Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule With Respect to the Options Regulatory Fee, 37964-37966 [2017-17048]

Download as PDF 37964 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–GEMX– 2017–36, and should be submitted on or before September 5, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–17069 Filed 8–11–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81343; File No. SR–Phlx– 2017–54] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange’s Pricing Schedule With Respect to the Options Regulatory Fee sradovich on DSK3GMQ082PROD with NOTICES August 8, 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 July 26, 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 26 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 16:45 Aug 11, 2017 Jkt 241001 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 revise Section IV, Part D of the Pricing Schedule to more closely reflect the manner in which Phlx assesses and collects its Options Regulatory Fee (‘‘ORF’’). The text of the proposed rule change is available on the Exchange’s Web site at https://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 the Statutory Basis for, the Proposed Rule Change 1. Purpose Phlx initially filed to establish its ORF in 2009.3 The Exchange has amended its ORF several times since the inception of this fee.4 At this time, the Exchange proposes to revise Section IV, Part D of the Pricing Schedule to more closely reflect the manner in which Phlx assesses and collects its ORF. The Exchange supports a common approach for the assessment and 3 See Securities Exchange Act Release No. 61133 (December 9, 2009), 74 FR 66715 (December 16, 2009) (SR–Phlx–2009–100) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to an Options Regulatory Fee). 4 See Securities Exchange Act Release Nos. 61529 (February 17, 2010), 75 FR 8421 (February 24, 2010) (SR–Phlx–2010–17); 62619 (July 30, 2010), 75 FR 47874 (August 9, 2010) (SR–Phlx–2010–100); 63436 (December 6, 2010), 75 FR 77021 (December 10, 2010) (SR–Phlx–2010–166); 65897 (December 6, 2011), 76 FR 77277 (December 12, 2011) (SR–Phlx– 2011–163); 66664 (March 27, 2012), 77 FR 19743 (April 2, 2012) (SR–Phlx–2012–36); 71569 (February 19, 2014), 79 FR 10593 (February 25, 2014) (SR–Phlx–2014–12); 75749 (August 21, 2015), 80 FR 52073 (August 27, 2017) (SR–Phlx–2015–71); 77032 (February 2, 2016), 81 FR 6560 (February 8, 2016) (SR–Phlx–2016–04); and 79751 (January 6, 2017), 82 FR 3826 (January 12, 2017) (SR–Phlx– 2017–02). PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 collection of ORF among the various options exchanges that assess such a fee. Furthermore, the Exchange supports guidance from the Commission regarding regulatory cost structures to ensure equal knowledge and treatment among options markets assessing ORF. The Exchange assesses an ORF of $0.0045 per contract side. This proposed rule change does not seek to amend the amount of the ORF. Currently, Phlx assesses its ORF for each Customer option transaction that is either: (1) Executed by a member 5 on Phlx; or (2) cleared by a Phlx member at The Options Clearing Corporation (‘‘OCC’’) in the Customer range,6 even if the transaction was executed by a nonmember of Phlx, regardless of the exchange on which the transaction occurs.7 If the OCC clearing member is a Phlx member, ORF is assessed and collected on all cleared Customer contracts (after adjustment for CMTA 8); and (2) if the OCC clearing member is not a Phlx member, ORF is collected only on the cleared Customer contracts executed at Phlx, taking into account any CMTA instructions which may result in collecting the ORF from a nonmember. By way of example, if Broker A, a Phlx member, routes a Customer order to CBOE and the transaction executes on CBOE and clears in Broker A’s OCC Clearing account, ORF will be collected by Phlx from Broker A’s clearing account at OCC via direct debit. While this transaction was executed on a market other than Phlx, it was cleared by a Phlx member in the member’s OCC clearing account in the Customer range, therefore there is a regulatory nexus between Phlx and the transaction. If Broker A was not a Phlx member, then no ORF should be assessed and collected because there is no nexus; the 5 For purposes of this filing the term ‘‘member’’ shall mean either a ‘‘member’’ or a ‘‘member organization.’’ 6 Exchange Rules require each member to record the appropriate account origin code on all orders at the time of entry in order to allow the Exchange to properly prioritize and route orders and assess transaction fees pursuant to the Rules of the Exchange and report resulting transactions to OCC. The Exchange represents that it has surveillances in place to verify that members mark orders with the correct account origin code. 7 The Exchange uses reports from OCC when assessing and collecting the ORF. 8 CMTA or Clearing Member Trade Assignment is a form of ‘‘give-up’’ whereby the position will be assigned to a specific clearing firm at OCC. Phlx Rule 1052 provides that every Clearing Member is responsible for the clearance of the Exchange options transactions of such Clearing Member and of each member who gives up the name of such Clearing Member in an Exchange options transaction, provided the Clearing Member has authorized such member to give up its name with respect to Exchange options transactions. E:\FR\FM\14AUN1.SGM 14AUN1 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES transaction did not execute on Phlx nor was it cleared by a Phlx member. In the case where a member both executes a transaction and clears the transaction, the ORF is assessed to and collected from the member only once. In the case where a member executes a transaction and a different member clears the transaction, the ORF is assessed to and collected from the member who clears the transaction and not the member who executes the transaction. In the case where a nonmember executes a transaction at an away market and a member clears the transaction, the ORF is assessed to and collected from the member who clears the transaction. In the case where a member executes a transaction on Phlx and a non-member clears the transaction, the ORF is assessed to the member that executed the transaction and collected from the non-member who cleared the transaction. In the case where a member executes a transaction at an away market and a non-member clears the transaction, the ORF is not assessed to the member who executed the transaction or collected from the non-member who cleared the transaction because the Exchange does not have access to the data to make absolutely certain that ORF should apply. Further, the data does not allow the Exchange to identify the member executing the trade at an away market. ORF Revenue and Monitoring of ORF The Exchange monitors the amount of revenue collected from the ORF to ensure that it, in combination with other regulatory fees and fines, does not exceed regulatory costs. In determining whether an expense is considered a regulatory cost, the Exchange reviews all costs and makes determinations if there is a nexus between the expense and a regulatory function. For example, a cost related to PSX, the Exchange’s equity platform, would not be considered an expense that is compared to ORF revenue. An options surveillance employee’s cost, however would be an expense that is compared to ORF revenue. The Exchange notes that fines collected by the Exchange in connection with a disciplinary manner offset ORF. The ORF is designed to recover a material portion of the costs to the Exchange of the supervision and regulation of its members, including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. The Exchange believes that revenue generated from the ORF, when combined with all of the Exchange’s VerDate Sep<11>2014 16:45 Aug 11, 2017 Jkt 241001 other regulatory fees, will cover a material portion, but not all, of the Exchange’s regulatory costs. The Exchange will continue to monitor the amount of revenue collected from the ORF to ensure that it, in combination with its other regulatory fees and fines, does not exceed regulatory costs. If the Exchange determines regulatory revenues exceed regulatory costs, the Exchange will adjust the ORF by submitting a fee change filing to the Commission. Finally, the Exchange notes that it is amending its rule text at Section IV, Part D to remove outdated rule text and include new rule text to make clear the manner in which ORF is assessed and collected on Phlx. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 9 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act10 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 its facility and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange believes the proposed clarifications in the Fee Schedule to the ORF further the objectives of Section 6(b)(4) of the Act and are equitable and reasonable since they expressly describe the Exchange’s existing practices regarding the manner in which the Exchange assesses and collects its ORF. The Exchange believes it is reasonable and appropriate for the Exchange to charge the ORF for options transactions regardless of the exchange on which the transactions occur. The Exchange has a statutory obligation to enforce compliance by members and their associated persons under the Act and the rules of the Exchange and to surveil for other manipulative conduct by market participants (including nonmembers) trading on the Exchange. The Exchange cannot effectively surveil for such conduct without looking at and evaluating activity across all options markets. Many of the Exchange’s market surveillance programs require the Exchange to look at and evaluate activity across all options markets, such as surveillance for position limit violations, manipulation, front-running and contrary exercise advice violations/ expiring exercise declarations. The Exchange, because it lacks access to information on the identity of the 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 10 15 PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 37965 entering firm for executions that occur on away markets, believes it is appropriate to assess the ORF on its member’s clearing activity, based on information the Exchange receives from OCC, including for away market activity. Among other reasons, doing so better and more accurately captures activity that occurs away from the Exchange over which the Exchange has a degree of regulatory responsibility. In so doing, the Exchange believes that assessing ORF on member clearing firms in certain instances equitably distributes the collection of ORF in a fair and reasonable manner. Also, the Exchange and the other options exchanges are required to populate a consolidated options audit trail (‘‘COATS’’) 11 system in order to surveil a member’s activities across markets.12 The Exchange believes that assessing the ORF to each Exchange member for options transactions cleared by OCC in the Customer range where the execution occurs on another exchange and is cleared by a Phlx member is an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. The ORF is collected by OCC on behalf of Phlx from Exchange clearing members for all Customer transactions they clear or from non-members for all Customer transactions they clear that were executed on Phlx. The Exchange believes that this collection practice is reasonable and appropriate because higher fees are assessed to those members that require more Exchange regulatory services based on the amount of Customer options business they conduct. Regulating Customer trading activity is more labor intensive and requires greater expenditure of human and 11 COATS effectively enhances intermarket options surveillance by enabling the options exchanges to reconstruct the market promptly to effectively surveil certain rules. 12 In addition to its own surveillance programs, the Exchange works with other SROs and exchanges on intermarket surveillance related issues. Through its participation in the Intermarket Surveillance Group (‘‘ISG’’), the Exchange shares information and coordinates inquiries and investigations with other exchanges designed to address potential intermarket manipulation and trading abuses. The Exchange’s participation in ISG helps it to satisfy the requirement that it has coordinated surveillance with markets on which security futures are traded and markets on which any security underlying security futures are traded to detect manipulation and insider trading. See Section 6(h)(3)(I) of the Act. ISG is an industry organization formed in 1983 to coordinate intermarket surveillance among the SROs by co-operatively sharing regulatory information pursuant to a written agreement between the parties. The goal of the ISG’s information sharing is to coordinate regulatory efforts to address potential intermarket trading abuses and manipulations. E:\FR\FM\14AUN1.SGM 14AUN1 37966 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices technical resources than regulating nonCustomer trading activity, which tends to be more automated and less labor intensive. As a result, the costs associated with administering the Customer component of the Exchange’s overall regulatory program are anticipated to be typically higher than the costs associated with administering the non-Customer component of its regulatory program. The Exchange proposes assessing higher fees to those members that will require more Exchange regulatory services based on the amount of Customer options business they conduct. Additionally, the dues and fees paid by members go into the general funds of the Exchange, a portion of which is used to help pay the costs of regulation. The Exchange has in place a regulatory structure to surveil, conduct examinations and monitor the marketplace for violations of Exchange Rules. The ORF assists the Exchange to fund the cost of this regulation of the marketplace. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The ORF is not intended to have any impact on competition. Rather, it is designed to enable the Exchange to recover a material portion of the Exchange’s cost related to its regulatory activities. The Exchange is obligated to ensure that the amount of regulatory revenue collected from the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs. sradovich on DSK3GMQ082PROD with NOTICES 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.13 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. 13 15 U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 16:45 Aug 11, 2017 Jkt 241001 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 [FR Doc. 2017–17048 Filed 8–11–17; 8:45 am] Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– Phlx–2017–54 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–Phlx–2017–54. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the 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 No. SR–Phlx–2017–54, and should be submitted on or before September 5, 2017. PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81350; File No. SR–ISE– 2017–77] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Schedule of Fees August 8, 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 August 1, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Schedule of Fees to (1) eliminate Priority Customer complex order rebates for all net zero complex orders without any associated average daily volume requirement, and (2) reduce the maker fee charged to Market Makers and NonNasdaq ISE Market Makers for Regular Orders in Select Symbols when trading against Priority Customer complex orders that leg into the regular order book. The text of the proposed rule change is available on the Exchange’s Web site at www.ise.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\14AUN1.SGM 14AUN1

Agencies

[Federal Register Volume 82, Number 155 (Monday, August 14, 2017)]
[Notices]
[Pages 37964-37966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17048]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81343; File No. SR-Phlx-2017-54]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule With Respect to the Options Regulatory Fee

August 8, 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 July 26, 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to revise Section IV, Part D of the Pricing 
Schedule to more closely reflect the manner in which Phlx assesses and 
collects its Options Regulatory Fee (``ORF'').
    The text of the proposed rule change is available on the Exchange's 
Web site at https://nasdaqphlx.cchwallstreet.com/ 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Phlx initially filed to establish its ORF in 2009.\3\ The Exchange 
has amended its ORF several times since the inception of this fee.\4\ 
At this time, the Exchange proposes to revise Section IV, Part D of the 
Pricing Schedule to more closely reflect the manner in which Phlx 
assesses and collects its ORF.
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    \3\ See Securities Exchange Act Release No. 61133 (December 9, 
2009), 74 FR 66715 (December 16, 2009) (SR-Phlx-2009-100) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to an Options Regulatory Fee).
    \4\ See Securities Exchange Act Release Nos. 61529 (February 17, 
2010), 75 FR 8421 (February 24, 2010) (SR-Phlx-2010-17); 62619 (July 
30, 2010), 75 FR 47874 (August 9, 2010) (SR-Phlx-2010-100); 63436 
(December 6, 2010), 75 FR 77021 (December 10, 2010) (SR-Phlx-2010-
166); 65897 (December 6, 2011), 76 FR 77277 (December 12, 2011) (SR-
Phlx-2011-163); 66664 (March 27, 2012), 77 FR 19743 (April 2, 2012) 
(SR-Phlx-2012-36); 71569 (February 19, 2014), 79 FR 10593 (February 
25, 2014) (SR-Phlx-2014-12); 75749 (August 21, 2015), 80 FR 52073 
(August 27, 2017) (SR-Phlx-2015-71); 77032 (February 2, 2016), 81 FR 
6560 (February 8, 2016) (SR-Phlx-2016-04); and 79751 (January 6, 
2017), 82 FR 3826 (January 12, 2017) (SR-Phlx-2017-02).
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    The Exchange supports a common approach for the assessment and 
collection of ORF among the various options exchanges that assess such 
a fee. Furthermore, the Exchange supports guidance from the Commission 
regarding regulatory cost structures to ensure equal knowledge and 
treatment among options markets assessing ORF.
    The Exchange assesses an ORF of $0.0045 per contract side. This 
proposed rule change does not seek to amend the amount of the ORF. 
Currently, Phlx assesses its ORF for each Customer option transaction 
that is either: (1) Executed by a member \5\ on Phlx; or (2) cleared by 
a Phlx member at The Options Clearing Corporation (``OCC'') in the 
Customer range,\6\ even if the transaction was executed by a non-member 
of Phlx, regardless of the exchange on which the transaction occurs.\7\ 
If the OCC clearing member is a Phlx member, ORF is assessed and 
collected on all cleared Customer contracts (after adjustment for CMTA 
\8\); and (2) if the OCC clearing member is not a Phlx member, ORF is 
collected only on the cleared Customer contracts executed at Phlx, 
taking into account any CMTA instructions which may result in 
collecting the ORF from a non-member.
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    \5\ For purposes of this filing the term ``member'' shall mean 
either a ``member'' or a ``member organization.''
    \6\ Exchange Rules require each member to record the appropriate 
account origin code on all orders at the time of entry in order to 
allow the Exchange to properly prioritize and route orders and 
assess transaction fees pursuant to the Rules of the Exchange and 
report resulting transactions to OCC. The Exchange represents that 
it has surveillances in place to verify that members mark orders 
with the correct account origin code.
    \7\ The Exchange uses reports from OCC when assessing and 
collecting the ORF.
    \8\ CMTA or Clearing Member Trade Assignment is a form of 
``give-up'' whereby the position will be assigned to a specific 
clearing firm at OCC. Phlx Rule 1052 provides that every Clearing 
Member is responsible for the clearance of the Exchange options 
transactions of such Clearing Member and of each member who gives up 
the name of such Clearing Member in an Exchange options transaction, 
provided the Clearing Member has authorized such member to give up 
its name with respect to Exchange options transactions.
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    By way of example, if Broker A, a Phlx member, routes a Customer 
order to CBOE and the transaction executes on CBOE and clears in Broker 
A's OCC Clearing account, ORF will be collected by Phlx from Broker A's 
clearing account at OCC via direct debit. While this transaction was 
executed on a market other than Phlx, it was cleared by a Phlx member 
in the member's OCC clearing account in the Customer range, therefore 
there is a regulatory nexus between Phlx and the transaction. If Broker 
A was not a Phlx member, then no ORF should be assessed and collected 
because there is no nexus; the

[[Page 37965]]

transaction did not execute on Phlx nor was it cleared by a Phlx 
member.
    In the case where a member both executes a transaction and clears 
the transaction, the ORF is assessed to and collected from the member 
only once. In the case where a member executes a transaction and a 
different member clears the transaction, the ORF is assessed to and 
collected from the member who clears the transaction and not the member 
who executes the transaction. In the case where a non-member executes a 
transaction at an away market and a member clears the transaction, the 
ORF is assessed to and collected from the member who clears the 
transaction. In the case where a member executes a transaction on Phlx 
and a non-member clears the transaction, the ORF is assessed to the 
member that executed the transaction and collected from the non-member 
who cleared the transaction. In the case where a member executes a 
transaction at an away market and a non-member clears the transaction, 
the ORF is not assessed to the member who executed the transaction or 
collected from the non-member who cleared the transaction because the 
Exchange does not have access to the data to make absolutely certain 
that ORF should apply. Further, the data does not allow the Exchange to 
identify the member executing the trade at an away market.
ORF Revenue and Monitoring of ORF
    The Exchange monitors the amount of revenue collected from the ORF 
to ensure that it, in combination with other regulatory fees and fines, 
does not exceed regulatory costs. In determining whether an expense is 
considered a regulatory cost, the Exchange reviews all costs and makes 
determinations if there is a nexus between the expense and a regulatory 
function. For example, a cost related to PSX, the Exchange's equity 
platform, would not be considered an expense that is compared to ORF 
revenue. An options surveillance employee's cost, however would be an 
expense that is compared to ORF revenue. The Exchange notes that fines 
collected by the Exchange in connection with a disciplinary manner 
offset ORF.
    The ORF is designed to recover a material portion of the costs to 
the Exchange of the supervision and regulation of its members, 
including performing routine surveillances, investigations, 
examinations, financial monitoring, and policy, rulemaking, 
interpretive, and enforcement activities.
    The Exchange believes that revenue generated from the ORF, when 
combined with all of the Exchange's other regulatory fees, will cover a 
material portion, but not all, of the Exchange's regulatory costs. The 
Exchange will continue to monitor the amount of revenue collected from 
the ORF to ensure that it, in combination with its other regulatory 
fees and fines, does not exceed regulatory costs. If the Exchange 
determines regulatory revenues exceed regulatory costs, the Exchange 
will adjust the ORF by submitting a fee change filing to the 
Commission.
    Finally, the Exchange notes that it is amending its rule text at 
Section IV, Part D to remove outdated rule text and include new rule 
text to make clear the manner in which ORF is assessed and collected on 
Phlx.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act\10\ 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 its facility and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes the proposed clarifications in the Fee 
Schedule to the ORF further the objectives of Section 6(b)(4) of the 
Act and are equitable and reasonable since they expressly describe the 
Exchange's existing practices regarding the manner in which the 
Exchange assesses and collects its ORF.
    The Exchange believes it is reasonable and appropriate for the 
Exchange to charge the ORF for options transactions regardless of the 
exchange on which the transactions occur. The Exchange has a statutory 
obligation to enforce compliance by members and their associated 
persons under the Act and the rules of the Exchange and to surveil for 
other manipulative conduct by market participants (including non-
members) trading on the Exchange. The Exchange cannot effectively 
surveil for such conduct without looking at and evaluating activity 
across all options markets. Many of the Exchange's market surveillance 
programs require the Exchange to look at and evaluate activity across 
all options markets, such as surveillance for position limit 
violations, manipulation, front-running and contrary exercise advice 
violations/expiring exercise declarations. The Exchange, because it 
lacks access to information on the identity of the entering firm for 
executions that occur on away markets, believes it is appropriate to 
assess the ORF on its member's clearing activity, based on information 
the Exchange receives from OCC, including for away market activity. 
Among other reasons, doing so better and more accurately captures 
activity that occurs away from the Exchange over which the Exchange has 
a degree of regulatory responsibility. In so doing, the Exchange 
believes that assessing ORF on member clearing firms in certain 
instances equitably distributes the collection of ORF in a fair and 
reasonable manner. Also, the Exchange and the other options exchanges 
are required to populate a consolidated options audit trail (``COATS'') 
\11\ system in order to surveil a member's activities across 
markets.\12\
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    \11\ COATS effectively enhances intermarket options surveillance 
by enabling the options exchanges to reconstruct the market promptly 
to effectively surveil certain rules.
    \12\ In addition to its own surveillance programs, the Exchange 
works with other SROs and exchanges on intermarket surveillance 
related issues. Through its participation in the Intermarket 
Surveillance Group (``ISG''), the Exchange shares information and 
coordinates inquiries and investigations with other exchanges 
designed to address potential intermarket manipulation and trading 
abuses. The Exchange's participation in ISG helps it to satisfy the 
requirement that it has coordinated surveillance with markets on 
which security futures are traded and markets on which any security 
underlying security futures are traded to detect manipulation and 
insider trading. See Section 6(h)(3)(I) of the Act. ISG is an 
industry organization formed in 1983 to coordinate intermarket 
surveillance among the SROs by co-operatively sharing regulatory 
information pursuant to a written agreement between the parties. The 
goal of the ISG's information sharing is to coordinate regulatory 
efforts to address potential intermarket trading abuses and 
manipulations.
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    The Exchange believes that assessing the ORF to each Exchange 
member for options transactions cleared by OCC in the Customer range 
where the execution occurs on another exchange and is cleared by a Phlx 
member is an equitable allocation of reasonable dues, fees, and other 
charges among its members and issuers and other persons using its 
facilities. The ORF is collected by OCC on behalf of Phlx from Exchange 
clearing members for all Customer transactions they clear or from non-
members for all Customer transactions they clear that were executed on 
Phlx. The Exchange believes that this collection practice is reasonable 
and appropriate because higher fees are assessed to those members that 
require more Exchange regulatory services based on the amount of 
Customer options business they conduct.
    Regulating Customer trading activity is more labor intensive and 
requires greater expenditure of human and

[[Page 37966]]

technical resources than regulating non-Customer trading activity, 
which tends to be more automated and less labor intensive. As a result, 
the costs associated with administering the Customer component of the 
Exchange's overall regulatory program are anticipated to be typically 
higher than the costs associated with administering the non-Customer 
component of its regulatory program. The Exchange proposes assessing 
higher fees to those members that will require more Exchange regulatory 
services based on the amount of Customer options business they conduct. 
Additionally, the dues and fees paid by members go into the general 
funds of the Exchange, a portion of which is used to help pay the costs 
of regulation. The Exchange has in place a regulatory structure to 
surveil, conduct examinations and monitor the marketplace for 
violations of Exchange Rules. The ORF assists the Exchange to fund the 
cost of this regulation of the marketplace.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The ORF is not intended to have 
any impact on competition. Rather, it is designed to enable the 
Exchange to recover a material portion of the Exchange's cost related 
to its regulatory activities. The Exchange is obligated to ensure that 
the amount of regulatory revenue collected from the ORF, in combination 
with its other regulatory fees and fines, does not exceed regulatory 
costs.

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.\13\
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    \13\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-Phlx-2017-54 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-Phlx-2017-54. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the 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 No. SR-Phlx-2017-54, and should be 
submitted on or before September 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17048 Filed 8-11-17; 8:45 am]
 BILLING CODE 8011-01-P
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