Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing for NDXP, 2834-2839 [2018-00856]

Download as PDF daltland on DSKBBV9HB2PROD with NOTICES 2834 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices exposures to its participants by establishing a risk-based margin system that, at a minimum, uses an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products. As described above, NSCC believes implementing the proposed enhancements to the VaR Charge would improve the risk-based methodology that NSCC employs to measure market price risk and would better limit NSCC’s credit exposures to Members, consistent with these requirements. NSCC believes that the above described burden on competition that could be created by the proposed changes would be appropriate in furtherance of the Act because such changes have been appropriately designed to assure the safeguarding of securities and funds which are in the custody or control of NSCC or for which it is responsible, as described in detail above. By introducing additional calculations for arriving at a Member’s final VaR Charge, each of which are designed to address the unique risks presented by Members’ Net Unsettled Positions, as described above, the proposal would allow NSCC to produce margin levels commensurate with the risks and particular attributes of each Member’s portfolio. Therefore, because the proposed changes were designed to provide NSCC with an appropriate measure of the risks presented by Members’ Net Unsettled Positions, NSCC believes the proposals are appropriately designed to meet its risk management goals and its regulatory obligations. NSCC believes that it has designed the proposed changes in a reasonable and appropriate way in order to meet compliance with its obligations under the Act. Specifically, implementing the proposed enhancements to the calculation of its VaR Charge would improve the risk-based margining methodology that NSCC employs to set margin requirements and better limit NSCC’s credit exposures to its Members. Therefore, NSCC believes the proposed changes are necessary and appropriate in furtherance of NSCC’s obligations under the Act, specifically Section 17A(b)(3)(F) of the Act 42 and Rules 17Ad–22(e)(4)(i) and Rule 17Ad– 22(e)(6)(i) and (v) under the Act.43 Because the proposal to eliminate the MMD Charge would remove this charge from the margining methodology as applied to all Members, when applicable, NSCC does not believe the 42 15 43 17 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(e)(4)(i) and (e)(6)(i) and (v). VerDate Sep<11>2014 17:05 Jan 18, 2018 Jkt 244001 proposed change to eliminate the MMD Charge would have any impact on competition. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others While NSCC has not solicited or received any written comments relating to this proposal, NSCC has conducted outreach to Members in order to provide them with notice of the proposal. NSCC will notify the Commission of any written comments received by NSCC. III. Date of Effectiveness of the Proposed Rule Change, and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the clearing agency consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed. 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– NSCC–2017–020 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. All submissions should refer to File Number SR–NSCC–2017–020. 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 website (https://www.sec.gov/ PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 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 website 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 NSCC and on DTCC’s website (https://dtcc.com/legal/sec-rulefilings.aspx). 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–NSCC–2017–020 and should be submitted on or before February 9, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.44 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–00851 Filed 1–18–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82499; File No. SR–Phlx– 2018–02] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing for NDXP January 12, 2018. 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 January 3, 2018, 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 44 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices 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 to add pricing for P.M.-settled options on broad-based indexes with nonstandard expiration dates for a period of twelve months, which the Commission recently approved.3 While changes to the Pricing Schedule pursuant to this proposal are effective upon filing, the Exchange has designated these changes to be operative on January 4, 2018. The text of the proposed rule change is available on the Exchange’s website 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. daltland on DSKBBV9HB2PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange recently received approval to list P.M.-settled options on broad-based indexes with nonstandard expiration dates on a twelve month pilot basis, beginning on December 15, 2017.4 This pilot permits both Weekly Expirations and End of Month expirations similar to those of the A.M.settled broad-based index options, except that the exercise settlement value will be based on the index value derived from the closing prices of component stocks.5 The Exchange proposes to list these aforementioned options, 3 See Securities and Exchange Act Release No. 82341 (December 15, 2017), 82 FR 60651 (December 21, 2017) (SR–Phlx–2017–79). 4 Id. 5 Id. VerDate Sep<11>2014 17:05 Jan 18, 2018 Jkt 244001 commencing on January 4, 2017, with the symbol ‘‘NDXP.’’ Specifically, the Exchange proposes to adopt the current index pricing applicable to NDX 6 today to NDXP. Customer Rebate Today, Customer Rebates in Section B of the Pricing Schedule are not paid on NDX in any Category. However, NDX will count toward the volume requirement to qualify for a Customer 7 Rebate Tier. The Exchange proposes to apply the same pricing for NDXP as it relates to Customer Rebates. The Exchange believes that this will continue to encourage market participants to add Customer liquidity on Phlx. Transaction Charges in Section II Today, electronic and floor Options Transaction Charges for NDX are $0.75 per contract for all Non-Customers. No transaction charge for NDX applies to Customers. A $0.25 per contract 8 surcharge is assessed to Non-Customers in NDX. The Exchange proposes these options transaction charges for NDXP. Today, a $0.10 per contract surcharge will be assessed to electronic Complex Orders that remove liquidity from the Complex Order Book and auctions, excluding PIXL, in Non-Penny Pilot Options (excluding NDX). This exclusion would apply likewise to NDXP. Today, Specialists and Market Makers are subject to a ‘‘Monthly Market Maker Cap’’ of $500,000 for: (i) Electronic Option Transaction Charges, excluding surcharges and excluding options overlying NDX; and (ii) QCC Transaction Fees (as defined in Exchange Rule 1080(o) and Floor QCC Orders, as defined in 1064(e)). NDXP would likewise be excluded. Firms are subject to a maximum fee of $75,000 (‘‘Monthly Firm Fee Cap’’). Firm Floor Option Transaction Charges and QCC Transaction Fees, in the aggregate, for one billing month will not exceed the Monthly Firm Fee Cap per member organization when such members are trading in their own proprietary accounts. All dividend, 6 NDX represents options on the Nasdaq 100® Index and is traded under the symbol NDX (‘‘NDX’’). 7 The term ‘‘Customer’’ or (‘‘C’’) applies to any transaction that is identified by a Participant for clearing in the Customer range at The Options Clearing Corporation (‘‘OCC’’) and which is not for the account of broker or dealer or for the account of a ‘‘Professional’’ (as that term is defined in Chapter I, Section 1(a)(48)). 8 The Exchange proposes to add the words ‘‘per contract’’ to note 5 in Section II of the Pricing Schedule to make clear that the surcharge is assessed on a per contract basis. PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 2835 merger, and short stock interest strategy executions (as defined in this Section II) are excluded from the Monthly Firm Fee Cap. NDX Options Transactions are excluded from the Monthly Firm Fee Cap. NDXP will likewise be excluded. The Firm Floor Options Transaction Charges will be waived for members executing facilitation orders pursuant to Exchange Rule 1064 when such members are trading in their own proprietary accounts (including Cabinet Options Transaction Charges). The Firm Floor Options Transaction Charges will be waived for the buy side of a transaction if the same member or its affiliates under Common Ownership represent both sides of a Firm transaction when such members are trading in their own proprietary accounts. In addition, the Broker-Dealer Floor Options Transaction Charge (including Cabinet Options Transaction Charges) will be waived for members executing facilitation orders pursuant to Exchange Rule 1064 when such members would otherwise incur this charge for trading in their own proprietary accounts contra to a Customer (‘‘BD-Customer Facilitation’’), if the member’s BD-Customer Facilitation average daily volume (including both FLEX and non-FLEX transactions) exceeds 10,000 contracts per day in a given month. NDX Options Transactions are excluded from each of the waivers set forth in the above paragraph. NDXP will likewise be excluded from the waivers. Marketing Fees No Marketing Fees are assessed on transactions in NDX. NDXP will likewise be excluded. PIXL Pricing Options overlying NDX are not subject to Section IV.A.—PIXL Pricing. NDX transactions in PIXL will be subject to Section II pricing. NDXP will not be subject to PIXL Pricing, similar to NDX, NDXP will be subject to the Section II pricing noted herein. FLEX Transaction Fees The Monthly Firm Fee Cap, Monthly Market Maker Cap, Strategy Caps and the Options Surcharge described in Section II of the Pricing Schedule apply to FLEX Transaction Fees for NDX and will likewise apply to NDXP in the same manner. Market Access and Routing Subsidy (‘‘MARS’’) MARS Payment [sic] are made to Phlx members that have System Eligibility and have routed the requisite number of Eligible Contracts daily in a month, E:\FR\FM\19JAN1.SGM 19JAN1 2836 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices which were executed on Phlx. Options overlying NDX are not considered Eligible Contracts. NDXP will not be considered Eligible Contracts. The Exchange believes that the abovereferenced pricing for NDX continues to be competitive and attract volume to Phlx. The Exchange believes that the proposed pricing is suitable because NDXP represent similar options on the same underlying, the Nasdaq 100® Index. daltland on DSKBBV9HB2PROD with NOTICES 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 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.’’ 11 Likewise, in NetCoalition v. Securities and Exchange Commission 12 (‘‘NetCoalition’’) the DC 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.13 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.’’ 14 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 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 11 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 12 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). 13 See NetCoalition, at 534—535. 14 Id. at 537. 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’. . . .’’ 15 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. Customer Rebate The Exchange’s proposal to not pay the Customer Rebates in Section I of the Pricing Schedule on NDXP and count NDXP volume toward qualifying for a Customer Rebate Tier, similar to NDX, is reasonable because the Exchange desires to calculate and pay rebates on NDXP in a similar manner to NDX. NDX and NDXP represent similar options on the same underlying, the Nasdaq 100® Index. Further, it is reasonable to not pay Customer Rebates on NDXP in any Category (A, B or C) because this index will be exclusively listed on Nasdaq exchanges only.16 The original intent of the Customer Rebate Program was to pay rebates on electronically-delivered Multiply-Listed Options. By definition, NDXP will not be a Multiply-Listed Option. The Exchange does not desire to pay rebates on NDXP because of its exclusivity. The Exchange believes it is reasonable to continue to count NDXP in the total volume to qualify a market participant for a Customer Rebate. However, market participants in NDXP will not be paid the Customer rebates in any Category because of the exclusivity of this option. Market participants would continue to benefit from NDXP options volume in terms of qualifying for Customer Rebate Tiers. The Exchange’s proposal to not pay the Customer Rebates in Section I of the Pricing Schedule on NDXP and count NDXP volume toward qualifying for a Customer Rebate Tier, similar to NDX, is equitable and not unfairly discriminatory because the Exchange would apply its calculation to determine the eligibility and payment of Customer rebates in a uniform manner. Further, the Exchange would not pay Customer Rebates on any NDXP transaction to any market participant. 10 15 VerDate Sep<11>2014 17:05 Jan 18, 2018 Jkt 244001 15 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)). 16 Nasdaq intends to list NDXP on other Nasdaqowned self-regulatory organizations in addition to Phlx at a later date. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 Also, any market participant is eligible to earn a Customer Rebate. Transaction Charges in Section II The Exchange’s proposal to assess the same electronic and floor Options Transaction Charges for NDXP as it assesses for NDX 17 is reasonable because the Exchange’s transaction charges for its proprietary products are competitive when compared with similar proprietary products.18 The Exchange’s proposal to assess the same electronic and floor Options Transaction Charges for NDXP and NDX is equitable and not unfairly discriminatory because the Exchange would assess the same options transaction charges to all NonCustomer market participants. The Exchange believes that assessing Customers no transaction fee for NDXP is equitable and not unfairly discriminatory because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange notes that the proposed transaction charges are reasonable, equitable and not unfairly discriminatory as NDXP will be an exclusively listed product. Similar to NDX, the Exchange seeks to recoup the operational costs 19 for listing proprietary products. Also, pricing by symbol is a common practice on many U.S. options exchanges as a means to incentivize order flow to be sent to an 17 Today, electronic and floor Options Transaction Charges for options overlying NDX are $0.75 per contract for all Non-Customers. No transaction charge for NDX applies to Customers. A $0.25 per contract surcharge is assessed to NonCustomers in NDX. Also, a $0.10 per contract surcharge is assessed to electronic Complex Orders that remove liquidity from the Complex Order Book and auctions, excluding PIXL, in Non-Penny Pilot Options (excluding NDX). 18 See Chicago Board Options Exchange, Incorporated’s (‘‘CBOE’’) Fees Schedule. Russell 2000 Index (‘‘RUT’’) options transactions on CBOE, except customers, are assessed a $0.45 per contract surcharge. CBOE assesses Professionals and BrokerDealers a manual and AIM transaction fee of $0.25 per contract and a non-AIM transaction fee of $0.65 per contract. CBOE assesses Clearing Trade Permit Holders a transaction fee of $0.22 per contract, subject to a sliding scale. 19 By way of example, in analyzing an obvious error, the Exchange would have additional data points available in establishing a theoretical price for a Multiply Listed Option as compared to a proprietary product, which requires additional analysis and administrative time to comply with Exchange rules to resolve an obvious error. E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices exchange for execution in particular products. Other options exchanges price by symbol.20 Further, the Exchange notes that with its products, market participants are offered an opportunity to either transact NDXP or separately execute options overlying PowerShares QQQ Trust (‘‘QQQ’’).21 Offering products such as QQQ provides market participants with a variety of choices in selecting the product they desire to utilize to transact the Nasdaq 100® Index.22 When exchanges are able to recoup costs associated with offering proprietary products, it incentivizes growth and competition for the innovation of additional products. The Exchange’s proposal to add the words ‘‘per contract’’ to note 5 in Section II of the Pricing Schedule to make clear the surcharge is per contract is reasonable, equitable and not unfairly discriminatory because it will conform the language to the remainder of the transaction charges in Section II of the Pricing Schedule. The Exchange’s proposal to exclude NDXP from the Monthly Market Maker Cap and the Monthly Firm Fee Cap is reasonable because NDX, another proprietary product is likewise excluded today. Market Makers will continue to be able to utilize the cap to reduce electronic Option Transaction Charges, excluding surcharges, QCC transaction fees and Floor QCC Orders, NDX and now NDXP despite the exclusions. The Exchange’s proposal to exclude NDXP from the Monthly Market Maker Cap and the Monthly Firm Fee Cap is equitable and not unfairly discriminatory because no market participant would be eligible to count NDXP toward either the Monthly Market Maker Cap or the Monthly Firm Fee Cap. The Exchange’s proposal to exclude NDXP from the Firm Floor Options Transaction waivers for members executing facilitation orders pursuant to Exchange Rule 1064,23 from the buy side of a transaction, if the same member or its affiliates under Common 20 See pricing for RUT on CBOE’s Fees Schedule. is an exchange-traded fund based on the Nasdaq-100 Index®. 22 QQQ options overlies[sic] the same Index as NDX, namely the Nasdaq 100® Index. This relationship between QQQ options and NDX options is similar to the relationship between RUT, the iShares Russell 2000 Index, and IWM which is the ETF on RUT. 23 This waiver applies when such members would otherwise incur this charge for trading in their own proprietary account contra to a Customer (‘‘BDCustomer Facilitation’’), if the member’s BDCustomer Facilitation average daily volume (including both FLEX and non-FLEX transactions) exceeds 10,000 contracts per day in a given month. daltland on DSKBBV9HB2PROD with NOTICES 21 QQQ VerDate Sep<11>2014 17:05 Jan 18, 2018 Jkt 244001 Ownership represent both sides of a Firm transaction when such members are trading in their own proprietary account, and from the waiver for the Broker-Dealer Floor Options Transaction Charge for members executing facilitation orders pursuant to Exchange Rule 1064,24 is reasonable because NDX, another proprietary product is likewise excluded today. The Exchange’s proposal to exclude NDXP from the Firm Floor Options Transaction waivers for members executing facilitation orders pursuant to Exchange Rule 1064,25 from the buy side of a transaction, if the same member or its affiliates under Common Ownership represents both sides of a Firm transaction when such members are trading in their own proprietary account, and from the waiver for the Broker-Dealer Floor Options Transaction Charge for members executing facilitation orders pursuant to Exchange Rule 1064,26 is equitable and not unfairly discriminatory because no market participant would be eligible to count NDXP toward these waivers. Marketing Fee The Exchange’s proposal to exclude NDXP from the Marketing Fee is reasonable because NDXP is an exclusively listed product, similar to NDX, which is also excluded from the Marketing Fee. The Exchange notes that Specialists and Market Makers transaction fees will remain in line with other market participants for NDXP. The Exchange’s proposal to exclude NDXP from the Marketing Fee is equitable and not unfairly discriminatory because the Exchange will assess uniform transaction fees for all Non-Customers because the transaction charges, as proposed above, would otherwise be uniform for all market participants. The Exchange believes that assessing Customers no transaction fee for NDXP is equitable and not unfairly discriminatory because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. 24 Id. 25 Id. 26 Id. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 2837 PIXL Pricing The Exchange’s proposal to exclude NDXP from Section IV.A.—PIXL Pricing and instead assess NDXP transactions in PIXL the Section II pricing, similar to NDX, is reasonable because the Exchange believes that the PIXL pricing continues to be competitive despite the exclusion of NDXP. The Exchange’s proposal to exclude NDXP from the PIXL Pricing in Section IV, Part A and instead assess NDXP transactions in PIXL the Section II pricing is equitable and not unfairly discriminatory because the Exchange will uniformly exclude NDXP from PIXL pricing. FLEX Transaction Fees The Exchange’s proposal to assess NDXP the same FLEX Transaction Fees as are assessed for NDX today is reasonable because the Exchange desires to assess the same fees for index products. The Exchange’s proposal to assess NDXP the same FLEX Transaction Fees as are assessed for NDX today is equitable and not unfairly discriminatory because the Exchange will uniformly assess FLEX fees for NDXP in a uniform manner for all market participants. Market Access and Routing Subsidy (‘‘MARS’’) The Exchange’s proposal to exclude NDXP from Eligible Contracts for purposes of qualifying for a MARS Payment is reasonable because the Exchange believes that despite the exclusion of NDXP, MARS remains a competitive offering. The Exchange’s proposal to exclude NDXP from Eligible Contracts for purposes of qualifying for a MARS Payment is equitable and not unfairly discriminatory because the Exchange will uniformly exclude NDXP from MARS. 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. The Exchange notes that with its products, market participants are offered an opportunity to either transact NDXP or separately execute options overlying PowerShares QQQ Trust (‘‘QQQ’’). Offering products such as QQQ provides E:\FR\FM\19JAN1.SGM 19JAN1 2838 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices market participants with a variety of choices in selecting the product they desire to utilize to transact the Nasdaq 100 Index.27 daltland on DSKBBV9HB2PROD with NOTICES Customer Rebate The Exchange’s proposal to not pay the Customer Rebates in Section I of the Pricing Schedule on NDXP and count NDXP volume toward qualifying for a Customer Rebate Tier, similar to NDX, does not impose an undue burden on competition because the Exchange would apply its calculation to determine the eligibility and payment of Customer rebates in a uniform manner. The Exchange’s proposal to not pay Customer Rebates on NDXP in any Category is equitable and not unfairly discriminatory because the Exchange would not pay Customer Rebates on any transaction with NDXP to any market participant. Also, any market participant is eligible to earn a Customer Rebate. Transaction Charges in Section II The Exchange’s proposal to assess for the same electronic and floor Options Transaction Charges for NDXP and NDX does not impose an undue burden on competition because the Exchange would assess the same options transaction charges to all Non-Customer market participants. The Exchange believes that assessing Customers no transaction fee for NDXP does not impose an undue burden on competition because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The Exchange’s proposal to add the words ‘‘per contract’’ to note 5 in Section II of the Pricing Schedule to make clear the surcharge is per contract does not impose an undue burden on competition because it will conform the language to the remainder of the transaction charges in Section II of the Pricing Schedule. The Exchange’s proposal to exclude NDXP from the Monthly Market Maker Cap and the Monthly Firm Fee Cap does not impose an undue burden on competition because no market participant would be eligible to count NDXP toward either the Monthly 27 See note 22 above. VerDate Sep<11>2014 17:05 Jan 18, 2018 Jkt 244001 Market Maker Cap or the Monthly Firm Fee Cap. The Exchange’s proposal to exclude NDXP from the Firm Floor Options Transaction waivers for members executing facilitation orders pursuant to Exchange Rule 1064, from the buy side of a transaction, if the same member or its affiliates under Common Ownership represents both sides of a Firm transaction when such members are trading in their own proprietary account, and from the waiver for the Broker-Dealer Floor Options Transaction Charge for members executing facilitation orders pursuant to Exchange Rule 1064, does not impose an undue burden on competition because no market participant would be eligible to count NDXP toward these waivers. Marketing Fee The Exchange’s proposal to exclude NDXP from the Marketing Fee does not impose an undue burden on competition because the Exchange will assess uniform transaction fees for all Non-Customers because the transaction charges, as proposed above, would otherwise be uniform for all market participants. The Exchange believes that assessing Customers no transaction fee for NDXP does not impose an undue burden on competition because Customer orders bring valuable liquidity to the market, which liquidity benefits other market participants. Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. PIXL Pricing The Exchange’s proposal to exclude NDXP from the PIXL Pricing in Section IV, Part A and instead assess NDXP transactions in PIXL the Section II pricing does not impose an undue burden on competition because the Exchange will uniformly exclude NDXP from PIXL pricing. FLEX Transaction Fees The Exchange’s proposal to assess NDXP the same FLEX Transaction Fees as are assessed for NDX today does not impose an undue burden on competition because the Exchange will uniformly assess FLEX fees for NDXP in a uniform manner for all market participants. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 MARS Subsidy The Exchange’s proposal to exclude NDXP from Eligible Contracts for purposes of qualifying for a MARS Payment does not impose an undue burden on competition because the Exchange will uniformly exclude NDXP from MARS. 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.28 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–2018–02 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2018–02. 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 website (https://www.sec.gov/ 28 15 E:\FR\FM\19JAN1.SGM U.S.C. 78s(b)(3)(A)(ii). 19JAN1 Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website 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 Number SR–Phlx– 2018–02 and should be submitted on or before February 9, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–00856 Filed 1–18–18; 8:45 am] 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 fee schedule at Chapter IX (Proprietary Data Feed Fees) to change the Internal Distributor fee for Top of PHLX Options Plus Orders to reflect substantial enhancements to the product since the current Distributor fees were set in 2010, as described further below. The text of the proposed rule change is available on the Exchange’s website 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. BILLING CODE 8011–01–P A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82495; File No. SR–Phlx– 2018–08] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange’s Fee Schedule at Chapter IX daltland on DSKBBV9HB2PROD with NOTICES January 12, 2018. 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 January 9, 2018, 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 29 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 17:05 Jan 18, 2018 Jkt 244001 1. Purpose The purpose of the proposed rule change is to amend the Exchange’s fee schedule at Chapter IX (Proprietary Data Feed Fees) to change the Internal Distributor fee for TOPO Plus Orders (‘‘TOPO Plus’’) to reflect substantial enhancements to the product since the current Distributor fees were set in 2010. TOPO Plus is a direct, low-latency market data product that allows subscribers to connect to both the Top of PHLX Options (‘‘TOPO’’) data feed and the PHLX Orders data feed. TOPO provides subscribers a direct data feed that includes the Exchange’s best bid and offer position, with aggregate size, based on displayable order and quoting interest on the Exchange. TOPO also provides last sale information from PHLX. PHLX Orders includes the full limit order book and contains a real-time status of simple and complex orders on the PHLX order book for all PHLX-listed PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 2839 options. This includes new orders and changes to orders resting on the PHLX book. The PHLX Orders feed includes opening imbalance data, Price Improvement XL (PIXL) data and Complex Order Live Auction (COLA) information, in addition to the full limit order book data for both simple and complex orders. The fee for TOPO Plus varies, depending on whether the subscriber is an Internal Distributor, an External Distributor, a Non-Professional Subscriber, or a Professional Subscriber.3 Currently, the monthly fee for an Internal Distributor is $4,000, the monthly fee for an External Distributor is $5,000, the monthly fee for a NonProfessional Subscriber is $1, and the monthly fee for a Professional Subscriber is $40. The Exchange is now proposing to increase the monthly fee for an Internal Distributor to $4,500. Since its inception in 2010, the Exchange has not raised the Internal or External Distributor fee and yet has made substantial improvements to the product as illustrated below.4 While the Exchange has not raised the fees for TOPO Plus since its inception, the Exchange has added a number of functional enhancements to both TOPO and PHLX Orders in particular, and to Exchange systems in general, that enhance the value of the TOPO Plus data product. Specifically: • In July 2011, the Exchange began disseminating timestamp messages for 3 Chapter IX of the Pricing Schedule defines a distributor as ‘‘any entity that receives a feed or data file of data directly from Nasdaq PHLX or indirectly through another entity and then distributes it either internally (within that entity) or externally (outside that entity).’’ Chapter IX of the Pricing Schedule defines a NonProfessional Subscriber as ‘‘a natural person who is neither: (i) Registered or qualified in any capacity with the Commission, the Commodities Futures Trading Commission, any state securities agency, any securities exchange or association, or any commodities or futures contract market or association; (ii) engaged as an ‘investment adviser’ as that term is defined in Section 201(11) of the Investment Advisors Act of 1940 (whether or not registered or qualified under that Act); nor (iii) employed by a bank or other organization exempt from registration under federal or state securities laws to perform functions that would require registration or qualification if such functions were performed for an organization not so exempt. A Non-Professional Subscriber may only use the data provided for personal purposes and not for any commercial purpose.’’ Chapter IX of the Pricing Schedule defines a Professional Subscriber as ‘‘any Subscriber that is not a Non-Professional Subscriber. If the Nasdaq Subscriber agreement is signed in the name of a business or commercial entity, such entity would be considered a Professional Subscriber.’’ 4 See Securities Exchange Act Release No. 62194 (May 28, 2010) 75 FR 31830 (SR–Phlx–2010–48) (approving TOPO Plus fees) (‘‘TOPO Plus approval order’’). E:\FR\FM\19JAN1.SGM 19JAN1

Agencies

[Federal Register Volume 83, Number 13 (Friday, January 19, 2018)]
[Notices]
[Pages 2834-2839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00856]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82499; File No. SR-Phlx-2018-02]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing 
for NDXP

January 12, 2018.
    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 January 3, 2018, 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

[[Page 2835]]

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 to 
add pricing for P.M.-settled options on broad-based indexes with 
nonstandard expiration dates for a period of twelve months, which the 
Commission recently approved.\3\
---------------------------------------------------------------------------

    \3\ See Securities and Exchange Act Release No. 82341 (December 
15, 2017), 82 FR 60651 (December 21, 2017) (SR-Phlx-2017-79).
---------------------------------------------------------------------------

    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on January 4, 2018.
    The text of the proposed rule change is available on the Exchange's 
website 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
    The Exchange recently received approval to list P.M.-settled 
options on broad-based indexes with nonstandard expiration dates on a 
twelve month pilot basis, beginning on December 15, 2017.\4\ This pilot 
permits both Weekly Expirations and End of Month expirations similar to 
those of the A.M.-settled broad-based index options, except that the 
exercise settlement value will be based on the index value derived from 
the closing prices of component stocks.\5\ The Exchange proposes to 
list these aforementioned options, commencing on January 4, 2017, with 
the symbol ``NDXP.''
---------------------------------------------------------------------------

    \4\ Id.
    \5\ Id.
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to adopt the current index 
pricing applicable to NDX \6\ today to NDXP.
---------------------------------------------------------------------------

    \6\ NDX represents options on the Nasdaq 100[supreg] Index and 
is traded under the symbol NDX (``NDX'').
---------------------------------------------------------------------------

Customer Rebate
    Today, Customer Rebates in Section B of the Pricing Schedule are 
not paid on NDX in any Category. However, NDX will count toward the 
volume requirement to qualify for a Customer \7\ Rebate Tier. The 
Exchange proposes to apply the same pricing for NDXP as it relates to 
Customer Rebates. The Exchange believes that this will continue to 
encourage market participants to add Customer liquidity on Phlx.
---------------------------------------------------------------------------

    \7\ The term ``Customer'' or (``C'') applies to any transaction 
that is identified by a Participant for clearing in the Customer 
range at The Options Clearing Corporation (``OCC'') and which is not 
for the account of broker or dealer or for the account of a 
``Professional'' (as that term is defined in Chapter I, Section 
1(a)(48)).
---------------------------------------------------------------------------

Transaction Charges in Section II
    Today, electronic and floor Options Transaction Charges for NDX are 
$0.75 per contract for all Non-Customers. No transaction charge for NDX 
applies to Customers. A $0.25 per contract \8\ surcharge is assessed to 
Non-Customers in NDX. The Exchange proposes these options transaction 
charges for NDXP. Today, a $0.10 per contract surcharge will be 
assessed to electronic Complex Orders that remove liquidity from the 
Complex Order Book and auctions, excluding PIXL, in Non-Penny Pilot 
Options (excluding NDX). This exclusion would apply likewise to NDXP.
---------------------------------------------------------------------------

    \8\ The Exchange proposes to add the words ``per contract'' to 
note 5 in Section II of the Pricing Schedule to make clear that the 
surcharge is assessed on a per contract basis.
---------------------------------------------------------------------------

    Today, Specialists and Market Makers are subject to a ``Monthly 
Market Maker Cap'' of $500,000 for: (i) Electronic Option Transaction 
Charges, excluding surcharges and excluding options overlying NDX; and 
(ii) QCC Transaction Fees (as defined in Exchange Rule 1080(o) and 
Floor QCC Orders, as defined in 1064(e)). NDXP would likewise be 
excluded.
    Firms are subject to a maximum fee of $75,000 (``Monthly Firm Fee 
Cap''). Firm Floor Option Transaction Charges and QCC Transaction Fees, 
in the aggregate, for one billing month will not exceed the Monthly 
Firm Fee Cap per member organization when such members are trading in 
their own proprietary accounts. All dividend, merger, and short stock 
interest strategy executions (as defined in this Section II) are 
excluded from the Monthly Firm Fee Cap. NDX Options Transactions are 
excluded from the Monthly Firm Fee Cap. NDXP will likewise be excluded.
    The Firm Floor Options Transaction Charges will be waived for 
members executing facilitation orders pursuant to Exchange Rule 1064 
when such members are trading in their own proprietary accounts 
(including Cabinet Options Transaction Charges). The Firm Floor Options 
Transaction Charges will be waived for the buy side of a transaction if 
the same member or its affiliates under Common Ownership represent both 
sides of a Firm transaction when such members are trading in their own 
proprietary accounts. In addition, the Broker-Dealer Floor Options 
Transaction Charge (including Cabinet Options Transaction Charges) will 
be waived for members executing facilitation orders pursuant to 
Exchange Rule 1064 when such members would otherwise incur this charge 
for trading in their own proprietary accounts contra to a Customer 
(``BD-Customer Facilitation''), if the member's BD-Customer 
Facilitation average daily volume (including both FLEX and non-FLEX 
transactions) exceeds 10,000 contracts per day in a given month. NDX 
Options Transactions are excluded from each of the waivers set forth in 
the above paragraph. NDXP will likewise be excluded from the waivers.
Marketing Fees
    No Marketing Fees are assessed on transactions in NDX. NDXP will 
likewise be excluded.
PIXL Pricing
    Options overlying NDX are not subject to Section IV.A.--PIXL 
Pricing. NDX transactions in PIXL will be subject to Section II 
pricing. NDXP will not be subject to PIXL Pricing, similar to NDX, NDXP 
will be subject to the Section II pricing noted herein.
FLEX Transaction Fees
    The Monthly Firm Fee Cap, Monthly Market Maker Cap, Strategy Caps 
and the Options Surcharge described in Section II of the Pricing 
Schedule apply to FLEX Transaction Fees for NDX and will likewise apply 
to NDXP in the same manner.
Market Access and Routing Subsidy (``MARS'')
    MARS Payment [sic] are made to Phlx members that have System 
Eligibility and have routed the requisite number of Eligible Contracts 
daily in a month,

[[Page 2836]]

which were executed on Phlx. Options overlying NDX are not considered 
Eligible Contracts. NDXP will not be considered Eligible Contracts.
    The Exchange believes that the above-referenced pricing for NDX 
continues to be competitive and attract volume to Phlx. The Exchange 
believes that the proposed pricing is suitable because NDXP represent 
similar options on the same underlying, the Nasdaq 100[supreg] Index.
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 any 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 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.'' \11\
---------------------------------------------------------------------------

    \11\ 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 
\12\ (``NetCoalition'') the DC 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.\13\ 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.'' \14\
---------------------------------------------------------------------------

    \12\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \13\ See NetCoalition, at 534--535.
    \14\ 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'. . . .'' \15\ 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.
---------------------------------------------------------------------------

    \15\ 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)).
---------------------------------------------------------------------------

Customer Rebate
    The Exchange's proposal to not pay the Customer Rebates in Section 
I of the Pricing Schedule on NDXP and count NDXP volume toward 
qualifying for a Customer Rebate Tier, similar to NDX, is reasonable 
because the Exchange desires to calculate and pay rebates on NDXP in a 
similar manner to NDX. NDX and NDXP represent similar options on the 
same underlying, the Nasdaq 100[supreg] Index. Further, it is 
reasonable to not pay Customer Rebates on NDXP in any Category (A, B or 
C) because this index will be exclusively listed on Nasdaq exchanges 
only.\16\ The original intent of the Customer Rebate Program was to pay 
rebates on electronically-delivered Multiply-Listed Options. By 
definition, NDXP will not be a Multiply-Listed Option. The Exchange 
does not desire to pay rebates on NDXP because of its exclusivity. The 
Exchange believes it is reasonable to continue to count NDXP in the 
total volume to qualify a market participant for a Customer Rebate. 
However, market participants in NDXP will not be paid the Customer 
rebates in any Category because of the exclusivity of this option. 
Market participants would continue to benefit from NDXP options volume 
in terms of qualifying for Customer Rebate Tiers.
---------------------------------------------------------------------------

    \16\ Nasdaq intends to list NDXP on other Nasdaq-owned self-
regulatory organizations in addition to Phlx at a later date.
---------------------------------------------------------------------------

    The Exchange's proposal to not pay the Customer Rebates in Section 
I of the Pricing Schedule on NDXP and count NDXP volume toward 
qualifying for a Customer Rebate Tier, similar to NDX, is equitable and 
not unfairly discriminatory because the Exchange would apply its 
calculation to determine the eligibility and payment of Customer 
rebates in a uniform manner. Further, the Exchange would not pay 
Customer Rebates on any NDXP transaction to any market participant. 
Also, any market participant is eligible to earn a Customer Rebate.
Transaction Charges in Section II
    The Exchange's proposal to assess the same electronic and floor 
Options Transaction Charges for NDXP as it assesses for NDX \17\ is 
reasonable because the Exchange's transaction charges for its 
proprietary products are competitive when compared with similar 
proprietary products.\18\ The Exchange's proposal to assess the same 
electronic and floor Options Transaction Charges for NDXP and NDX is 
equitable and not unfairly discriminatory because the Exchange would 
assess the same options transaction charges to all Non-Customer market 
participants. The Exchange believes that assessing Customers no 
transaction fee for NDXP is equitable and not unfairly discriminatory 
because Customer orders bring valuable liquidity to the market, which 
liquidity benefits other market participants. Customer liquidity 
benefits all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
---------------------------------------------------------------------------

    \17\ Today, electronic and floor Options Transaction Charges for 
options overlying NDX are $0.75 per contract for all Non-Customers. 
No transaction charge for NDX applies to Customers. A $0.25 per 
contract surcharge is assessed to Non-Customers in NDX. Also, a 
$0.10 per contract surcharge is assessed to electronic Complex 
Orders that remove liquidity from the Complex Order Book and 
auctions, excluding PIXL, in Non-Penny Pilot Options (excluding 
NDX).
    \18\ See Chicago Board Options Exchange, Incorporated's 
(``CBOE'') Fees Schedule. Russell 2000 Index (``RUT'') options 
transactions on CBOE, except customers, are assessed a $0.45 per 
contract surcharge. CBOE assesses Professionals and Broker-Dealers a 
manual and AIM transaction fee of $0.25 per contract and a non-AIM 
transaction fee of $0.65 per contract. CBOE assesses Clearing Trade 
Permit Holders a transaction fee of $0.22 per contract, subject to a 
sliding scale.
---------------------------------------------------------------------------

    The Exchange notes that the proposed transaction charges are 
reasonable, equitable and not unfairly discriminatory as NDXP will be 
an exclusively listed product. Similar to NDX, the Exchange seeks to 
recoup the operational costs \19\ for listing proprietary products. 
Also, pricing by symbol is a common practice on many U.S. options 
exchanges as a means to incentivize order flow to be sent to an

[[Page 2837]]

exchange for execution in particular products. Other options exchanges 
price by symbol.\20\ Further, the Exchange notes that with its 
products, market participants are offered an opportunity to either 
transact NDXP or separately execute options overlying PowerShares QQQ 
Trust (``QQQ'').\21\ Offering products such as QQQ provides market 
participants with a variety of choices in selecting the product they 
desire to utilize to transact the Nasdaq 100[supreg] Index.\22\ When 
exchanges are able to recoup costs associated with offering proprietary 
products, it incentivizes growth and competition for the innovation of 
additional products.
---------------------------------------------------------------------------

    \19\ By way of example, in analyzing an obvious error, the 
Exchange would have additional data points available in establishing 
a theoretical price for a Multiply Listed Option as compared to a 
proprietary product, which requires additional analysis and 
administrative time to comply with Exchange rules to resolve an 
obvious error.
    \20\ See pricing for RUT on CBOE's Fees Schedule.
    \21\ QQQ is an exchange-traded fund based on the Nasdaq-100 
Index[supreg].
    \22\ QQQ options overlies[sic] the same Index as NDX, namely the 
Nasdaq 100[supreg] Index. This relationship between QQQ options and 
NDX options is similar to the relationship between RUT, the iShares 
Russell 2000 Index, and IWM which is the ETF on RUT.
---------------------------------------------------------------------------

    The Exchange's proposal to add the words ``per contract'' to note 5 
in Section II of the Pricing Schedule to make clear the surcharge is 
per contract is reasonable, equitable and not unfairly discriminatory 
because it will conform the language to the remainder of the 
transaction charges in Section II of the Pricing Schedule.
    The Exchange's proposal to exclude NDXP from the Monthly Market 
Maker Cap and the Monthly Firm Fee Cap is reasonable because NDX, 
another proprietary product is likewise excluded today. Market Makers 
will continue to be able to utilize the cap to reduce electronic Option 
Transaction Charges, excluding surcharges, QCC transaction fees and 
Floor QCC Orders, NDX and now NDXP despite the exclusions.
    The Exchange's proposal to exclude NDXP from the Monthly Market 
Maker Cap and the Monthly Firm Fee Cap is equitable and not unfairly 
discriminatory because no market participant would be eligible to count 
NDXP toward either the Monthly Market Maker Cap or the Monthly Firm Fee 
Cap.
    The Exchange's proposal to exclude NDXP from the Firm Floor Options 
Transaction waivers for members executing facilitation orders pursuant 
to Exchange Rule 1064,\23\ from the buy side of a transaction, if the 
same member or its affiliates under Common Ownership represent both 
sides of a Firm transaction when such members are trading in their own 
proprietary account, and from the waiver for the Broker-Dealer Floor 
Options Transaction Charge for members executing facilitation orders 
pursuant to Exchange Rule 1064,\24\ is reasonable because NDX, another 
proprietary product is likewise excluded today.
---------------------------------------------------------------------------

    \23\ This waiver applies when such members would otherwise incur 
this charge for trading in their own proprietary account contra to a 
Customer (``BD-Customer Facilitation''), if the member's BD-Customer 
Facilitation average daily volume (including both FLEX and non-FLEX 
transactions) exceeds 10,000 contracts per day in a given month.
    \24\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal to exclude NDXP from the Firm Floor Options 
Transaction waivers for members executing facilitation orders pursuant 
to Exchange Rule 1064,\25\ from the buy side of a transaction, if the 
same member or its affiliates under Common Ownership represents both 
sides of a Firm transaction when such members are trading in their own 
proprietary account, and from the waiver for the Broker-Dealer Floor 
Options Transaction Charge for members executing facilitation orders 
pursuant to Exchange Rule 1064,\26\ is equitable and not unfairly 
discriminatory because no market participant would be eligible to count 
NDXP toward these waivers.
---------------------------------------------------------------------------

    \25\ Id.
    \26\ Id.
---------------------------------------------------------------------------

Marketing Fee
    The Exchange's proposal to exclude NDXP from the Marketing Fee is 
reasonable because NDXP is an exclusively listed product, similar to 
NDX, which is also excluded from the Marketing Fee. The Exchange notes 
that Specialists and Market Makers transaction fees will remain in line 
with other market participants for NDXP.
    The Exchange's proposal to exclude NDXP from the Marketing Fee is 
equitable and not unfairly discriminatory because the Exchange will 
assess uniform transaction fees for all Non-Customers because the 
transaction charges, as proposed above, would otherwise be uniform for 
all market participants. The Exchange believes that assessing Customers 
no transaction fee for NDXP is equitable and not unfairly 
discriminatory because Customer orders bring valuable liquidity to the 
market, which liquidity benefits other market participants. Customer 
liquidity benefits all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
PIXL Pricing
    The Exchange's proposal to exclude NDXP from Section IV.A.--PIXL 
Pricing and instead assess NDXP transactions in PIXL the Section II 
pricing, similar to NDX, is reasonable because the Exchange believes 
that the PIXL pricing continues to be competitive despite the exclusion 
of NDXP. The Exchange's proposal to exclude NDXP from the PIXL Pricing 
in Section IV, Part A and instead assess NDXP transactions in PIXL the 
Section II pricing is equitable and not unfairly discriminatory because 
the Exchange will uniformly exclude NDXP from PIXL pricing.
FLEX Transaction Fees
    The Exchange's proposal to assess NDXP the same FLEX Transaction 
Fees as are assessed for NDX today is reasonable because the Exchange 
desires to assess the same fees for index products. The Exchange's 
proposal to assess NDXP the same FLEX Transaction Fees as are assessed 
for NDX today is equitable and not unfairly discriminatory because the 
Exchange will uniformly assess FLEX fees for NDXP in a uniform manner 
for all market participants.
Market Access and Routing Subsidy (``MARS'')
    The Exchange's proposal to exclude NDXP from Eligible Contracts for 
purposes of qualifying for a MARS Payment is reasonable because the 
Exchange believes that despite the exclusion of NDXP, MARS remains a 
competitive offering. The Exchange's proposal to exclude NDXP from 
Eligible Contracts for purposes of qualifying for a MARS Payment is 
equitable and not unfairly discriminatory because the Exchange will 
uniformly exclude NDXP from MARS.

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. The Exchange notes that with its products, market 
participants are offered an opportunity to either transact NDXP or 
separately execute options overlying PowerShares QQQ Trust (``QQQ''). 
Offering products such as QQQ provides

[[Page 2838]]

market participants with a variety of choices in selecting the product 
they desire to utilize to transact the Nasdaq 100 Index.\27\
---------------------------------------------------------------------------

    \27\ See note 22 above.
---------------------------------------------------------------------------

Customer Rebate
    The Exchange's proposal to not pay the Customer Rebates in Section 
I of the Pricing Schedule on NDXP and count NDXP volume toward 
qualifying for a Customer Rebate Tier, similar to NDX, does not impose 
an undue burden on competition because the Exchange would apply its 
calculation to determine the eligibility and payment of Customer 
rebates in a uniform manner. The Exchange's proposal to not pay 
Customer Rebates on NDXP in any Category is equitable and not unfairly 
discriminatory because the Exchange would not pay Customer Rebates on 
any transaction with NDXP to any market participant. Also, any market 
participant is eligible to earn a Customer Rebate.
Transaction Charges in Section II
    The Exchange's proposal to assess for the same electronic and floor 
Options Transaction Charges for NDXP and NDX does not impose an undue 
burden on competition because the Exchange would assess the same 
options transaction charges to all Non-Customer market participants. 
The Exchange believes that assessing Customers no transaction fee for 
NDXP does not impose an undue burden on competition because Customer 
orders bring valuable liquidity to the market, which liquidity benefits 
other market participants. Customer liquidity benefits all market 
participants by providing more trading opportunities, which attracts 
Specialists and Market Makers. An increase in the activity of these 
market participants in turn facilitates tighter spreads, which may 
cause an additional corresponding increase in order flow from other 
market participants.
    The Exchange's proposal to add the words ``per contract'' to note 5 
in Section II of the Pricing Schedule to make clear the surcharge is 
per contract does not impose an undue burden on competition because it 
will conform the language to the remainder of the transaction charges 
in Section II of the Pricing Schedule.
    The Exchange's proposal to exclude NDXP from the Monthly Market 
Maker Cap and the Monthly Firm Fee Cap does not impose an undue burden 
on competition because no market participant would be eligible to count 
NDXP toward either the Monthly Market Maker Cap or the Monthly Firm Fee 
Cap.
    The Exchange's proposal to exclude NDXP from the Firm Floor Options 
Transaction waivers for members executing facilitation orders pursuant 
to Exchange Rule 1064, from the buy side of a transaction, if the same 
member or its affiliates under Common Ownership represents both sides 
of a Firm transaction when such members are trading in their own 
proprietary account, and from the waiver for the Broker-Dealer Floor 
Options Transaction Charge for members executing facilitation orders 
pursuant to Exchange Rule 1064, does not impose an undue burden on 
competition because no market participant would be eligible to count 
NDXP toward these waivers.
Marketing Fee
    The Exchange's proposal to exclude NDXP from the Marketing Fee does 
not impose an undue burden on competition because the Exchange will 
assess uniform transaction fees for all Non-Customers because the 
transaction charges, as proposed above, would otherwise be uniform for 
all market participants. The Exchange believes that assessing Customers 
no transaction fee for NDXP does not impose an undue burden on 
competition because Customer orders bring valuable liquidity to the 
market, which liquidity benefits other market participants. Customer 
liquidity benefits all market participants by providing more trading 
opportunities, which attracts Specialists and Market Makers. An 
increase in the activity of these market participants in turn 
facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants.
PIXL Pricing
    The Exchange's proposal to exclude NDXP from the PIXL Pricing in 
Section IV, Part A and instead assess NDXP transactions in PIXL the 
Section II pricing does not impose an undue burden on competition 
because the Exchange will uniformly exclude NDXP from PIXL pricing.
FLEX Transaction Fees
    The Exchange's proposal to assess NDXP the same FLEX Transaction 
Fees as are assessed for NDX today does not impose an undue burden on 
competition because the Exchange will uniformly assess FLEX fees for 
NDXP in a uniform manner for all market participants.
MARS Subsidy
    The Exchange's proposal to exclude NDXP from Eligible Contracts for 
purposes of qualifying for a MARS Payment does not impose an undue 
burden on competition because the Exchange will uniformly exclude NDXP 
from MARS.

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.\28\
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    \28\ 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 [email protected]. Please include 
File Number SR-Phlx-2018-02 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2018-02. 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 website (https://www.sec.gov/

[[Page 2839]]

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 website 
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 Number SR-
Phlx-2018-02 and should be submitted on or before February 9, 2018.
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00856 Filed 1-18-18; 8:45 am]
 BILLING CODE 8011-01-P
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