Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Provisions for Excluding Days for Purposes of Pricing Tiers, 61700-61705 [2018-25997]
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Federal Register / Vol. 83, No. 231 / Friday, November 30, 2018 / 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. The
Exchange believes the proposed routing
fee changes will not impose an undue
burden on competition because the
Exchange will uniformly assess the
affected routing fees on all Members.
Additionally, Members may opt to
disfavor the Exchange’s pricing if they
believe that alternatives offer them
better value or if they view the proposed
fee as excessive. The Exchange also
notes the proposed changes to the
EDGA-related routing fees are meant to
pass through the fees and rebates
associated with executing orders on that
market, and is therefore not designed to
have any significant impact on
competition. Further, excessive fees for
participation would serve to impair an
exchange’s ability to compete for order
flow and members rather than
burdening competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
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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)
of the Act 5 and paragraph (f) of Rule
19b–4 6 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change 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:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–84645; File No. SR–Phlx–
2018–73]
• 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 SRCboeBZX–2018–083 on the subject line.
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Provisions for Excluding
Days for Purposes of Pricing Tiers
Paper Comments
November 26, 2018.
• 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–CboeBZX–2018–083. 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/
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.
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–CboeBZX–2018–083 and
should be submitted on or before
December 21, 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 November
14, 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 and II,
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–26002 Filed 11–29–18; 8:45 am]
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s provisions for excluding a
day from its volume calculations for
purposes of determining pricing tiers.
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 purpose of the proposed rule
change is to amend the Exchange’s
BILLING CODE 8011–01–P
5 15
U.S.C. 78s(b)(3)(A).
6 17 CFR 240.19b–4(f).
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provisions for excluding a day from its
volume calculations for purposes of
determining pricing tiers, as further
discussed below.
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Background
To avoid penalizing members when
aberrant low volume days result from
systems or other issues at the Exchange,
or where the Exchange closes early for
holiday observance, the Exchange
currently has language in its Pricing
Schedule allowing it to exclude certain
days from its average daily volume
(‘‘ADV’’) calculations or calculations
that are based on a percentage of
industry volume. Currently, Section 1(b)
of the Exchange’s Pricing Schedule
provides that for Phlx options, any day
that the market is not open for the entire
trading day or the Exchange instructs
members in writing to route their orders
to other markets may be excluded from
the ADV calculation or calculation
based on a percentage of industry
volume; provided that the Exchange
will only remove the day for members
that would have a lower ADV or
percentage of industry volume with the
day included. If a day is removed from
a calculation based on a percentage of
monthly industry volume, volume
executed that day will be removed from
both the numerator and the
denominator of the calculation.3 The
proviso language in Section 1(b)
(hereinafter, the ‘‘better of rule’’)
ensures that members would only have
the day removed when doing so is
beneficial for the member. As such, the
Exchange only applies the better of rule
to ADV calculations and calculations
based on a percentage of industry
volume, and not for other volume-based
pricing where members would not
benefit from having the day excluded
(e.g., straight volume accumulations).
In a recent review of the rule, the
Exchange determined that it would be
beneficial to further expand upon and
provide additional detail regarding how
the Exchange applies this rule.
Proposal
The Exchange first proposes to delete
the lead-in ‘‘For Phlx Options’’ in
Section 1(b) of Options 7, and retitle
this section as ‘‘Removal of Days for
Purposes of Pricing Tiers.’’ The fees for
Phlx options and PSX equities are no
longer included in the same pricing
schedule, and the Exchange therefore
believes that the current clarifying lead3 The Exchange removes the day from both the
numerator and denominator to ensure that members
benefit from this rule as removing the day from the
numerator only (i.e., the member’s volume) without
removing it from the denominator (i.e., industry
volume) would penalize the member.
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in is no longer necessary.4 The
Exchange also proposes to adopt the
following language to replace current
rule text in Section 1(b):
(1)(A) Any day that the Exchange
announces in advance that it will not be
open for trading will be excluded from
the options tier calculations set forth in
its Pricing Schedule; and (B) any day
with a scheduled early market close
(‘‘Scheduled Early Close’’) may be
excluded from the options tier
calculations only pursuant to paragraph
(3) below.
(2) The Exchange may exclude the
following days (‘‘Unanticipated
Events’’) from the options tier
calculations only pursuant to paragraph
(3) below, specifically any day that: (A)
the market is not open for the entire
trading day, (B) the Exchange instructs
members in writing to route their orders
to other markets, (C) the Exchange is
inaccessible to members during the 30minute period before the opening of
trade due to an Exchange system
disruption, or (D) the Exchange’s system
experiences a disruption that lasts for
more than 60 minutes during regular
trading hours.
(3) If a day is to be excluded as a
result of paragraph (1)(B) or (2) above,
the Exchange will exclude the day from
any member’s monthly options tier
calculations as follows:
(A) the Exchange may exclude from
the ADV calculation any Scheduled
Early Close or Unanticipated Event;
(B) the Exchange may exclude from
the calculation based on a percentage of
industry volume any Scheduled Early
Close or Unanticipated Event; and
(C) the Exchange may exclude from
any other applicable options tier
calculation provided for in its Schedule
of Fees (together with (3)(A) and (3)(B),
‘‘Tier Calculations’’) any Scheduled
Early Close or Unanticipated Event;
provided, in each case, that the
Exchange will only remove the day for
members that would have a lower Tier
Calculation with the day included. If a
day is removed from a calculation based
on a percentage of monthly industry
volume, volume executed that day will
be removed from both the numerator
and the denominator of the calculation.
The proposed rule change: (i)
Expands upon the existing scenarios
where the Exchange may remove a day
to adopt two additional situations
related to Exchange systems
disruptions, (ii) categorizes the
scenarios into days that are known in
advance (i.e., days in proposed
4 See Securities Exchange Act Release No. 84495
(October 29, 2018), 83 FR 55210 (November 2, 2018)
(SR–Phlx–2018–66).
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61701
paragraph (1), including Scheduled
Early Closes) and days that are not (i.e.,
Unanticipated Events in proposed
paragraph (2)), (iii) clarifies how each
scenario would apply to the options tier
calculations in the Pricing Schedule,
(iv) adds a ‘‘catch-all’’ provision for
other volume based options tier
calculations set forth in its Pricing
Schedule, but are not specified within
paragraphs (3)(A) and (3)(B), to clarify
how the Exchange would exclude days
for other such Tier Calculations going
forward, and (v) generally adds more
detail to clarify the application of the
better of rule. As it relates to
Unanticipated Events, the Exchange will
inform all members if any such day will
be excluded from its Tier Calculations
through a publicly published alert. The
Exchange notes that it is not proposing
any changes to the existing rebates or to
the current tier calculation thresholds
required to achieve each rebate tier.
Exchange Systems Disruptions
The Exchange proposes to adopt two
additional scenarios as ‘‘Unanticipated
Events’’ that the Exchange may
determine to exclude from its Tier
Calculations. First, the Exchange
proposes to exclude days where the
Exchange is inaccessible to members
during the 30-minute period before the
opening of trade (i.e., between 9:00 a.m.
to 9:30 a.m. Eastern Time) due to an
Exchange system disruption, even if the
Exchange does not instruct members to
route away to other markets. As
discussed above, the Exchange’s current
ability to remove days from its
calculations of ADV and industry
volume percentages is limited to days
where the market is not open for the
entire trading day, and where the
Exchange instructs members to route
away to other markets. This allows the
Exchange to exclude days, for example,
where the Exchange honors a marketwide trading halt declared by another
market, closes early for holiday
observance, or instructs members to
route away to other markets because of
a systems issue in the morning, which
ultimately does not carry over into the
trading day. The Exchange notes,
however, that it may not always instruct
members to route away. For instance,
the Exchange may be inaccessible to
members in the morning due to a
systems disruption but the Exchange
resolves the issue shortly before 9:30
a.m. and as a result, the Exchange does
not instruct members to route away. In
such cases, the Exchange is not
permitted to exclude the day from its
ADV calculation or calculation based on
a percentage of industry volume. The
Exchange generally experiences a high
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volume of member participation within
the 30-minute window leading up to the
opening of trade from members who
submit eligible interest be included in
the Exchange’s opening process. As a
result, days where members are
precluded from submitting eligible
interest during this 30-minute time
period due to an Exchange systems
disruption, even if the issue is
ultimately resolved by the Exchange
before the market opens (and members
therefore are not instructed to route
away), are likely to have lower trading
volume. Including such days in
calculations of ADV or percentage of
industry volume will therefore make it
more difficult for members to achieve
particular pricing tiers for that month.
Accordingly, excluding such days from
the monthly tier calculations will
diminish the likelihood of a cost
increase occurring because a member is
not able to reach a pricing tier on that
date that it would reach on other trading
days during the month.
Second, the Exchange proposes to
exclude days where there is an
Exchange system disruption that lasts
for more than 60 minutes during regular
trading hours (i.e., 9:30 a.m. to 4:00 p.m.
Eastern Time), even if such disruption
would not be categorized as a complete
outage of the Exchange’s system. Such
a disruption may occur where a certain
options series traded on the Exchange is
unavailable for trading due to an
Exchange systems issue, or where the
Exchange may be able to perform certain
functions with respect to accepting and
processing orders, but may have a
failure to another significant process,
such as routing to other market centers,
that would lead members who rely on
such processes to avoid using the
Exchange until the Exchange’s entire
system was operational. The Exchange
believes that certain system disruptions
that are not complete system outages
could preclude some members from
submitting orders to the Exchange. The
Exchange notes that this proposal is
consistent with the rules of other
options exchanges.5
The Exchange believes that the two
scenarios proposed above are reasonable
and equitable because the intent of the
current rule has always been to avoid
penalizing members that might
otherwise qualify for certain tiered
5 See, e.g., BATS BZX Options Exchange Fee
Schedule (defining an ‘‘Exchange System
Disruption’’ as any day that the exchange’s system
experiences a disruption that lasts for more than 60
minutes during regular trading hours); and NYSE
Arca Options Fee Schedule (defining an ‘‘Exchange
System Disruption’’ as a disruption affects an
Exchange system that lasts for more than 60
minutes during regular trading hours).
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pricing but that because of aberrant low
volume days resulting, for instance,
from Exchange systems disruptions, did
not participate on the Exchange to the
extent they might have otherwise
participated.
In addition, to avoid penalizing
members that step up and trade on a day
with artificially low volume, the
Exchange currently only removes days
for members that would have a lower
ADV calculation or calculation based on
a percentage of industry volume with
the day included (i.e., the better of rule).
The Exchange believes that applying the
better of rule to the proposed system
disruption-related scenarios would be
similarly helpful as it would ensure that
members that continue to execute a
large volume of contracts on such days
are not inadvertently disadvantaged
when the Exchange removes a systems
disruption-related day from its
calculations of ADV or industry volume
percentages.
The Exchange also proposes that if a
systems disruption-related day is
removed from a calculation based on a
percentage of monthly industry volume,
volume executed that day will be
removed from both the numerator and
denominator of the calculation.
Removing the day from both the
numerator and denominator of the
calculation will ensure that members
benefit from this rule as removing the
day from the numerator only (i.e., the
member’s volume) without removing it
from the denominator (i.e., industry
volume) would penalize the member.
The Exchange takes the same approach
for removing days from such
calculations under the current rule.
Categories of Excluded Days
In light of the foregoing proposal to
adopt two additional situations that the
Exchange may exclude from its pricing
tier calculations, the Exchange seeks to
restructure the existing rule by
separating out the different scenarios
between days that are known in
paragraph (1) and days that are not in
paragraph (2), and define the latter as
Unanticipated Events.
For planned days, the Exchange
proposes to further distinguish between
days that the Exchange announces in
advance that it will not be open for
trading in paragraph (1)(A) (e.g.,
Thanksgiving), and Scheduled Early
Closes in paragraph (1)(B) (e.g., the
trading day after Thanksgiving). The
Exchange notes that it currently
considers Scheduled Early Closes as a
subset of days that the market is not
open for the entire trading day. The
Exchange believes it would be more
clear to distinguish Scheduled Early
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Closes in paragraph (1) as a day that is
planned for in advance, and separately
consider days that are not open for the
entire trading day as Unanticipated
Events in paragraph (2)(A). As
proposed, (2)(A) would continue to
cover unplanned days where the
Exchange declares a trading halt in all
securities or honors a market-wide
trading halt declared by another market.
The other scenarios that will be
categorized as Unanticipated Events in
paragraph (2) are the two systemsrelated disruptions proposed above, and
days that the Exchange instructs
members in writing to route their orders
to other markets, which is an existing
scenario covered under the current rule
as described above.
Exclusion of Days by Tier Calculation
The Exchange proposes to further
amend the existing rule to specify how
the days in paragraphs (1) and (2) will
be excluded from its tier calculations.
As discussed above, the Exchange
currently removes the days set forth in
paragraphs (1)(B), (2)(A), and (2)(B) from
its calculations of ADV and industry
volume percentages only for members
that would have a lower ADV or
percentage of industry volume with the
day included. The Exchange is not
changing how it currently excludes
these days from these calculations. And
as further discussed above, the
Exchange is proposing to adopt the
same principle-based approach for
excluding the system disruption-related
days in paragraphs (2)(C) and (2)(D). As
such, proposed paragraph (3) will
specify for the ADV calculation and
calculation based on a percentage of
industry volume that the Exchange may
exclude any Scheduled Early Close or
Unanticipated Event, subject, in each
case, to the better of rule.
As it relates to days where the
Exchange announces in advance that it
will not be open for trading, the
Exchange notes that it will exclude
those days from all options tier
calculations set forth in its Pricing
Schedule. This is also the case today
since no trading activity occurs on those
days, and the Exchange is only
clarifying its current practice within the
proposed rule text in paragraph (1)(A).
Catch-All Provision
The proposal also adds a ‘‘catch-all’’
provision in paragraph (3)(C) that would
apply to other applicable options tier
calculations that are set forth in its
Pricing Schedule (‘‘Tier Calculations’’),
but are not specified within paragraphs
(3)(A) and (3)(B) (i.e., not an ADV
calculation or calculation based on a
percentage of industry volume). This
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catch-all provision is to provide the
Exchange with flexibility to apply the
better of rule going forward to all
pricing programs administered by the
Exchange that are based on volume
calculations.6 Specifically, the Exchange
may exclude any Scheduled Early Close
or Unanticipated Event from such other
Tier Calculations only if the member
will have a lower Tier Calculation with
the day included. This is the same
principle-based approach that the
Exchange currently takes for its ADV
calculation and calculation based on a
percentage of industry volume, and is
similarly intended to ensure that days
are removed from a member’s volume
calculations only if doing so would be
beneficial for the member.
Clarifying Changes
The Exchange proposes to add further
detail throughout the rule text to bring
greater transparency as to how the
Exchange will apply the better of rule
when removing days from its tier
calculations. The Exchange proposes to
make clear that it will only remove days
pursuant to the better of rule by
specifying in paragraphs (1)(B) and (2)
that such days may be excluded from
the Tier Calculations only pursuant to
paragraph (3). Paragraph (3) will then
provide that if a day is to be excluded
as a result of paragraph (1)(B) or (2), the
Exchange will be required to exclude
the day from any member’s monthly
options tier calculations as detailed
within paragraph (3) (i.e., excluding a
Scheduled Early Close or Unanticipated
Event from a specified tier calculation
only for members that would have a
lower tier calculation with the day
included). With the proposed changes,
the Exchange seeks to clarify current
practice by expressing that it will
exclude days from any member’s tier
calculations in a uniform manner to
ensure that days are removed only in
situations where the member benefits.
Currently, the Exchange looks at each
potential excluded day in a month and
calculates for every member their ADV
or industry volume percentage based on
their trading volume on that day. If any
member would have a lower ADV or
percentage of industry volume with the
particular day included, the Exchange
will exclude that day for that member.
As such, the proposed changes specify
that the Exchange will apply the better
of rule in a uniform manner for all
members, and that there is no arbitrary
6 As such, the proposed language will not apply
to straight volume accumulations, and the Exchange
will continue to not exclude days from such
calculations, as is current practice, since members
do not benefit when a day is removed from straight
volume accumulations.
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selection of ‘‘winners’’ or ‘‘losers’’ when
the Exchange excludes days. Lastly, the
Exchange proposes to make two
technical changes within the better of
rule; first, to clarify that the rule applies
in each case of the tier calculations
specified in paragraph (3), and second,
to use the defined term ‘‘Tier
Calculations’’ instead of ‘‘ADV or
percentage of industry volume’’ to
reflect the changes proposed herein.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,7 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,8 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 Exchange believes that the
proposed rule change is reasonable and
equitable as it provides a framework for
removing days from the Exchange’s
volume calculations that the Exchange
believes is beneficial to members. The
proposed rule change would permit the
Exchange to remove a day from its Tier
Calculations in more circumstances, and
ensures that the Exchange will only do
so in circumstances where beneficial for
the member due to the member
executing a lower ADV or percentage of
industry volume during the excluded
day. The Exchange believes it is
reasonable and equitable to exclude a
day from its tier calculations when the
Exchange’s system experiences a
disruption during the 30-minute period
prior to the opening of trade that
renders the Exchange inaccessible to
members as this preserves the
Exchange’s intent behind adopting
volume-based pricing. Without this
change, members that are precluded
from submitting eligible interest during
the 30-minute window before the
opening of trade may be negatively
impacted, even if the Exchange resolves
the issue before the market opens and as
a result, does not instruct members to
route away. The proposed change to
exclude such days will diminish the
likelihood of a cost increase occurring
because a member is not able to reach
a volume tier calculation on that date
that it would reach on other trading
days during the month. Furthermore,
while the Exchange may have resolved
the systems disruption from its
perspective prior to the opening of
7 15
8 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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61703
trade, a member may now have issues
managing their orders with the
Exchange as a result of the original
disruption, causing a downstream ripple
effect.
Similarly, excluding a day where the
Exchange’s system experiences a
disruption that lasts for more than 60
minutes intra-day is reasonable and
equitable because the proposal seeks to
avoid penalizing members that might
otherwise qualify for certain tiered
pricing but that, because of an Exchange
systems disruption, did not participate
on the Exchange to the extent they
might have otherwise participated. The
Exchange believes that certain systems
disruptions could preclude some
members from submitting orders to the
Exchange even if such issue is not
actually a complete systems outage.
Other options exchanges similarly
exclude exchange systems disruptions
from their pricing tiers.9
In addition, the Exchange believes
that it is reasonable and equitable to
apply the better of rule to both systems
disruption-related scenarios. Without
these changes, members that step up
and trade significant volume on
excluded trading days may be
negatively impacted, resulting in an
effective cost increase for those
members. The proposal would align the
Exchange’s approach to how it applies
this rule today for days where the
market is not open for the entire trading
day or where the Exchange instructs
members to route away. Furthermore,
removing the proposed days from both
the numerator and denominator of a
calculation based on a percentage of
industry volume is reasonable and
equitable as this treatment ensures that
the member actually benefits from
having the day removed. Again, this
would align the Exchange’s current
approach to how it removes days from
such calculations.
In light of the Exchange’s proposal to
adopt the two additional scenarios
related to systems disruptions, the
Exchange is making related,
restructuring changes to the existing
language in Options 7, Section 1(b) to
bring greater transparency to the
application of its rule. Specifically, the
Exchange is distinguishing between
planned and unplanned days in
paragraphs (1) and (2), defining the
latter as Unanticipated Events, and
stipulating how the Exchange will
exclude such days pursuant to this rule.
Categorizing days in this manner will
clarify the application of its rule in light
of the Exchange’s proposal to expand
the rule to adopt additional days that
9 See
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may be excluded from its tier
calculations. Similarly, the Exchange
believes that the proposed changes to
specify how each of the days in
paragraphs (1) and (2) will be excluded
from its tier calculations will bring
greater transparency to the application
of the rule by clearly delineating the
various circumstances in which the rule
will apply. Providing in paragraph
(1)(A) that the Exchange will always
exclude from its tier calculations days
that it announces in advance it will not
be open for trading will clarify current
practice. Providing in paragraph (3) that
the Exchange may exclude any
Scheduled Early Close or Unanticipated
Event from the specified tier
calculations, subject to the better of rule,
will make clear that the Exchange will
take a consistent approach when
excluding days for purposes of its
volume based pricing tiers.
Furthermore, the clean-up changes
specifying that the days in paragraphs
(1)(B) and (2) may be excluded only
pursuant to paragraph (3), and requiring
the Exchange to exclude such days
pursuant to the specifications in
paragraph (3) will likewise make clear
that the Exchange will take a consistent
approach with respect to excluding days
from its tier calculations. As discussed
above, these modifications will clarify
that the Exchange will apply the better
of rule in a uniform manner to all
members, and that there is no arbitrary
selection of ‘‘winners’’ or ‘‘losers.’’ The
Exchange also believes that the two
technical changes proposed in the better
of rule to reflect the changes proposed
herein will likewise bring greater clarity
to its rule. For the foregoing reasons, the
Exchange believes that the proposed
changes to clarify and restructure its
existing rule are reasonable and
equitable.
Furthermore, the Exchange believes
that the proposed changes to adopt a
catch-all provision in paragraph (3)(C)
to other Tier Calculations not already
specified in the rule to allow the
Exchange to apply the better of rule
going forward to all pricing programs
based on other volume calculations is
reasonable and equitable for the same
reasons as allowing the Exchange to
apply the better of rule for calculations
based on ADV and industry volume
percentages. The Exchange notes that
aberrant low volume days resulting
from, for instance, an Unanticipated
Event, impacts all volume-based
calculations, and allowing the Exchange
to exclude such days from any volumebased tier calculation if the member
would have a lower tier calculation with
the day excluded will further protect
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members from being inadvertently
penalized.
Finally, the Exchange further believes
that the proposed rule change is not
unfairly discriminatory because it will
apply equally to all members. While the
Exchange currently has rules in place
for removing a day from its pricing, the
Exchange believes that the proposed
changes will benefit all members by
providing more circumstances to
remove a day, and ensuring that days
are removed only in situations where
the member benefits.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
protect members from the possibility of
a cost increase by excluding days when
overall member participation might be
significantly lower than a typical
trading day. The Exchange believes that
the proposed modifications to its tier
calculations are pro-competitive and
will result in lower total costs to end
users, a positive outcome of competitive
markets. The Exchange operates in a
highly competitive market in which
market participants can readily direct
their order flow to competing venues. In
such an environment, the Exchange
must continually review, and consider
adjusting, its fees and rebates to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed fee
changes reflect this competitive
environment.
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)
of the Act and paragraph (f) of Rule
19b–4 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
PO 00000
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Sfmt 4703
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–2018–73 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–2018–73. 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/
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.
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–2018–73, and should
be submitted on or before December 21,
2018.
E:\FR\FM\30NON1.SGM
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Federal Register / Vol. 83, No. 231 / Friday, November 30, 2018 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Eduardo A. Aleman,
Assistant Secretary.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–25997 Filed 11–29–18; 8:45 am]
[FR Doc. 2018–26001 Filed 11–29–18; 8:45 am]
BILLING CODE 8011–01–P
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84650; File No. SR–MIAX–
2018–25]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Withdrawal of a Proposed
Rule Change To Amend the Fee
Schedule Regarding Connectivity Fees
for Members and Non-Members
November 26, 2018.
On September 18, 2018, Miami
International Securities Exchange LLC
(‘‘MIAX’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend the MIAX Fee
Schedule to increase certain
connectivity fees. The proposed rule
change was immediately effective upon
filing with the Commission pursuant to
Section 19(b)(3)(A) of the Act.3 On
October 10, 2018 the proposed rule
change was published for comment in
the Federal Register and, pursuant to
Section 19(b)(3)(C) of the Act, the
Commission: (1) Temporarily
suspended the proposed rule change;
and (2) instituted proceedings to
determine whether to approve or
disapprove the proposal.4 The
Commission received one comment
letter on the proposal.5 On November
23, 2018, the Exchange withdrew the
proposed rule change (SR–MIAX–2018–
25).
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 See Securities Exchange Act Release No. 84357
(October 3, 2018), 83 FR 50976.
5 See Letter from Theodore R. Lazo, Managing
Director and Associate General Counsel, and Ellen
Greene, Managing Director, The Securities Industry
and Financial Markets Association, to Brent J.
Fields, Secretary, Commission, dated October 15,
2018.
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1 15
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[Release No. 34–84649; File No. SR–
NYSEAMER–2018–51]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 903,
Series of Options Open for Trading
November 26, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 2 and
Rule 19b–4 thereunder,3 notice is
hereby given that on November 19,
2018, NYSE American LLC
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 903. The proposed rule change is
available on the Exchange’s website at
www.nyse.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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
6 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Sfmt 4703
61705
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to amend
Rule 903, Series of Options Open for
Trading, to permit the listing and
trading of up to ten expiration months
for long term options on the SPDR® S&P
500® Exchange-Traded Fund (the ‘‘SPY
ETF’’).
Commentary .03(a) of Rule 903
(‘‘Commentary .03’’) provides that the
Exchange may list, with respect to any
class of stock or Exchange-Traded Fund
Share options series, options having
from twelve up to thirty-nine months
from the time they are listed until
expiration (‘‘LEAPS’’). Under the
current Rule, the Exchange may list up
to six LEAPS expiration months.4 The
Exchange proposes to amend
Commentary .03 to permit up to ten
LEAPS expiration months for options on
the SPY ETF.5 This proposal, which is
substantially the same as a recent rule
amendment submitted by Nasdaq PHLX
LLC (‘‘PHLX’’) and driven by customer
demand,6 would add liquidity to the
SPY ETF options market by allowing
market participants to hedge risks
relating to SPY ETF positions over a
potentially longer time period with a
known and limited cost.
The SPY ETF options market today is
characterized by its tremendous daily
and annual liquidity. As a consequence,
the Exchange believes that the listing of
additional SPY ETF LEAPS expiration
months would be well received by
investors. This proposal to expand the
number of permitted SPY ETF LEAPS
would not apply to LEAPS on any other
4 Strike price interval, bid/ask differential and
continuity rules shall not apply to such options
series until the time to expiration is less than nine
months. See Commentary .03(a) of Rule 903.
5 See proposed Commentary .03(a) of Rule 903
(providing in relevant part, that ‘‘[t]here may be up
to ten expiration months for options on the [SPY
ETF] and up to six extended far term expiration
months for options on any other index, ExchangeTrade Fund Share, or equity option class’’). The
Exchange also proposes a technical change to
remove the errant period that appears after
‘‘(LEAPS)’’ in the title of Commentary .03, which
would add clarity and consistency to Exchange
rules. See proposed Commentary .03 of Rule 903.
6 See also Securities Exchange Act Release No.
84449 (October 18, 2018), 83 FR 53699 (October 24,
2018) (SR–Phlx–2018–64) (‘‘PHLX Rule Change’’).
The Exchange notes that the PHLX Rule Change
does not apply to LEAPS on index options, as PHLX
already provided for up to ten expirations in LEAPS
on index options in PHLX Rule 1101A(b)(iii).
Because Commentary .03 includes index options,
this proposal is consistent with both the PHLX Rule
Change and PHLX Rule 1101A(b)(iii).
E:\FR\FM\30NON1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 231 (Friday, November 30, 2018)]
[Notices]
[Pages 61700-61705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25997]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84645; File No. SR-Phlx-2018-73]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Provisions for Excluding Days for Purposes of Pricing Tiers
November 26, 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 November 14, 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 and
II, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 provisions for
excluding a day from its volume calculations for purposes of
determining pricing tiers.
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 purpose of the proposed rule change is to amend the Exchange's
[[Page 61701]]
provisions for excluding a day from its volume calculations for
purposes of determining pricing tiers, as further discussed below.
Background
To avoid penalizing members when aberrant low volume days result
from systems or other issues at the Exchange, or where the Exchange
closes early for holiday observance, the Exchange currently has
language in its Pricing Schedule allowing it to exclude certain days
from its average daily volume (``ADV'') calculations or calculations
that are based on a percentage of industry volume. Currently, Section
1(b) of the Exchange's Pricing Schedule provides that for Phlx options,
any day that the market is not open for the entire trading day or the
Exchange instructs members in writing to route their orders to other
markets may be excluded from the ADV calculation or calculation based
on a percentage of industry volume; provided that the Exchange will
only remove the day for members that would have a lower ADV or
percentage of industry volume with the day included. If a day is
removed from a calculation based on a percentage of monthly industry
volume, volume executed that day will be removed from both the
numerator and the denominator of the calculation.\3\ The proviso
language in Section 1(b) (hereinafter, the ``better of rule'') ensures
that members would only have the day removed when doing so is
beneficial for the member. As such, the Exchange only applies the
better of rule to ADV calculations and calculations based on a
percentage of industry volume, and not for other volume-based pricing
where members would not benefit from having the day excluded (e.g.,
straight volume accumulations).
---------------------------------------------------------------------------
\3\ The Exchange removes the day from both the numerator and
denominator to ensure that members benefit from this rule as
removing the day from the numerator only (i.e., the member's volume)
without removing it from the denominator (i.e., industry volume)
would penalize the member.
---------------------------------------------------------------------------
In a recent review of the rule, the Exchange determined that it
would be beneficial to further expand upon and provide additional
detail regarding how the Exchange applies this rule.
Proposal
The Exchange first proposes to delete the lead-in ``For Phlx
Options'' in Section 1(b) of Options 7, and retitle this section as
``Removal of Days for Purposes of Pricing Tiers.'' The fees for Phlx
options and PSX equities are no longer included in the same pricing
schedule, and the Exchange therefore believes that the current
clarifying lead-in is no longer necessary.\4\ The Exchange also
proposes to adopt the following language to replace current rule text
in Section 1(b):
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 84495 (October 29,
2018), 83 FR 55210 (November 2, 2018) (SR-Phlx-2018-66).
---------------------------------------------------------------------------
(1)(A) Any day that the Exchange announces in advance that it will
not be open for trading will be excluded from the options tier
calculations set forth in its Pricing Schedule; and (B) any day with a
scheduled early market close (``Scheduled Early Close'') may be
excluded from the options tier calculations only pursuant to paragraph
(3) below.
(2) The Exchange may exclude the following days (``Unanticipated
Events'') from the options tier calculations only pursuant to paragraph
(3) below, specifically any day that: (A) the market is not open for
the entire trading day, (B) the Exchange instructs members in writing
to route their orders to other markets, (C) the Exchange is
inaccessible to members during the 30-minute period before the opening
of trade due to an Exchange system disruption, or (D) the Exchange's
system experiences a disruption that lasts for more than 60 minutes
during regular trading hours.
(3) If a day is to be excluded as a result of paragraph (1)(B) or
(2) above, the Exchange will exclude the day from any member's monthly
options tier calculations as follows:
(A) the Exchange may exclude from the ADV calculation any Scheduled
Early Close or Unanticipated Event;
(B) the Exchange may exclude from the calculation based on a
percentage of industry volume any Scheduled Early Close or
Unanticipated Event; and
(C) the Exchange may exclude from any other applicable options tier
calculation provided for in its Schedule of Fees (together with (3)(A)
and (3)(B), ``Tier Calculations'') any Scheduled Early Close or
Unanticipated Event; provided, in each case, that the Exchange will
only remove the day for members that would have a lower Tier
Calculation with the day included. If a day is removed from a
calculation based on a percentage of monthly industry volume, volume
executed that day will be removed from both the numerator and the
denominator of the calculation.
The proposed rule change: (i) Expands upon the existing scenarios
where the Exchange may remove a day to adopt two additional situations
related to Exchange systems disruptions, (ii) categorizes the scenarios
into days that are known in advance (i.e., days in proposed paragraph
(1), including Scheduled Early Closes) and days that are not (i.e.,
Unanticipated Events in proposed paragraph (2)), (iii) clarifies how
each scenario would apply to the options tier calculations in the
Pricing Schedule, (iv) adds a ``catch-all'' provision for other volume
based options tier calculations set forth in its Pricing Schedule, but
are not specified within paragraphs (3)(A) and (3)(B), to clarify how
the Exchange would exclude days for other such Tier Calculations going
forward, and (v) generally adds more detail to clarify the application
of the better of rule. As it relates to Unanticipated Events, the
Exchange will inform all members if any such day will be excluded from
its Tier Calculations through a publicly published alert. The Exchange
notes that it is not proposing any changes to the existing rebates or
to the current tier calculation thresholds required to achieve each
rebate tier.
Exchange Systems Disruptions
The Exchange proposes to adopt two additional scenarios as
``Unanticipated Events'' that the Exchange may determine to exclude
from its Tier Calculations. First, the Exchange proposes to exclude
days where the Exchange is inaccessible to members during the 30-minute
period before the opening of trade (i.e., between 9:00 a.m. to 9:30
a.m. Eastern Time) due to an Exchange system disruption, even if the
Exchange does not instruct members to route away to other markets. As
discussed above, the Exchange's current ability to remove days from its
calculations of ADV and industry volume percentages is limited to days
where the market is not open for the entire trading day, and where the
Exchange instructs members to route away to other markets. This allows
the Exchange to exclude days, for example, where the Exchange honors a
market-wide trading halt declared by another market, closes early for
holiday observance, or instructs members to route away to other markets
because of a systems issue in the morning, which ultimately does not
carry over into the trading day. The Exchange notes, however, that it
may not always instruct members to route away. For instance, the
Exchange may be inaccessible to members in the morning due to a systems
disruption but the Exchange resolves the issue shortly before 9:30 a.m.
and as a result, the Exchange does not instruct members to route away.
In such cases, the Exchange is not permitted to exclude the day from
its ADV calculation or calculation based on a percentage of industry
volume. The Exchange generally experiences a high
[[Page 61702]]
volume of member participation within the 30-minute window leading up
to the opening of trade from members who submit eligible interest be
included in the Exchange's opening process. As a result, days where
members are precluded from submitting eligible interest during this 30-
minute time period due to an Exchange systems disruption, even if the
issue is ultimately resolved by the Exchange before the market opens
(and members therefore are not instructed to route away), are likely to
have lower trading volume. Including such days in calculations of ADV
or percentage of industry volume will therefore make it more difficult
for members to achieve particular pricing tiers for that month.
Accordingly, excluding such days from the monthly tier calculations
will diminish the likelihood of a cost increase occurring because a
member is not able to reach a pricing tier on that date that it would
reach on other trading days during the month.
Second, the Exchange proposes to exclude days where there is an
Exchange system disruption that lasts for more than 60 minutes during
regular trading hours (i.e., 9:30 a.m. to 4:00 p.m. Eastern Time), even
if such disruption would not be categorized as a complete outage of the
Exchange's system. Such a disruption may occur where a certain options
series traded on the Exchange is unavailable for trading due to an
Exchange systems issue, or where the Exchange may be able to perform
certain functions with respect to accepting and processing orders, but
may have a failure to another significant process, such as routing to
other market centers, that would lead members who rely on such
processes to avoid using the Exchange until the Exchange's entire
system was operational. The Exchange believes that certain system
disruptions that are not complete system outages could preclude some
members from submitting orders to the Exchange. The Exchange notes that
this proposal is consistent with the rules of other options
exchanges.\5\
---------------------------------------------------------------------------
\5\ See, e.g., BATS BZX Options Exchange Fee Schedule (defining
an ``Exchange System Disruption'' as any day that the exchange's
system experiences a disruption that lasts for more than 60 minutes
during regular trading hours); and NYSE Arca Options Fee Schedule
(defining an ``Exchange System Disruption'' as a disruption affects
an Exchange system that lasts for more than 60 minutes during
regular trading hours).
---------------------------------------------------------------------------
The Exchange believes that the two scenarios proposed above are
reasonable and equitable because the intent of the current rule has
always been to avoid penalizing members that might otherwise qualify
for certain tiered pricing but that because of aberrant low volume days
resulting, for instance, from Exchange systems disruptions, did not
participate on the Exchange to the extent they might have otherwise
participated.
In addition, to avoid penalizing members that step up and trade on
a day with artificially low volume, the Exchange currently only removes
days for members that would have a lower ADV calculation or calculation
based on a percentage of industry volume with the day included (i.e.,
the better of rule). The Exchange believes that applying the better of
rule to the proposed system disruption-related scenarios would be
similarly helpful as it would ensure that members that continue to
execute a large volume of contracts on such days are not inadvertently
disadvantaged when the Exchange removes a systems disruption-related
day from its calculations of ADV or industry volume percentages.
The Exchange also proposes that if a systems disruption-related day
is removed from a calculation based on a percentage of monthly industry
volume, volume executed that day will be removed from both the
numerator and denominator of the calculation. Removing the day from
both the numerator and denominator of the calculation will ensure that
members benefit from this rule as removing the day from the numerator
only (i.e., the member's volume) without removing it from the
denominator (i.e., industry volume) would penalize the member. The
Exchange takes the same approach for removing days from such
calculations under the current rule.
Categories of Excluded Days
In light of the foregoing proposal to adopt two additional
situations that the Exchange may exclude from its pricing tier
calculations, the Exchange seeks to restructure the existing rule by
separating out the different scenarios between days that are known in
paragraph (1) and days that are not in paragraph (2), and define the
latter as Unanticipated Events.
For planned days, the Exchange proposes to further distinguish
between days that the Exchange announces in advance that it will not be
open for trading in paragraph (1)(A) (e.g., Thanksgiving), and
Scheduled Early Closes in paragraph (1)(B) (e.g., the trading day after
Thanksgiving). The Exchange notes that it currently considers Scheduled
Early Closes as a subset of days that the market is not open for the
entire trading day. The Exchange believes it would be more clear to
distinguish Scheduled Early Closes in paragraph (1) as a day that is
planned for in advance, and separately consider days that are not open
for the entire trading day as Unanticipated Events in paragraph (2)(A).
As proposed, (2)(A) would continue to cover unplanned days where the
Exchange declares a trading halt in all securities or honors a market-
wide trading halt declared by another market. The other scenarios that
will be categorized as Unanticipated Events in paragraph (2) are the
two systems-related disruptions proposed above, and days that the
Exchange instructs members in writing to route their orders to other
markets, which is an existing scenario covered under the current rule
as described above.
Exclusion of Days by Tier Calculation
The Exchange proposes to further amend the existing rule to specify
how the days in paragraphs (1) and (2) will be excluded from its tier
calculations. As discussed above, the Exchange currently removes the
days set forth in paragraphs (1)(B), (2)(A), and (2)(B) from its
calculations of ADV and industry volume percentages only for members
that would have a lower ADV or percentage of industry volume with the
day included. The Exchange is not changing how it currently excludes
these days from these calculations. And as further discussed above, the
Exchange is proposing to adopt the same principle-based approach for
excluding the system disruption-related days in paragraphs (2)(C) and
(2)(D). As such, proposed paragraph (3) will specify for the ADV
calculation and calculation based on a percentage of industry volume
that the Exchange may exclude any Scheduled Early Close or
Unanticipated Event, subject, in each case, to the better of rule.
As it relates to days where the Exchange announces in advance that
it will not be open for trading, the Exchange notes that it will
exclude those days from all options tier calculations set forth in its
Pricing Schedule. This is also the case today since no trading activity
occurs on those days, and the Exchange is only clarifying its current
practice within the proposed rule text in paragraph (1)(A).
Catch-All Provision
The proposal also adds a ``catch-all'' provision in paragraph
(3)(C) that would apply to other applicable options tier calculations
that are set forth in its Pricing Schedule (``Tier Calculations''), but
are not specified within paragraphs (3)(A) and (3)(B) (i.e., not an ADV
calculation or calculation based on a percentage of industry volume).
This
[[Page 61703]]
catch-all provision is to provide the Exchange with flexibility to
apply the better of rule going forward to all pricing programs
administered by the Exchange that are based on volume calculations.\6\
Specifically, the Exchange may exclude any Scheduled Early Close or
Unanticipated Event from such other Tier Calculations only if the
member will have a lower Tier Calculation with the day included. This
is the same principle-based approach that the Exchange currently takes
for its ADV calculation and calculation based on a percentage of
industry volume, and is similarly intended to ensure that days are
removed from a member's volume calculations only if doing so would be
beneficial for the member.
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\6\ As such, the proposed language will not apply to straight
volume accumulations, and the Exchange will continue to not exclude
days from such calculations, as is current practice, since members
do not benefit when a day is removed from straight volume
accumulations.
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Clarifying Changes
The Exchange proposes to add further detail throughout the rule
text to bring greater transparency as to how the Exchange will apply
the better of rule when removing days from its tier calculations. The
Exchange proposes to make clear that it will only remove days pursuant
to the better of rule by specifying in paragraphs (1)(B) and (2) that
such days may be excluded from the Tier Calculations only pursuant to
paragraph (3). Paragraph (3) will then provide that if a day is to be
excluded as a result of paragraph (1)(B) or (2), the Exchange will be
required to exclude the day from any member's monthly options tier
calculations as detailed within paragraph (3) (i.e., excluding a
Scheduled Early Close or Unanticipated Event from a specified tier
calculation only for members that would have a lower tier calculation
with the day included). With the proposed changes, the Exchange seeks
to clarify current practice by expressing that it will exclude days
from any member's tier calculations in a uniform manner to ensure that
days are removed only in situations where the member benefits.
Currently, the Exchange looks at each potential excluded day in a month
and calculates for every member their ADV or industry volume percentage
based on their trading volume on that day. If any member would have a
lower ADV or percentage of industry volume with the particular day
included, the Exchange will exclude that day for that member. As such,
the proposed changes specify that the Exchange will apply the better of
rule in a uniform manner for all members, and that there is no
arbitrary selection of ``winners'' or ``losers'' when the Exchange
excludes days. Lastly, the Exchange proposes to make two technical
changes within the better of rule; first, to clarify that the rule
applies in each case of the tier calculations specified in paragraph
(3), and second, to use the defined term ``Tier Calculations'' instead
of ``ADV or percentage of industry volume'' to reflect the changes
proposed herein.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\8\ 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.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed rule change is reasonable
and equitable as it provides a framework for removing days from the
Exchange's volume calculations that the Exchange believes is beneficial
to members. The proposed rule change would permit the Exchange to
remove a day from its Tier Calculations in more circumstances, and
ensures that the Exchange will only do so in circumstances where
beneficial for the member due to the member executing a lower ADV or
percentage of industry volume during the excluded day. The Exchange
believes it is reasonable and equitable to exclude a day from its tier
calculations when the Exchange's system experiences a disruption during
the 30-minute period prior to the opening of trade that renders the
Exchange inaccessible to members as this preserves the Exchange's
intent behind adopting volume-based pricing. Without this change,
members that are precluded from submitting eligible interest during the
30-minute window before the opening of trade may be negatively
impacted, even if the Exchange resolves the issue before the market
opens and as a result, does not instruct members to route away. The
proposed change to exclude such days will diminish the likelihood of a
cost increase occurring because a member is not able to reach a volume
tier calculation on that date that it would reach on other trading days
during the month. Furthermore, while the Exchange may have resolved the
systems disruption from its perspective prior to the opening of trade,
a member may now have issues managing their orders with the Exchange as
a result of the original disruption, causing a downstream ripple
effect.
Similarly, excluding a day where the Exchange's system experiences
a disruption that lasts for more than 60 minutes intra-day is
reasonable and equitable because the proposal seeks to avoid penalizing
members that might otherwise qualify for certain tiered pricing but
that, because of an Exchange systems disruption, did not participate on
the Exchange to the extent they might have otherwise participated. The
Exchange believes that certain systems disruptions could preclude some
members from submitting orders to the Exchange even if such issue is
not actually a complete systems outage. Other options exchanges
similarly exclude exchange systems disruptions from their pricing
tiers.\9\
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\9\ See footnote 5 above.
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In addition, the Exchange believes that it is reasonable and
equitable to apply the better of rule to both systems disruption-
related scenarios. Without these changes, members that step up and
trade significant volume on excluded trading days may be negatively
impacted, resulting in an effective cost increase for those members.
The proposal would align the Exchange's approach to how it applies this
rule today for days where the market is not open for the entire trading
day or where the Exchange instructs members to route away. Furthermore,
removing the proposed days from both the numerator and denominator of a
calculation based on a percentage of industry volume is reasonable and
equitable as this treatment ensures that the member actually benefits
from having the day removed. Again, this would align the Exchange's
current approach to how it removes days from such calculations.
In light of the Exchange's proposal to adopt the two additional
scenarios related to systems disruptions, the Exchange is making
related, restructuring changes to the existing language in Options 7,
Section 1(b) to bring greater transparency to the application of its
rule. Specifically, the Exchange is distinguishing between planned and
unplanned days in paragraphs (1) and (2), defining the latter as
Unanticipated Events, and stipulating how the Exchange will exclude
such days pursuant to this rule. Categorizing days in this manner will
clarify the application of its rule in light of the Exchange's proposal
to expand the rule to adopt additional days that
[[Page 61704]]
may be excluded from its tier calculations. Similarly, the Exchange
believes that the proposed changes to specify how each of the days in
paragraphs (1) and (2) will be excluded from its tier calculations will
bring greater transparency to the application of the rule by clearly
delineating the various circumstances in which the rule will apply.
Providing in paragraph (1)(A) that the Exchange will always exclude
from its tier calculations days that it announces in advance it will
not be open for trading will clarify current practice. Providing in
paragraph (3) that the Exchange may exclude any Scheduled Early Close
or Unanticipated Event from the specified tier calculations, subject to
the better of rule, will make clear that the Exchange will take a
consistent approach when excluding days for purposes of its volume
based pricing tiers. Furthermore, the clean-up changes specifying that
the days in paragraphs (1)(B) and (2) may be excluded only pursuant to
paragraph (3), and requiring the Exchange to exclude such days pursuant
to the specifications in paragraph (3) will likewise make clear that
the Exchange will take a consistent approach with respect to excluding
days from its tier calculations. As discussed above, these
modifications will clarify that the Exchange will apply the better of
rule in a uniform manner to all members, and that there is no arbitrary
selection of ``winners'' or ``losers.'' The Exchange also believes that
the two technical changes proposed in the better of rule to reflect the
changes proposed herein will likewise bring greater clarity to its
rule. For the foregoing reasons, the Exchange believes that the
proposed changes to clarify and restructure its existing rule are
reasonable and equitable.
Furthermore, the Exchange believes that the proposed changes to
adopt a catch-all provision in paragraph (3)(C) to other Tier
Calculations not already specified in the rule to allow the Exchange to
apply the better of rule going forward to all pricing programs based on
other volume calculations is reasonable and equitable for the same
reasons as allowing the Exchange to apply the better of rule for
calculations based on ADV and industry volume percentages. The Exchange
notes that aberrant low volume days resulting from, for instance, an
Unanticipated Event, impacts all volume-based calculations, and
allowing the Exchange to exclude such days from any volume-based tier
calculation if the member would have a lower tier calculation with the
day excluded will further protect members from being inadvertently
penalized.
Finally, the Exchange further believes that the proposed rule
change is not unfairly discriminatory because it will apply equally to
all members. While the Exchange currently has rules in place for
removing a day from its pricing, the Exchange believes that the
proposed changes will benefit all members by providing more
circumstances to remove a day, and ensuring that days are removed only
in situations where the member benefits.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change is
designed to protect members from the possibility of a cost increase by
excluding days when overall member participation might be significantly
lower than a typical trading day. The Exchange believes that the
proposed modifications to its tier calculations are pro-competitive and
will result in lower total costs to end users, a positive outcome of
competitive markets. The Exchange operates in a highly competitive
market in which market participants can readily direct their order flow
to competing venues. In such an environment, the Exchange must
continually review, and consider adjusting, its fees and rebates to
remain competitive with other exchanges. For the reasons described
above, the Exchange believes that the proposed fee changes reflect this
competitive environment.
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) of the Act and paragraph (f) of Rule 19b-4 thereunder. At
any time within 60 days of the filing of the proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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-2018-73 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-2018-73. 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/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. 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-2018-73, and should be submitted on
or before December 21, 2018.
[[Page 61705]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25997 Filed 11-29-18; 8:45 am]
BILLING CODE 8011-01-P
