80 FR 52073 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Options Regulatory Fee

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 166 (August 27, 2015)

[Federal Register Volume 80, Number 166 (Thursday, August 27, 2015)]
[Notices]
[Pages 52073-52075]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-21208]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75749; File No. SR-Phlx-2015-71]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Options Regulatory Fee

August 21, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on August 17, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to make adjustments to its Options Regulatory 
Fee (``ORF'') by amending Section IV, Part D of the Pricing Schedule.
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative September 1, 2015 and February 1, 2016, as noted herein.
    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 the proposed rule change is to: (1) Decrease the ORF 
from $0.0045 per to $0.0035 as of September 1, 2015 and increase the 
ORF from $0.0035 to $0.0040 as of February 1, 2016 to account for 
additional fine revenue, cost reductions and to balance the Exchange's 
regulatory revenue against the anticipated costs and potential fines; 
and (2) remove the requirement that the ORF may only be modified semi-
annually.
Background
    The ORF is assessed to each member for all options transactions 
executed or cleared by the member that are cleared at The Options 
Clearing Corporation (``OCC'') in the Customer range (i.e., that clear 
in the Customer account of the member's clearing firm at OCC). The 
Exchange monitors the amount of revenue collected from the ORF to 
ensure that it, in combination with other regulatory fees and fines, 
does not exceed regulatory costs. The ORF is imposed upon all 
transactions executed by a member, even if such transactions do not 
take place on the Exchange.\3\ The ORF also includes options 
transactions that are not executed by an Exchange member but are 
ultimately cleared by an Exchange member.\4\ The ORF is not charged for 
member proprietary options transactions because members incur the costs 
of owning memberships and through their memberships are charged 
transaction fees, dues and other fees that are not applicable to non-
members. The dues and fees paid by members go into the general funds of 
the Exchange, a portion of which is used to help pay the costs of 
regulation. The ORF is collected indirectly from members through their 
clearing firms by OCC on behalf of the Exchange.
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    \3\ The ORF applies to all ``C'' account origin code orders 
executed by a member on the Exchange. Exchange Rules require each 
member to record the appropriate account origin code on all orders 
at the time of entry in order to allow the Exchange to properly 
prioritize and route orders and assess transaction fees pursuant to 
the Rules of the Exchange and report resulting transactions to OCC. 
See Exchange Rule 1063, Responsibilities of Floor Brokers, and 
Options Floor Procedure Advice F-4, Orders Executed as Spreads, 
Straddles, Combinations or Synthetics and Other Order Ticket Marking 
Requirements. The Exchange represents that it has surveillances in 
place to verify that members mark orders with the correct account 
origin code.
    \4\ In the case where one member both executes a transaction and 
clears the transaction, the ORF is assessed to the member only once 
on the execution. In the case where one member executes a 
transaction and a different member clears the transaction, the ORF 
is assessed only to the member who executes the transaction and is 
not assessed to the member who clears the transaction. In the case 
where a non-member executes a transaction and a member clears the 
transaction, the ORF is assessed to the member who clears the 
transaction.
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    The ORF is designed to recover a portion of the costs to the 
Exchange of the supervision and regulation of its members, including 
performing routine surveillances, investigations, examinations, 
financial monitoring, and policy, rulemaking, interpretive, and 
enforcement activities. The Exchange believes that revenue generated 
from the ORF, when combined with all of the Exchange's other regulatory 
fees, will cover a material portion, but not all, of the Exchange's 
regulatory costs. The Exchange will continue to monitor the amount of 
revenue collected from the ORF to ensure that it, in combination with 
its other regulatory fees and fines, do not exceed regulatory costs. If 
the Exchange determines regulatory revenues exceed regulatory costs, 
the Exchange will adjust the ORF by submitting a fee change filing to 
the Commission.
ORF Adjustments
    The Exchange is proposing to decrease the ORF from $0.0045 to 
$0.0035 as of September 1, 2015 and increase the ORF from $0.0035 to 
$0.0040 as of February 1, 2016 in order to account for regulatory 
revenue from disciplinary actions taken by the Exchange. The Exchange 
regularly reviews its ORF to ensure that the ORF, in combination with 
its other regulatory fees and fines, do not exceed regulatory costs. 
The Exchange believes that decreasing the ORF by $0.0010 from September 
1, 2015 through January 31, 2016 and then adjusting the ORF as of 
February 1, 2016 to $.0040 (a $0.0005 reduction from the current 
rates), will permit the Exchange to cover a material portion of its 
regulatory costs, while not exceeding regulatory costs.
Semi-Annual Changes to ORF
    The Exchange previously filed a rule change to Section IV, Part D 
of the Pricing Schedule to specify the frequency with which the 
Exchange may change the ORF.\5\ At that time, the

[[Page 52074]]

Exchange amended the Pricing Schedule to specify that the Exchange may 
only increase or decrease the ORF semi-annually, and any such fee 
change will be effective on the first business day of February or 
August.\6\ The Exchange stated in that filing, ``[i]n addition to 
submitting a proposed rule change to the Securities and Exchange 
Commission (``Commission'') as required by the Act to increase or 
decrease the ORF, the Exchange will notify participants via an Options 
Trader Alert of any anticipated change in the amount of the fee at 
least 30 calendar days prior to the effective date of the change.'' \7\
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    \5\ See Securities Release No. 71569 (February 19, 2014), 79 FR 
10593 (February 25, 2014) (SR-Phlx-2014-12).
    \6\ Id.
    \7\ Id.
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    The Exchange is proposing to eliminate the requirement that its ORF 
may be only increased or decreased semi-annually because the Exchange 
believes it requires the flexibility to amend its ORF as needed to meet 
its regulatory requirements and adjust its ORF to account for the 
regulatory revenue that it receives and the costs that it incurs, as 
evidenced by the adjustments proposed in this rule change. While the 
Exchange is eliminating the requirement to adjust only semi-annually, 
it will continue to submit a rule proposal with the Commission for each 
modification to the ORF and notify participants via an Options Trader 
Alert of any anticipated change in the amount of the fee at least 
thirty (30) calendar days prior to the effective date. The Exchange 
believes that the prior notification to market participants will 
provide guidance on the timing of any changes to the ORF and ensure 
market participants are prepared to configure their systems to properly 
account for the ORF.
    While changes to the Pricing Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative September 1, 2015 and February 1, 2016, as noted herein.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\8\ in general, and with 
Section 6(b)(4) and 6(b)(5) of the Act,\9\ 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 that the Exchange operates or controls, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that lowering the ORF from $0.0045 to $0.0035 
as of September 1, 2015 and then increasing the ORF from $0.0035 to 
$0.0040 as of February 1, 2016 is reasonable because the Exchange's 
collection of ORF needs to be balanced against the amount of regulatory 
revenue collected by the Exchange. The Exchange believes that the 
proposed adjustments noted herein will serve to balance the Exchange's 
regulatory revenue against the anticipated regulatory costs. It is 
further reasonable because both price changes discussed herein 
represent a price reduction compared to the current rate of $0.0045.
    The Exchange believes that lowering the ORF from $0.0045 to $0.0035 
as of September 1, 2015 and then increasing the ORF from $0.0035 to 
$0.0040 as of February 1, 2016 is equitable and not unfairly 
discriminatory because these adjustments would be applicable to all 
members on all of their transactions that clear as Customer at OCC. In 
addition, the ORF seeks to recover the costs of supervising and 
regulating members, including performing routine surveillances, 
investigations, examinations, financial monitoring, and policy, 
rulemaking, interpretive, and enforcement activities. The ORF is not 
charged for member proprietary options transactions because members 
incur the costs of owning memberships and through their memberships are 
charged transaction fees, dues and other fees that are not applicable 
to non-members. Moreover, the Exchange believes the ORF ensures 
fairness by assessing higher fees to those members that require more 
Exchange regulatory services based on the amount of Customer options 
business they conduct. Regulating Customer trading activity is more 
labor intensive and requires greater expenditure of human and technical 
resources than regulating non-Customer trading activity. Surveillance, 
regulation and examination of non-Customer trading activity generally 
tends to be more automated and less labor intensive. As a result, the 
costs associated with administering the Customer component of the 
Exchange's overall regulatory program are anticipated to be higher than 
the costs associated with administering the non-Customer component of 
its regulatory program. As such, the Exchange proposes assessing higher 
fees to those members that will require more Exchange regulatory 
services based on the amount of Customer options business they 
conduct.\10\ Additionally, the dues and fees paid by members go into 
the general funds of the Exchange, a portion of which is used to help 
pay the costs of regulation.
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    \10\ The ORF is not charged for orders that clear in categories 
other than the Customer range at OCC (e.g., Market Maker orders) 
because members incur the costs of memberships and through their 
memberships are charged transaction fees, dues and other fees that 
go into the general funds of the Exchange, a portion of which is 
used to help pay the costs of regulation.
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    The Exchange believes that the proposed rule change to remove the 
limit to amend the ORF only semi-annually, with advance notice, is 
reasonable because the Exchange will continue to provide market 
participants with thirty (30) days advance notice of amending its ORF. 
Also, the Exchange is required to monitor the amount of revenue 
collected from the ORF to ensure that it, in combination with its other 
regulatory fees and fines, do not exceed regulatory costs. Therefore, 
the Exchange believes it is reasonable to remove the semi-annual limit 
to amend its ORF in order to permit the Exchange to make amendments to 
its ORF as necessary to comply with the Exchange's obligations.
    The Exchange believes that the proposed rule change to remove the 
limit to amend the ORF only semi-annually, with advance notice, is 
equitable and not unfairly discriminatory because it will apply in the 
same manner to all members that are subject to the ORF. Moreover, the 
Exchange believes that the proposed ORF is a small incremental cost for 
Customer executions.\11\ The Exchange has in place a regulatory 
structure to surveil for, exam [sic] and monitor the marketplace for 
violations of Exchange Rules. The ORF assists the Exchange to fund the 
cost of this regulation of the marketplace.
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    \11\ The Exchange does not assess a Customer any transaction 
fees in Multiply Listed Options, except in SPY, and pays Customer 
rebates.
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    Also, all members will continue to receive advance notice of 
changes to the ORF.

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 does not believe 
that adjusting its ORF creates an undue burden on inter-market or 
intra-market competition. The Exchange will adjust its ORF for all 
members on all of their transactions that clear as Customer at OCC. The 
Exchange is obligated to

[[Page 52075]]

ensure that the amount of regulatory revenue collected from the ORF, in 
combination with its other regulatory fees and fines, does not exceed 
regulatory costs. Additionally, the dues and fees paid by members go 
into the general funds of the Exchange, a portion of which is used to 
help pay the costs of regulation. The Exchange's members are subject to 
ORF on other options markets.\12\
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    \12\ For example, see the Chicago Board Options Exchange, 
Incorporated's Fees Schedule and the International Securities 
Exchange, LLC's Fee Schedule.
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    The Exchange does not believe that removing the limit to amend the 
ORF semi-annually, with advance notice, creates an undue burden on 
competition. The Exchange will continue to provide the same advance 
notice of changes to the ORF as it does today.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\13\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is 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 shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 [email protected]. Please include 
File Number SR-Phlx-2015-71 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-2015-71. 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-2015-71 and should be 
submitted on or before September 17, 2015.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21208 Filed 8-26-15; 8:45 am]
 BILLING CODE 8011-01-P