Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on August 27, 2015, NASDAQ OMX PHLX LLC (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
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 modify the Phlx Pricing Schedule (“Pricing Schedule”). Specifically, the Exchange proposes to amend Section I, entitled “Rebates and Fees for Adding and Removing Liquidity in SPY” by assessing all market participants other than Customers a fee of $0.15 per contract for executions against an order for which the Exchange broadcasts an order exposure alert in SPY.
The term “Customer” applies to any transaction that is identified by a member or member organization for clearing in the Customer range at The Options Clearing Corporation (“OCC”) which is not for the account of broker or dealer or for the account of a “professional” (as that term is defined in Rule 1000(b)(14)). The term “Non-Customer” applies to transactions for the accounts of Specialists, Market Makers, Firms, Professionals, Broker-Dealers and JBOs.
Options overlying Standard and Poor's Depositary Receipts/SPDRs (“SPY”) are based on the SPDR exchange-traded fund (“ETF”), which is designed to track the performance of the S&P 500 Index.
The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqomxphlx.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 this filing is to modify the Pricing Schedule by amending Section I, entitled “Rebates and Fees for Adding and Removing Liquidity in SPY.” Currently, Section 1 provides that no fees will be assessed and no rebates will be paid on transactions which execute against an order for which the Exchange broadcast (sic) an order exposure alert in SPY.
The Exchange is correcting the word “broadcast” to read “broadcasts”.
Exchange Rule 1080(m) provides for the broadcast of certain orders that are on the Phlx Book. The Exchange broadcasts orders on the Phlx Book by issuing order exposure alerts to all Phlx market participants that subscribe to certain data feeds. See Securities Exchange Act Release No. 68517 (December 21, 2012), 77 FR 77134 (December 31, 2012) (SR-Phlx-2012-136). When it adopted the current pricing schedule provision which now is proposed to be amended, the Exchange stated its belief that not assessing fees (or paying a rebate) when removing orders from the order book in SPY where an order exposure alert was issued would incentivize market participants to remove liquidity from the Phlx Book. See Securities Exchange Act Release No. 69768 (June 14, 2013), 78 FR 37250 (June 20, 2013) (SR-Phlx-2013-61).
The Exchange now proposes to assess all market participants other than Customers a fee of $0.15 per contract for such executions. Thus, the fee for such executions will apply to transactions for the accounts of Specialists, Market Makers, Firms, Professionals, Broker-Dealers and JBOs (collectively, “Non-Customers”). The Exchange is adopting this fee at this time because it believes that the associated revenue will allow the Exchange to enhance its services and that offering this service for free is no longer a required incentive to remain competitive with other options exchanges.
A Specialist is an Exchange member who is registered as an options specialist pursuant to Rule 1020(a).
A “Market Maker” includes Registered Options Traders (Rule 1014(b)(i) and (ii)), which includes Streaming Quote Traders (see Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (see Rule 1014(b)(ii)(B)). Directed Participants are also market makers.
The term “Firm” applies to any transaction that is identified by a member or member organization for clearing in the Firm range at OCC.
The term “professional” means any person or entity that (i) is not a broker or dealer in securities, and (ii) places more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). See Rule 1000(b)(14).
The term “Broker-Dealer” applies to any transaction which is not subject to any of the other transaction fees applicable within a particular category.
The term “Joint Back Office” or “JBO” applies to any transaction that is identified by a member or member organization for clearing in the Firm range at OCC and is identified with an origin code as a JBO. A JBO will be priced the same as a Broker-Dealer. A JBO participant is a member, member organization or non-member organization that maintains a JBO arrangement with a clearing broker-dealer (“JBO Broker”) subject to the requirements of Regulation T Section 220.7 of the Federal Reserve System as further discussed at Exchange Rule 703.
2. Statutory Basis
The Exchange believes that its proposal to amend the Pricing Schedule is consistent with Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(4) and (b)(5) of the Act 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 or system which Phlx operates or controls, and is not designed to permit unfair discrimination between market participants to whom the Exchange's fees and rebates are applicable.
15 U.S.C. 78f(b)(4), (5).
The Exchange's proposal is reasonable because the proposed $0.15 fee is lower than the standard fee for removing liquidity in SPY and lower than fees assessed for similar activities at other options exchanges. For example, the Chicago Board Options Exchange (“CBOE”) assesses fees ranging from $0.05 to $0.45 for executions in Equity and ETF Options, including SPY, and offers market makers a $0.05 rebate if they meet certain quoting obligations for executions in Hybrid Agency Liaison (“HAL”). The Exchange's order exposure alert is similar to HAL and the proposed rate is within the range of fees CBOE assesses for executions in HAL. It is also reasonable not to extend the new fee to Customer transactions because Customer orders bring valuable liquidity to the market which 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 is equitable and not unfairly discriminatory because the Exchange will be assessing the same new $0.15 fee on transactions by all market participants (except Customers) in the same manner. As stated above, Customer liquidity benefits all market participants by providing more trading opportunities, which attracts Specialists and Market Makers. It is therefore equitable and not unfairly discriminatory to not apply the new fee to Customer transactions.
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's proposal to impose the new $0.15 fee on executions other than Customer executions does not misalign the fees related to Customer as compared to Non-Customer orders. Today, Customers have lower fees because 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 new fee does not impose any undue burden on competition as all market participants, except Customers will be assessed the same fee.
The Exchange operates in a highly competitive market, comprised of twelve options exchanges, in which market participants can easily and readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive or rebates to be inadequate. Accordingly, the fees that are assessed and the rebates paid by the Exchange, as described in the proposal, are influenced by these robust market forces and therefore must remain competitive with fees charged and rebates paid by other venues and therefore must continue to be reasonable and equitably allocated to those members that opt to direct orders to the Exchange rather than competing venues.
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.
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
- Use the Commission's Internet comment form ( http://www.sec.gov/rules/sro.shtml);; or
- Send an email to rule-comments@sec.gov. Please include File Number SR-Phlx-2015-75 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-2015-75. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-Phlx-2015-75 and should be submitted on or before October 6, 2015.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-23094 Filed 9-14-15; 8:45 am]
BILLING CODE 8011-01-P