY remain 
competitive.

[[Page 10935]]

Proposed Amendments to Section II: Multiple Listed Options Fees
Penny Pilot Options
    The Exchange proposes to amend its Professional, Broker-Dealer and 
Firm electronic Penny Pilot Options Transaction Charges for Complex 
Orders. Today, the Exchange assesses Professionals, Broker-Dealers and 
Firms an electronic Penny Pilot Options Transaction Charges for Complex 
Orders of $0.35 per contract. The Exchange proposes to increase the 
Professional, Broker-Dealer and Firm electronic Penny Pilot Options 
Transaction Charges for Complex Orders to $0.40 per contract. Despite 
the increase to this fee, the Exchange believes the Penny Pilot Options 
Transaction Charges for electronic Complex Order transactions remain 
competitive. Professionals, Broker-Dealers and Firms will continue to 
be offered a discounted rate as compared to Simple Orders.\14\
---------------------------------------------------------------------------

    \14\ The Exchange would continue to assess an electronic Penny 
Pilot Options Transaction Charges to Professionals, Broker-Dealers 
and Firms of $0.48 per contract for Simple Orders.
---------------------------------------------------------------------------

Non-Penny Pilot Options
    The Exchange proposes to amend its Professional, Broker-Dealer and 
Firm electronic non-Penny Pilot Options Transaction Charges for Complex 
Orders. Today, the Exchange assesses Professionals, Broker-Dealers and 
Firms an electronic non-Penny Pilot Options Transaction Charges for 
Complex Orders of $0.35 per contract. The Exchange is proposing to 
remove the applicability of note 2 in the Pricing Schedule from the 
non-Penny Pilot Options Transaction Charges for Professionals, Broker-
Dealers and Firms. With this proposal, Professional, Broker-Dealer and 
Firm electronic non-Penny Pilot Options Transaction Charges for Complex 
Orders would be increased to $0.75 per contract because the reduced 
rate would no longer apply. Members may still lower this rate if they 
qualified for the reduced rebate offered in note 3 in the Pricing 
Schedule, which note is also being amended with this proposal as noted 
below. As proposed, the Options Transaction Charge for Simple and 
Complex Order electronic non-Penny Pilot Options Transaction Charges 
would be the same fee of $0.75 per contract fee.
    The Exchange also proposes to amend its Professional, Broker-Dealer 
and Firm electronic non-Penny Pilot Options Transaction Charges by 
amending note 3 in the Pricing Schedule. Today, note 3 provides that 
any member or member organization under Common Ownership with another 
member or member organization or an Appointed OFP of an Affiliated 
Entity that qualifies for Customer Rebate Tiers 4 or 5 in Section B of 
the Pricing Schedule \15\ will be assessed a Professional, Broker-
Dealer or Firm electronic non-Penny Pilot Options Transaction Charge of 
$0.60 per contract. The Exchange proposes to amend the fee to assess 
$0.65 per contract. The qualifications for the reduced rate remain the 
same. Professionals, Broker-Dealers and Firms that do not qualify for 
Customer Rebate Tiers 4 or 5 in Section B of the Pricing Schedule would 
continue to pay an electronic non-Penny Pilot Options Transaction 
Charge of $0.75 per contract. While the Exchange is amending the fee so 
that the reduction is not as great as today, the Exchange will continue 
to offer a reduced rate to Professionals, Broker-Dealers and Firms that 
qualify by sending the requisite order flow to the Exchange.
---------------------------------------------------------------------------

    \15\ See note 10 above.
---------------------------------------------------------------------------

    Finally, the Exchange is adding a period at end of the sentence in 
footnote 3 to correct a typographical error.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ 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, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \18\
---------------------------------------------------------------------------

    \18\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission 
\19\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\20\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \21\
---------------------------------------------------------------------------

    \19\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \20\ See NetCoalition, at 534--535.
    \21\ Id. at 537.
---------------------------------------------------------------------------

    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers' . . . .'' \22\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
---------------------------------------------------------------------------

    \22\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

Proposed Amendments to Section I: Rebates and Fees for Adding and 
Removing Liquidity in SPY
Simple Order
    The Exchange's proposal to amend the Simple Order Rebates for 
Adding Liquidity which are paid to Specialists and Market Makers by 
reducing the number of tiers from 6 tiers to 5 tiers and reducing the 
Tier 2 rebate to $0.18 per contract, reducing the Tier 3 rebate to 
$0.21 per contract, amending the Tier 4 monthly volume to 20,000 to 
49,999 contracts per day and the rebate to $0.31 per contract, 
eliminating Tier 5 and renaming Tier 6 to new Tier 5 is reasonable 
because the Exchange believes that the proposed five tier rebate 
structure will incentivize market participants to add a greater amount 
of Specialist and Market Maker liquidity in SPY on the Exchange to 
obtain higher rebates. A Specialist or Market Maker would continue to 
receive a rebate with this proposal provided they execute one 
electronic Simple Order SPY contract.
    In some cases, the rebate will be lower. When 2,500 to 4,999 
electronic Simple Order SPY contracts per day are added, the SPY Simple 
Order Rebate for Adding Liquidity for Specialists and Market Makers 
will be $0.18 per contract as compared to $0.20 per

[[Page 10936]]

contract (today's rebate). With this proposal, the rebate would be 
lower for members currently submitting 5,000 to 19,999 SPY contracts 
per day, the rebate would be $0.21 per contract as compared to $.25 per 
contract. Members currently submitting between 20,000 and 34,999 SPY 
contracts would receive a $0.31 per contract as compared to $0.30 per 
contract rebate with this proposal, an increased rebate of $0.01 per 
contract. Finally, with this proposal, market participants currently 
submitting between 35,000 and 49,999 SPY contracts per day would 
receive a lower rebate of $0.31 per contract as compared to $0.32 per 
contract. Despite this decrease, the Exchange believes that 
participants will continue to be incentivized to add SPY order flow to 
the Exchange to receive the rebate.
    The Exchange's proposal to amend the Simple Order Rebates for 
Adding Liquidity which are paid to Specialists and Market Makers by 
reducing the number of tiers from 6 tiers to 5 tiers and reducing the 
Tier 2 rebate to $0.18 per contract, reducing the Tier 3 rebate to 
$0.21 per contract, amending the Tier 4 monthly volume to 20,000 to 
49,999 contracts per day and the rebate to $0.31 per contract, 
eliminating Tier 5 and renaming Tier 6 to new Tier 5 is equitable and 
not unfairly discriminatory because Specialists and Market Makers have 
obligations to the market and regulatory requirements, which normally 
do not apply to other market participants.\23\ They have obligations to 
make continuous markets, engage in a course of dealings reasonably 
calculated to contribute to the maintenance of a fair and orderly 
market, and not make bids or offers or enter into transactions that are 
inconsistent with a course of dealings. The differentiation as between 
Specialists and Market Makers and all other market participants 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by these market participants. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------

    \23\ See Rule 1014 titled ``Obligations and Restrictions 
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------

    The Exchange's proposal to rename the column entitled ``Monthly 
Volume'' as ``Average Daily Volume (``ADV'')'' is reasonable, equitable 
and not unfairly discriminatory because the title more accurately 
describes the manner in which the rebate is calculated, which is adding 
the requisite amount of electronically executed Specialist and Market 
Maker Simple Order contracts per day in a month in SPY, as noted in 
Part A of Section I of the Pricing Schedule. This proposed change does 
not impact the manner in which the Exchange calculates these rebates 
today.
    The Exchange's proposal to amend the Simple Order Fees for Removing 
Liquidity for Specialists, Market Makers, Firms, Broker Dealers and 
Professionals by increasing the fees from $0.47 to $0.48 per contract 
is reasonable because despite the increased fee, the Exchange believes 
that its fees for Simple Orders in SPY remain competitive. The Customer 
Simple Order Fee for Removing Liquidity is not being amended and will 
remain at $0.45 per contract. Also, the increase in the Simple Order 
Fees for Removing Liquidity will continue to support the rebate 
structure proposed herein, which as stated above, attracts Specialists 
and Market Makers. An increase in the activity of Specialists and 
Market Makers in turn facilitates tighter spreads, which may cause an 
additional corresponding increase in order flow from other market 
participants.
    The Exchange's proposal to amend the Simple Order Fees for Removing 
Liquidity for Specialists, Market Makers, Firms, Broker Dealers and 
Professionals by increasing the fees from $0.47 to $0.48 per contract 
is equitable and not unfairly discriminatory because all participants 
would continue to be assessed a similar fee, except for Customers. The 
Exchange believes that assessing Customers a lower fee is equitable and 
not unfairly discriminatory because Customer orders bring valuable 
liquidity to the market, which liquidity benefits other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
Complex Order
    The Exchange's proposal to amend its Complex Order Fees for 
Removing Liquidity for Specialists and Market Makers by increasing the 
fees from $0.40 to $0.43 per contract is reasonable because despite the 
increased fee, the Exchange believes that its fees for Complex Orders 
in SPY remain competitive. Also, Specialists and Market Makers continue 
to be assessed a lower fee as compared to Firms, Broker-Dealers or 
Professionals; who are assessed $0.50 per contract.
    The Exchange's proposal to amend its Complex Order Fees for 
Removing Liquidity for Specialists and Market Makers by increasing the 
fees from $0.40 to $0.43 per contract is equitable and not unfairly 
discriminatory. Unlike other market participants, Specialists and 
Market Makers have obligations to the market and regulatory 
requirements, which normally do not apply to other market 
participants.\24\ They have obligations to make continuous markets, 
engage in a course of dealings reasonably calculated to contribute to 
the maintenance of a fair and orderly market, and not make bids or 
offers or enter into transactions that are inconsistent with a course 
of dealings. The differentiation as between Specialists and Market 
Makers and all other market participants recognizes the differing 
contributions made to the liquidity and trading environment on the 
Exchange by these market participants. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants. Customers continue to be assessed no Complex Order 
Fee for Removing Liquidity because Customer orders bring valuable 
liquidity to the market, which liquidity benefits other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------

    \24\ Id.
---------------------------------------------------------------------------

Proposed Amendments to Section II: Multiple Listed Options Fees
Penny Pilot Options
    The Exchange's proposal to amend its Professional, Broker-Dealer 
and Firm electronic Penny Pilot Options Transaction Charges for Complex 
Orders from $0.35 per contract to $0.40 per contract is reasonable 
because despite the increase to this fee, the Exchange believes the 
Penny Pilot Options Transaction Charges for electronic Complex Order 
transactions remain competitive. Professionals, Broker-Dealers and 
Firms and will continue to be offered a discounted rate as compared to 
Simple Orders which will continue to be assessed $0.48 per contract.

[[Page 10937]]

    The Exchange's proposal to amend its Professional, Broker-Dealer 
and Firm electronic Penny Pilot Options Transaction Charges for Complex 
Orders from $0.35 per contract to $0.40 per contract is equitable and 
not unfairly discriminatory because Professionals, Broker-Dealers and 
Firms would be uniformly assessed $0.40 per contract. Specialists and 
Market Makers would continue to be assessed a lower electronic Penny 
Pilot Options Transaction Charge of $0.22 per contract. Unlike other 
market participants, Specialists and Market Makers have obligations to 
the market and regulatory requirements, which normally do not apply to 
other market participants.\25\ They have obligations to make continuous 
markets, engage in a course of dealings reasonably calculated to 
contribute to the maintenance of a fair and orderly market, and not 
make bids or offers or enter into transactions that are inconsistent 
with a course of dealings. The differentiation as between Specialists 
and Market Makers and all other market participants recognizes the 
differing contributions made to the liquidity and trading environment 
on the Exchange by these market participants. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. Customers continue to be assessed 
no Penny Pilot Options Transaction Charge because Customer orders bring 
valuable liquidity to the market, which liquidity benefits other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------

    \25\ Id.
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to continue to offer Professionals, Broker-
Dealers and Firms the opportunity to reduce electronic Complex Orders 
in Penny Pilot Options as compared to non-Penny Pilot Options because 
the Exchange seeks to incentivize Professionals, Broker-Dealers and 
Firms to execute Complex Penny Pilot Options orders. Also, lowering the 
electronic Options Transaction Charges for Complex Orders, as compared 
to Simple Orders is reasonable, equitable and not unfairly 
discriminatory because the Exchange desires to continue to incentivize 
these market participants to transact Complex Orders on the Exchange. 
The fees will be applied uniformly to all market participants.
Non-Penny Pilot
    The Exchange's proposal to amend its Professional, Broker-Dealer 
and Firm electronic non-Penny Pilot Options Transaction Charges for 
Complex Orders by removing the applicability of note 2 in the Pricing 
Schedule and increasing the fee to $0.75 per contract is reasonable 
because Professionals, Broker-Dealers and Firms transacting electronic 
non-Penny Pilot Options Transaction Charges would be uniformly assessed 
a fee of $0.75 per contract for Simple and Complex Orders. Members may 
still lower this rate if they qualified for the reduced rebate offered 
in note 3 in the Pricing Schedule, which note is also being amended 
with this proposal. Despite the inapplicability of note 2, the Exchange 
believes the non-Penny Pilot Options Transaction Charges for electronic 
Complex Order transactions remain competitive.
    The Exchange's proposal to amend its Professional, Broker-Dealer 
and Firm electronic non-Penny Pilot Options Transaction Charges for 
Complex Orders by removing the applicability of note 2 in the Pricing 
Schedule and increasing the fee to $0.75 per contract is equitable and 
not unfairly discriminatory because Professionals, Broker-Dealers and 
Firms transacting electronic non-Penny Pilot Options Transaction 
Charges would be uniformly assessed a fee of $0.75 per contract for 
Simple and Complex Orders. Specialists and Market Makers would continue 
to be assessed a lower electronic non-Penny Pilot Options Transaction 
Charge of $0.25 per contract. Unlike other market participants, 
Specialists and Market Makers have obligations to the market and 
regulatory requirements, which normally do not apply to other market 
participants.\26\ They have obligations to make continuous markets, 
engage in a course of dealings reasonably calculated to contribute to 
the maintenance of a fair and orderly market, and not make bids or 
offers or enter into transactions that are inconsistent with a course 
of dealings. The differentiation as between Specialists and Market 
Makers and all other market participants recognizes the differing 
contributions made to the liquidity and trading environment on the 
Exchange by these market participants. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants. Customers continue to be assessed no non-Penny 
Pilot Options Transaction Charge because Customer orders bring valuable 
liquidity to the market, which liquidity benefits other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------

    \26\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal to amend note 3 in the Pricing Schedule to 
increase the amount a member or member organization under Common 
Ownership with another member or member organization or an Appointed 
OFP of an Affiliated Entity that qualifies for Customer Rebate Tiers 4 
or 5 in Section B of the Pricing Schedule will be assessed and increase 
the Professional, Broker-Dealer or Firm electronic non-Penny Pilot 
Options Transaction Charge of from $0.60 to $0.65 per contract is 
reasonable because Professionals, Broker-Dealers and Firms may continue 
to qualify for a lower rate. Professionals, Broker-Dealers and Firms 
that do not qualify for Customer Rebate Tiers 4 or 5 in Section B of 
the Pricing Schedule would continue to pay an electronic non-Penny 
Pilot Options Transaction Charge of $0.75 per contract. While amendment 
reduces the savings, the Exchange will continue to offer Professionals, 
Broker-Dealers and Firms that qualify by sending the requisite order 
flow to the Exchange a lower transaction fee. In addition, attracting 
Customer order flow benefits all market participants with increased 
order flow with which to interact.
    The Exchange's proposal to amend note 3 in the Pricing Schedule to 
increase the amount a member or member organization under Common 
Ownership with another member or member organization or an Appointed 
OFP of an Affiliated Entity that qualifies for Customer Rebate Tiers 4 
or 5 in Section B of the Pricing Schedule will be assessed and increase 
the Professional, Broker-Dealer or Firm electronic non-Penny Pilot 
Options Transaction Charge of [sic] from $0.60 to $0.65 per contract is 
equitable and not unfairly discriminatory because these market 
participants are subject to the highest transaction fees of $0.75 per 
contract.
    The Exchange's proposal to correct the typographical error in 
footnote 3 is

[[Page 10938]]

reasonable, equitable and not unfairly discriminatory because it 
correct [sic] a grammatical error.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited. In 
sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.
    In terms of intra-market competition, the Exchange believes that 
its proposed rebates and fees continue to remain competitive in SPY and 
Multiply Listed Options. In sum, if the changes proposed herein are 
unattractive to market participants, it is likely that the Exchange 
will lose market share as a result. Accordingly, the Exchange does not 
believe that the proposed changes will impair the ability of members or 
competing order execution venues to maintain their competitive standing 
in the financial markets.
Proposed Amendments to Section I: Rebates and Fees for Adding and 
Removing Liquidity in SPY
Simple Order
    The Exchange's proposal to amend the Simple Order Rebates for 
Adding Liquidity which are paid to Specialists and Market Makers by 
reducing the number of tiers from 6 tiers to 5 tiers and reducing the 
Tier 2 rebate to $0.18 per contract, reducing the Tier 3 rebate to 
$0.21 per contract, amending the Tier 4 monthly volume to 20,000 to 
49,999 contracts per day and the rebate to $0.31 per contract, 
eliminating Tier 5 and renaming Tier 6 to new Tier 5 does not impose an 
undue burden on intra-market competition because Specialists and Market 
Makers have obligations to the market and regulatory requirements, 
which normally do not apply to other market participants.\27\ They have 
obligations to make continuous markets, engage in a course of dealings 
reasonably calculated to contribute to the maintenance of a fair and 
orderly market, and not make bids or offers or enter into transactions 
that are inconsistent with a course of dealings. The differentiation as 
between Specialists and Market Makers and all other market participants 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by these market participants. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------

    \27\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal to rename the column entitled ``Monthly 
Volume'' as ``Average Daily Volume (``ADV'')'' does not impose an undue 
burden on intra-market competition because the title more accurately 
describes the manner in which the rebate is calculated, which is adding 
the requisite amount of electronically executed Specialist and Market 
Maker Simple Order contracts per day in a month in SPY, as noted in 
Part A of Section I of the Pricing Schedule. This proposed change does 
not impact the manner in which the Exchange calculates these rebates 
today.
    The Exchange's proposal to amend the Simple Order Fees for Removing 
Liquidity for Specialists, Market Makers, Firms, Broker Dealers and 
Professionals by increasing the fees from $0.47 to $0.48 per contract 
does not impose an undue burden on intra-market competition because all 
participants would continue to be assessed a similar fee, except for 
Customers. The Exchange believes that assessing Customers a lower fee 
does not impose a burden on intra-market competition because Customer 
orders bring valuable liquidity to the market, which liquidity benefits 
other market participants. Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Specialists and Market Makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants.
Complex Order
    The Exchange's proposal to amend its Complex Order Fees for 
Removing Liquidity for Specialists and Market Makers by increasing the 
fees from $0.40 to $0.43 per contract does not impose an undue burden 
on intra-market competition. Unlike other market participants, 
Specialists and Market Makers have obligations to the market and 
regulatory requirements, which normally do not apply to other market 
participants.\28\ They have obligations to make continuous markets, 
engage in a course of dealings reasonably calculated to contribute to 
the maintenance of a fair and orderly market, and not make bids or 
offers or enter into transactions that are inconsistent with a course 
of dealings. The differentiation as between Specialists and Market 
Makers and all other market participants recognizes the differing 
contributions made to the liquidity and trading environment on the 
Exchange by these market participants. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants. Customers continue to be assessed no Complex Order 
Fee for Removing Liquidity because Customer orders bring valuable 
liquidity to the market, which liquidity benefits other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------

    \28\ Id.
---------------------------------------------------------------------------

Proposed Amendments to Section II: Multiple Listed Options Fees
Penny Pilot Options
    The Exchange's proposal to amend its Professional, Broker-Dealer 
and Firm electronic Penny Pilot Options Transaction Charges for Complex 
Orders from $0.35 per contract to $0.40 per contract does not impose an 
undue burden on intra-market competition because Professionals, Broker-
Dealers and Firms would be uniformly assessed

[[Page 10939]]

$0.40 per contract. Specialists and Market Makers would continue to be 
assessed a lower electronic Penny Pilot Options Transaction Charge of 
$0.22 per contract. Unlike other market participants, Specialists and 
Market Makers have obligations to the market and regulatory 
requirements, which normally do not apply to other market 
participants.\29\ They have obligations to make continuous markets, 
engage in a course of dealings reasonably calculated to contribute to 
the maintenance of a fair and orderly market, and not make bids or 
offers or enter into transactions that are inconsistent with a course 
of dealings. The differentiation as between Specialists and Market 
Makers and all other market participants recognizes the differing 
contributions made to the liquidity and trading environment on the 
Exchange by these market participants. An increase in the activity of 
these market participants in turn facilitates tighter spreads, which 
may cause an additional corresponding increase in order flow from other 
market participants. Customers continue to be assessed no Penny Pilot 
Options Transaction Charge because Customer orders bring valuable 
liquidity to the market, which liquidity benefits other market 
participants. Customer liquidity benefits all market participants by 
providing more trading opportunities, which attracts Specialists and 
Market Makers. An increase in the activity of these market participants 
in turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------

    \29\ Id.
---------------------------------------------------------------------------

Non-Penny Pilot Options
    The Exchange's proposal to amend its Professional, Broker-Dealer 
and Firm electronic non-Penny Pilot Options Transaction Charges for 
Complex Orders by removing the applicability of note 2 in the Pricing 
Schedule and increasing the fee to $0.75 per contract does not impose 
an undue burden on intra-market competition because Professionals, 
Broker-Dealers and Firms transacting electronic non-Penny Pilot Options 
Transaction Charges would be uniformly assessed a fee of $0.75 per 
contract. Specialists and Market Makers would continue to be assessed a 
lower electronic non-Penny Pilot Options Transaction Charge of $0.25 
per contract. Unlike other market participants, Specialists and Market 
Makers have obligations to the market and regulatory requirements, 
which normally do not apply to other market participants.\30\ They have 
obligations to make continuous markets, engage in a course of dealings 
reasonably calculated to contribute to the maintenance of a fair and 
orderly market, and not make bids or offers or enter into transactions 
that are inconsistent with a course of dealings. The differentiation as 
between Specialists and Market Makers and all other market participants 
recognizes the differing contributions made to the liquidity and 
trading environment on the Exchange by these market participants. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
Customers continue to be assessed no non-Penny Pilot Options 
Transaction Charge because Customer orders bring valuable liquidity to 
the market, which liquidity benefits other market participants. 
Customer liquidity benefits all market participants by providing more 
trading opportunities, which attracts Specialists and Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
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    \30\ Id.
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    The Exchange believes that it does not impose an undue burden on 
intra-market competition to continue to offer Professionals, Broker-
Dealers and Firms the opportunity to reduce electronic Complex Orders 
in non-Penny Pilot Options as compared to Penny Pilot Options because 
the Options Transaction Charges for non-Penny Pilot Options are higher. 
Also, only lowering the electronic Options Transaction Charges for 
Complex Orders, as compared to Simple Orders does not impose an undue 
burden on intra-market competition because the Exchange desires to 
continue to incentivize these market participants to transact Complex 
Orders on the Exchange.
    The Exchange's proposal to amend note 3 in the Pricing Schedule to 
increase the amount a member or member organization under Common 
Ownership with another member or member organization or an Appointed 
OFP of an Affiliated Entity that qualifies for Customer Rebate Tiers 4 
or 5 in Section B of the Pricing Schedule will be assessed and increase 
the Professional, Broker-Dealer or Firm electronic non-Penny Pilot 
Options Transaction Charge of from $0.60 to $0.65 per contract does not 
impose an undue burden on intra-market competition because these market 
participants are subject to the highest transaction fees of $0.75 per 
contract.
    The Exchange's proposal to correct the typographical error in 
footnote 3 does not impose an undue burden on intra-market competition 
because it correct [sic] a grammatical error.

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.\31\
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    \31\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2017-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2017-09. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/

[[Page 10940]]

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-2017-09, and should be submitted on or before March 9, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03099 Filed 2-15-17; 8:45 am]
BILLING CODE 8011-01-P