80 FR 61537 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change Relating to Active Specialized Quote Feed Port Fee

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 197 (October 13, 2015)

[Federal Register Volume 80, Number 197 (Tuesday, October 13, 2015)]
[Notices]
[Pages 61537-61539]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-25862]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76083; File No. SR-Phlx-2015-79]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change Relating to Active Specialized Quote 
Feed Port Fee

October 6, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 23, 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 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.
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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 refund Specialists \3\ and Market Makers 
\4\ a certain portion of the variable Active SQF Port Fee that was 
effective and operative in the month of April 2015 and paid by these 
Exchange members. The proposed refund is unique to April 2015 only, and 
arose when a filing to delete the variable Active SQF Port Fee \5\ 
operative on April 1, 2015 was rejected and was then re-filed with the 
operative date of May 1, 2015.
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    \3\ A ``Specialist'' is an Exchange member who is registered as 
an options specialist pursuant to Exchange Rule 1020(a).
    \4\ A ``Market Maker'' includes Registered Options Traders 
(Exchange Rule 1014(b)(i) and (ii)), which includes Streaming Quote 
Traders (Exchange Rule 1014(b)(ii)(A)) and Remote Streaming Quote 
Traders (Exchange Rule 1014(b)(ii)(B)).
    \5\ Exchange fees are found in the NASDAQ OMX PHLX LLC Pricing 
Schedule (``Pricing Schedule'').
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    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 Exchange proposes to refund Specialists and Market Makers a 
certain portion of the variable Active SQF Port Fee that was effective 
and operative in the month of April 2015 and paid by these Exchange 
members. The fees proposed to be refunded (the ``Refund'') represent 
the difference between the variable Active SQF Port Fees that were in 
place in Section VII B. of the Pricing Schedule during the month of 
April 2015 (``variable Active SQF Port Fees''), and the current one 
price Active SQF Fee with the operative date of May 1, 2015 (``Active 
SQF Port Fee''). The Refund is unique to April 2015 only, and arose 
when a filing to delete the monthly variable Active SQF Port Fee 
operative on April 1, 2015 was rejected for reasons unrelated to the 
changes proposed in this filing, and was re-filed with the operative 
date of May 1, 2015.\6\ The Exchange did not intend to impose the 
variable Active SQF Port Fees in April but rather intended to apply the 
Active SQF Port Fee and is, therefore, proposing this unique, one-time 
Refund.
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    \6\ See Securities Exchange Act Release No. 74833 (April 29, 
2015), 80 FR 25749 (May 5, 2015) (SR-Phlx-2015-36) (immediately 
effective filing that, among other things, instituted the one price 
Active SQF Port Fee in lieu of a variable Active SQF Port Fee with 
the operative date of May 1, 2015) (the ``one price Active SQF Fee 
filing''). See also Equity Trader Alerts at http://nasdaqtrader.com/TraderNews.aspx?id=ETA2015-37 and http://www.phlx.com/TraderNews.aspx?id=OTA2015-9 (the ``alerts''). The alerts show how 
some members may have anticipated lower Active SQF Port Fees but had 
to pay higher fees because the filing to delete the variable Active 
SQF Port Fee was initially rejected.
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    SQF is an interface that enables Specialists, Streaming Quote 
Traders (``SQTs'') \7\ and Remote Streaming Quote Traders (``RSQTs'') 
\8\ to connect and send quotes into Phlx XL.\9\ Active SQF Ports are 
ports that receive inbound quotes at any time within that month. Active 
SQF Ports allow users to access information such as execution reports, 
execution report messages, auction notifications, and administrative 
data through a single feed.
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    \7\ An SQT is defined in Exchange Rule 1014(b)(ii)(A) as a 
Registered Options Trader (``ROT'') who has received permission from 
the Exchange to generate and submit option quotations electronically 
in options to which such SQT is assigned.
    \8\ An RSQT is defined in Exchange Rule in 1014(b)(ii)(B) as an 
ROT that is a member or member organization with no physical trading 
floor presence who has received permission from the Exchange to 
generate and submit option quotations electronically in options to 
which such RSQT has been assigned. An RSQT may only submit such 
quotations electronically from off the floor of the Exchange.
    \9\ See Securities Exchange Act Release No. 63034 (October 4, 
2010), 75 FR 62441 (October 8, 2010) (SR-Phlx-2010-124) (notice of 
filing and immediate effectiveness regarding sending certain 
information over SQF).
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    The variable Active SQF Port Fees became operative on April 1, 
2015. The proposal to replace the variable Active SQF Port Fee with the 
current Active SQF Port Fee operative April 1, 2015 was rejected and 
was refiled with the operative date of May 1, 2015.\10\ The Active SQF 
Port Fee with the operative date of May 1, 2015 is not tiered or 
variable but rather is one price akin to other current port fees.\11\ 
The variable Active SQF Port Fee, which like the current Active SQF 
Port Fee is a monthly fee, was therefore in effect only from April 1 to 
April 30, 2015 (the ``April billing period'').
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    \10\ See supra note 6.
    \11\ See, e.g., Order Entry Port Fee and Clearing Trade 
Interface (``CTI'') Port Fee in Section VII B. of the Pricing 
Schedule.
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    The variable Active SQF Fee was implemented in December of last 
year with a delayed operative date of April 1, 2015, in large measure 
to encourage members and member organizations to work through the now-
completed technology refresh (``technology refresh'' or 
``refresh'').\12\ The goal of the technology refresh (to deploy state-
of-the-art hardware and software architecture for a more efficient and 
robust infrastructure) has been met. As the Exchange had anticipated, 
Specialists and Market Makers have benefitted from the efficiency of 
the service that is available to them as a result of the refresh. While 
Specialists and Market Makers were required to make network and other 
technical changes in order to connect to the Phlx

[[Page 61538]]

system via SQF, the Exchange believes that member costs declined 
overall as a result of the more efficient connectivity offered by the 
refresh. The Exchange's proposal to delete the variable Active SQF Port 
Fee, which was re-filed with the operative date of May 1, 2015 because 
of the monthly nature of the fee, reduced the Active SQF Port Fees paid 
by the majority of Market Makers on the Exchange. The Exchange's 
proposal is simply to refund eligible Specialists and Market Makers the 
overage or difference between the variable Active SQF Port Fee that was 
paid in the month of April 2015 and the amount that these Specialist 
and Market Makers would have paid if the Active SQF Port Fee was 
operative on April 1 rather than on May 1 (the ``overage''). Moreover, 
because the current Active SQF Port Fee did not become operative until 
May 1, 2015 and the fee reduction did not occur as intended on April 1, 
Specialists and Market Makers were not able to take advantage of the 
cheaper Active SQF Port Fee and had to pay for the more expensive 
variable Active SQF Port Fee in the April billing period. The Exchange 
believes that the proposed one-time Refund, for the April billing 
period only, is reasonable and proper.
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    \12\ See Securities Exchange Act Release No. 73687 (November 25, 
2014), 79 FR 71485 (December 2, 2014) (SR-Phlx-2014-73) (notice of 
filing and immediate effectiveness that, among other things, during 
the Phlx technology refresh instituted the variable Active SQF Port 
Fee operative on April 1, 2015) (the ``technology refresh filing'').
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    Currently, per Section VII B. of the Pricing Schedule all 
Specialists and Market Makers on the Exchange are subject to an Active 
SQF Port Fee of $1,250 per port per month. Per note 26 in Section VII 
B., which is applicable to this section, the Active SQF Port Fee is 
capped at $42,000 per month. During the April billing period, all 
Specialists and Market Makers on the Exchange were subject to the 
following variable Active SQF Port Fee:

------------------------------------------------------------------------
                                                                Monthly
                  Number of active SQF port                     fee per
                                                                  port
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1............................................................     $2,500
2-6..........................................................      4,000
7 and over...................................................     15,000
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The cap is likewise applicable to the variable Active SQF Port Fee. The 
proposal simply refunds the overage or difference between the variable 
Active SQF Port Fee paid and the fixed Active SQF Port Fee (in each 
instance capped at $42,000).\13\ For example, if Specialist A was 
assessed and paid a variable Active SQF Port Fee of $16,000 for the 
month of April 2015 (4 ports at $4000 per port) whereas he would have 
paid only a $5,000 Active SQF Port Fee if this fee had been operative 
in April (4 ports at $1250 per port), his Refund amount would be 
$11,000. Or, if Market Maker B was assessed and paid a variable Active 
SQF Port Fee of $42,000 for the month of April 2015 (8 ports at $15,000 
per port for an uncapped total of $120,000, to which the cap is 
applied) whereas he would have paid only a $10,000 Active SQF Port Fee 
if this fee had been operative in April (8 ports at $1,250 per port), 
his Refund amount would be $32,000.
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    \13\ A few Specialists and Market Makers hit the cap of $42,000 
for the variable Active SQF Port Fee and the cap of $42,000 for the 
fixed Active SQF Port Fee. As a result, they did not, in fact, pay 
any overage and are not eligible for a Refund.
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    The proposed Refund of overages paid by Specialists and Market 
Makers to the Exchange is, as discussed, uniquely applicable only to 
the April billing period. The Exchange believes that its proposal is 
reasonable and proper under the circumstances, and is consistent with 
the Act.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\14\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ 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 the Exchange operates or controls [sic] and is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest; and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The proposal allows the Exchange to refund, for 
the April billing period only (April 1 to April 30, 2015), overages of 
assessed and paid variable Active SQF Port Fees as compared to Active 
SQF Port Fees. The Exchange believes that its proposal is reasonable, 
proper and correct under the circumstances, and reflects the Exchange's 
continuing efforts to improve its market and market quality in order to 
perfect a free and open market and national market system.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4) and (5).
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    During the April billing period of April 1 to April 30, 2015 the 
Exchange had in place a variable Active SQF Port Fee applicable to 
Specialists and Market Makers that exceeded the current Active SQF Port 
Fee, which became operative on May 1, 2015. This created the overages 
that are proposed to be refunded to eligible Specialists and Market 
Makers. That is, Specialists and Market Makers paid more in April than 
was anticipated by the Exchange and members, as compared to the one 
price Active SQF Port Fee that has been operative since May 1, 2015, 
and the Exchange proposes to refund the difference. Only those 
Specialists and Market Makers that were assessed and in fact paid an 
overage are eligible for the Refund. For example, if Specialist A was 
assessed and paid a variable Active SQF Port Fee of $16,000 for the 
month of April 2015 (4 ports at $4000 per port) whereas he would have 
paid only a $5,000 Active SQF Port Fee if this fee had been operative 
in April (4 ports at $1250 per port), his Refund amount would be 
$11,000. Or, if Market Maker B was assessed and paid a variable Active 
SQF Port Fee of $42,000 for the month of April 2015 (8 ports at $15,000 
per port for an uncapped total of $120,000, to which the cap is 
applied) whereas he would have paid only a $10,000 Active SQF Port Fee 
if this fee had been operative in April (8 ports at $1,250 per port), 
his Refund amount would be $32,000.
    The Exchange believes it is reasonable to refund eligible 
Specialists and Market Makers that were assessed per the Pricing 
Schedule and actually paid an overage. The Exchange's intention was to 
delete the variable Active SQF Port Fee and institute the Active SQF 
Port Fee operative April 1; however, the proposal to do so was 
rejected. The Exchange then filed a proposal that was in fact 
instituted to be operative on May 1, 2015 since the fees regarding the 
Active SQF Ports are monthly. The Exchange believes that it is 
reasonable and equitable to assess all firms the same Active SQF Port 
Fee as opposed to a variable fee and refund the overage to eligible 
Specialists and Market Makers because, as discussed, the variable 
Active SQF Port Fee is more expensive for the great majority of 
Specialists and Market Makers; this was not the expected outcome of the 
technology refresh. In addition, Specialists and Market Makers have, as 
a group, successfully worked with the Exchange through the technology 
refresh and as a result most such members need, and use, fewer ports to 
connect to the Exchange's matching engine.\16\ The

[[Page 61539]]

proposed Refund is a unique, one-time situation that applies only to 
the April billing period. The Exchange believes that its well-
formulated fee structure in the Pricing Schedule, which includes the 
Active SQF Port Fees, continues to work to attract liquidity to the 
Exchange. This benefits market participants and provides the 
opportunity for increased order interaction on the Exchange. The 
Exchange continues to incentivize members and member organizations, 
through the Exchange's Pricing Schedule, to select Phlx as a venue for 
bringing liquidity and trading by offering competitive pricing. Such 
competitive, differentiated pricing exists today on other options 
exchanges. The Exchange's goal is creating and increasing incentives to 
attract orders to the Exchange that will, in turn, benefit all market 
participants through increased liquidity at the Exchange.
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    \16\ Because of the internal technologic configuration and 
technology development required by the technology refresh, a few 
members still need to keep the same number of ports.
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    The Exchange believes that its proposal to refund Specialists and 
Market Makers as discussed is equitable and not unfairly discriminatory 
because the Exchange will refund all Specialists and Market Makers that 
are eligible for such Refunds. A few Specialists and Market Makers hit 
the cap of $42,000 for the variable Active SQF Port Fee and the cap of 
$42,000 for the fixed Active SQF Port Fee. As a result, they did not, 
in fact, pay any overage and are not eligible for a Refund.\17\ The 
Exchange believes that this is equitable because the Refunds will be 
given to all Specialists and Market Makers that are eligible. The 
Exchange believes that this is not unfairly discriminatory because the 
Refunds will be given only to those Specialists and Market Makers that, 
in fact, paid an overage for the April billing period.
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    \17\ See supra note 13.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose an undue burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    The Exchange believes that offering Specialists and Market Makers 
the opportunity to utilize certain Active SQF Ports and returning to 
eligible Specialists and Market Makers the overages between the 
variable Active SQF Port Fee and fixed Active SQF Port Fee for the 
April billing period does not burden competition. The Exchange 
continues to charge all Specialists and Market Makers the Active SQF 
Port 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 by the Exchange 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.
    Finally, in establishing the pricing structure for Active SQF 
Ports, the Exchange has considered the competitive nature of the market 
and believes that it has considered all relevant factors and has not 
considered irrelevant factors in order to establish fair, reasonable, 
and not unreasonably discriminatory fees and an equitable allocation of 
fees among all users. The Exchange believes that its proposal to return 
the overages from the April billing period complement this process.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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 [email protected]. Please 
include File Number SR-Phlx-2015-79 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-2015-79. 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-2015-79 and should be 
submitted on or before November 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25862 Filed 10-9-15; 8:45 am]
BILLING CODE 8011-01-P