Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Section IV, Entitled “Other Transaction Fees”, 52084-52087 [2017-24368]
Download as PDF
<![CDATA[
52084
Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices
with quotes and orders entered by
different badges within the same
Exchange account or member. Thus, the
Exchange is proposing to provide
members with flexibility with respect to
how AIQ is implemented. While
members that like the current
functionality can continue to use it,
members who would prefer to prevent
self-trades across different badges
within the same Exchange account or at
the member level will now be provided
with functionality that lets them do this.
Similar flexibility is offered on both
NOM and BZX.10 The Exchange
believes that flexibility to apply AIQ at
the Exchange account or member firm
level would be useful for Phlx members
too. The Exchange believes that the
proposed rule change is designed to
promote just and equitable principles of
trade and will remove impediments to
and perfect the mechanisms of a free
and open market as it will further
enhance self-trade protections provided
to market makers similar to those
protections provided on other markets.
This functionality does not relieve or
otherwise modify the duty of best
execution owed to orders received from
public customers.
sradovich on DSK3GMQ082PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,11 the Exchange does not believe
that the proposed rule change will
impose any burden on intermarket or
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
enhance AIQ functionality provided to
Exchange market makers, and will
benefit members that wish to protect
their quotes and orders against trading
with other quotes and orders within the
same Exchange account or member,
rather than the more limited badge
standard applied today. The new
functionality, which provides similar
flexibility to that offered on both NOM
and BZX, is also completely voluntary,
and members that wish to use the
current functionality can also continue
to do so. The Exchange does not believe
that providing more flexibility to
members will have any significant
impact on competition. In fact, the
Exchange believes that the proposed
rule change is evidence of the
competitive environment in the options
industry where exchanges must
continually improve their offerings to
maintain competitive standing.
10 See
supra notes 6–7.
11 15 U.S.C. 78f(b)(8).
VerDate Sep<11>2014
17:32 Nov 08, 2017
Jkt 244001
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 12 and
subparagraph (f)(6) of Rule 19b–4
thereunder.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.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2017–93 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–2017–93. This file
12 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
13 17
PO 00000
Frm 00047
Fmt 4703
Sfmt 4703
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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–Phlx–2017–93 and should
be submitted on or before November 30,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–24370 Filed 11–8–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82008; File No. SR–Phlx–
2017–88]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Pricing Schedule at
Section IV, Entitled ‘‘Other Transaction
Fees’’
November 3, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
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\09NON1.SGM
09NON1
52085
Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices
notice is hereby given that on October
30, 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.
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
IV, entitled ‘‘Other Transaction Fees.’’
Specifically, the Exchange proposes to
amend its subsidy program, the Market
Access and Routing Subsidy or
‘‘MARS,’’ for Phlx members that provide
certain order routing functionalities 3 to
other Phlx members and/or use such
functionalities themselves.
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.
sradovich on DSK3GMQ082PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
3 The order routing functionalities permit a Phlx
member to provide access and connectivity to other
members as well as utilize such access for
themselves. The Exchange notes that under this
arrangement one Phlx member may be eligible for
payments under MARS, while another Phlx
member might potentially be liable for transaction
charges associated with the execution of the order,
because those orders were delivered to the
Exchange through a Phlx member’s connection to
the Exchange and that member qualified for the
MARS Payment. Consider the following example:
Both members A and B are Phlx members but A
does not utilize its own connections to route orders
to the Exchange, and instead utilizes B’s
connections. Under this program, B will be eligible
for the MARS Payment while A is liable for any
transaction charges resulting from the execution of
orders that originate from A, arrive at the Exchange
via B’s connectivity, and subsequently execute and
clear at The Options Clearing Corporation or
‘‘OCC,’’ where A is the valid executing clearing
member or give-up on the transaction. Similarly,
where B utilizes its own connections to execute
transactions, B will be eligible for the MARS
Payment, but would also be liable for any
transaction resulting from the execution of orders
that originate from B, arrive at the Exchange via B’s
connectivity, and subsequently execute and clear at
OCC, where B is the valid executing clearing
member or give-up on the transaction.
VerDate Sep<11>2014
17:32 Nov 08, 2017
Jkt 244001
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
Phlx proposes to amend its subsidy
program, MARS, which pays a subsidy
to Phlx members that provide certain
order routing functionalities to other
Phlx members and/or use such
functionalities themselves. Generally,
under MARS, Phlx pays participating
Phlx members to subsidize their costs of
providing routing services to route
orders to Phlx. The Exchange believes
that MARS will continue to attract
higher volumes of electronic equity and
ETF options volume to the Exchange
from non-Phlx market participants as
well as Phlx members with the
proposed amendments.
Today, to qualify for MARS, a Phlx
member’s order routing functionality
would be required to meet certain
criteria.4 With respect to Complex
Orders, the Exchange would not require
Complex Orders to enable the electronic
routing of orders to all of the U.S.
options exchanges or provide current
consolidated market data from the U.S.
options exchanges. Any Phlx member
may apply for MARS, provided the
requirements are met, including a robust
and reliable System. The member is
solely responsible for implementing and
operating its System.
Today, a MARS Payment would be
made to Phlx members that have System
Eligibility and have routed the requisite
number of Eligible Contracts daily in a
month, which were executed on Phlx.
For the purpose of qualifying for the
MARS Payment, Eligible Contracts
4 Specifically the member’s routing system
(hereinafter ‘‘System’’) would be required to: (1)
Enable the electronic routing of orders to all of the
U.S. options exchanges, including Phlx; (2) provide
current consolidated market data from the U.S.
options exchanges; and (3) be capable of interfacing
with Phlx’s API to access current Phlx match engine
functionality. The member’s System would also
need to cause Phlx to be one of the top three default
destination exchanges for individually executed
marketable orders if Phlx is at the national best bid
or offer (‘‘NBBO’’), regardless of size or time, but
allow any user to manually override Phlx as the
default destination on an order-by-order basis. The
Exchange does not require Complex Orders to
enable the electronic routing of orders to all of the
U.S. options exchanges or provide current
consolidated market data from the U.S. options
exchanges.
PO 00000
Frm 00048
Fmt 4703
Sfmt 4703
include Firm,5 Broker-Dealer,6 Joint
Back Office or ‘‘JBO’’ 7 or Professional 8
equity option orders that are
electronically delivered and executed.
Eligible Contracts do not include floorbased orders, qualified contingent cross
or ‘‘QCC’’ orders,9 price improvement or
‘‘PIXL’’ orders,10 Mini-Option orders 11
or Singly-Listed Options 12 orders. The
Eligible Contracts requirements are not
being amended.
Phlx members that have System
Eligibility and have executed the
requisite number of Eligible Contracts in
a month are paid rebates today as
follows:
Tiers
1
2
3
4
..................................
..................................
..................................
..................................
Average
daily
volume
(‘‘ADV’’)
1,000
27,500
32,500
40,000
MARS
payment
$0.01
0.08
0.10
0.12
With respect to the MARS program,
the Exchange proposes two sets of
changes. First, the Exchange proposes to
change the eligibility criteria for the
program so that, instead of requiring the
member’s System to designate Phlx to
5 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at OCC.
6 The term ‘‘Broker-Dealer’’ applies to any
transaction which is not subject to any of the other
transaction fees applicable within a particular
category.
7 The term ‘‘Joint Back Office’’ or ‘‘JBO’’ applies
to any transaction that is identified by a member or
member organization for clearing in the Firm range
at OCC and is identified with an origin code as a
JBO. A JBO will be priced the same as a BrokerDealer. A JBO participant is a member, member
organization or non-member organization that
maintains a JBO arrangement with a clearing
broker-dealer (‘‘JBO Broker’’) subject to the
requirements of Regulation T Section 220.7 of the
Federal Reserve System as further discussed at
Exchange Rule 703.
8 The term ‘‘professional’’ means any person or
entity that (i) is not a broker or dealer in securities,
and (ii) places more than 390 orders in listed
options per day on average during a calendar month
for its own beneficial account(s). See Rule
1000(b)(14).
9 A QCC Order is comprised of an order to buy
or sell at least 1000 contracts that is identified as
being part of a qualified contingent trade, as that
term is defined in Rule 1080(o)(3), coupled with a
contra-side order to buy or sell an equal number of
contracts. The QCC Order must be executed at a
price at or between the NBBO and be rejected if a
Customer order is resting on the Exchange book at
the same price. A QCC Order shall only be
submitted electronically from off the floor to the
Exchange’s match engine. See Rule 1080(o).
10 PIXL is the Exchange’s price improvement
mechanism known as Price Improvement XL or
(PIXLSM). See Rule 1080(n).
11 Mini Options are further specified in Phlx Rule
1012, Commentary .13.
12 Singly Listed Options are options overlying
currencies, equities, ETFs, ETNs treasury securities
and indexes not listed on another exchange.
E:\FR\FM\09NON1.SGM
09NON1
52086
Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,15 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,16 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.’’ 17
Likewise, in NetCoalition v. Securities
and Exchange Commission 18
(‘‘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 costbased approach.19 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.’’ 20
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’. . . .’’ 21 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.
The Exchange believes that its
proposal is reasonable to relax its MARS
eligibility criteria so that members’
Systems need only designate Phlx to be
among their top five (rather than top
three) default destination exchanges for
individually executed marketable
orders. The Exchange recognizes that
the number of options trading venues
has increased over the last few years
and that members may desire or require
flexibility to route orders to these
venues. The proposal accommodates
members in this respect without
compromising their ability to participate
13 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.
14 A Phlx member will not be entitled to receive
any other revenue for the use of its System
specifically with respect to orders routed to Phlx
with the exception of the Marketing Fee.
15 15 U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(4) and (5).
17 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
18 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
19 See NetCoalition, at 534–535.
20 Id. at 537.
21 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)).
be one of the top three default
destination exchanges for individually
executed marketable orders (if Phlx is at
the NBBO), the Rule would require the
member’s System to designate Phlx to
be one of the top five default
designation exchanges in those
circumstances. The Exchange proposes
this change in recognition of the
increasing number of options trading
venues that exist and the desire of
members for additional flexibility to
route orders to such venues.
Second, the Exchange proposes to
replace the existing MARS Payment
schedule in its entirety with a new
schedule that will include all new ADV
tiers as well as different rebate amounts
that depend upon whether the Eligible
Contracts that a member executes at a
particular ADV tier are in Standard and
Poor’s Depositary Receipts/SPDRs
(‘‘SPY’’) 13 or not. The proposed tier
schedule is as follows:
Average
daily
volume
(‘‘ADV’’)
Tiers
1
2
3
4
5
6
........................
........................
........................
........................
........................
........................
1,000
30,000
40,000
52,500
65,000
75,000
MARS
payment
NonSPY
SPY
$0.01
0.10
0.12
0.14
0.18
0.20
$0.01
0.10
0.12
0.12
0.12
0.12
sradovich on DSK3GMQ082PROD with NOTICES
As is the case today, no payment will
be made with respect to orders that are
routed to Phlx, but not executed.14
VerDate Sep<11>2014
17:32 Nov 08, 2017
Jkt 244001
PO 00000
Frm 00049
Fmt 4703
Sfmt 4703
in the MARS program. The proposal is
not unfairly discriminatory in that the
relaxed criteria will apply equally to all
those who participate in the MARS
program.
The Exchange also believes that its
proposal is reasonable to replace the
existing MARS Payment schedule with
a new schedule comprising new ADV
tiers. The proposed schedule is
designed to attract higher volumes of
electronic equity and ETF options
orders to the Exchange, which will, in
turn, benefit all Phlx members by
offering greater price discovery,
increased transparency, and an
increased opportunity to trade on the
Exchange. The Exchange intends for the
proposed schedule to achieve these
results by increasing the number of ADV
tiers in the schedule from four to six
and, at each tier, paying a rebate that
will be roughly the same as or greater
than that which it pays now.22 For
example, proposed Tiers 4, 5, and 6 will
entitle members to receive payments of
$0.14, $0.18, and $0.20 for non-SPY
executions, respectively, and $0.12 for
SPY executions, whereas the current top
rebate is $0.12 for all types and volumes
of executions.
The proposed tier structure will also
allow Phlx members to price their
services at a level that will enable them
to attract order flow from market
participants who would otherwise
utilize an existing front-end order entry
mechanism offered by the Exchange’s
competitors instead of incurring the cost
in time and money to develop their own
internal systems to be able to deliver
orders directly to the Exchange’s
System.
The proposed MARS Payment
schedule is not unfairly discriminatory
because the Exchange will uniformly
pay all Phlx members the rebates
specified in the proposed MARS
Payment tiers provided that the Phlx
member has executed the requisite
number of Eligible Contracts. Moreover,
the Exchange believes that the proposed
MARS Payments offered by the
Exchange are equitable and not unfairly
discriminatory because any qualifying
Phlx member that offers market access
and connectivity to the Exchange and/
or utilize such functionality themselves
may earn the MARS Payment for all
Eligible Contracts.
Although the Exchange proposes to
offer different rebates for executions of
Eligible Contracts in SPY and those in
other options, the Exchange does not
22 The only instance in which the proposed
schedule would result in member receiving a lower
rebate than it does now for a given ADV would be
where the member’s ADV is between 27,500 and
30,000 contracts.
E:\FR\FM\09NON1.SGM
09NON1
Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices
believe that this proposal is unfairly
discriminatory. SPY options are
currently the most actively traded
options class and the Exchange does not
need to pay same rebates to incent
members to route orders on SPY to the
Exchange as it may need to pay to
attract other types of options orders.
Moreover, pricing by symbol is a
common practice on many U.S. options
exchanges.
sradovich on DSK3GMQ082PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. 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
rebate schedule will be highly
competitive, both with respect to SPY,
which is the most actively traded
options class, as well as non-SPY
options. Indeed, the proposed rebates
under the new schedule will in most
instances be the same, if not higher, as
they are under the existing schedule.
Likewise, the proposed change to the
MARS eligibility criteria is procompetitive because it will make it
easier for members to qualify for the
program while routing orders to venues
other than Phlx.
VerDate Sep<11>2014
17:32 Nov 08, 2017
Jkt 244001
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.23
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 Number SR–
Phlx–2017–88 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–2017–88. 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
23 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00050
Fmt 4703
Sfmt 4703
52087
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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–Phlx–2017–88 and should
be submitted on or before November 30,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–24368 Filed 11–8–17; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15366 and #15367;
SOUTH CAROLINA Disaster Number SC–
00052]
Presidential Declaration Amendment of
a Major Disaster for Public Assistance
Only for the State of South Carolina
U.S. Small Business
Administration.
ACTION: Amendment 1.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for Public Assistance Only for
the State of South Carolina (FEMA–
4346–DR), dated 10/16/2017.
Incident: Hurricane Irma.
Incident Period: 09/06/2017 through
09/13/2017.
DATES: Issued on 11/01/2017.
Physical Loan Application Deadline
Date: 12/15/2017.
Economic Injury (EIDL) Loan
Application Deadline Date: 07/16/2018.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
SUMMARY:
24 17
E:\FR\FM\09NON1.SGM
CFR 200.30–3(a)(12).
09NON1
]]>Agencies
[Federal Register Volume 82, Number 216 (Thursday, November 9, 2017)]
[Notices]
[Pages 52084-52087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24368]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82008; File No. SR-Phlx-2017-88]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule at Section IV, Entitled ``Other Transaction
Fees''
November 3, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\
[[Page 52085]]
notice is hereby given that on October 30, 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 IV, entitled ``Other Transaction Fees.'' Specifically, the
Exchange proposes to amend its subsidy program, the Market Access and
Routing Subsidy or ``MARS,'' for Phlx members that provide certain
order routing functionalities \3\ to other Phlx members and/or use such
functionalities themselves.
---------------------------------------------------------------------------
\3\ The order routing functionalities permit a Phlx member to
provide access and connectivity to other members as well as utilize
such access for themselves. The Exchange notes that under this
arrangement one Phlx member may be eligible for payments under MARS,
while another Phlx member might potentially be liable for
transaction charges associated with the execution of the order,
because those orders were delivered to the Exchange through a Phlx
member's connection to the Exchange and that member qualified for
the MARS Payment. Consider the following example: Both members A and
B are Phlx members but A does not utilize its own connections to
route orders to the Exchange, and instead utilizes B's connections.
Under this program, B will be eligible for the MARS Payment while A
is liable for any transaction charges resulting from the execution
of orders that originate from A, arrive at the Exchange via B's
connectivity, and subsequently execute and clear at The Options
Clearing Corporation or ``OCC,'' where A is the valid executing
clearing member or give-up on the transaction. Similarly, where B
utilizes its own connections to execute transactions, B will be
eligible for the MARS Payment, but would also be liable for any
transaction resulting from the execution of orders that originate
from B, arrive at the Exchange via B's connectivity, and
subsequently execute and clear at OCC, where B is the valid
executing clearing member or give-up on the transaction.
---------------------------------------------------------------------------
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
Phlx proposes to amend its subsidy program, MARS, which pays a
subsidy to Phlx members that provide certain order routing
functionalities to other Phlx members and/or use such functionalities
themselves. Generally, under MARS, Phlx pays participating Phlx members
to subsidize their costs of providing routing services to route orders
to Phlx. The Exchange believes that MARS will continue to attract
higher volumes of electronic equity and ETF options volume to the
Exchange from non-Phlx market participants as well as Phlx members with
the proposed amendments.
Today, to qualify for MARS, a Phlx member's order routing
functionality would be required to meet certain criteria.\4\ With
respect to Complex Orders, the Exchange would not require Complex
Orders to enable the electronic routing of orders to all of the U.S.
options exchanges or provide current consolidated market data from the
U.S. options exchanges. Any Phlx member may apply for MARS, provided
the requirements are met, including a robust and reliable System. The
member is solely responsible for implementing and operating its System.
---------------------------------------------------------------------------
\4\ Specifically the member's routing system (hereinafter
``System'') would be required to: (1) Enable the electronic routing
of orders to all of the U.S. options exchanges, including Phlx; (2)
provide current consolidated market data from the U.S. options
exchanges; and (3) be capable of interfacing with Phlx's API to
access current Phlx match engine functionality. The member's System
would also need to cause Phlx to be one of the top three default
destination exchanges for individually executed marketable orders if
Phlx is at the national best bid or offer (``NBBO''), regardless of
size or time, but allow any user to manually override Phlx as the
default destination on an order-by-order basis. The Exchange does
not require Complex Orders to enable the electronic routing of
orders to all of the U.S. options exchanges or provide current
consolidated market data from the U.S. options exchanges.
---------------------------------------------------------------------------
Today, a MARS Payment would be made to Phlx members that have
System Eligibility and have routed the requisite number of Eligible
Contracts daily in a month, which were executed on Phlx. For the
purpose of qualifying for the MARS Payment, Eligible Contracts include
Firm,\5\ Broker-Dealer,\6\ Joint Back Office or ``JBO'' \7\ or
Professional \8\ equity option orders that are electronically delivered
and executed. Eligible Contracts do not include floor-based orders,
qualified contingent cross or ``QCC'' orders,\9\ price improvement or
``PIXL'' orders,\10\ Mini-Option orders \11\ or Singly-Listed Options
\12\ orders. The Eligible Contracts requirements are not being amended.
---------------------------------------------------------------------------
\5\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\6\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category.
\7\ The term ``Joint Back Office'' or ``JBO'' applies to any
transaction that is identified by a member or member organization
for clearing in the Firm range at OCC and is identified with an
origin code as a JBO. A JBO will be priced the same as a Broker-
Dealer. A JBO participant is a member, member organization or non-
member organization that maintains a JBO arrangement with a clearing
broker-dealer (``JBO Broker'') subject to the requirements of
Regulation T Section 220.7 of the Federal Reserve System as further
discussed at Exchange Rule 703.
\8\ The term ``professional'' means any person or entity that
(i) is not a broker or dealer in securities, and (ii) places more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s). See Rule
1000(b)(14).
\9\ A QCC Order is comprised of an order to buy or sell at least
1000 contracts that is identified as being part of a qualified
contingent trade, as that term is defined in Rule 1080(o)(3),
coupled with a contra-side order to buy or sell an equal number of
contracts. The QCC Order must be executed at a price at or between
the NBBO and be rejected if a Customer order is resting on the
Exchange book at the same price. A QCC Order shall only be submitted
electronically from off the floor to the Exchange's match engine.
See Rule 1080(o).
\10\ PIXL is the Exchange's price improvement mechanism known as
Price Improvement XL or (PIXL\SM\). See Rule 1080(n).
\11\ Mini Options are further specified in Phlx Rule 1012,
Commentary .13.
\12\ Singly Listed Options are options overlying currencies,
equities, ETFs, ETNs treasury securities and indexes not listed on
another exchange.
---------------------------------------------------------------------------
Phlx members that have System Eligibility and have executed the
requisite number of Eligible Contracts in a month are paid rebates
today as follows:
------------------------------------------------------------------------
Average
daily MARS
Tiers volume payment
(``ADV'')
------------------------------------------------------------------------
1.................................................. 1,000 $0.01
2.................................................. 27,500 0.08
3.................................................. 32,500 0.10
4.................................................. 40,000 0.12
------------------------------------------------------------------------
With respect to the MARS program, the Exchange proposes two sets of
changes. First, the Exchange proposes to change the eligibility
criteria for the program so that, instead of requiring the member's
System to designate Phlx to
[[Page 52086]]
be one of the top three default destination exchanges for individually
executed marketable orders (if Phlx is at the NBBO), the Rule would
require the member's System to designate Phlx to be one of the top five
default designation exchanges in those circumstances. The Exchange
proposes this change in recognition of the increasing number of options
trading venues that exist and the desire of members for additional
flexibility to route orders to such venues.
Second, the Exchange proposes to replace the existing MARS Payment
schedule in its entirety with a new schedule that will include all new
ADV tiers as well as different rebate amounts that depend upon whether
the Eligible Contracts that a member executes at a particular ADV tier
are in Standard and Poor's Depositary Receipts/SPDRs (``SPY'') \13\ or
not. The proposed tier schedule is as follows:
---------------------------------------------------------------------------
\13\ 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.
------------------------------------------------------------------------
Average MARS payment
daily ---------------
Tiers volume Non-
(``ADV'') SPY SPY
------------------------------------------------------------------------
1............................................ 1,000 $0.01 $0.01
2............................................ 30,000 0.10 0.10
3............................................ 40,000 0.12 0.12
4............................................ 52,500 0.14 0.12
5............................................ 65,000 0.18 0.12
6............................................ 75,000 0.20 0.12
------------------------------------------------------------------------
As is the case today, no payment will be made with respect to
orders that are routed to Phlx, but not executed.\14\
---------------------------------------------------------------------------
\14\ A Phlx member will not be entitled to receive any other
revenue for the use of its System specifically with respect to
orders routed to Phlx with the exception of the Marketing Fee.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 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.'' \17\
---------------------------------------------------------------------------
\17\ 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
\18\ (``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.\19\ 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.'' \20\
---------------------------------------------------------------------------
\18\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\19\ See NetCoalition, at 534-535.
\20\ 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'. . . .'' \21\ 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.
---------------------------------------------------------------------------
\21\ 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)).
---------------------------------------------------------------------------
The Exchange believes that its proposal is reasonable to relax its
MARS eligibility criteria so that members' Systems need only designate
Phlx to be among their top five (rather than top three) default
destination exchanges for individually executed marketable orders. The
Exchange recognizes that the number of options trading venues has
increased over the last few years and that members may desire or
require flexibility to route orders to these venues. The proposal
accommodates members in this respect without compromising their ability
to participate in the MARS program. The proposal is not unfairly
discriminatory in that the relaxed criteria will apply equally to all
those who participate in the MARS program.
The Exchange also believes that its proposal is reasonable to
replace the existing MARS Payment schedule with a new schedule
comprising new ADV tiers. The proposed schedule is designed to attract
higher volumes of electronic equity and ETF options orders to the
Exchange, which will, in turn, benefit all Phlx members by offering
greater price discovery, increased transparency, and an increased
opportunity to trade on the Exchange. The Exchange intends for the
proposed schedule to achieve these results by increasing the number of
ADV tiers in the schedule from four to six and, at each tier, paying a
rebate that will be roughly the same as or greater than that which it
pays now.\22\ For example, proposed Tiers 4, 5, and 6 will entitle
members to receive payments of $0.14, $0.18, and $0.20 for non-SPY
executions, respectively, and $0.12 for SPY executions, whereas the
current top rebate is $0.12 for all types and volumes of executions.
---------------------------------------------------------------------------
\22\ The only instance in which the proposed schedule would
result in member receiving a lower rebate than it does now for a
given ADV would be where the member's ADV is between 27,500 and
30,000 contracts.
---------------------------------------------------------------------------
The proposed tier structure will also allow Phlx members to price
their services at a level that will enable them to attract order flow
from market participants who would otherwise utilize an existing front-
end order entry mechanism offered by the Exchange's competitors instead
of incurring the cost in time and money to develop their own internal
systems to be able to deliver orders directly to the Exchange's System.
The proposed MARS Payment schedule is not unfairly discriminatory
because the Exchange will uniformly pay all Phlx members the rebates
specified in the proposed MARS Payment tiers provided that the Phlx
member has executed the requisite number of Eligible Contracts.
Moreover, the Exchange believes that the proposed MARS Payments offered
by the Exchange are equitable and not unfairly discriminatory because
any qualifying Phlx member that offers market access and connectivity
to the Exchange and/or utilize such functionality themselves may earn
the MARS Payment for all Eligible Contracts.
Although the Exchange proposes to offer different rebates for
executions of Eligible Contracts in SPY and those in other options, the
Exchange does not
[[Page 52087]]
believe that this proposal is unfairly discriminatory. SPY options are
currently the most actively traded options class and the Exchange does
not need to pay same rebates to incent members to route orders on SPY
to the Exchange as it may need to pay to attract other types of options
orders. Moreover, pricing by symbol is a common practice on many U.S.
options exchanges.
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 rebate schedule will be highly competitive, both with
respect to SPY, which is the most actively traded options class, as
well as non-SPY options. Indeed, the proposed rebates under the new
schedule will in most instances be the same, if not higher, as they are
under the existing schedule.
Likewise, the proposed change to the MARS eligibility criteria is
pro-competitive because it will make it easier for members to qualify
for the program while routing orders to venues other than Phlx.
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.\23\
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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 Number SR-Phlx-2017-88 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-2017-88. 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. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2017-88 and should be
submitted on or before November 30, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24368 Filed 11-8-17; 8:45 am]
BILLING CODE 8011-01-P
